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, 2020
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-37378
ATYR PHARMA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3545 John Hopkins Court, Suite #250, San Diego, CA
(Address of principal executive offices)
20-3435077
(I.R.S. Employer
Identification No.)
92121
(Zip Code)
Registrant’s telephone number, including area code (858) 731-8389
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol
LIFE
Name of each exchange on which registered
The Nasdaq Capital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $25,388,988 based on the closing price of the
registrant’s common stock on the Nasdaq Capital Market of $4.44 per share on June 30, 2020, the last business day of the registrant’s most recently completed second quarter. Shares
of common stock held by each executive officer and director have been excluded from this calculation. This determination of affiliate status may not be conclusive for other purposes.
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of March 19, 2021 was 16,011,385.
Portions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission (SEC), pursuant to Regulation 14A in connection with the registrant’s
2021 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this annual report on Form 10-K. Such proxy
statement will be filed with the SEC not later than 120 days following the end of the registrant’s fiscal year ended December 31, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
ATYR PHARMA, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2020
Table of Contents
Forward-Looking Statements
Summary of Risks Associated with Our Business
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
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s 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 Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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In this Annual Report on Form 10-K (Annual Report), unless the context requires otherwise, "aTyr Pharma," “aTyr,” "Company," "we," "our," and
"us" means aTyr Pharma, Inc. and our subsidiary, Pangu BioPharma Limited.
The market data and certain other statistical information used in this Annual Report are based on independent industry publications, governmental
publications, reports by market research firms or other independent sources. Some data are also based on our good faith estimates. Information that is based
on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may
differ materially from events and circumstances reflected in this information.
We own various U.S. federal trademark applications and unregistered trademarks, including our company name. All other trademarks or trade
names referred to in this Annual Report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Annual
Report are referred to without the symbols ® and ™, but such references should not be construed as any indicator that their respective owners will not
assert, to the fullest extent under applicable law, their rights thereto.
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Forward-Looking Statements
In addition to historical information, this Annual Report and the information incorporated herein by reference contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934,
as amended (the Exchange Act) including statements regarding our business, our financial position, the research and development of biopharmaceutical
products, the timing of clinical trial activities and other statements describing our goals, expectations, intentions or beliefs. These statements include but are
not limited to statements under the captions “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as
well as other sections in this Annual Report. Such statements reflect our current views and assumptions and are subject to risks and uncertainties,
particularly those inherent in the process of developing and commercializing biopharmaceutical products. Actual results could differ materially from those
discussed in this Annual Report. Factors that could cause or contribute to such differences include, but are not limited to, those identified in Item 1A
entitled “Risk Factors” beginning on page 23 of this Annual Report, as well as those discussed in our other filings with the Securities and Exchange
Commission (SEC) including our Quarterly Reports on Form 10-Q. As a result, you are cautioned not to unduly rely on these forward-looking statements.
We disclaim any duty to update any forward-looking statement to reflect events or circumstances that occur after the date on which such statement is made.
Summary of Risks Associated with Our Business
Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the
risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the
heading “Risk Factors” and should be carefully considered, together with other information in this Annual Report and our other filings with the SEC before
making investment decisions regarding our securities.
Investing in our securities involves substantial risk. The risks described under the heading “Risk Factors” immediately following this summary may
cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more
significant risks we face include the following:
• We will need to raise additional capital or enter into strategic partnering relationships to fund our operations.
• We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable
future.
• We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable
future.
• We may encounter substantial delays and other challenges in our clinical trials or we may fail to demonstrate safety and efficacy to the
satisfaction of applicable regulatory authorities.
•
•
•
If we are unable to successfully complete or otherwise advance clinical development, obtain regulatory or marketing approval for, or
successfully commercialize our therapeutic product candidates, including ATYR1923, or experience significant delays in doing so, our
business will be materially harmed.
Our current product candidates and any other product candidates that we may develop from our discovery engine represent novel therapeutic
approaches, which may cause significant delays or may not result in any commercially viable drugs.
Our therapeutic product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory
approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if
any.
• We depend on our existing collaborations and may depend on collaborations with additional third parties for the development and
commercialization of certain of our product candidates. If our collaborations are not successful, we may not be able to capitalize on the market
potential of these product candidates.
•
•
If we are unable to obtain, maintain or protect intellectual property rights related to our product candidates, or if the scope of such intellectual
property protection is not sufficiently broad, we may not be able to compete effectively in our markets.
Our business could continue to be adversely affected by the effects of the COVID-19 pandemic. Our future success depends on our ability to
retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.
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Item 1. Business.
PART I
We are a biotherapeutics company engaged in the discovery and development of innovative medicines based on novel biological pathways. We
have concentrated our research and development efforts on a newly discovered area of biology, the extracellular functionality and signaling pathways of
tRNA synthetases. Built on more than a decade of foundational science on extracellular tRNA synthetase biology and its effect on immune responses, we
have built a global intellectual property estate directed to a potential pipeline of protein compositions derived from 20 tRNA synthetase genes and their
extracellular targets, such as neuropilin-2 (NRP2).
Our lead clinical product candidate, ATYR1923, is a selective modulator of NRP2 that downregulates both the innate and adaptive immune
responses in uncontrolled inflammatory disease states. We are developing ATYR1923 as a potential disease-modifying therapy for patients with severe
inflammatory lung diseases with high unmet medical need. This includes interstitial lung diseases (ILD), a group of rare immune-mediated disorders that
cause progressive fibrosis of the lung, and severe respiratory complications caused by COVID-19. We selected pulmonary sarcoidosis as our first ILD
indication and recently completed enrollment in a Phase 1b/2a multi-center clinical trial. The study has been designed to evaluate the safety, tolerability,
steroid-sparing effect and immunogenicity of multiple doses of ATYR1923 and to evaluate established clinical endpoints and certain biomarkers to assess
preliminary clinical activity of ATYR1923. The results of this study will guide future development of ATYR1923 in pulmonary sarcoidosis and provide
insight for the potential of ATYR1923 in other ILD such as chronic hypersensitivity pneumonitis (CHP) and connective tissue disease related ILD (CTD-
ILD). In response to the COVID-19 pandemic, we conducted a Phase 2 study in patients with COVID-19 related severe respiratory complications. The
study was designed to evaluate the safety and preliminary efficacy of ATYR1923 as compared to placebo through the assessment of key clinical outcome
measures. In early 2021, we reported positive data which showed that the trial met its primary endpoint of safety, demonstrating that a single, intravenous
(IV) dose of ATYR1923 was generally safe and well-tolerated in both the 1.0 and 3.0 mg/kg treatment groups, with no drug-related serious adverse events.
The study also showed a signal of activity in the 3.0 mg/kg cohort. In addition, patients treated with ATYR1923 demonstrated a trend of overall
improvement in key biomarkers analyzed compared to placebo.
In January 2020, we entered into a collaboration and license agreement with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and
commercialization of ATYR1923 for ILD in Japan. Under the agreement (the Kyorin Agreement), Kyorin received an exclusive right to develop and
commercialize ATYR1923 in Japan for all forms of ILD. Under the terms of the Kyorin Agreement, Kyorin is obligated to fund all research, development,
regulatory, marketing and commercialization activities in Japan. In September 2020, Kyorin began dosing patients in a Phase 1 clinical trial of ATYR1923
(known as KRP-R120 in Japan) and completed the last subject visit in December 2020. The Phase 1 clinical trial, which was conducted and funded by
Kyorin, is a placebo-controlled clinical trial to evaluate the safety, pharmacokinetics (PK) and immunogenicity of ATYR1923 in 32 healthy Japanese male
volunteers. Results from this study are intended to enable Kyorin to initiate patient clinical trials in ILD in Japan. We received an $8.0 million upfront
payment in January 2020 and a $2.0 million milestone payment in January 2021 upon completion of enrollment in the Phase 1 clinical trial, and are eligible
to receive up to an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered
royalties ranging from the mid-single digits to mid-teens on net sales in Japan.
In conjunction with our clinical development of ATYR1923, we have in parallel been advancing our discovery pipeline of NRP2 antibodies and
tRNA synthetases. In November 2020, we declared our lead Investigational New Drug (IND) candidate in oncology from our NRP2 antibody program,
ATYR2810. ATYR2810 is a fully humanized monoclonal antibody that specifically and functionally blocks the interaction between NRP2 and one of its
primary ligands, vascular endothelial growth factor (VEGF). ATYR2810 is in preclinical development for the potential treatment of certain aggressive
cancers where NRP2 is implicated. NRP2 is highly expressed on certain tumors and increased NRP2 expression is associated with worse outcomes in many
cancers, such as overall survival, metastasis and resistance to targeted therapies. The role of NRP2 and VEGF signaling in the tumor microenvironment and
its importance in the progression of certain aggressive cancers is becoming increasingly validated.
In March 2020, our subsidiary, Pangu BioPharma Limited (Pangu BioPharma), together with the Hong Kong University of Science and Technology
(HKUST) was awarded a grant of approximately $750,000 to build a high-throughput platform for the development of bi-specific antibodies. The two-year
project is being funded by the Hong Kong government’s Innovation and Technology Commission under the Partnership Research Program (PRP). The PRP
aims to support research and development projects undertaken by companies in collaboration with local universities and public research institutions. The
grant is expected to fund approximately 50% of the total estimated project cost, and we expect to contribute the remaining 50%.
In February 2021, we announced two new discovery programs from our tRNA synthetase platform. These programs will investigate the
functionality of selected fragments of Alanyl-tRNA synthetase (AARS) and Aspartyl-tRNA synthetase (DARS) in immunology, fibrosis and cancer. We are
also advancing our preclinical pipeline of tRNA synthetases and NRP2 targeting candidates through internal research efforts, industry and academic
collaborations.
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The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will
likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to our
business have included the delay in enrollment of our Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and the discontinuation of some
patients in that trial, temporary closures of portions of our facilities and those of our licensees and collaborators, disruptions or restrictions on our
employee's ability to travel and delays in certain research and development activities. Other potential impacts to our business include, but are not limited to
disruptions to or delays in other clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away
from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and
our ability to raise capital and conduct business development activities.
Therapeutic Candidate Pipeline
Strategy
Key elements of our strategy include the following:
Develop ATYR1923 to address unmet medical needs within inflammatory lung diseases. We believe that by establishing proof-of-concept in
pulmonary sarcoidosis, we can gain insight to the potential of ATYR1923 in other ILD, such as CHP and CTD-ILD. Our resources are devoted to
completing our ATYR1923 Phase 1b/2a clinical trial and, if that trial is successful, we believe we can expedite development of ATYR1923 for pulmonary
sarcoidosis towards regulatory approval. In addition, success in our ATYR1923 Phase 1b/2a trial and our Kyorin Agreement, could give us the opportunity
to potentially launch additional Phase 2 clinical trials for both CHP and CTD-ILD. We plan on leveraging data from our ATYR1923 Phase 2 clinical trial in
COVID-19 patients with severe respiratory complications for our mechanistic understanding of ATYR1923 and for its application in ILD. Future
development plans in COVID-19 are being assessed in light of the evolving pandemic and therapeutic landscape and availability of non-dilutive financing.
Develop ATYR2810 to address unmet medical needs within certain aggressive cancers where NRP2 is implicated and continue to expand our
knowledge on the therapeutic potential of NRP2 antibodies by utilizing our leadership position in this emerging area of biology. NRP2 is a receptor that
plays a key role in lymphatic development and in regulating inflammatory responses. In many forms of cancer, high NRP2 expression is associated with
worse outcomes. These associations may represent new therapeutic drug opportunities, such as ATYR2810. We are currently focused on completing IND
enabling studies to allow us to take ATYR2810 into the clinic. We are committed to translating this area of newly discovered biology to therapeutic
applications, both with our internal research and through academic collaborations.
Build a diverse pipeline of biologics based on our understanding of extracellular tRNA synthetase biology. We continue to deepen our expertise
in production of biologic product candidates based on tRNA synthetases with the goal of developing programs
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with multiple therapeutic modalities. We have proven this with the announcement of our AARS and DARS discovery programs. Through our internal
research efforts and both industry and academic collaborators we intend to further our product development efforts in this area.
ATYR1923
Overview of ATYR1923
We are developing ATYR1923 as a potential therapeutic for patients with inflammatory lung diseases. Our primary focus is in ILD, a group of
immune-mediated fibrotic lung disorders with significant unmet need. ATYR1923 works by selectively modulating NRP2 to downregulate the innate and
adaptive immune responses in uncontrolled inflammatory disease states to resolve inflammation and prevent subsequent fibrosis. Pre-clinically, we have
demonstrated the therapeutic potential of ATYR1923 in a number of preclinical models of lung injury, fibrosis and inflammation, both in vitro and in
rodents. We have also characterized the pathways by which it exerts its immunomodulatory effects. We announced data from a first-in-human Phase 1
clinical trial of ATYR1923 in June 2018. This randomized, double-blind, placebo-controlled study investigated the safety, tolerability, immunogenicity, and
PK of intravenous ATYR1923 in 36 healthy volunteers. The results indicate that the drug was generally well-tolerated at all dose levels tested, with no
significant adverse events and the observed PK profile supports the potential for a once-monthly dosing regimen.
A comprehensive review of the preclinical and Phase 1 data in consultation with key opinion leaders led to our selection of pulmonary sarcoidosis
as the first clinical indication for ATYR1923, as well as confirmation of the potential of ATYR1923 in other severe inflammatory lung diseases.
In December 2020, we completed the target enrollment of a proof-of-concept Phase 1b/2a clinical trial of ATYR1923 in patients with pulmonary
sarcoidosis and expect to report data from this trial in the third quarter of 2021. This Phase 1b/2a study is a multiple-ascending dose, placebo-controlled,
first-in-patient study of ATYR1923 that has been designed to evaluate the safety, tolerability, immunogenicity and PK profile of multiple doses of
ATYR1923. Secondary endpoints include the evaluation of steroid sparing effect and other established clinical endpoints along with potential biomarkers to
assess preliminary activity of ATYR1923. In January 2021, we completed final enrollment in the Phase 1b/2a clinical trial with a total of 37 patients
exceeding the target enrollment of 36 patients.
In early 2021 we announced data from a Phase 2 clinical trial of ATYR1923 in hospitalized COVID-19 patients with severe respiratory
complications. The study met its primary endpoint of safety and tolerability, with no drug-related serious adverse events reported. The study also showed a
signal of activity in the 3.0 mg/kg cohort. In addition, patients treated with ATYR1923 demonstrated a trend of overall improvement in key biomarkers
analyzed compared to placebo. In particular, patients treated with ATYR1923 had greater reduction in levels of several inflammatory cytokines and
chemokines, including interferon gamma (IFNγ), interleukin-6 (IL-6) and monocyte chemoattractant protein 1(MCP-1). Furthermore, patients treated with
ATYR1923 also had a statistically significant reduction in levels of serum amyloid A (SAA), a marker of inflammation and fibrosis that has implications in
sarcoidosis.
Background and Mechanism of Action
ATYR1923 is a selective modulator of NRP2 that downregulates the innate and adaptive immune response in uncontrolled inflammatory disease
states.
The ATYR1923 program was initiated to leverage our knowledge of the extracellular proteins derived from the histidyl-tRNA synthetase (HARS)
family to develop a therapeutic which would possess the N-terminal immuno-modulatory activities of HARS.
The gene for HARS gives rise to a number of splice variants, and though most of these have lost their catalytic activity, many retain the N-terminal
domain (HARS amino acids 2-60). This N-terminal domain was appended to HARS during evolutionary development of multicellular organisms and is not
essential for protein synthetic activity, is not generally found in prokaryotic organisms, and is retained with high homology across mammalian species.
Alternative splicing of HARS may be differentially regulated during cellular growth and differentiation, unlike the constitutive high level expression of the
full length protein, suggesting that these splice variants may play a differential role in growth and cellular development.
Recently, significant progress has been made in elucidating the role of extracellular HARS derived proteins, including the identification of a
putative cellular receptor of the HARS N-terminal domain through screening via a cell microarray system in which over 4,500 cell surface proteins are
represented. This screening approach identified two NRP2 isoforms (Neuropilin 2A and 2B) as the only convincing and specific binding partners of the
HARS N-terminal domain. Interactions of HARS with NRP2 appear to be specifically mediated by the HARS N-terminal domain of HARS, and binding of
the HARS N-terminal domain of HARS is specific to NRP2 with no observable binding to NRP1, which is the most closely related cell surface receptor. A
domain that is structurally similar to the HARS N-terminal domain (termed the WHEP domain) is found in other amino-acyl tRNA synthetases, yet these
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domains do not exhibit binding to NRP2, indicating this is a highly specific interaction. The discovery of the HARS N-terminal/NRP2 axis represents a
previously unknown mechanism of biological regulation, which may act as a homeostatic regulator of several cellular processes mediated through the
neuropilin receptor. The deregulation of these processes may lead to a spectrum of diseases, which could be selectively targeted by modulating the HARS
N-terminal/NRP2 axis to address the underlying disease etiology.
NRP2 is a pleiotropic co-receptor participating in a broad array of biological pathways including, immunomodulation, lymphangiogenesis,
neuronal development and remodeling, cellular growth, migration and differentiation, and cancer development. These biological processes are mediated
through a complex interplay of several signaling systems including the semaphorins/plexin receptor family, the VEGF-C/VEGFR3 receptor family, as well
as chemokine ligand 21 driven trafficking and integrin signaling pathways. Growing evidence indicates that NRP2 influences myeloid cell biology such as
activation and recruitment to inflammatory sites. For instance, NRP2 expression on alveolar macrophages regulates airway inflammatory responses to
inhaled lipopolysaccharide.
ATYR1923 development builds upon our understanding of the biology of the extracellular activity of HARS. This novel molecular entity acts as a
selective modulator of NRP2 downregulating the innate and adaptive immune response in inflammatory disease states. ATYR1923 is a fusion protein
comprised of the immuno-modulatory domain of HARS fused to the FC region of a human IgG1 antibody.
Preclinical Development
Our preclinical estate of translational animal models were selected to help inform and de-risk clinical development of ATYR1923. We have
evaluated the biological activity and safety of ATYR1923 across a diverse set of experimental lung disease models, representative of all the major forms of
ILD (sarcoidosis, CHP, CTD-ILD and idiopathic pulmonary fibrosis (IPF)), as well as in normal animals, looking for signals of activity and potential
biomarkers, while confirming tolerability and a favorable safety profile.
In these models, ATYR1923 has significantly reduced histological lung fibrosis and inflammation, restored normal lung function, reduced lung
protein levels of several inflammation and fibrosis-related cytokines and chemokines (e.g. IFN-γ, MCP-1/CCL2, IL-6) and reduced counts of immune cells
in BAL central to ILD pathology (e.g. neutrophils). These data have been presented in posters at key respiratory conferences over the past few years (e.g.
the American Thoracic Society (ATS) International Congress) and are available for review on our website.
ATYR1923 and NRP2 receptor
NRP2 is a pleiotropic cell surface receptor known to be expressed on a number of different immune cell types that plays a key role in regulating
inflammatory responses. ATYR1923 is a fusion protein combining a novel immunomodulatory domain from histidyl-tRNA synthetase (HARS) and a
human IgG1 Fc. ATYR1923 inhibits cytokines and chemokines involved in the regulation of inflammatory and fibrotic responses and reduces
inflammation-dependent fibrosis in animal models of interstitial lung diseases. ATYR1923 has previously demonstrated potent immunomodulatory
activity in vitro and in vivo. We sought to characterize the molecular basis for ATYR1923’s immuno-modulatory properties and demonstrated that
ATYR1923 specifically and selectively binds to NRP2 on the cell surface. These findings indicate that modulation of the NRP2 signaling pathway with
ATYR1923 could be a novel therapeutic approach to immune-mediated diseases such as pulmonary sarcoidosis.
We identified NRP2 as the specific binding partner to ATYR1923, has an emerging role in the regulation of inflammatory responses. Sarcoidosis is
characterized by the formulation of granulomas, clumps of inflammatory cells, in one or more organs of the body. Little is known about the role of NRP2 in
immune regulation and disease, in particular very little is known about the expression of NRP2 in sarcoidosis patients. We sought to characterize NRP2
expression patterns on immune cells implicated in the pathology of sarcoidosis. Through in vitro and in vivo models, NRP2 was shown to be expressed in
samples obtained from lung and skin of sarcoidosis patients and NRP2 expression was detected on key immune cells known to play an important role in
inflammation and granuloma formation. These findings highlight the potential of ATYR1923 to exert its effect on various immune cells directly related to
the pathology of the target patient population.
These data were presented in posters at the ATS International Virtual Meeting in August 2020.
Based on our translational biology program, which demonstrated activity across distinct experimental animal models either driven by direct lung
injury or systemic pathology, along with our understanding of the ATYR1923 and NRP2 interaction and the cell types impacted by the mechanism of action
of our drug, we decided to move the program forward into patient clinical trials in ILD.
ILD, Pulmonary Sarcoidosis, and the Role of Immunology
The primary target population for ATYR1923 are ILD. ILD are a group of immune-mediated disorders which can cause progressive fibrosis of the
lung. There are over 200 different types of ILD, of which the four major forms are: pulmonary sarcoidosis, CHP, CTD-ILD, and IPF. We have focused our
development efforts on progressive, immune-mediated forms of ILD, with limited
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therapeutic options, that have as the potential to be impacted by ATYR1923. These lung conditions are recognized as having a measurable immune-
mediated pathology, involving both innate and adaptive immune mechanisms that contribute to pathogenesis, and can result in progressive disease leading
to fibrosis and death. The first ILD that we are investigating clinically is pulmonary sarcoidosis.
Sarcoidosis is an inflammatory disease of unknown cause, characterized by the formation of granulomas, clumps of inflammatory cells, in one or
more organs in the body. Sarcoidosis affects people of all ages, with the incidence peaking at 20 to 39 years of age. The disorder usually begins in the
lungs, skin or lymph nodes, but can affect almost any organ. Sarcoidosis in the lungs is called pulmonary sarcoidosis and affects over 90% patients.
Estimates of prevalence vary; but generally indicate that approximately 200,000 Americans live with pulmonary sarcoidosis. The prognosis for patients
with pulmonary sarcoidosis ranges from benign and self-limiting to chronic, debilitating fibrotic disease and mortality.
The immunopathogenesis of sarcoidosis is not yet well understood. A leading hypothesis is that granuloma formation involves the interplay
between antigen, human leukocyte antigen class II molecules, and T-cell receptors: a presumptive sarcoid antigen is engulfed by circulating antigen-
presenting cells (APCs; macrophages, dendritic cells) and the subsequent interplay between APCs and CD4+ T-cells initiates granuloma formation. T
lymphocyte activation subsequently plays a crucial role in sarcoidosis pathogenesis.
For patients with pulmonary sarcoidosis, the primary goal of treatment is to improve the patient’s symptoms and quality of life, while secondarily
managing the inflammation associated with the granulomas that could lead to the development of more permanent fibrosis and impairment of pulmonary
function. ATYR1923 may provide a therapeutic benefit in pulmonary sarcoidosis by providing an immunomodulatory function to help resolve
inflammation. Moreover, the mechanism of action of ATYR1923 in T-cells and macrophages potentially overlaps with the cellular pathology observed in
pulmonary sarcoidosis. In preclinical studies, ATYR1923 has been observed to inhibit cytokines involved in regulation of inflammatory and immune
responses and attenuate T-cell activation, while also modulating macrophage endosome maturation. Related to our mechanistic studies, we have also
discovered that NRP2 is up-regulated during activation of myeloid cells including macrophages, dendritic cells and neutrophils, and that ATYR1923 can
bind to NRP2 on these cell types. Furthermore, ATYR1923 has been observed to significantly reduce inflammation-dependent pulmonary fibrosis and
improve respiratory function parameters in bleomycin-induced animal models of ILD, particularly when administered during the inflammatory phase of the
disease. We believe that by inhibiting the chronic inflammatory response in these patients, ATYR1923 may be able to restore immune balance and prevent
progressive fibrosis, thereby providing a safer, potentially more effective alternative to oral corticosteroids and other immunosuppressive therapies that
currently comprise the standard of care for patients with symptomatic pulmonary sarcoidosis.
Clinical Development
ATYR1923 Phase 1b/2a Clinical Trial –Pulmonary Sarcoidosis
We initiated a proof-of-concept Phase 1b/2a clinical trial for ATYR1923 in December 2018 following FDA acceptance of our IND application filed
in October 2018. The Phase 1b/2a clinical trial is a randomized, double-blind, placebo-controlled multiple-ascending dose, first-in-patient study with IV
ATYR1923 in 36 patients. The study is being conducted in patients with pulmonary sarcoidosis undergoing an oral corticosteroids (OCS) tapering regimen,
in three cohorts of 12 patients each, at dose levels of 1.0 mg/kg, 3.0 mg/kg and 5.0 mg/kg. We completed enrollment for this trial in December 2020 and
expect to report top line data in the third quarter of 2021.
The primary objective of the study is to evaluate safety and tolerability of multiple ascending doses of ATYR1923. Secondary objectives include
assessment of the potential steroid-sparing effects of ATYR1923. In addition, ATYR1923 PK and immunogenicity following multiple dose administration
will be evaluated. Additional endpoints of interest include the exploratory assessment of the efficacy of ATYR1923 for the treatment of pulmonary
sarcoidosis by evaluating changes over time in: fluorodeoxyglucose-positron emission tomography (FDG-PET)/CT lung imaging; lung function assessed
by percent predicted forced vital capacity (FVC% predicted) and diffusing capacity of the lungs for carbon monoxide; serum biomarkers of interest; health-
related quality of life assessments and questionnaires; and measurement of skin lesions (for patients with cutaneous involvement at baseline).
This study consists of three staggered dose cohorts. Each cohort will consist of three periods: a screening period, a 20-week placebo-controlled
treatment period, and a four-week follow-up period ending with final study assessments at Week 24. Within each cohort, 12 patients were randomized 2:1
to ATYR1923 (N=8) or placebo (N=4). Study drug is administered via IV infusion every four weeks for a total of six doses (20 weeks of treatment). The
ATYR1923 doses levels being evaluated are 1.0 mg/kg, 3.0 mg/kg and 5.0 mg/kg. Starting on Day 15 patients will begin a taper (reduction) in OCS
according to specific guidelines from their starting dose of 10-25 mg/day of prednisone (or equivalent) to a target dose of 5.0 mg/day, to be completed on or
before Day 50. The OCS dose will be tapered through Week 24 and patients will be followed for the remainder of the study to determine their ability to
maintain on this 5.0 mg dose. Optionally, further reductions in the OCS dose to below 5.0 mg/day may be attempted after the Week 16 visit, if determined
by the investigator to be feasible. Patients who require an increase in OCS dose at any time in the study were to continue to receive blinded study drug and
be followed through to the end of the study.
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Cohorts 1 through 3 were enrolled sequentially in a staggered manner. After a minimum of six patients of a given cohort received at least three IV
infusions of study drug (ATYR1923 or placebo), cumulative unblinded safety data was reviewed by a data safety monitoring board (DSMB). Enrollment in
the next scheduled (higher dose) cohort began after this review was completed, dose escalation was approved by the DSMB, and the remaining six patients
were enrolled in the ongoing cohort. Dose escalation continued in this manner until the highest planned dose level of ATYR1923 was reached.
In December 2019, we announced the results of a pre-planned, blinded interim analysis of safety and tolerability, the primary endpoint of our Phase
1b/2a clinical trial. Study drug (ATYR1923 or placebo) was observed to be generally well tolerated with no drug-related serious adverse events, consistent
with the earlier Phase 1 study results in healthy volunteers. Adverse events (AEs) were mostly mild or moderate in severity and assessed by the study
investigators as unrelated to study drug. Interim safety data results were from 15 pulmonary sarcoidosis patients who had received a minimum of one dose
of blinded study drug (ATYR1923 or placebo). The average age of patients evaluated was approximately 51 years. The patient population consisted of 53%
males and 47% females, of which 73% were Caucasian and 27% were African American. No induction of anti-drug antibodies was observed with repeat
dosing of study drug. There were no notable trends for clinical laboratory values or vital signs.
In December 2020, we completed enrollment and are now focused on demonstrating activity of ATYR1923 and advancing our trial to provide
evidence of the potential of ATYR1923 as a treatment option to improve the lives of patients with pulmonary sarcoidosis.
Kyorin Agreement
In January 2020, we entered into the Kyorin Agreement for the development and commercialization of ATYR1923 for ILD in Japan. Pursuant to
the terms of the Kyorin Agreement, Kyorin received exclusive rights to develop and commercialize ATYR1923 in Japan for all forms of ILD and is
obligated to fund all research, development, regulatory, marketing and commercialization activities in Japan. We are responsible for supplying all drug
product for Japan, as well as supporting development activities for ATYR1923. In September 2020, Kyorin began dosing of its Phase 1 clinical trial of
ATYR1923 (known as KRP-R120 in Japan) and completed the last subject visit in December 2020. The Phase 1 trial, which is being conducted and funded
by Kyorin, is a placebo-controlled study to evaluate the safety, PK and immunogenicity of ATYR1923 in 32 healthy Japanese male volunteers. Results
from this clinical trial are intended to enable Kyorin to initiate patient trials in ILD in Japan. We received an $8.0 million upfront payment in January 2020
and a $2.0 milestone payment in January 2021 upon completion of enrollment in the Phase 1 clinical trial, and we are eligible to receive up to an additional
$165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-
single digits to mid-teens on net sales in Japan.
Unless earlier terminated, the term of the Kyorin Agreement continues until the expiration of the royalty obligations. Following the first
anniversary of the effective date of the Kyorin Agreement, Kyorin has the right to terminate the agreement for any reason upon 90 days advance written
notice to the Company. Either party may terminate the Kyorin Agreement in the event that the other party breaches the agreement and fails to cure the
breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement.
ATYR1923 Phase 1 Clinical Trial – Healthy Volunteers
In June 2018, we announced results of our first-in-human Phase 1 clinical trial of ATYR1923 conducted in Australia. This randomized, double-
blind, placebo-controlled study evaluated the safety, tolerability, immunogenicity, and PK of intravenous (IV) ATYR1923 in healthy volunteers. The Phase
1 study enrolled 36 healthy volunteers who were randomized to one of six sequential cohorts and received a single infusion of IV ATYR1923 or placebo.
Ascending ATYR1923 doses by cohort ranged from 0.03 mg/kg to 5.0 mg/kg. The results indicate that the drug was generally well-tolerated at all dose
levels tested, with no significant adverse events or induction of anti-drug antibodies observed following ATYR1923 dosing or throughout the one-month
follow-up period. The PK profile of ATYR1923 following single-dose administration was linear across the evaluated dose range. Higher ATYR1923 doses
yielded sustained serum concentrations through the end of the one-month follow-up period that were above the predicted therapeutic threshold, supporting
the potential for a once-monthly dosing regimen.
In parallel, as described above we expanded our knowledge of the therapeutic potential of ATYR1923 by conducting several in vivo and in vitro
models to further elucidate its potential clinical utility. These translational research data, as well as the Phase 1 clinical trial results and discussions with key
opinion leaders, helped to guide our development plans for ATYR1923. In September 2018, we announced pulmonary sarcoidosis as the indication for our
next study.
ATYR1923 Phase 2 Clinical Trial – COVID-19
In response to the COVID-19 pandemic, we are investigating ATYR1923’s potential as a treatment for COVID-19 patients with severe respiratory
complications. The inflammatory lung injury related to COVID-19 may be similar to that of ILD. By targeting aberrant immune responses, we believe that
ATYR1923’s mechanism of action has substantial overlap with this disease pathology. In
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June 2020, we initiated a Phase 2 randomized, double blind, placebo-controlled clinical trial of ATYR1923 in hospitalized COVID-19 patients with severe
respiratory complications who did not require mechanical ventilation, at hospitals in the U.S and Puerto Rico. Patients enrolled in the trial were randomized
1:1:1 to a single IV dose of either 1.0 or 3.0 mg/kg of ATYR1923 or placebo. Patients were followed for 60 days post treatment. The trial was not powered
for statistical significance and was designed to evaluate the preliminary safety and preliminary efficacy of ATYR1923 as compared to placebo through the
assessment of key clinical outcome measures. In October 2020, we completed enrollment of 32 patients exceeding the target enrollment of 30 patients.
In early 2021, we announced positive results and reported that the trial met its primary endpoint of safety in moderate to severe hospitalized
COVID-19 patients, demonstrating that a single, IV dose of ATYR1923 was generally safe and well-tolerated in both the 1.0 and 3.0 mg/kg treatment
groups, with no drug-related serious adverse events. The study demonstrated a signal of activity through clinical improvement in the 3.0 mg/kg treatment
group with the assessment of time to recovery, defined as either achieving a WHO ordinal scale score of ≤3 or hospital discharge with no requirement of
supplemental oxygen. Patients who received the 3.0 mg/kg dose of ATYR1923 experienced a median time to recovery of 5.5 days compared to six days in
the placebo group. In addition, 83% of patients in the 3.0 mg/kg treatment group achieved recovery by Day 6, compared to 56% in the placebo arm.
Patients in the 1.0 mg/kg treatment group experienced a median time to recovery of seven days. Biomarker data confirms that at baseline, patients enrolled
in the ATYR1923 treatment arms compared to placebo had higher levels of inflammatory cytokines and known COVID-19 biomarkers including ferritin,
D-dimer and C-reactive protein (CRP), indicating a more inflamed patient population in the ATYR1923 treatment arms. Demographic and baseline disease
characteristics data included in the results showed that the ATYR1923 treatment groups had more patients over the age of 65, with severe hypoxia or with
multiple comorbidities compared to placebo, factors associated with a greater risk of COVID-19 complications and worse outcomes. All patients in the
study received standard of care treatment at the time of enrollment, which included remdesivir and/or dexamethasone. At the Day 60 day follow up, we saw
no disability or long-term limitation of activities in patients treated with 3.0 mg/kg treatment group as compared to placebo.
In addition, patients treated with ATYR1923 demonstrated a trend of overall improvement in key biomarkers analyzed compare to placebo.
Specifically, patients treated with ATYR1923 demonstrated a trend of overall improvement in 82% (14 of 17) of biomarkers analyzed compared to placebo.
In particular, patients treated with ATYR1923 had greater reduction in levels of several inflammatory cytokines and chemokines, including interferon
gamma (IFNγ), interleukin-6 (IL-6) and monocyte chemoattractant protein 1(MCP-1). Furthermore, patients treated with ATYR1923 also had a statistically
significant reduction in levels of serum amyloid A (SAA), a marker of inflammation and fibrosis that has implications in sarcoidosis. Notably, the
cytokines that we saw reduced to the greatest extent as a result of ATYR1923 treatment in these COVID-19 patients are the same cytokines we have seen
ATYR1923 downregulate in our animal models. The data provides the first-in-patient mechanistic proof-of-concept for ATYR1923.
These findings further demonstrate the potential of ATYR1923 as a therapeutics for severe inflammatory lung disease, including pulmonary
sarcoidosis and other ILD. We plan on leveraging data from our ATYR Phase 2 clinical trial for our ILD programs and will move the program forward
based upon the competitive landscape and the availability of non-dilutive financing.
ATYR2810
Overview of ATYR2810
ATYR2810 is the first IND candidate to arise from our internal research program designing monoclonal antibodies to selectively target the NRP2
receptor and its associated signaling pathways. ATYR2810 is a fully humanized monoclonal antibody that specifically and functionally blocks the
interaction between NRP2 and one of its primary ligands, VEGF. ATYR2810 is currently in preclinical development for cancer.
NRP2 is highly expressed in certain tumors, the lymphatic system and on key immune cells implicated in cancer progression. Increased NRP2
expression is associated with negative outcomes in many cancers, including resistance to targeted therapies, metastasis and worsened overall survival. The
role of NRP2 and VEGF signaling in the tumor microenvironment and its importance in the progression of certain aggressive cancers, such as breast
cancer, renal cell carcinoma and lung cancer, is becoming increasingly validated.
Preclinical Development
Preclinical data suggest that ATYR2810 could be effective against certain types of solid tumors, including highly aggressive tumors such as triple-
negative breast cancer. There is a growing body of evidence that expression of NRP2 is enriched in treatment-resistant, dedifferentiated cancer cells
expressing mesenchymal markers. Furthermore, NRP2/VEGF signaling is implicated in enhanced tumor metastasis promoted by the process of epithelial-
to-mesenchymal transition in breast cancer. ATYR2810 blocks binding of VEGF to NRP2 and had demonstrated tumor inhibitory effects and increased
sensitivity to chemotherapy in human-derived organoids and other in vitro models of triple-negative breast cancer. These findings suggest that targeting the
NRP2/VEGF pathway may be an effective therapeutic strategy for breast cancer and potentially other aggressive solid tumors where many patients remain
unresponsive to currently available treatments.
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ATYR2810 is currently undergoing IND-enabling studies.
Our Discovery Engines
NRP2 Biology
We are actively working on NRP2 receptor biology pathways of interest to select additional product candidates for preclinical and clinical
investigation in a variety of disease settings through efforts internally, as well as with collaborators in academia.
NRP2 is a pleiotropic cell surface receptor that was originally identified based on its role in axon guidance during neuronal development, and
subsequently shown to be important in the development of the lymphatic and immune system. Importantly, NRP2 can bind to multiple ligands and co-
receptors to influence these multiple functional roles, including interaction with type 3 semaphorins and plexins to impact neural development, and also
forms of vascular endothelial growth factor, especially VEGF-C which is involved in lymphogenesis.
Recent evidence suggests that there are high levels of NRP2 expression found on multiple immune cell types, which may play important roles in
migration, antigen presentation, phagocytosis and cell-to-cell interactions. NRP2 is expressed in various cells of the immune system such as B cells, T-
cells, NK cells, neutrophils, dendritic cells and macrophages, including alveolar macrophages. It plays an important role in the regulation of immune cell
activation and migration including endosome maturation, the modulation of autophagy and efferocytosis. This suggests that NRP2 may be an important
regulator of biological responses in a number of different disease settings with potential for therapeutic intervention.
We are collaborating with leading academic groups working on these pathways and we are excited to contribute to advancing the understanding of
NRP2 biology and how it may play a role in certain diseases. We continue to research the ways in which NRP2 utilizes common mechanisms, including
VEGFs and semaphorins, to regulate diverse pathways. We believe our growing evidence base of data on the functions of NRP2 will allow us to select and
develop additional novel product candidates for various diseases with unmet need.
tRNA Synthetase Biology
Extracellular tRNA synthetase biology represents a novel set of potential physiological modulators and therapeutic targets.
Using ATYR1923 as a model, we have developed a process to advance novel tRNA synthetase domains from a concept to clinical product
candidate. This process leverages our early discovery work as well as current scientific understanding of tRNA synthetase protein structure, gene splicing
and tissue-specific regulation to identify potentially active protein domains. Screening approaches are employed to identify target cells and extracellular
receptors for these tRNA synthetase-derived proteins. These cellular systems can then be used in mechanism-of-action studies to elucidate the role these
proteins play in cellular responses and their potential therapeutic utility. We are working to identify new tRNA synthetase based drug candidates through
our internal discovery efforts as well as industry and academic collaborations.
AARS/DARS
In February 2021, we announced two new discovery programs from our tRNA synthetase platform. These programs will investigate the
functionality of selected fragments of AARS and DARS in immunology, fibrosis and cancer. Initial experiments will be designed to explore the role of
AARS and DARS fragments on natural killer cell biology while also exploring activities related to newly identified receptor candidates for these
fragments.
These discovery programs were the result of a research collaboration and option agreement with CSL Behring which was terminated in February
2021.
Hong Kong University of Science and Technology
In October 2007, we formed our Hong Kong subsidiary, Pangu BioPharma to support our basic and translational research in tRNA synthetase
biology. We hold 98% of the outstanding shares of Pangu BioPharma, and a subsidiary of HKUST holds the remaining outstanding shares. Pangu
BioPharma originally collaborated with HKUST on the discovery and development of aminoacyl tRNA synthetase protein therapeutics. Beginning in July
2008, Pangu BioPharma, in collaboration with HKUST, entered into a series of three research grant agreements with the Government of the Hong Kong
Special Administrative Region to carry out research in the discovery and development of tRNA synthetase biology. Following the completion of the
research grants, Pangu BioPharma funded research with respect to development of aminoacyl tRNA synthetase protein therapeutics pursuant to annual joint
research agreements. As a result of work performed under these agreements, HKUST researchers with support from Pangu BioPharma were instrumental in
discovering a splice variant of HARS that liberates the smaller, active HARS amino acid 2-60 from the full-length tRNA synthetase
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and has been shown to modulate the immune system. To date, researchers at HKUST have discovered over 200 novel compositions that are covered in
issued patents and have published six articles detailing their research in peer-reviewed scientific journals.
In March 2020, we announced that Pangu BioPharma, together with HKUST, was awarded a grant of approximately $750,000 to build a high-
throughput platform for the development of bi-specific antibodies. Initially this research will focus on diseases, including cancer, in which NRP2
overexpression is strongly implicated. A bi-specific antibody approach presents a further differentiated opportunity to elucidate the therapeutic potential of
NRP2 and its co-receptors as drug targets. The fact that NRP2 interacts directly with various co-receptor molecules, including certain plexins, integrins and
chemokine receptors like CCR7, makes it a prime target for bi-specific antibodies that can target both receptors simultaneously and modulate the activity of
these signaling complexes. The two-year project is being funded by the Hong Kong Government’s Innovation and Technology Commission under the
Partnership Research Program. The grant is expected to fund approximately 50% of the total estimated project cost, and we expect to contribute the
remaining 50%. In April 2020, we entered a research grant agreement with HKUST and the Hong Kong Special Administrative Region for this grant (the
“Grant Agreement”).
Pangu BioPharma is the sole beneficial owner of all resulting intellectual property rights from the research performed under these agreements,
subject to the right of HKUST’s subsidiary to use certain background intellectual property of HKUST in conducting the research and, in the event Pangu
BioPharma applies for individual funding of any work under the research programs, compliance with the terms and conditions of any written agreement
covering ownership of such funded works. In addition, the Grant Agreement requires the completion of the research project for the assignment of
intellectual property rights.
We are also party to a license agreement with Pangu BioPharma, pursuant to which Pangu BioPharma has granted us an exclusive, royalty-bearing
license (with a right to sublicense) in and to certain of Pangu BioPharma’s solely and jointly owned patent rights and know-how to research, develop,
manufacture, use, import, export, distribute, offer for sale, sell and have sold products incorporating such patent rights and know-how for any therapeutic,
prognostic or diagnostic use throughout the world.
Competition
The biotechnology and pharmaceutical industries are intensely competitive. We will face competition with respect to our current product candidates
and any other therapeutics we may develop or commercialize in the future, from pharmaceutical companies, biotechnology companies, universities and
other research institutions. Our competitors may have substantially greater financial, technical and other resources, such as larger research and development
staff and established marketing, sales and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical
industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the
commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing,
acquiring or licensing on an exclusive basis, drug products that are more effective, safer or less costly than any product candidate that we may develop.
Although we believe we are the only company engaged in the discovery and development of therapeutics based on novel functions of tRNA
synthetases and NRP2 receptor biology, we are aware of other companies that could compete with our clinical stage product candidate, ATYR1923, for the
treatment of pulmonary sarcoidosis, other ILD and other severe inflammatory lung diseases as described below.
ATYR1923
For patients with pulmonary sarcoidosis, the primary goal of treatment is typically to improve the patient’s quality of life, while secondarily
managing the inflammation that could lead to the development of more permanent fibrosis and impairment of pulmonary function. Currently, the only FDA
approved therapies for the treatment of sarcoidosis are prednisone, a generic corticosteroid, and H.P. Acthar Gel, a repository corticotropin injection
marketed globally by Mallinckrodt plc, which was approved in 1952 and is not widely used by physicians due to toxicity and cost issues. The consensus
standard of care for pulmonary sarcoidosis is immune-modulatory therapy. First line treatment is typically with OCS that act mainly by suppressing
inflammatory genes. OCS therapy has been shown to stabilize or improve disease symptoms in some patients, although relapse commonly occurs once
OCS therapy is tapered or discontinued. Long-term OCS use is associated with significant side effects including substantial weight gain, development of
insulin resistance, osteoporosis, and risk of infection. Alternatives, such as cytotoxic immunosuppressive agents (e.g. methotrexate) have been used as
steroid-sparing agents, however, these therapies can also have significant side effects and toxicities, including malignancies. Patients who have progressive
disease despite OCS or other immunosuppressive therapy are sometimes given biologic immunomodulators, such as the TNF inhibitors infliximab or
adalimumab. These therapies are not approved by the FDA or other regulatory agencies for the treatment of sarcoidosis, and hence providers may face
reimbursement challenges if they decide to use these treatments. The clinical efficacy of these agents has not been well established and they are associated
with toxicity when used chronically. Given the known toxicities of long-term OCS, immunosuppressive and immunomodulatory biologic therapeutic
regimens, treatment of patients with sarcoidosis is limited to those who are symptomatic and whose disease is considered active. The
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presence of granulomas from sarcoidosis define the disease as active, and granulomatous inflammation is the major cause of fibrosis in pulmonary
sarcoidosis. Studies to date have not clearly demonstrated that OCS or other immunomodulatory therapies prevent disease progression or formation of
fibrosis. We believe there remains a substantial unmet need for safer, more effective therapies for sarcoidosis that could reduce or replace the requirement
for long-term OCS therapy. If ATYR1923 is successful for the treatment of pulmonary sarcoidosis, we believe it may have applications in other ILD
indications and potentially in other severe forms of lung inflammation. Immunosuppressive therapy has traditionally been used to treat most ILD despite
little evidence demonstrating safety or efficacy in these indications. The exception is a specific form of ILD, IPF, where immunosuppressive treatment was
demonstrated to be harmful in clinical trials. We are aware of two FDA approved products with indications for the treatment of a subset of ILD indications.
Esbriet (pirfenidone), a pyridine marketed globally by F. Hoffmann-La Roche Ltd., Shionogi & Co., Ltd. and ILDONG Pharmaceutical Co., Ltd., was
approved by FDA in 2014 for the treatment of IPF and in 2021 was granted priority review from the FDA for the treatment of adults with unclassifiable
ILD. Ofev (nintedanib), a small molecule tyrosine-kinase inhibitor marketed globally by Boehringer Ingelheim International GmbH, was approved by FDA
in 2014 for the treatment of IPF. In 2019 Ofev received FDA approval for slowing the rate of decline in pulmonary function in patients with systemic
sclerosis-associated ILD (SSc-ILD) and in 2020 the approval was further expanded to include patients with chronic fibrosis ILD with a progressive
phenotype.
These therapies have been demonstrated to slow decline in lung function as measured by FVC in controlled clinical studies but are associated with
significant side effects, continued symptoms, and progressive disease in the majority of patients. There are a number of companies engaged in the clinical
development of potential treatments for various forms of ILD, including Boehringer Ingelheim International GmbH, F. Hoffmann-La Roche Ltd, Novartis
Pharmaceuticals Corporation, Bristol-Myers Squibb Company, FibroGen Inc., Galapagos NV, Gilead Sciences, Inc., Pliant Therapeutics, Inc. and
Mallinckrodt plc among others; however, most development activity is focused on IPF, with limited activity in other major forms of ILD.
In addition to competition we may face in ILD, there is a significant effort across the pharmaceutical and biotech industries to address the ongoing
COVID-19 pandemic. Many companies have developed, are developing, or are testing in clinical trials, new and repurposed treatments for COVID-19
patients. Particular focus has been given to vaccines, anti-viral drugs and immunomodulators. ATYR1923, as an immunomodulator, will compete with
generic treatments, such as the corticosteroid, dexamethasone as well as established products such as Actemra (tocilizumab), currently marketed for
different indications by F. Hoffmann-La Roche Ltd.
Sales and Marketing
We intend, where strategically appropriate, to build the commercial infrastructure necessary to effectively support the commercialization of our
product candidates, if and when we believe a regulatory approval of the first of such product candidates in a particular geographic market appears
imminent. We may elect to utilize strategic partners, distributors, or contract sales forces to assist in the commercialization of our products in selected
geographic locations or for particular indications. For example, we have licensed the rights to Kyorin to develop and commercialize ATYR1923 in Japan.
Additional capabilities important to the marketing of therapeutics include the management of key stakeholders such as managed care organizations,
group-purchasing organizations, specialty pharmacies, and government accounts. To develop the appropriate commercial infrastructure, we will have to
invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that any of our product
candidates will be approved.
Manufacturing
We currently contract with third parties for the manufacturing and testing of our product candidates for preclinical studies and clinical trials and
intend to do so in the future. We do not own or operate manufacturing or testing facilities for the clinical or commercial production of our product
candidates. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. The use of contracted development and
manufacturing organizations (CDMOs), and contract research organizations (CROs), is cost-efficient and has eliminated the need for our direct investment
in manufacturing facilities and additional resources early in development. Although we rely on CDMOs and CROs, we have personnel with extensive
biologics development and manufacturing experience to oversee such CDMOs and CROs.
ATYR1923 is a fusion protein that is expressed in recombinant E.coli by expression in inclusion bodies and refolding to recreate the native
structure. We have worked with CDMOs in the United States and internationally on the development and current Good Manufacturing Practices (cGMP)
for the successful production of ATYR1923 preclinical and clinical drug substance and drug product. We contracted with CROs to conduct labeling,
storage and distribution of ATYR1923 to clinical sites.
To date, our CDMOs and CROs have met our manufacturing requirements for clinical development and we expect that our current CDMOs and
CROs are capable of providing sufficient quantities of our product candidates to meet our anticipated clinical development needs. However, are currently
experiencing delays due to the COVID pandemic in the delivery of key raw materials which are essential for the production of ATYR1923, the result of
which may cause delays and shortfalls in our ability to manufacture sufficient ATYR1923, and other clinical candidates, to meet our projected clinical
development needs.
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Patents and Proprietary Rights
We strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patent protection
intended to cover the composition of matter of our product candidates, their methods of use, related technology and other inventions that are important to
our business. We own, or have exclusive licenses to, over 220 issued patents or allowed patent applications with predicted expiration dates ranging from
2026 to 2034. In addition to patent protection, we also rely on trade secrets and careful monitoring of our proprietary information to protect aspects of our
business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will depend significantly 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, maintain our licenses to use intellectual property owned by
third parties, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of
third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen, and maintain our
proprietary position in the field of extracellular tRNA synthetase biology, their receptors and associated signaling pathways, including, for example,
antibody therapeutics to NRP2.
A third party may hold intellectual property, including patent rights, which is important or necessary to the development of our products. It may be
necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain
a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially.
We plan to continue to expand our intellectual property estate by filing patent applications directed to new methods of treatment, therapeutics and
additional new product forms thereof with new therapeutic or pharmacokinetic properties. Specifically, we seek patent protection in the United States and
internationally for novel compositions of matter covering our protein therapeutics, antibody therapeutics, next generation product forms and the use of
these compositions in a variety of therapies.
The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual questions. In
addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after
issuance. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by enforceable patents. We cannot
predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued
patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third
parties.
Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months, and since publication of
discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending
patent applications. Moreover, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office
(USPTO), or a foreign patent office to determine priority of invention or in post-grant challenge proceedings, such as oppositions, that challenge priority of
invention or other features of patentability. Such proceedings could result in us incurring substantial costs, even if the eventual outcome is favorable to us.
ATYR1923
Our ATYR1923 patent portfolio is comprised of a number of patent families related to derivatives of HARS, including the HARS amino 2-60,
related splice variants, combinations with other therapeutics, and next-generation product forms with modified therapeutic activity or pharmacokinetic
characteristics. As of March 2021, our ATYR1923 patent portfolio includes a patent family that is jointly owned by us and our 98% owned subsidiary,
Pangu BioPharma, and includes issued patents, in the United States, Australia, Canada, China, Europe, Japan and Hong Kong, and pending patent
applications in the United States. The U.S. patents are expected to expire between 2030 and 2031, absent any patent term extension for regulatory delays,
and the ex-U.S. patents, and patents that issue from these patent applications, if any, are expected to expire in 2030, absent any patent term extension.
The ATYR1923 patent portfolio includes another patent family jointly owned by us and Pangu BioPharma, which includes patent applications
directed to related splice variants of HARS. This patent family includes issued patents in the United States, Australia, China, Japan, New Zealand and
Hong Kong. A patent application is allowed/pending in the United States and Canada. The issued patents and any patents that issue from these patent
applications, if any, are expected to expire in 2031, absent any patent term extension.
Also included within the ATYR1923 patent portfolio are issued patents and pending patent applications directed to specific product forms of
ATYR1923, and other HARS splice variants, including patent families directed to FC fusion proteins, and combinations for treating lung inflammation,
among other indications. One family directed to specific FC fusion proteins includes issued patents in Australia, the United States, Europe, Hong Kong,
and Japan, and pending applications in the United States, Canada,
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China, Hong Kong, India, and Japan. If issued, the patents that derive from the patent applications are predicted to expire between 2034 and 2038, absent
any patent term extensions.
ATYR2810
We filed two US patent applications and corresponding international patent applications under the PCT that are directed to our first generation of
domain-specific anti-neuropilin 2 (NRP2) antibodies, including affinity-matured and humanized antibodies. Certain of the anti-NRP2 antibodies display
preferential functional activity on the VEGF and semaphorin pathways, and form one element of a multilayered approach to develop an anti-NRP2
antibody IP portfolio.
tRNA Synthetase
Our pipeline of extracellular tRNA synthetase proteins is covered by a series of patent families, which are directed to all 20 human cytosolic tRNA
synthetases. Numerous patents are issued in the United States and elsewhere, including issued U.S. patents directed to specific therapeutic protein
compositions, the corresponding protein polynucleotide sequences, and certain antibody compositions to specific splice variants. These cases are jointly
owned by us and Pangu BioPharma, and include issued patents and/or pending applications in the United States, Australia, Canada, Europe, China and
Japan. Patents that issue from these applications, if any, would be expected to expire in 2031, absent any patent term extension. Additional patent
applications have also been separately filed on GARS (Glycyl-tRNA synthetase), DARS, YARS (tyrosyl-tRNA synthetase), and other tRNA synthetases,
and any patents issuing from these patent applications are expected to expire between 2026 and 2030, absent any patent term extension. In addition, we are
actively expanding our patent portfolio directed to antibodies to NRP2, including therapeutic compositions, methods of use and diagnostic uses. Currently
the anti-NRP2 patent portfolio includes two patent families directed to murine humanized antibody therapeutics. Any patents issuing from these patent
applications are expected to expire between 2039 and 2040, absent any patent term extension.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we
file, the patent term is generally 20 years from the earliest date of filing the non-provisional patent application from which the patent issued.
In the United States, the patent term of a patent that covers a drug approved by the FDA, may also be eligible for patent term extension, which
permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a
patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug
is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and
only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other non-United States jurisdictions to
extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply
for patent term extensions on patents covering those products. We intend to seek patent term extensions to any of our issued patents in any jurisdiction
where these are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our
assessment of whether such extensions should be granted, and even if granted, the length of such extensions.
We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our proprietary
information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop
substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not
be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These
agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the
course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all inventions conceived by the individual, and which are related to our current or planned business or research and
development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property.
Government Regulation
Government authorities in the United States, including federal, state, and local authorities, and in other countries, extensively regulate, among other
things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and
reporting, advertising and promotion, and export and import of biological products, such as those we are developing. Pricing of such products is also
subject to regulation in many countries. 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.
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U.S. Government Regulation
In the United States, the FDA regulates biologics under the Federal Food, Drug, and Cosmetic Act and the Public Health Service Act and their
implementing regulations. FDA approval is required before any new unapproved biologic or dosage form, including a new use of a previously approved
biologic, can be marketed in the United States. Biologics are also subject to other federal, state, and local statutes and regulations. If we fail to comply with
applicable FDA or other requirements at any time during the product development process, clinical testing, approval process or after approval, we may
become subject to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, license suspension
or revocation, untitled or warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil
penalties or criminal prosecution. Any FDA enforcement action could have a material adverse effect on us.
The process required by the FDA before product candidates may be marketed in the United States generally involves the following:
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completion of extensive preclinical laboratory tests and preclinical animal studies, performed in accordance with the good laboratory practice
regulations, where applicable;
submission to the FDA of an IND which must become effective before human clinical trials may begin and must be updated annually;
approval by an independent institutional review board (IRB) or ethics committee representing each clinical site before each clinical trial may
be initiated;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each
proposed indication and conducted in accordance with good clinical practice (GCP) requirements;
preparation of and submission to the FDA of a biologics license application (BLA) after completion of all pivotal clinical trials;
potential review of the product application by an FDA advisory committee, where appropriate and 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 facilities where the proposed product is produced to assess
compliance with cGMP;
potential FDA audit of the clinical trial sites that generated the data in support of the BLA; and
FDA review and approval of a BLA prior to any commercial marketing or sale of the product in the United States.
The preclinical and clinical 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.
An IND is a request for authorization from the FDA to administer an investigational new drug or biologic product to humans in clinical trials. The
IND submission includes the general investigational plan and the protocol(s) for human trials. The IND also includes results of preclinical testing,
including animal and in vitro studies, to assess the toxicology, PK, 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 new drug. An IND must
become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that
time the FDA raises concerns or questions related to the proposed clinical trials. 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 clinical trials can begin. Accordingly, submission of an IND may or may
not result in the FDA allowing clinical trials to commence. The FDA may impose a clinical hold at any time during a clinical trial and may impose a partial
clinical hold that would apply certain limits to the trial, for example, imposing dosage limitations or restricting the time frame of the trial.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in
accordance with GCPs which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial.
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 efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the
IND. Additionally, approval must also be obtained from each clinical trial site’s IRB before the trials may be initiated, and the IRB must monitor the trial
until it is completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
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The clinical investigation of a drug is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap
or be combined.
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Phase 1. The drug is initially introduced into a relatively small number of healthy human subjects or patients with the target disease or
condition. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational
new drug in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness.
Phase 2. The drug is administered to a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse
side effects and safety risks, and preliminarily evaluate efficacy. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain
information prior to beginning larger and more costly Phase 3 clinical trials.
Phase 3. The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites to generate
enough data to evaluate dosage, clinical effectiveness and safety, and establish the overall benefit-risk relationship of the investigational new
drug product. A well-controlled, statistically robust Phase 3 trial may be designed to deliver the data that regulatory authorities will use to
decide whether or not to approve, and, if approved, how to appropriately label a drug: such Phase 3 studies are referred to as “pivotal.”
In some cases, the FDA may condition approval of a BLA for a product candidate on the sponsor’s agreement to conduct additional clinical trials
after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials after approval to gain more information about the drug. Such
post-approval studies are typically referred to as Phase 4 clinical trials. Failure to exhibit due diligence with regard to conducting Phase 4 clinical trials that
the FDA requires as a condition of approval could result in FDA withdrawing approval for the product.
A clinical trial sponsor must submit written IND safety reports to the FDA and the investigators for serious and unexpected adverse reactions, any
clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator’s brochure, or any findings
from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product candidate within 15 calendar days after the
sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected
adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. The FDA, the IRB, or the clinical trial sponsor may
suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable
health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a
data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based
on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives or competitive climate.
BLA Submission
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed information about the
investigational biologic product is submitted to the FDA in the form of a BLA requesting approval to market the product for one or more indications.
ATYR1923, ATYR2810 and our other potential product candidates are proteins that will be regulated as biological products subject to the BLA marketing
pathway. Under federal law, the submission of most BLAs is subject to an application user fee, and the sponsor of an approved BLA is also subject to an
annual prescription drug product program fee. These fees typically increase annually. Applications for orphan drug products are exempted from the BLA
user fees, unless the application includes an indication for other than a rare disease or condition.
A BLA must include all relevant data available from pertinent preclinical studies and clinical trials, 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. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the
investigational new drug product to the satisfaction of the FDA. FDA approval of a BLA must be obtained before a biologic may be marketed in the United
States.
Before approving a BLA, the FDA typically will conduct a pre-approval inspection of the facility or facilities where the product is manufactured.
The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements
and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically
inspect one or more clinical sites to assure compliance with GCP.
Additionally, the FDA may refer any NDA or BLA, including applications for novel biologic candidates which present difficult questions of safety
or efficacy, to an advisory committee. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts,
that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound
by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
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The FDA’s Decision on a BLA
The FDA evaluates a BLA to determine whether the data demonstrate that the biologic is safe, pure, and potent, or effective. After the FDA
evaluates the BLA and conducts inspections of manufacturing facilities where the product will be produced, it may issue an approval letter or a Complete
Response Letter (CRL). An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A
CRL indicates that the review cycle of the application is complete and the application is not ready for approval. A CRL generally outlines the deficiencies
in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. A CRL may require
additional clinical data or an additional pivotal Phase 3 clinical trial(s), or other significant, expensive and time-consuming requirements related to clinical
trials, preclinical studies or manufacturing. Even with the submission of this additional information, however, the FDA may ultimately decide that the BLA
does not satisfy the criteria for approval and issue a denial.
The FDA could also approve the BLA with a Risk Evaluation and Mitigation Strategy plan to mitigate risks associated with the product, which
could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries
and other risk minimization tools. The FDA may also condition approval on, among other things, changes to proposed labeling, development of adequate
controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase 4
clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. 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.
Expedited Review and Accelerated Approval Programs
A sponsor may seek approval of its product candidate under programs designed to accelerate FDA’s review and approval of NDAs and BLAs. For
example, fast track designation may be granted to a drug or biologic intended for treatment of a serious or life-threatening disease or condition that has
potential to address unmet medical needs for the disease or condition by providing a therapy where none exists or a therapy that may be potentially superior
to existing therapy based on efficacy or safety factors. The key benefits of fast track designation are more frequent interactions with the FDA during
development and testing and eligibility for priority review. The FDA may also review sections of the NDA or BLA for a fast track product on a rolling
basis before the complete application is submitted, if the sponsor and the FDA agree on a schedule for the submission of the application sections, and the
sponsor pays any required user fees upon submission of the first section of the application. Based on results of the Phase 3 clinical trial(s) submitted in a
BLA, the FDA may grant the BLA a priority review designation, which sets the target date for FDA action on the application at six months after the FDA
accepts the application for filing. Priority review is granted where 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 ten months after 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. Fast track designation may be withdrawn by the sponsor
or rescinded by the FDA if the designation is no longer supported by data emerging in the clinical trial process.
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. Drugs and biologics granted accelerated approval must meet the same statutory standards for safety and
effectiveness as those granted traditional approval. Post-marketing trials or completion of ongoing trials after marketing approval are generally required to
verify the drug’s clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit. In addition, a sponsor
may seek FDA designation of its product candidate as a breakthrough therapy if the drug is intended, alone or in combination with one or more other drugs,
to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement
over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. If so
designated, the FDA shall act to expedite the development and review of the product’s marketing application, including by meeting with the sponsor
throughout the product’s development, providing timely advice to the sponsor to ensure that the development program to gather preclinical and clinical data
is as efficient as practicable, involving senior managers and experienced review staff in a cross-disciplinary review, and 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.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of
adverse experiences with the product. After approval, most changes to the approved
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product, such as adding new indications or other labeling claims or some changes to the manufacturing process, are subject to prior FDA review and
approval.
Drug manufacturers are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP requirements.
We rely, and expect to continue to rely, on third parties for the production of clinical quantities of our product candidates, and expect to rely in the
future on third parties for the production of commercial quantities. Future FDA and state inspections may identify compliance issues at our facilities or at
the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of
previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or
holder of an approved BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could
delay or prohibit further marketing, or result in the imposition of post-market studies or trials to assess new safety risks.
The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Drugs may be promoted only
for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to
significant liability.
Orphan Designation and Exclusivity
The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the
United States, or if it affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing
and making a drug for this type of disease or condition will be recovered from sales in the United States. Orphan drug designation must be requested before
submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA.
Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, but it entitles a
party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. In addition, if a
product is the first to receive FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which
means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited
circumstances, such as a showing of clinical superiority over the product with orphan exclusivity. Orphan drug exclusivity, however, also could block the
approval of one of our products for seven years if a competitor obtains approval of the same drug as defined by the FDA for treatment of the same
indication or disease.
Pediatric Trials and Exclusivity
Under the Pediatric Research Equity Act of 2003, as amended, BLAs or supplement to a BLA must contain data that are adequate to assess the
safety and effectiveness of an investigational drug or biologic product for the claimed indications in all relevant pediatric populations and to support dosing
and administration for each pediatric subpopulation for which the drug is safe and effective. A sponsor who is planning to submit a marketing application
for a drug product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration must submit
an initial Pediatric Study Plan (PSP) within sixty days of an end-of-phase 2 meeting or, if there is no such meeting, as early as practicable before the
initiation of the Phase 3 or Phase 2/3 clinical trial. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct,
including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information,
and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with
supporting information. 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 if certain criteria are met. The FDA and the sponsor must reach agreement on
the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data
collected from preclinical studies, early phase clinical trials, and/or other clinical development programs. The requirements for pediatric data do not apply
to any drug or biologic for an indication for which orphan designation has been granted, except under certain circumstances.
Pediatric exclusivity is another type of non-patent exclusivity in the United States and, if granted, provides for the attachment of an additional six
months of marketing protection to the term of any existing regulatory exclusivity, including orphan exclusivity. This six-month exclusivity may be granted
if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data.
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Rest of World Government Regulation
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things,
clinical trials and any commercial sales and distribution of our products. The cost of establishing a regulatory compliance system for numerous varying
jurisdictions can be very significant. Although many of the issues discussed above with respect to the United States apply similarly in the context of the
European Union and in other jurisdictions, the approval process varies between countries and jurisdictions and can involve additional product testing and
additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that
required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in
obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior
to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process
that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In the EU, for example, a
clinical trial authorization application (CTA) must be submitted for each clinical protocol to each country’s national health authority and an independent
ethics committee, much like the FDA and IRB, respectively. Once the CTA is accepted in accordance with a country’s requirements, the clinical trial may
proceed.
The requirements and process governing the conduct of clinical trials vary from country to country. In all cases, the clinical trials are conducted in
accordance with GCP the applicable regulatory requirements, and the ethical principles that have their origin in the Declaration of Helsinki.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any products for which we obtain regulatory approval. In the United
States and in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of
coverage and reimbursement from third-party payors. Third-party payors include government authorities, managed care providers, private health insurers
and other organizations. Private payors often follow Centers for Medicare & Medicaid Services (CMS’s) determinations relating to Medicare and Medicaid
with respect to coverage policy and payment limitations in setting their own reimbursement policies. The process for determining whether a payor will
provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-party
payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular
indication. Moreover, 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 or sufficient to enable us to maintain price levels sufficient to realize an appropriate return on our
investment in product development.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved for sale, 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 regulatory approvals. Our product candidates may not be considered medically necessary or cost-effective. If third-party payors
do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their
plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit.
The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to
limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic
products for branded prescription drugs. By way of example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 (collectively, the ACA) contains provisions that may reduce the profitability of drug products, including, for example, increased
rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare
Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. There have been executive, judicial
and Congressional challenges to certain aspects of the ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA.
While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA. For example, the
Bipartisan Budget Act of 2018 (the BBA), among other things, amended the ACA, effective January 1, 2019, to reduce the coverage gap in most Medicare
Part D plans, commonly referred to as the “donut hole.” The BBA also extended the coverage gap discount program to include biosimilars starting in 2019.
Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act of 2017, included a provision which repealed, effective January 1, 2019, the tax-
based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year
that is commonly referred to as the “individual mandate.” In addition, the 2020 federal spending package permanently eliminated, effective January 1,
2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also
eliminated the health insurer tax. On December 14, 2018, a U.S. District Court
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Judge in the Northern District of Texas (Texas District Court Judge), ruled that the individual mandate is a critical and inseverable feature of the ACA, and
therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, the remaining provisions of the ACA are invalid as well.
The U.S. Supreme Court is currently reviewing the case, although it is unclear when a decision will be made or how the Supreme Court will
rule. Although the Supreme Court has not yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to
initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA
marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to
healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that
create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the Supreme Court ruling,
other such litigation, and the healthcare reform measures of the Biden administration will impact the ACA and our business.
Additionally, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget
proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13,2020, President Trump announced several executive
orders related to prescription drug pricing that attempted to implement several of the Administration’s proposals. The FDA also released a final rule,
effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation
plans for drugs from Canada. Further, on November 20, 2020, the U.S. Department of Health and Human Services (HHS) finalized a regulation removing
safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit
managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022
to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a
new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been
delayed pending review by the Biden administration until March 22, 2021. On November 20, 2020, CMS issued an interim final rule implementing
President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest
price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the United States District Court in Northern
California issued a nationwide preliminary injunction against implementation of the interim final rule. At the state level, legislatures have increasingly
passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing. Additional state and federal healthcare reform measures may be adopted in the future,
particularly in light of the new presidential administration. Further, it is possible that additional governmental action is taken in response to the COVID-19
pandemic.
In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and
control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative
list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To obtain reimbursement or
pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate
to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The
downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are
being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on
pricing within a country.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party
payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on cost containment measures in the United States and
other countries has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we
receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Other Healthcare Laws and Compliance Requirements
If we obtain regulatory approval for any of our product candidates, we may be subject to various federal and state laws targeting fraud and abuse in
the healthcare industry. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject
to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to
operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering
or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or
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recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from
knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or
fraudulent;
the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit
executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
the federal transparency laws, including the provision of the ACA referred to as the federal Physician Payments Sunshine Act, that requires
drug and biologics manufacturers to disclose payments and other transfers of value provided to physicians (defined to include doctors,
dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals and ownership interests of physicians and their immediate family
members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its payments and other
transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse
anesthetists and certified nurse midwives during the previous year;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which
imposes certain requirements on HIPAA covered entities and their business associates relating to the privacy, security and transmission of
individually identifiable health information; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services
reimbursed by any third-party payor, including commercial insurers, and state laws governing transparency, marketing and drug pricing
reporting, and 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, thus complicating compliance efforts.
The ACA broadened the reach of the fraud and abuse laws by, among other things, amending the intent requirement of the federal Anti-Kickback
Statute and certain other criminal healthcare fraud statutes. Pursuant to the statutory amendment, a person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the ACA provides that the government may
assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the civil False Claims Act or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute,
some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.
We are also subject to the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits improper payments or offers of payments to foreign
governments and their officials for the purpose of obtaining or retaining business. Safeguards we implement to discourage improper payments or offers of
payments by our employees, consultants, and others may be ineffective, and violations of the FCPA and similar laws may result in severe criminal or civil
sanctions, or other liabilities or proceedings against us, any of which would likely harm our reputation, business, financial condition and result of
operations.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be
subject to penalties, including significant administrative, civil and criminal penalties, exclusion from participation in government healthcare programs, such
as Medicare and Medicaid and imprisonment, disgorgement, damages, fines, additional reporting requirements and regulatory oversight and the curtailment
or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Employees
As of December 31, 2020, we had 43 employees, 40 of which were full-time employees. None of our employees are represented by labor unions or
covered by collective bargaining agreements. We consider our relationship with our employees to be good.
Financial Information about Segments
We operate in a single accounting segment. Refer to Note 1 to our consolidated financial statements included elsewhere in this Annual Report.
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Corporate Information
We were incorporated under the laws of the State of Delaware in September 2005. Our principal executive office is located at 3545 John Hopkins
Court, Suite #250, San Diego, California 92121, and our telephone number is (858) 731-8389. Our website address is www.atyrpharma.com.
You are advised to read this Annual Report in conjunction with other reports and documents that we file from time to time with the SEC. Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on our website as soon as reasonably practicable after such reports and
amendments are electronically filed with, or furnished to, the SEC. You may obtain copies of these reports directly from us or from the SEC. In addition,
the SEC maintains information for electronic filers (including aTyr Pharma, Inc.) at its website at www.sec.gov. We also make available copies of our news
releases and other financial information and updates with respect to our business on our website. We do not incorporate the information on or accessible
through our website into this Annual Report, and you should not consider any information on, or that can be accessed through, our website as part of this
Annual Report.
Item 1A. Risk Factors
You should carefully consider the following risk factors, as well as the other information in this Annual Report on Form 10-K (Annual Report) and
in our other public filings. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects
or cause our actual results to differ materially from those contained in forward-looking statements we have made in this Annual Report and those we may
make from time to time. You should consider all of the risk factors described in our public filings when evaluating our business.
Risks related to our financial condition and need for additional capital
We will need to raise additional capital or enter into strategic partnering relationships to fund our operations.
The development of therapeutic product candidates is expensive, and we expect our research and development expenses to fluctuate. As of
December 31, 2020, our cash, cash equivalents and available-for-sale investments were approximately $31.7 million. S, we received $2.0 million related to
the collaboration and license agreement (Kyorin Agreement) with Kyorin Pharmaceutical Co., Inc. Ltd. (Kyorin), approximately $9.9 million in gross
proceeds from our at-the-market offering (ATM Offering Program) with H.C. Wainwright & Co., LLC (Wainwright) before deducting commissions and
offering expenses and approximately $15.3 million in gross proceeds from our common stock purchase agreement entered into in September 2020
(Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital), before deducting offering expenses payable by us. We believe that our current cash,
cash equivalents and available-for-sale investments, will be sufficient to meet our anticipated cash requirements for a period of at least one year from the
date of this Annual Report. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek
additional funds sooner than planned, through equity or debt offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements.
Our future funding requirements will depend on many factors, including but not limited to:
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our ability to initiate, and the progress and results of, our clinical trials of ATYR1923;
delays of our clinical trials of ATYR1923 and any resulting cost increases as a result of the COVID-19 pandemic;
our ability to initiate a clinical trial, and the progress and results of, our preclinical program for ATYR2810;
the number and characteristics of product candidates that we pursue;
the scope, progress, results and costs of preclinical development, and clinical trials for other product candidates;
the manufacturing of preclinical study and clinical trial materials and any delays in the manufacturing of study drug as a result of the COVID-
19 pandemic;
our ability to maintain existing and enter into new collaboration and licensing arrangements and the timing of any payments we may receive
under such arrangements;
the costs, timing and outcome of regulatory review of our product candidates;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and
defending any intellectual property-related claims;
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our
product candidates for which we receive marketing approval; and
the extent to which we acquire or in-license other products and technologies.
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In any event, we will require additional capital to complete additional clinical trials, including larger, pivotal clinical trials, to obtain regulatory
approval for, and to commercialize, our product candidates.
Raising funds in the current and future economic environment may present additional challenges. Even if we believe we have sufficient funds for
our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. If we
are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development
programs or the commercialization of any product candidates, or we may be unable to expand our operations, maintain our current organization and
employee base or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results
of operations.
The terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities by us, or the
possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would cause dilution
to all of our stockholders. The incurrence of additional indebtedness would increase our fixed payment obligations and may require us to agree to certain
restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business. As a result of the COVID-19 pandemic and actions
taken to slow its spread, the global credit and financial markets have experienced volatility and disruptions, including severely diminished liquidity and
credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic
stability. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. In
addition, any fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and
commercialize our product candidates.
We may decide to enter into additional strategic partnerships, including collaborations with pharmaceutical and biotechnology companies, to
enhance and accelerate the development and potential commercialization of our product candidates. We face significant competition in seeking appropriate
partners, and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish any new strategic
partnership or other collaborative arrangement for any of our product candidates and programs for a variety of reasons, including strategic fit with partners
and differences in analysis of commercial value and regulatory risk. We may not be able to negotiate strategic partnerships on a timely basis, on acceptable
terms or at all. We are unable to predict when, if ever, we will enter into any new strategic partnership because of the numerous risks and uncertainties
associated with establishing strategic partnerships. Even if we are successful in our efforts to establish new strategic partnerships, the terms that we agree
upon may not be favorable to us and we may not be able to maintain such strategic partnerships if, for example, we encounter unfavorable results or delays
during development or approval of a product candidate or sales of an approved product are lower than expectations.
We have incurred significant losses since our inception and will continue to incur significant losses for the foreseeable future.
We are a clinical stage biotherapeutics company, and we have not yet generated any revenues from product sales. We have incurred net losses each
year since our inception in 2005, including consolidated net losses of $16.2 million, $23.8 million and $34.5 million for the years ended December 31,
2020, 2019 and 2018, respectively. As of December 31, 2020, we had an accumulated deficit of $338.5 million.
We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To
date, we have financed our operations primarily through the sale of equity securities and convertible debt and through venture debt and term loans. The
amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity offerings, grant
funding, collaborations, strategic partnerships and/or licensing arrangements. We have not commenced pivotal clinical trials for any product candidate and
it will be several years, if ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval to market a product
candidate, our future revenues will depend, in part, upon the size of any markets in which our product candidates have received approval, and our ability to
achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for our product candidates in those markets.
We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will fluctuate in
connection with our ongoing activities as we: continue our research and preclinical and clinical development of ATYR1923 and ATYR2810 or any other
product candidates that we may develop; further develop the manufacturing process for our product candidates; seek regulatory approvals for our product
candidates that successfully complete clinical trials; ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for
which we may obtain marketing approval; seek to identify and validate additional product candidates; maintain, protect and expand our intellectual
property portfolio; acquire or in-license other product candidates and technologies; attract and retain skilled personnel; and create additional infrastructure
to support our operations as a public company and our product development and planned future commercialization efforts.
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Our revenues, expenses and income or losses may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period
comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results
could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
We have never generated any revenue from product sales and may never be profitable.
Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully
complete the development of, and obtain the regulatory approvals necessary to commercialize our product candidates. We do not anticipate generating
revenues from product sales for the foreseeable future, if ever. Our ability to generate future revenues from product sales depends heavily on our success in:
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completing research, preclinical development and clinical development of our product candidates, potentially with a strategic partner;
seeking and obtaining regulatory approvals for product candidates for which we complete clinical trials;
developing a sustainable, scalable, reproducible, and transferable manufacturing process for our product candidates and establish supply and
manufacturing relationships with third parties;
launching and commercializing product candidates for which we obtain regulatory approval, either by collaborating with a partner or, if
launched independently, by establishing a sales force, marketing and distribution infrastructure;
maintaining, protecting and expanding our intellectual property portfolio;
obtaining market acceptance of our product candidates as viable treatment options for our target indications;
identifying and validating new therapeutic product candidates based on tRNA synthetase biology or neuropilin-2 (NRP2) biology;
attracting, hiring and retaining qualified personnel; and
negotiating favorable terms in any licensing, collaboration or other arrangements into which we may enter.
Even if one of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing
any such approved product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration
(FDA) or other regulatory agencies, domestic or foreign, to perform clinical trials and other studies in addition to those that we currently anticipate. Even if
we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to
continue operations.
Risks related to the discovery, development and regulation of our product candidates
We may encounter substantial delays and other challenges in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of
applicable regulatory authorities.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to
demonstrate the safety and efficacy of the product candidates in humans. Clinical trials are expensive, time-consuming, often delayed and uncertain as to
outcome. We cannot guarantee that our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis or our future trials we may plan to
conduct, will be initiated or conducted as planned or completed on schedule, if at all. We cannot assure you that our product candidates will not be subject
to new clinical holds or significant delay in the future. Any inability to initiate or complete clinical trials of our product candidates in the United States, as a
result of clinical holds or otherwise, would delay our clinical development plans, may require us to incur additional clinical development costs and could
impair our ability to obtain U.S. regulatory approval for such product candidates.
A failure of one or more clinical trials can occur at any stage of testing, and our clinical trials may not be successful. Events that may prevent
successful or timely completion of clinical development include, but are not limited to:
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our inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of human clinical trials,
including trials of certain dosages;
delays in reaching consensus with regulatory agencies on trial design;
delays in reaching agreement on acceptable terms with prospective clinical contract research organizations (CROs) and clinical trial sites;
delays in obtaining required institutional review board or Ethics Committee approval at each clinical trial site;
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delays in recruiting suitable patients to participate in our clinical trials, or delays that may result if the number of patients required for a
clinical trial is larger than we anticipate;
imposition of a clinical hold by regulatory agencies, which may occur at any time before or during a clinical trial, including after our
submission of data to these agencies or an inspection of our clinical trial operations or trial sites;
failure by our CROs, investigators, other third parties or us to adhere to clinical trial requirements;
failure to perform in accordance with the FDA’s good clinical practices (GCPs) or applicable regulatory requirements in other countries;
delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
disagreements with regulators regarding our interpretation of data from preclinical studies or clinical trials;
occurrence of adverse events associated with a product candidate that are viewed to outweigh its potential benefits; or
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.
Any delay in or inability to successfully complete preclinical and clinical development could result in additional costs to us and impair our ability to
generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional studies to
bridge our modified product candidates to earlier versions.
If the results of our clinical trials, including our ongoing ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis are perceived
to be negative or inconclusive, or if there are safety concerns or adverse events associated with our product candidates, we may be required to perform
additional clinical trials to support approval or be subject to additional post-marketing testing requirements; be delayed in obtaining marketing approval for
our product candidates, if at all; obtain approval for indications or patient populations that are not as broad as intended or desired; obtain approval with
labeling that includes significant use or distribution restrictions or safety warnings; be subject to changes in the way the product is manufactured or
administered; have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of a modified risk
evaluation and mitigation strategy; be subject to litigation; or experience damage to our reputation.
To date, the safety and efficacy of ATYR1923 in humans has not been studied to a significant extent and ATYR2810 has not been studies in
humans at all. Accordingly, ATYR1923, ATYR2810 and future product candidates could potentially cause adverse events that have not yet been predicted.
In addition, the inclusion of critically ill patients in our clinical trials may result in deaths or other adverse medical events due to the natural progression of
the disease.
Further, if patients drop out of our ongoing trial, miss scheduled doses or follow-up visits or otherwise fail to follow trial protocols, or if our trial is
otherwise disrupted due to COVID-19 or actions taken to slow its spread, the integrity of data from our ongoing trial may be compromised or not accepted
by the FDA or other regulatory authorities, which would represent a significant setback for the program. In addition, the COVID-19 pandemic has
impacted clinical trials broadly, including our ATYR1923 Phase 1b/2a trial in patients with pulmonary sarcoidosis, with many sites pausing enrollment and
patients choosing not to enroll or continue participating in ongoing trials. While we completed enrollment in December 2020, the availability of top-line
results from the Phase 1b/2a clinical trial has been delayed to the third quarter of 2021. We may experience delays in site initiation and patient enrollment,
failures to comply with study protocols, delays in the manufacture of study drug for clinical testing and other difficulties in starting or completing our
current or future clinical trials due to the COVID-19 pandemic.
Interim, top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or top-line data from our clinical studies, which are based on a preliminary analysis of
then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to
the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have
received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the
same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data
also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously
published. As a result, top-line data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data
from our clinical studies.
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In addition, we may report interim analyses of only certain endpoints rather than all endpoints. Interim data from clinical trials that we may
complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data
become available. For example, in December 2019, we announced results from a blinded interim analysis of safety and tolerability, the primary endpoint of
our ongoing Phase 1b/2a clinical trial in clinical pulmonary sarcoidosis patients. These results may not be consistent with final data for this trial. Adverse
differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or
by our competitors could result in volatility in the price of our common stock.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or
may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization
of a particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular
study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise
appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to
future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business. If the top-line data that we
report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and
commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
If we are unable to successfully complete or otherwise advance clinical development, obtain regulatory or marketing approval for, or successfully
commercialize our therapeutic product candidates, including ATYR1923, or experience significant delays in doing so, our business will be materially
harmed.
To date, we have expended significant time, resources and effort on the discovery and development of product candidates related to the extracellular
proteins derived from the histidyl tRNA synthetase (HARS) family and NRP2 biology, including conducting preclinical studies and clinical trials. We have
not yet commenced or completed any evaluation of our product candidates in human clinical trials designed to demonstrate efficacy to the satisfaction of
the FDA. Before we can market or sell our therapeutic candidates in the United States or foreign jurisdictions, we will need to commence and complete
additional clinical trials (including larger, pivotal trials, which we have not yet commenced), manage clinical and manufacturing activities, obtain necessary
regulatory approvals from the FDA in the United States and from similar regulatory authorities in other jurisdictions, obtain adequate clinical and
commercial manufacturing supplies, build commercial capabilities, which may include entering into a marketing collaboration with a third party, and in
some jurisdictions, obtain reimbursement authorization, among other things. We cannot assure you that we will be able to successfully complete the
necessary clinical trials, obtain regulatory approvals, secure an adequate commercial supply for, or otherwise successfully commercialize our therapeutic
candidates. If we do not receive regulatory approvals for our product candidates, and even if we do obtain regulatory approvals, we may never generate
significant revenues, if any, from commercial sales. If we fail to successfully commercialize our therapeutic candidates, we may be unable to generate
sufficient revenues to sustain and grow our company, and our business, prospects, financial condition and results of operations will be adversely affected.
We have encountered and may continue to encounter delays and difficulties enrolling patients in our clinical trials for a variety of reasons, including
the limited number of patients who have the diseases for which certain of our product candidates are being studied, which could delay or halt the
clinical development of our product candidates.
Identifying and qualifying patients to participate in clinical trials for our product candidates is critical to our success. Certain of the conditions for
which we may elect to evaluate our product candidates may be rare diseases with limited patient pools from which to draw for clinical trials.
For example, we are currently evaluating ATYR1923 in a Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis. While estimates of
pulmonary sarcoidosis prevalence vary, we estimate that pulmonary sarcoidosis affects an estimated 200,000 patients in the United States. Of that
population, however, we estimate that approximately 30% experience progressive disease such that our targeted population is significantly smaller. While
we have fully enrolled our Phase 1b/2a clinical trial, the eligibility criteria for our future clinical trials may further limit the pool of available participants in
our trials. We may be unable to identify and enroll a sufficient number of patients with the disease in question and who meet the eligibility criteria for, and
are willing to participate in, the clinical trials. Once enrolled, patients may decide or be required to discontinue from the clinical trial due to inconvenience,
burden of trial requirements, adverse events associated with ATYR1923, limitations required by trial protocols or other reasons. In addition, the COVID-19
pandemic impacted patient enrollment in our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis. According to the Centers for
Disease Control and Prevention, people who have serious chronic medical conditions, including lung disease, are at higher risk of getting very sick from
COVID-19. As a result, current patients in our ongoing Phase 1b/2a clinical trial may choose not to participate in follow-up clinical visits or may drop out
of the trial as a precaution against contracting COVID-19. Further, some patients may not be able or willing to comply with clinical trial protocols if
quarantines impede patient movement or interrupts healthcare services. In 2020, many clinical trial sites in our Phase 1b/2a clinical trial temporarily
suspended dosing of previously-enrolled patients and/or enrollment of new patients and some patients discontinued from the trial. If continued dosing of
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enrolled patients is delayed for an extended period of time, our Phase 1b/2a clinical trial could be further delayed or otherwise adversely affected.
Our ability to identify, recruit, enroll and maintain a sufficient number of patients, or those with required or desired characteristics to achieve
diversity in a study, to complete our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis in a timely manner may also be affected
by other factors, including, but not limited to:
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proximity and availability of clinical trial sites for patients;
severity of the disease under investigation;
design of the study protocol and the burdens to patients of compliance with our study protocol;
perceived risks and benefits of the product candidate under study;
availability of competing therapies and clinical trials for the patient populations and indications under study;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians; and
ability to monitor patients adequately during and after treatment.
We plan to seek initial marketing approval in the United States. We may not be able to initiate or continue clinical trials if we cannot enroll a
sufficient number of eligible patients to participate in the clinical trials required by the FDA or other regulatory agencies. Our ability to successfully
initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries,
including, but not limited to:
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difficulty in establishing or managing relationships with CROs and physicians;
different requirements and standards for the conduct of clinical trials;
our inability to locate qualified local consultants, physicians and partners; and
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of
biotechnology products and treatment.
Additionally, if patients are unwilling to participate in our clinical trials because of negative publicity from adverse events in our clinical trials or in
the biotechnology or protein therapeutics industries or for other reasons, including competitive clinical trials for similar patient populations, the timeline for
recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs,
delays in advancing our product development or termination of our clinical trials altogether. If we have difficulty enrolling and maintaining a sufficient
number of patients to conduct our clinical trials as planned for any reason, we may need to delay, limit or terminate clinical trials, any of which would have
an adverse effect on our business, prospects, financial condition and results of operations.
Our current product candidates and any other product candidates that we may develop from our discovery engine represent novel therapeutic
approaches, which may cause significant delays or may not result in any commercially viable drugs.
We have concentrated the bulk of our research and development efforts to date on studying extracellular functions of tRNA synthetase biology, a
newly discovered area of biology. We have also identified NRP2 as a receptor for ATYR1923 and have focused research efforts on NRP2 biology. Our
future success is highly dependent on the successful development of product candidates based on these new areas of biology, including ATYR1923,
ATYR2810 and additional product candidates arising from proteins derived from the HARS or targeting the NRP2 receptor or other pathways, including
Alanyl-tRNA synthetase (AARS) and Aspartyl-tRNA synthetase (DARS). Extracellular tRNA synthetase-based biology and NRP2 biology represents a
novel approach to drug discovery and development, and to our knowledge, no drugs have been developed using, or based upon, this approach. Despite the
successful development of other naturally occurring proteins, such as erythropoietin and insulin, as therapeutics, proteins derived from the HARS, AARS
or DARS families or targeting the NRP2 receptor and from other tRNA synthetase pathways represent a novel class of protein therapeutics, and our
development of these therapeutics is based on our new understanding of human physiology. In particular, the mechanism of action of tRNA synthetases and
their role in immuno-modulation and tissue regeneration have not been studied extensively, nor has the safety of this class of protein therapeutics been
evaluated extensively in humans. The therapeutic product candidates that we elect to develop may not have the physiological functions that we currently
ascribe to them, may have limited or no therapeutic applications, or may present safety problems of which we are not yet aware. We cannot be sure that our
discovery engine will yield therapeutic product candidates that are safe, effective, approvable by regulatory authorities, manufacturable, scalable, or
profitable.
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Because our work represents a new therapeutic approach, developing and commercializing our product candidates, including ATYR1923 and
ATYR2810, subjects us to a number of challenges, including:
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defining indications within our targeted diseases and clinical endpoints within each indication that are appropriate to support regulatory
approval;
obtaining regulatory approval from the FDA and other regulatory authorities that have little or no experience with the development of
extracellular tRNA synthetase-based therapeutics;
educating medical personnel regarding the potential side effect profile of each of our product candidates, such as the potential for the
development of antibodies against our purified protein therapeutics;
developing processes for the safe administration of these product candidates, including long-term follow-up for all patients who receive our
product candidates;
sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process our product candidates;
developing a manufacturing process and distribution network that ensures consistent manufacture of our product candidates in compliance
with current good manufacturing practices (cGMPs) and related requirements, with a cost of goods that allows for an attractive return on
investment;
obtaining and maintaining third-party coverage and adequate reimbursement of our product candidates;
establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance; and
developing therapeutics for diseases or indications beyond those addressed by our current product candidates.
Moreover, public perception of safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the
willingness of subjects to participate in clinical trials, or if approved, of physicians to adopt and prescribe novel therapeutics. Physicians, hospitals and
third-party payors often are slow to adopt new products, technologies and treatment practices. Physicians may decide the therapy is too complex or
unproven to adopt and may choose not to administer the therapy. Based on these and other factors, healthcare providers and payors may decide that the
benefits of any therapeutic candidates for which we receive regulatory approval do not or will not outweigh its costs. Any inability to successfully develop
commercially viable drugs would have an adverse impact on our business, prospects, financial condition and results of operations.
Data generated in our preclinical studies and patient sample data relating to the immunomodulatory domain of HARS, including ATYR1923, may not
be predictive or indicative of the immuno-modulatory activity or therapeutic effects, if any, of our product candidates in patients.
Our scientists discovered the activity of the immunomodulatory domain of HARS, including ATYR1923, using in vitro and in vivo screening
systems designed to test potential immuno-modulatory activity in animal models of immune activity or inflammation. Translational medicine, or the
application of basic scientific findings to develop therapeutics that promote human health, is subject to a number of inherent risks. In particular, scientific
hypotheses formed from preclinical observations may prove to be incorrect, and the data generated in animal models or observed in limited patient
populations may be of limited value, and may not be applicable in clinical trials conducted under the controlled conditions required by applicable
regulatory requirements and our protocols. For example, we have not extensively studied the activity of ATYR1923 in patients with interstitial lung
diseases (ILD.
Our classification of diseases based on the existence of excessive immune cell activation or lack thereof and our hypothesis that these represent
potential indications for our product candidates may not prove to be therapeutically relevant. Accordingly, the conclusions that we have drawn from animal
studies and patient sample data regarding the potential immuno-modulatory activity of ATYR1923 may not be substantiated in other animal models or in
clinical trials. Further, based on the discovery of the involvement of NRP2 in the mechanism of action of ATYR1923, we are still expanding our knowledge
of the role of the NRP2 pathway in regulating immune responses. Any failure to demonstrate in controlled clinical trials the requisite safety and efficacy of
our product candidates will adversely affect our business, prospects, financial condition and results of operations.
We have previously conducted and we or our third party collaborations may conduct additional clinical trials of ATYR1923 outside of the United States.
The FDA, however, may not accept data from such trials, in which case our development plans will be delayed, which could materially harm our
business.
In June 2018, we completed a Phase 1 clinical trial of ATY1923 in healthy subjects in Australia. This randomized, double-blind, placebo-controlled
study investigated the safety, tolerability, immunogenicity, and PK of intravenous ATYR1923 in 36 healthy volunteers. In addition, we or our third party
collaborators may choose to conduct additional clinical trials for ATYR1923 in countries outside the United States, subject to applicable regulatory
approval. For example, our partner, Kyorin, is currently conducting a ATYR1923 Phase 1 study in healthy volunteers in Japan.
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Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data is generally subject to
certain conditions. For example, in cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United
States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable in the U.S. population and
U.S. medical practice; and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations. Additionally,
the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. In addition, when studies are
conducted only at sites outside of the United States, the FDA generally does not provide advance comment on the clinical protocols for the studies, and
therefore there is an additional risk that the FDA could determine that the study design or protocol for a non-U.S. clinical trial was inadequate, which
would likely require us to conduct additional clinical trials, in which case our development plans will be delayed, which could materially harm our
business.
Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with:
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additional foreign regulatory requirements;
foreign exchange fluctuations;
compliance with foreign manufacturing, customs, shipment and storage requirements;
cultural differences in medical practice and clinical research; and
diminished protection of intellectual property in some countries.
Further, as a result of the COVID-19 pandemic, the integrity of data from any clinical trials conducted outside of the United States may not be
acceptable to the FDA.
Our therapeutic product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates, or safety, tolerability or toxicity issues that may occur in our preclinical studies, clinical
trials or in the future, could cause us or regulatory authorities to interrupt, restrict, 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 authorities.
In our Phase 1b/2 clinical trials for our first clinical trial candidate, ATYR1940 (slightly truncated recombinant HARS protein), completed in 2016
and 2017, we observed low levels of antibodies to ATYR1940 in some subjects in response to the administration of ATYR1940. Although these antibody
observations were without associated clinical symptoms, the development of higher levels of such antibodies over a longer course of treatment may
ultimately limit efficacy and trigger a negative autoimmune response. In addition, some patients in our Phase 1b/2 clinical trials of ATYR1940 experienced
generalized infusion related reactions (IRRs) and discontinued dosing. We established procedural measures, including a decreased concentration and
intravenous delivery rate of ATYR1940, in an effort to minimize the occurrence of generalized IRRs and the formation of anti-drug antibodies. After
implementation of these procedures, we observed a decreased rate of IRRs in our clinical trials, but we cannot assure that these measures will be effective
in minimizing the occurrence of generalized IRRs or the formation of anti-drug antibodies in our ongoing ATYR1923 clinical trial or any future clinical
trials, or result in the retention of patients in these clinical trials. However, we did not observe IRRs in our interim safety data analysis of our Phase 1b/2a
clinical trial of ATYR1923 in pulmonary sarcoidosis as of December 2019. Generalized IRRs and other complications or side effects could harm further
development and/or commercialization of our product candidates, including ATYR1923. Additionally, our product candidates are designed to be
administered by intravenous injection, which may cause side effects, including acute immune responses and injection site reactions. The risk of adverse
immune responses remains a significant concern for protein therapeutics, and we cannot assure that these or other risks will not occur in any of our clinical
trials our product candidates. There is also a risk of delayed adverse events as a result of long-term exposure to protein therapeutics that must be
administered repeatedly for the management of chronic conditions, such as the development of antibodies, which may occur over time. If any such adverse
events occur, which may include the development of a negative autoimmune response from antibodies or the occurrence of IRRs associated with
antibodies, further advancement of our clinical trials could be halted or delayed, which would have a material adverse effect on our business, prospects,
financial condition and results of operations.
If one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects or other safety
concerns caused by such products, a number of potentially significant negative consequences could result.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could
significantly harm our business, prospects, financial condition and results of operations.
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We may not be successful in our efforts to identify or discover additional product candidates.
A key element of our strategy is to expand applications of ATYR1923 to additional immune-mediated diseases, advance the development of
ATYR2810 for cancer indications and leverage our discovery engine to identify the therapeutic potential of NRP2 biology and extracellular proteins
derived from tRNA synthetases to help identify or discover additional product candidates. A significant portion of the research that we are conducting
involves new compounds and drug discovery methods, including our proprietary technology. Our drug discovery activities using our proprietary technology
may not be successful in identifying product candidates that are useful in treating diseases. Our research programs may initially show promise in
identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:
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the research methodology used may not be successful in identifying appropriate potential product candidates; or
potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are
unlikely to be product candidates that will receive marketing approval and achieve market acceptance.
Research programs to identify new product candidates require substantial technical, financial and human resources. We may choose to focus our
efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. If we are unable to identify suitable product candidates for
preclinical and clinical development and regulatory approval, we will not be able to generate product revenues, which would have an adverse impact on our
business, prospects, financial condition and results of operations.
We may face manufacturing stoppages and other challenges associated with the clinical or commercial manufacture of our tRNA synthetase-based
therapeutics.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract development and
manufacturing organizations (CDMOs) for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product
approved for commercial sale or use in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing
processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of
investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent
changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our CDMOs must supply all
necessary documentation in support of a biological license application (BLA) on a timely basis and must adhere to the FDA’s Good Laboratory Practices
and cGMP regulations enforced by the FDA through its facilities inspection program. The facilities and quality systems of our CDMOs and other CROs
must pass a pre-approval inspection for compliance with applicable regulations as a condition of regulatory approval of our product candidates. If these
facilities do not pass a pre-approval plant inspection, FDA approval of the products will not be granted. In response to the global COVID-19 pandemic, in
March 2020 the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products and temporarily postpone
routine surveillance inspections of domestic manufacturing facilities. On July 10, 2020, the FDA announced its intention to restart routine surveillance
inspections of domestic manufacturing facilities on a risk-based basis. If global health concerns continue to prevent the FDA or other regulatory authorities
from conducting their regular inspections, it could impact the ability of our CDMOs to provide us with product for clinical trials.
The regulatory authorities also may, at any time following approval of a product for sale, audit the facilities in which the product is manufactured. If
any such inspection or audit of our facilities or those of our CDMOs and CROs identifies a failure to comply with applicable regulations or if a violation of
our product specifications or applicable regulations occurs independently of such an inspection or audit, we or the relevant regulatory authority may require
remedial measures that may be costly or time-consuming for us or a third party to implement and that 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.
In addition, quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the
conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at our CDMOs and CROs, which
could disrupt our clinical timelines and have a material adverse impact on our business, prospects, financial condition and results of operations.
If we or any of our CDMOs and CROs fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other
things, refusal to approve a pending application for a new biologic product, or revocation of a pre-existing approval. Additionally, if supply from one
approved manufacturer is interrupted, there could be a significant disruption in clinical or commercial supply. An alternative manufacturer would need to
be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new
manufacturer is relied upon for commercial production.
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Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
In addition, the manufacture of our tRNA synthetase-based therapeutic candidates presents challenges associated with biologics production,
including the inherent instability of larger, more complex molecules and the need to ensure uniformity of the drug substance produced in different facilities
or across different batches. The process of manufacturing biologics is extremely susceptible to product loss due to contamination, equipment failure or
improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing and distribution processes
for any of our product candidates could result in reduced production yields, product defects, and other supply disruptions. Furthermore, although tRNA
synthetases represent a class of proteins that may share immuno-modulatory properties in various physiological pathways, each tRNA synthetase has a
different structure and may have unique manufacturing requirements that are not applicable across the entire class. For example, fusion proteins, such as
ATYR1923, include an additional antibody domain to improve PK characteristics, and may therefore require a more complex and time-consuming
manufacturing process than other tRNA synthetase-based therapeutic candidates. Currently, we are producing our ATYR1923 molecule in E.coli by
expression in inclusion bodies and refolding to recreate the native structure. The manufacturing processes for one of our product candidates may not be
readily adaptable to other product candidates that we develop, and we may need to engage multiple third-party manufacturers to produce our product
candidates. Any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages,
lot failures, withdrawals or recalls or other interruptions in the supply of our drug substance and drug product which could delay the development of our
product candidates. We may also have to write off inventory, incur other charges and expenses for supply of drug product that fails to meet specifications or
expires, undertake costly remediation efforts, or seek more costly manufacturing alternatives. Any manufacturing stoppage or delay, or any inability to
consistently manufacture adequate supplies of our product candidates for our clinical trials or on a commercial scale will harm our business, prospects,
financial condition and results of operations.
Even if we complete the necessary preclinical studies and clinical trials, we cannot predict when or if we will obtain regulatory approval to
commercialize a product candidate, and the scope of any approval may be narrower than we expect.
We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our
product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not complete their review processes in a timely manner, or
we may not be able to obtain regulatory approval. Additional delays may result if an FDA advisory committee or regulatory authority recommends non-
approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future
legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the review process.
Regulatory agencies also may approve a product candidate for fewer or more limited indications than requested, may impose restrictions on dosing or may
grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary
or desirable for the successful commercialization of our product candidates.
We may not receive orphan drug designation for our product candidates under any applications for orphan drug designation that we may submit, and
any orphan drug designations that we have received or may receive may not confer marketing exclusivity or other expected commercial benefits.
We may apply for orphan drug designation for our product candidates. Orphan drug status confers up to ten years of marketing exclusivity in
Europe, and up to seven years of marketing exclusivity in the United States, for a particular product that is the first to obtain approval in a specified
indication. We cannot assure you that we will be able to obtain orphan drug designation, or rely on orphan drug or similar designations to exclude other
companies from manufacturing or selling products using the same principal mechanisms of action for the same indications that we pursue beyond these
timeframes. Furthermore, marketing exclusivity in Europe can be reduced from ten years to six years if the initial designation criteria have significantly
changed since the market authorization of the orphan product. Even if we are the first to obtain marketing authorization for an orphan drug indication, there
are circumstances under which a competing product may be approved for the same indication during the period of marketing exclusivity, such as if the later
product is shown to be clinically superior to the orphan product, or if the later product is deemed a different product than ours. Further, the marketing
exclusivity would not prevent competitors from obtaining approval of the same product candidate as ours for indications other than those in which we have
been granted orphan drug designation, or for the use of other types of products in the same indications as our orphan product.
A breakthrough therapy or fast track designation by the FDA may not lead to expedited development or regulatory review or approval.
We may seek, from time to time, breakthrough therapy or fast track designation for our product candidates, although we may elect not to do so. A
breakthrough therapy designation is for a product candidate intended to treat a serious or life-threatening condition, and preliminary clinical evidence
indicates that the product candidate may demonstrate substantial improvement on a clinically significant endpoint(s) over available therapies. A fast track
designation is for a product candidate that treats a serious or life-threatening condition, and preclinical or clinical data demonstrate the potential to address
an unmet medical need. The FDA has broad discretion whether or not to grant these designations. Accordingly, even if we believe a particular product
candidate is eligible
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for breakthrough therapy or fast track designation, we cannot assure you that the FDA would decide to grant it. Even if we receive breakthrough therapy or
fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may
withdraw breakthrough therapy or fast track designation if it believes that the product no longer meets the qualifying criteria. In addition, the breakthrough
therapy program is a relatively new program. As a result, we cannot be certain whether any of our product candidates can or will qualify for breakthrough
therapy designation. Our business may be harmed if we are unable to avail ourselves of these or any other expedited development and regulatory pathways.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could negatively impact our business.
The ability of the FDA to review and approve proposed clinical trials or new products can be affected by a variety of factors, including government
budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees,
and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent
years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political
process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new product
candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last
several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies,
such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory scrutiny.
Even if we obtain regulatory approval for a product candidate, such product will be subject to ongoing regulatory requirements for manufacturing,
labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, adverse event reporting and submission
of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable
foreign regulatory authorities.
We and our CDMOs will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in
any BLA or marketing authorization application (MAA). Accordingly, we and others with whom we work will need to continue to expend time, money,
and effort in all areas of regulatory compliance, including manufacturing, production, and quality control.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the
product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical
trials, and surveillance to monitor the safety and efficacy of the product candidate. If new safety issues emerge, we may be required to change our labeling.
Any new legislation addressing drug safety or efficacy issues could result in delays in product development or commercialization, or increased costs to
assure compliance.
We will have to comply with requirements concerning advertising and promotion for our products. Violations, including actual or alleged
promotion of our products for unapproved, or off-label, uses are subject to enforcement letters, inquiries and investigations, and civil and criminal
sanctions. Any actual or alleged failure to comply with labeling and promotion requirements may have a negative impact on our business. In the United
States, engaging in impermissible promotion of our products for off-label uses can also subject us to false claims litigation under federal and state statutes,
which can lead to civil and criminal penalties and fines, agreements that would materially restrict the manner in which we promote or distribute our drug
products and exclusion from Medicare, Medicaid and other federal and state healthcare programs. These false claims statutes include the federal False
Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of
false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the
government prevails in the lawsuit, the individual will share in any fines or settlement funds. If we do not lawfully promote our approved products, we may
become subject to such litigation and, if we are not successful in defending against such actions, those actions could compromise our ability to become
profitable.
The holder of an approved BLA or MAA must submit new or supplemental applications and obtain approval for certain changes to the approved
product, product labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our
products in general or in specific patient subsets. If original marketing approval were obtained through an accelerated approval pathway, we could be
required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our products. An unsuccessful post-marketing study or failure to
complete such a trial could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or
problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling
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of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we
fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
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issue untitled or warning letters;
impose civil or criminal penalties;
suspend or withdraw regulatory approval;
suspend any of our ongoing clinical trials;
refuse to approve pending applications or supplements to approved applications submitted by us;
impose restrictions on our operations, including closing our CDMOs’ facilities; or
seize or detain products, or require or request a product recall.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate
negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and
generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating
results will be adversely affected.
Risks related to our reliance on third parties
We depend on our existing collaborations and may depend on collaborations with additional third parties for the development and commercialization of
certain of our product candidates. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product
candidates.
We have entered into, and may continue to enter into, research collaborations for the research and development of specified product candidates. Our
sole source of revenue depends upon the performance by these collaborators of their responsibilities under these arrangements. For example, while we are
eligible to receive up to an additional $165.0 million in the aggregate milestone payments under the Kyorin Agreement, as well as tiered royalties ranging
from the mid-single digits to mid-teens on net sales in Japan, whether and when we receive these payments will depend on Kyorin’s development and
commercialization of ATYR1923 in Japan, over which we have limited control. The development efforts of our collaborators are subject to the same risks
and uncertainties described above with respect to our independently developed product candidates.
Some collaborators may not succeed in their product development efforts. It is possible that our collaborators may be unable to obtain regulatory
approval of our product candidates or successfully market and commercialize any such products for which regulatory approval is obtained. For example, if
Kyorin’s operations are limited due to the COVID-19 outbreak in Japan or in other regions where Kyorin operates or relies on third party operations, the
development of ATYR1923 in Japan may be significantly delayed and adversely affected, which may in turn delay or limit our receipt of any additional
payments under the Kyorin Agreement. Other collaborators may not devote sufficient time or resources to the programs covered by these arrangements,
and we may have limited or no control over the time or resources allocated by these collaborators to these programs. The occurrence of any of these events
may cause us to derive little or no revenue from these arrangements, lose opportunities to validate our product candidates, or force us to curtail or cease our
development efforts in these areas.
Our collaborators may breach or terminate their agreements with us, including termination without cause at subject to certain prior written notice
requirements, and we may be unsuccessful in entering into and maintaining other collaborative arrangements for the development of product candidates.
For example, following the first anniversary of the effective date of the Kyorin Agreement, Kyorin has the right to terminate the agreement for any reason
upon 90 days advance written notice to us. In addition, if we are unable to maintain existing collaboration arrangements or enter into new ones, our ability
to generate licensing, milestone or royalty revenues would be materially impaired.
We rely, and expect to continue to rely, on third parties to conduct some or all aspects of our product manufacturing, protocol development, research
and preclinical and clinical testing, and these third parties may not perform satisfactorily.
We currently rely, and expect to continue to rely, on third parties to conduct some or all aspects of product manufacturing, protocol development,
research and preclinical and clinical testing with respect to our product candidates. Any of these third parties may terminate their engagements with us at
any time. If we need to enter into alternative arrangements, it could delay our product development activities. Our reliance on these third parties for
research and development activities reduces our control over these activities but does not relieve us of our responsibility to ensure compliance with all
required regulations and study protocols. For example, for any product candidates that we develop and commercialize on our own, we will remain
responsible for ensuring that each
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of our clinical trials is conducted in accordance with the applicable study plan and protocols and GCPs so long as we continue to develop and
commercialize on our own.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our research and development
activities, including clinical trials, in accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or
may be delayed in completing, the preclinical studies and clinical trials required to support future BLA submissions and approval of our product
candidates.
We rely and intend to rely on third parties to produce preclinical, clinical and commercial supplies of our product candidates.
Other than some internal capacity to support preclinical activities, we do not have, nor do we plan to acquire, the infrastructure or capability
internally to manufacture our preclinical and clinical quantities of our product candidates, and we lack the internal resources and capability to manufacture
any of our product candidates on a clinical or commercial scale. Reliance on CDMOs and CROs entails risks to which we would not be subject if we
manufactured the product candidates ourselves, including:
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the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
reduced control as a result of using third-party CDMOs and CROs for all aspects of manufacturing activities;
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and
disruptions to the operations of our CDMOs, CROs or suppliers caused by conditions unrelated to our business or operations, including the
insolvency or bankruptcy of the CDMOs, CROs or supplier.
Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize
future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.
Additionally, each CDMO may require licenses to manufacture our product candidates or components thereof if the applicable manufacturing
processes are not owned by the CDMO or in the public domain, and we may be unable to transfer or sublicense the intellectual property rights we may have
with respect to such activities. These factors could cause the delay of clinical development, regulatory submissions, required approvals or
commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully.
We currently rely on a single CDMO for process development and scale-up of ATYR1923, including the manufacture of bulk drug substance for
our projected needs for initial clinical trials. We do not have long-term contracts with our CDMOs, and our CDMOs may terminate their agreements with
us for a variety of reasons including technical issues or our material breach of our obligations under the applicable agreement. Furthermore, our CDMOs
may reallocate resources away from the production of our product candidates if we delay manufacturing under certain circumstances, and the
manufacturing facilities in which our product candidates are made could be adversely affected by earthquakes and other natural disasters, labor shortages,
power failures, and numerous other factors. If our CDMOs fail to meet contractual requirements, and we are unable to secure one or more replacement
CDMOs capable of production at a substantially equivalent cost, our clinical development activities may be delayed, or we could lose potential revenue.
Manufacturing biologic drugs is complicated and tightly regulated by the FDA and comparable regulatory authorities around the world, and although
alternative CDMOs with the necessary manufacturing and regulatory expertise and facilities exist, it could be expensive and take a significant amount of
time to arrange for alternative CDMOs, transfer manufacturing procedures to these alternative CDMOs, and demonstrate comparability of material
produced by such new CDMOs. New CDMOs of any product would be required to comply with applicable regulatory requirements. These CDMOs may
not be able to manufacture our product candidates at costs, or in quantities, or in a timely manner necessary to complete the clinical development of our
product candidates or make commercially successful products.
We rely, and expect to continue to rely, on third parties to conduct, supervise and monitor our clinical trials, and if these third parties perform in an
unsatisfactory manner, it may harm our business.
We have relied, and expect to continue to rely, on third-party CROs, clinical investigators and clinical trial sites to ensure our clinical trials are
conducted properly and on time. While we have and will continue to enter into agreements governing their activities, we will have limited influence over
their actual performance. We will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our
clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements, and scientific standards, and our reliance on the
CROs does not relieve us of our regulatory responsibilities.
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We and our investigators and CROs are required to comply with GCPs for conducting, recording and reporting the results of clinical trials to assure
that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The
FDA enforces GCPs through periodic inspections of study sponsors, principal investigators and clinical trial sites. If we or our investigators and CROs fail
to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA may require us to perform
additional unanticipated clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not
comply with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of our
product candidates. Accordingly, if our investigators and CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we
may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our investigators and CROs are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and
resources to our clinical and preclinical programs. They may also have relationships with other commercial entities, including our competitors, for whom
they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If our investigators or CROs do
not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain
is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be
extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a
result, our financial results would be harmed, our costs could increase, our ability to generate revenues could be delayed and the commercial prospects for
our product candidates will be adversely affected.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade
secrets will be misappropriated or disclosed.
We rely on third parties to manufacture our product candidates, and we collaborate with both industry and various academic institutions in the
development of our discovery engine for therapeutic applications based on tRNA synthetase biology. In connection with these activities, we are required, at
times, to share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable,
material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors,
employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties
to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third parties, the need
to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently
incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on
our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive
position and may have a material adverse effect on our business, prospects, financial condition and results of operations.
In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially
relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay
publication for a specified time in order to secure intellectual property rights to which we are entitled arising from the collaboration. In other cases,
publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. We also conduct joint research and
development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements.
Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent
development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of
publication. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business, prospects,
financial condition and results of operations.
Risks related to our intellectual property
If we are unable to obtain, maintain or protect intellectual property rights related to our product candidates, or if the scope of such intellectual property
protection is not sufficiently broad, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our
technologies and product candidates. Our success depends in large part on our and our licensors’ abilities to obtain and maintain patent and other
intellectual property protection in the United States and in other countries for our proprietary technology and product candidates.
We have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies
and product candidates that are important to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all
necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also
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possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
The patentability of inventions, and the validity, enforceability and scope of patents in the biotechnology and pharmaceutical fields involves
complex legal and scientific questions and can be uncertain. As a result, patent applications that we own or in-license may not issue as patents with claims
that cover our product candidates, or at all, in the United States or in foreign countries for many reasons. For example, there is no assurance that we were
the first to invent or the first to file patent applications in respect of the inventions claimed in our patent applications or that our patent applications claim
patentable subject matter. We may also be unaware of potentially relevant prior art relating to our patents and patent applications, and this prior art, if any,
may be used by third parties as grounds to seek to invalidate a patent or to prevent a patent from issuing from a pending patent application. Even if patents
do successfully issue and even if such patents disclose aspects of our product candidates, third parties may challenge their validity, enforceability or scope,
which may result in such patents being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not
adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. If the
breadth or strength of protection provided by the patents and patent applications we hold, license or pursue with respect to our product candidates is
threatened, it could threaten our ability to commercialize our product candidates. Further, if we encounter delays in our clinical trials, the period of time
during which we could market any of our product candidates under patent protection, if approved, would be reduced. Since patent applications in the
United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent
application related to our product candidates. Changes to the patent laws in the United States and other jurisdictions could also diminish the value of our
patents and patent applications or narrow the scope of our patent protection. Any of these outcomes could impair our ability to prevent competition from
third parties, which may have an adverse impact on our business.
If the patent applications we own or have in-licensed that relate to our programs or product candidates do not issue as patents, if their breadth or
strength of protection is threatened, or if they fail to provide exclusivity for our product candidates, it could dissuade companies from collaborating with us
to develop product candidates, and threaten our ability to commercialize future products. We cannot offer any assurances about which, if any, patents will
issue, the breadth of any such patents or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any
successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful
commercialization of any product candidates that we may develop. In addition, patents have a limited term. In the United States, the natural expiration of a
patent is generally 20 years after it is filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even
if a patent does issue for any of our pending patent applications, possible delays in regulatory approvals could mean that the period of time during which
we could market a product candidate under patent protection could be reduced from what we generally would expect. Since patent applications in the
United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were
the first to file any patent application related to a product candidate. Furthermore, if third parties have filed such patent applications, an interference
proceeding in the United States can be initiated by a third party to determine who was the first to invent any of the subject matter covered by the patent
claims of our applications. Even if patents covering aspects of our product candidates are obtained, once the patent life has expired for a product, we may
be open to competition from generic medications.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how
that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate
discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. 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, but it is possible that these
security measures could be breached. Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees,
consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality
agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary
information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent
information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade
secrets, and we may not be able to obtain adequate remedies for such breaches. Misappropriation or unauthorized disclosure of our trade secrets could
impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps we take to maintain the confidentiality of
our trade secrets are inadequate, we may have insufficient recourse against third parties for misappropriating our proprietary information and processes. In
addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is
currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade
secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all.
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If due to the COVID-19 pandemic we are unable to generate new animal, or in vitro data, in time to support new, or updated patent application
filings, or prior to patent conversion deadlines, it could materially impact the enforceability or scope of those patent filings.
If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no
guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our
market, which could materially adversely affect our business, results of operations and financial condition.
Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United
States. As a result, we may encounter significant problems in preventing third parties from practicing our inventions in countries outside the United States,
or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
Claims that our product candidates or the manufacture, sale or use of our future products infringe the patent or other intellectual property rights of
third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial
amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and
pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the United
States Patent and Trademark Office (USPTO) and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and
pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the
patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product
candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued
patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes
upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product
candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our
ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.
Similarly, if any third-party patents are held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or
methods of use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we
obtain a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and
commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and
would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to
pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one
or more licenses from third parties, which may not be able to be obtained on reasonable commercial terms or at all, or require substantial time and
monetary expenditure.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years
from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even
if patents covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products,
including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio
may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may not be successful in obtaining or maintaining necessary rights to our therapeutic product candidates and processes for our development
pipeline through acquisitions and in-licenses.
We believe that we have rights to intellectual property, through licenses from third parties and under patents that we own, that is necessary or useful
to develop our product candidates. Because our programs may involve additional product candidates that may require the use of proprietary rights held by
third parties, the growth of our business will likely depend in part on our ability to acquire,
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in-license or use these proprietary rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and these
rights may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual
property rights from third parties that we identify on reasonable commercial terms or at all. The licensing and acquisition of third-party intellectual property
rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property
rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater
clinical development and commercialization capabilities.
We sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development under written
agreements with these institutions. These institutions may provide us with an option to negotiate a license to the institution’s rights in technology resulting
from the collaboration. Regardless of any such right of first negotiation for intellectual property, we may be unable to negotiate a license within the
specified time frame or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other
parties, potentially blocking our ability to pursue our program.
In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or
acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. If we are unable to
successfully obtain rights to required third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise
experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
We are a party to a number of intellectual property license agreements that are important to our business and expect to enter into additional license
agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone
payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the
licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done
so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable commercial terms, if at all. In that event, we may be
required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or
commercialize the affected product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do
not exist which might be enforced against our current product candidates or future products, resulting in either an injunction prohibiting our sales, or, with
respect to our sales, an obligation on our part to pay royalties or other forms of compensation to third parties.
In some cases, patent prosecution of our licensed technology is controlled by the licensor. If our licensors fail to obtain and maintain patent or other
protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect
to those rights, and our competitors could market competing products using such intellectual property. In certain cases, we may control the prosecution of
patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to
our licensors. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues and is
complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a license agreement,
including:
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the scope of rights granted under the license agreement and other interpretation-related issues;
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;
the sublicensing of patent and other rights under our collaborative development relationships;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our
sublicensees or partners, if any; and
the priority of invention of patented technology.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on
acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
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We may become involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and
unsuccessful.
Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To counter
infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims that we assert
against perceived infringers could also provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property rights. In
addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable or is not infringed, 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 or interpreted narrowly and could put our patent
applications at risk of not issuing.
Interference or derivation proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions or other
matters of inventorship with respect to our patents or patent applications or those of our licensors. We may also become involved in other proceedings, such
as re-examination or opposition proceedings, before the USPTO or its foreign counterparts relating to our intellectual property or the intellectual property
rights of others. An unfavorable outcome in any such proceedings could require us to cease using the related technology or to attempt to license rights to it
from the prevailing party, or could cause us to lose valuable intellectual property rights. Our business could be harmed if the prevailing party does not offer
us a license on commercially reasonable terms, if any license is offered at all. Our defense of litigation or interference proceedings may fail and, even if
successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors,
misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. In
addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical
trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our
product candidates to market. We may also become involved in disputes with others regarding the ownership of intellectual property rights. For example,
we jointly develop intellectual property with certain parties, and disagreements may therefore arise as to the ownership of the intellectual property
developed pursuant to these relationships. If we are unable to resolve these disputes, we could lose valuable intellectual property rights.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of
our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a
material adverse effect on the price of our common stock.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of
third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our
competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have
inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former
employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying
monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in
defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other
intellectual property. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in
developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership, or we may
enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome
could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management and other employees.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents or applications will be due to be paid to the
USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents or applications. We have
systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent
agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other similar provisions during the patent application process. We employ law firms and other professionals to help us comply, and in many cases, an
inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which
non-compliance 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. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If we or one of our licensors initiated 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 is invalid or unenforceable. In patent litigation in the United States, defendant
counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several
statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that
someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution.
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 and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of
invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our business.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with many other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining
and enforcing patents in the biotechnology industry involve both technological and legal complexity, and therefore obtaining, maintaining and enforcing
biotechnology patents is costly, time-consuming and inherently uncertain. In addition, recent legislative and judicial developments in the United States and
elsewhere have in some cases removed the protection afforded to patent owners, made patents more difficult to obtain, or increased the uncertainty
regarding the ability to obtain, maintain and enforce patents. For example, Congress has recently passed, and the United States is currently implementing,
wide-ranging patent reform legislation, and may pass further patent reform legislation in the future. 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. For example, in Association for
Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to naturally occurring substances are not patentable.
Although 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. 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 generally, once obtained.
Depending on decisions and actions by the U.S. Congress, the federal courts, the USPTO and their respective foreign counterparts, the laws and regulations
governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to maintain and enforce our existing patents
and patents that we might obtain in the future.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the validity or defense
of our issued patents.
On September 16, 2011, the Leahy-Smith America Invents Act (the Leahy-Smith Act) was signed into law. The Leahy-Smith Act includes a
number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent
litigation. The USPTO is developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to
patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, were enacted March 16, 2013. Although it is not clear what, if
any, impact the Leahy-Smith Act will have on the operation of our business, the Leahy-Smith Act and its implementation could increase the uncertainties
and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material
adverse effect on our business and financial condition.
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We may not be able to protect our intellectual property rights throughout the world.
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 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 biotechnology 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.
Risks related to our business operations
We may use our financial and human resources to pursue a particular business strategy, research program or product candidate and fail to capitalize
on strategies, programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may forego or delay pursuit of certain strategic opportunities or opportunities with certain programs, product
candidates or indications that later prove to have greater commercial potential. We may focus on or pursue one indication over another potential indication
and such development efforts may not be successful, which would cause us to delay the clinical development and approval of ATYR1923, ATYR2810 and
other product candidates. In addition, our decisions as to which of our discovery programs to advance into preclinical and clinical development could
preclude us from advancing others. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. In addition, we may elect to pursue a research, clinical or commercial strategy that ultimately does not yield the results that we desire. Our
spending on current and future research and development programs for product candidates may not result in any commercially viable products. If we do not
accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate
through strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole
development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area or
market in which it would have been more advantageous to enter into a partnering arrangement. Any failure to allocate resources or capitalize on strategies
in a successful manner will have an adverse impact on our business.
Our business could continue to be adversely affected by the effects of the COVID-19 pandemic.
The global pandemic resulting from the disease known as COVID-19 caused by a novel strain of coronavirus, SARS-CoV-2, has caused national
and global economic and financial market disruptions. In 2020, the COVID-19 pandemic was declared a national emergency and many states and
municipalities in the United States have announced aggressive actions to reduce the spread of the disease, including limiting non-essential gatherings of
people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-essential operations at physical locations and
issuing “shelter-in-place” orders which direct individuals to shelter at their places of residence (subject to limited exceptions). As a result, most of our
employees are currently telecommuting, which has impacted certain of our operations and may continue to do so over the long term. We may experience
further limitations on employee resources in the future, including because of sickness of employees or their families. The effects of government actions
and our own policies and those of third parties to reduce the spread of COVID-19 have negatively impacted productivity and slowed down or delayed our
ongoing and future clinical trials, preclinical studies and research and development activities, and may cause disruptions to our supply chain. In the event
that government authorities were to enhance current restrictions, our employees who currently are not telecommuting may no longer be able to access our
facilities, and our operations may be further limited or curtailed.
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As COVID-19 continues to spread, we may experience ongoing disruptions that could severely impact our business, preclinical studies and
clinical trials, including:
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delays in receiving approval from local regulatory authorities to initiate future clinical trials;
delays or difficulties in enrolling and retaining patients in our clinical trials;
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including as a result of manufacturing
delays and interruptions in global shipping that may affect the transport of clinical trial materials;
changes in local regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our
clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial
sites and hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by
federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of
which could affect the integrity of clinical trial data;
interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines;
risk that participants enrolled in our Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis will acquire COVID-19 while the
clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse
events;
refusal of the FDA to accept data from clinical trials in affected geographies; and
delays or difficulties in completing research required to support our pending patent applications.
These and other disruptions in our operations and the global economy could negatively impact our business, operating results and financial
condition.
Our Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis has been and will likely continue to be, negatively affected by the COVID-19
pandemic. In 2020, many clinical trial sites in this clinical trial temporarily suspended dosing of previously-enrolled patients and/or enrollment of new
patients and some patients discontinued from the trial. While we completed enrollment in December 2020, the availability of top-line results from this
clinical trial has been delayed until the third quarter of this year. Although this trial has completed enrollment, the COVID-19 pandemic could impact the
anticipated timing of such results, and patients may decide or be required to discontinue participation in the clinical trial due to inconvenience, burden of
trial requirements, adverse events associated with ATYR1923, limitations required by trial protocols or other reasons.
Additionally, under the terms of the Kyorin Agreement, we rely on Kyorin to fund all research, development, regulatory, marketing and
commercialization activities in Japan. If Kyorin’s operations are limited due to the COVID-19 outbreak in Japan or in other regions where Kyorin operates
or relies on third party operations, the development of ATYR1923 in Japan may be significantly delayed and adversely affected, which may in turn delay or
limit our receipt of any additional payments under the Kyorin Agreement.
Further, we currently rely, and expect to continue to rely, on third parties to conduct some or all aspects of product manufacturing, protocol
development, and research and preclinical and clinical testing with respect to our product candidates. While many materials on which we rely may be
obtained by more than one supplier, port closures, travel bans and other restrictions resulting from the COVID-19 outbreak may disrupt our supply chain or
limit our ability to obtain sufficient materials to conduct our operations.
As a result of these events and uncertainties, we may need to obtain additional funding through a combination of equity offerings, grant funding,
collaborations, strategic partnerships and/or licensing arrangements, and potentially through debt financings, if available on acceptable terms or at all. We
may be unable to raise additional funds on acceptable terms or at all. As a result of the COVID-19 pandemic and actions taken to slow its spread, the global
credit and financial markets have experienced volatility and disruptions, including severely diminished liquidity and credit availability, declines in
consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit
markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. The impact of COVID-19 on capital
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markets may affect the availability, amount and type of financing available to us in the future. If we are unable to raise additional funds, we may be
required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product
candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
COVID-19 and actions taken to reduce its spread continue to rapidly evolve. The extent to which COVID-19 may impede the development of our
product candidates, reduce the productivity of our employees, disrupt our supply chains, delay our clinical trials, reduce our access to capital or limit our
business development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence.
Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.
We are highly dependent on principal members of our executive team, the loss of whose services may adversely impact the achievement of our
objectives. While we have entered into employment agreements with each of our executive officers, any of them could leave our employment at any time,
as all of our employees are “at will” employees. Recruiting and retaining other qualified employees, consultants and advisors for our business, including
scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled personnel in our industry, which is likely to
continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on
acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets.
In addition, the available pool of skilled employees may be further reduced if immigration laws change in a manner that increases restrictions on
immigration.
Further, failure to succeed in preclinical studies or clinical trials may make it more challenging to recruit and retain qualified personnel. The
inability to recruit or loss of the services of any executive, key employee, consultant or advisor may impede the progress of our research, development and
commercialization objectives. Additionally, approximately 30% of our outstanding stock options is currently trading at a price below the exercise price. As
a result, these “underwater” options are less useful as a motivation and retention tool for our existing employees.
We may undertake internal restructuring activities in the future that could result in disruptions to our business or otherwise materially harm our
results of operations or financial condition.
From time to time we may undertake internal restructuring activities as we continue to evaluate and attempt to optimize our cost and operating
structure in light of developments in our business strategy and long-term operating plans. For example, we implemented a corporate restructuring and
program prioritization plan in May 2018 that included a reduction in our workforce. Any such restructuring activities may result in write-offs or other
restructuring charges. There can be no assurance that any restructuring activities that we have undertaken or undertake in the future will achieve the cost
savings, operating efficiencies or other benefits that we may initially expect. Restructuring activities may also result in a loss of continuity, accumulated
knowledge and inefficiency during transitional periods and thereafter. In addition, internal restructurings can require a significant amount of time and focus
from management and other employees, which may divert attention from commercial operations. If any internal restructuring activities we have undertaken
or undertake in the future fail to achieve some or all of the expected benefits therefrom, our business, results of operations and financial condition could be
materially and adversely affected.
We are subject to a variety of risks associated with international operations that could materially adversely affect our business.
We currently conduct research activities through Pangu BioPharma Limited, in collaboration with the Hong Kong University of Science and
Technology. Additionally, we have conducted clinical trials in the European Union (EU) and in Australia and may conduct future clinical trials
internationally. Our partner, Kyorin, is currently completing a ATYR1923 Phase 1 study in healthy volunteers in Japan. If any of our product candidates are
approved for commercialization outside of the United States, we expect to either use our own sales organization or selectively enter into agreements with
third parties to market our products on a worldwide basis or in more limited geographical regions, as with Kyorin and ATYR1923 in Japan. We are, and we
expect that we will continue to be, subject to a variety of risks related to international operations, including, but not limited to: different regulatory
requirements for approval of drugs and biologics in foreign countries; reduced or uncertain protection for intellectual property; unexpected changes in
tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular foreign economies and
markets; compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; foreign currency fluctuations, which
could result in reduced revenues, and other obligations incident to doing business in another country; and the global impacts of the COVID-19 pandemic.
Any failure to continue our international operations or to commercialize our product candidates outside of the United States may impair our ability
to generate revenues and harm our business, prospects and results of operations.
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Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-
compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners.
Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate
information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report
financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare
industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive
programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in significant regulatory sanctions and cause serious harm to our reputation. We have adopted a code of business conduct and ethics
applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or
other actions or lawsuits stemming from a failure to comply with these laws or 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
significant fines or other sanctions.
We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our
product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory
approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.
The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of
product liability claims. Product liability claims might be brought against us by patients, healthcare providers, pharmaceutical companies or others selling
or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend
against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims
may result in:
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impairment of our business reputation;
withdrawal of clinical trial participants;
costs due to related litigation;
distraction of management’s attention from our primary business;
substantial monetary awards to patients or other claimants;
the inability to commercialize our product candidates; and
decreased demand for our product candidates, if approved for commercial sale.
We carry product liability insurance for our clinical trials covering $10.0 million per occurrence and up to $10.0 million in the aggregate, subject to
certain deductibles and exclusions. Although we believe the amount of our insurance coverage is typical for companies similar to us in our industry, we
may not have adequate insurance coverage or be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of
commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On
occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A
successful product liability claim or series of claims brought against us could cause our stock price to decline and adversely affect our reputation and, if
judgments exceed our insurance coverage, could adversely affect our results of operations and business.
Patients with the diseases targeted by our product candidates are often already in severe and advanced stages of disease and may have both known
and unknown significant pre-existing and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events,
including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial
amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or
require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our
products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our
regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result
of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results
of operations.
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We may be subject to certain regulations, including federal and state healthcare fraud and abuse laws and health information privacy and security
laws. Any failure to comply with these regulations could have a material adverse effect on our business and financial condition.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be
subject to various federal and state healthcare laws, including, without limitation, fraud and abuse laws, including false claims and anti-kickback laws, data
privacy and security laws, including the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology
for Economic and Clinical Health Act, as well as transparency laws regarding payments or other items of value provided to healthcare providers. These
laws may impact, among other things, our research, proposed sales, marketing and education programs. In addition, we may be subject to patient privacy
regulation by both the federal government and the states in which we conduct our business. It is possible that some of our business activities could be
subject to challenge under one or more of these laws. If our operations are found to be in violation of any of the laws described above or any other
governmental regulations that apply to us, we may be subject to penalties, including significant administrative civil and criminal penalties, damages, fines,
disgorgement, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, additional reporting
requirements and regulatory oversight and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our
business and our results of operations.
In addition, as of May 25, 2018, the General Data Protection Regulation (GDPR), regulates the collection and use of personal data in the EU. The
GDPR covers any business, regardless of its location, that provides goods or services to residents in the EU and, thus, could incorporate our activities in EU
member states. The GDPR imposes strict requirements on controllers and processors of personal data, including special protections for “sensitive
information,” which includes health and genetic information of individuals residing in the EU. The GDPR grants individuals the opportunity to object to
the processing of their personal information, allows them to request deletion of personal information in certain circumstances, and provides the individual
with an express right to seek legal remedies in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules
on the transfer of personal data out of the EU to regions that have not been deemed to offer “adequate” privacy protections, such as the U.S. currently.
Failure to comply with the requirements of the GDPR and related national data protection laws of the EU member states, which may deviate slightly from
the GDPR, may result in warning letters, mandatory audits and financial penalties, including fines of up to 4% of global revenues, or €20,000,000,
whichever is greater. As a result of the implementation of the GDPR, we may be required to put in place additional mechanisms ensuring compliance with
the new data protection rules.
Further, there is significant uncertainty related to the manner in which data protection authorities will seek to enforce compliance with GDPR. For
example, it is unclear whether the authorities will conduct random audits of companies doing business in the EU, or act solely after complaints are filed
claiming a violation of the GDPR. The lack of compliance standards and precedent, enforcement uncertainty and the costs associated with ensuring GDPR
compliance may be onerous and adversely affect our business, financial condition, results of operations and prospects.
In addition, California enacted the California Consumer Privacy Act (CCPA), which creates new individual privacy rights for California consumers
(as defined in the law) and places increased privacy and security obligations on entities handling certain personal data of consumers or households. The
CCPA requires covered companies to provide new disclosure to consumers about such companies’ data collection, use and sharing practices, provide such
consumers new ways to opt-out of certain sales or transfers of personal information, and provide consumers with additional causes of action. The CCPA
went into effect on January 1, 2020, and the California Attorney General may bring enforcement actions for violations beginning July 1, 2020. The CCPA
was amended on September 23, 2018, and it remains unclear what, if any, further modifications will be made to this legislation or how it will be
interpreted. As currently written, the CCPA may impact our business activities and exemplifies the vulnerability of our business to the evolving regulatory
environment related to personal data and protected health information.
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example,
the global financial crisis caused volatility and disruptions in the capital and credit markets. For example, in March 2017, the U.K. government provided
official legal notification to the EU that the U.K. will exit the EU (commonly referred to as Brexit), which could lead to a period of considerable
uncertainty, particularly in relation to global financial markets which in turn could adversely affect our ability to raise additional capital. In addition, due to
the COVID-19 pandemic, the global credit and financial markets have recently experienced extreme volatility and disruptions, including diminished
liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about
economic stability. A severe or prolonged economic downturn, such as the global financial crisis, could result in a variety of risks to our business, including
inability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our CDMOs, possibly
resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic
climate and financial market conditions could adversely impact our business.
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We or the third parties upon whom we depend may be adversely affected by earthquakes, droughts, floods, fires, hurricanes or other natural disasters
and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
We are located in San Diego, California and our manufacturing activities are conducted by CDMOs at various locations in the United States. We
conducted our Phase I clinical trial for ATYR1923 in Australia and we have a subsidiary in Hong Kong. Our current clinical trial is being conducted in sites
across the United States. Some of these geographic locations have in the past experienced natural disasters, including severe earthquakes. Earthquakes,
droughts, floods, fires, hurricanes, disease epidemics or other natural disasters could severely disrupt our operations, and have a material adverse effect on
our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from
using all or a significant portion of our facilities, that damaged critical infrastructure, such as the manufacturing facilities of our CDMOs, or that otherwise
disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster
recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar
event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, as well as limits on our
insurance coverage, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
Risks related to the commercialization of our product candidates
If we are unable to establish sales, marketing and distribution capabilities or enter into agreements with third parties to market and sell our product
candidates, we may be unable to generate any revenues.
We do not currently have any infrastructure for the sales, marketing and distribution of pharmaceutical products. In order to market our product
candidates, if approved by the FDA or any other regulatory body, we must build our sales, marketing, distribution, managerial and other non-technical
capabilities or make arrangements with third parties to perform these services. There are risks involved with both establishing our own sales and marketing
capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and
time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish
marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses.
This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
If we enter into arrangements or collaborations with third parties to perform sales, marketing and distribution services, our product revenues or the
profitability of these product revenues to us are likely to be lower than if we were to market, sell or distribute any medicines that we develop ourselves. In
addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on
terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and
attention to sell and market our medicines effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in
collaboration with third parties, we will not be successful in commercializing our product candidates.
We rely on third-party manufacturers to produce our product candidates, but we have not entered into agreements with any such manufacturers to
support commercialization.
We have not yet secured manufacturing capabilities for commercial quantities of any of our product candidates. Although we intend to rely on
third-party manufacturers for commercialization, we have not yet entered into a long-term commercial supply agreement to support full scale commercial
production, and we or our CDMOs may be unable to process validation activities necessary to enter into commercial supply agreements or otherwise
negotiate agreements with the manufacturers to support our commercialization activities at commercially reasonable terms.
We may run into technical or scientific issues related to development or manufacturing that we may be unable to resolve in a timely manner or with
available funds. If we or our CDMOs are unable to scale the manufacturing process to produce commercial quantities of our product candidates, or our
CDMOs do not pass required regulatory pre-approval inspections, our commercialization efforts will be harmed.
In addition, any significant disruption in our relationships with our CDMOs could harm our business. There are a relatively small number of
potential manufacturers for our product candidates, and such manufacturers may not be able to supply our drug products at the times we need them or on
commercially reasonable terms. Any disruption to our relationship with our current CDMOs and any manufacturers that we contract with in the future will
result in delays in our ability to complete the clinical development of, or to commercialize, our product candidates, and may require us to incur additional
costs.
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We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are more advanced or
effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our product candidates.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have
competitors both in the United States and internationally, including major multi-national pharmaceutical companies, biotechnology companies and
universities and other research institutions. Although we believe we are the only company engaged in the discovery and development of therapeutics based
on novel functions of tRNA synthetases and NRP2 biology, we are aware of other companies that could compete with our product candidate, ATYR1923
for the treatment of pulmonary sarcoidosis and other ILD and for the treatment of severe respiratory complications associated with COVID-19.
Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and
experienced marketing and manufacturing organizations. Competition may increase further as a result of advances in the commercial applicability of
technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an
exclusive basis, products that are more effective, safer, more convenient or less costly than any product candidate that we may develop, or achieve earlier
patent protection, regulatory approval, product commercialization and market penetration than us. Additionally, technologies developed by our competitors
may render our potential product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against
competitors.
The commercial success of any current product candidate or future product candidates will depend upon the degree of market acceptance by
physicians, patients, third-party payors and others in the medical community.
Even with the requisite approval from the FDA and comparable foreign regulatory authorities, the commercial success of our product candidates
will depend in part on the medical community, patients, and third-party payors accepting our product candidates as medically useful, cost-effective, and
safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical
community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become
profitable.
Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product
will not be known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the product candidates
may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the
conventional technologies marketed by our competitors, and our competitors may have substantially greater resources or brand recognition to effectively
market their products. If our product candidates are approved but fail to achieve an adequate level of acceptance by physicians, patients, third-party payors,
and others in the medical community, we will not be able to generate sufficient revenue to become or remain profitable.
The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and
reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.
The availability and extent of coverage and adequate reimbursement by third-party payors, including government health administration authorities,
private health coverage insurers, managed care organizations and other third-party payors is essential for most patients to be able to afford expensive
treatments. Sales of any of our product candidates that receive marketing approval will depend substantially, both in the United States and internationally,
on the extent to which the costs of such product candidates will be covered and reimbursed by third-party payors. If reimbursement is not available, or is
available only to limited levels, we 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 to establish or maintain pricing sufficient to realize an adequate return on our investment
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal
decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services (CMS), as CMS decides whether
and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors often follow CMS with respect to coverage policy and
payment limitations in setting their own reimbursement policies. It is difficult to predict what CMS will decide with respect to reimbursement for
fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products. One third-party payor’s
determination to provide coverage for a product candidate does not assure that other payors will also provide coverage for the product candidate. Further,
no uniform policy for coverage and reimbursement exists in the United States, and coverage and reimbursement can differ significantly from payor to
payor. As a result, the coverage determination process is often time-consuming and costly. This process will require us to provide scientific and clinical
support for the use of our products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be applied
consistently or obtained in the first instance. Reimbursement agencies in Europe may be more conservative than third-party payors in the United States. For
example, a number of cancer drugs have been approved for reimbursement in the United States, but have not been approved for reimbursement in certain
European countries. There may be
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significant delays in obtaining reimbursement for newly approved medicines, and our inability to promptly obtain coverage and profitable payment rates
from third-party payors for any approved medicines could have a material adverse effect on our business, prospects, financial condition and results of
operations.
Outside the United States, international sales are generally subject to extensive governmental price controls and other market regulations, and we
believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing
and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national
health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to
fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could
restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our
products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits. Net prices for
medicines may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation
of laws that currently restrict imports of medicines from countries where they may be sold at lower prices than in the United States.
Moreover, increasing efforts by governmental and third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause
such organizations to limit both coverage and level of reimbursement for new products and, as a result, they may not cover or provide adequate payment
for our product candidates. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
of 2010 (collectively, the ACA) was passed in March 2010, and substantially changed the way healthcare is financed by both governmental and private
insurers, and continues to significantly impact the U.S. pharmaceutical industry. There have been executive, judicial and congressional challenges to certain
aspects of the ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. While Congress has not passed
comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, starting January 1, 2019, for
not complying with the ACA’s individual mandate to carry health insurance. In addition, the 2020 federal spending package permanently eliminated,
effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective
January 1, 2021, also eliminates the health insurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in
its entirety because the “individual mandate” was repealed by Congress as part of the legislation enacted in 2017 (Tax Cuts and Jobs Act of 2017).
Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that the individual mandate was unconstitutional and remanded the
case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The United States Supreme Court is currently
reviewing this case, although it is unclear when a decision will be made or how the Supreme Court will rule. Although the Supreme Court has not yet ruled
on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February
15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs
certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others,
reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to
obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the Supreme Court ruling, other such litigation, and the
healthcare reform measures of the Biden administration will impact the ACA and our business.
In addition, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of
prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation
designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs,
and reform government program reimbursement methodologies for products. For example, on July 24, 2020 and September 13, 2020, President Trump
announced several executive orders related to prescription drug pricing that attempt to implement several of the Trump administration’s proposals. The
FDA also recently released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for
states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020,the U.S. Department of Health and Human Services
(HHS) finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either
directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden
administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions
reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the
implementation of which have also been delayed pending review by the Biden administration until March 22, 2021. On November 20, 2020, CMS issued
an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain
physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. On December 28, 2020, the
United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. We expect
to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing
influence of health maintenance organizations and additional health reform measures, particularly in light of the new presidential administration. The
downward pressure on healthcare costs in
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general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are
being erected to the entry of new products. In addition, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
In addition, drug prices are under significant scrutiny in the markets in which our products may be sold. Drug pricing and other health care costs
continues to be subject to intense political and societal pressures which we anticipate will continue and escalate on a global basis. If coverage and
reimbursement is available only to limited levels, we may not be able to successfully commercialize our product candidates for which we obtain marketing
approval. As a result, we may have difficulty raising capital and our results of operations may be adversely impacted.
Risks related to the ownership of our common stock
The market price of our common stock historically has been highly volatile and is likely to continue to be volatile, and you could lose all or part of your
investment.
The market price of our common stock has been volatile and could be subject to wide fluctuations in response to various factors, some of which are
beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include:
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effects of the COVID-19 pandemic on our business operations or financial condition;
adverse results or delays in preclinical studies or clinical trials;
manufacturing sufficient quantities of product candidates for use in clinical trials;
the imposition of a clinical hold on our product candidates or our inability to cause the clinical hold to be lifted;
any delay in filing an Investigational New Drug (IND) or BLA for any of our product candidates and any adverse development or perceived
adverse development with respect to the FDA’s review of that IND or BLA;
failure of our strategic partners to perform under our collaborations or early termination of collaborations;
failure to successfully develop and commercialize our product candidates;
limited market sizes and pricing for our product candidates;
failure by us or our licensors to prosecute, maintain or enforce intellectual property rights covering our product candidates and processes;
changes in laws or regulations applicable to current or future products;
inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices;
adverse regulatory decisions;
introduction of new products, services or technologies by our competitors;
inability to obtain additional capital;
failure to meet or exceed financial or operational projections we may provide to the public;
failure to meet or exceed the financial or operational projections of the investment community;
the perception of the biopharmaceutical industry by the public, politicians, legislatures, regulators and the investment community;
significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection
for our technologies;
additions or departures of key scientific or management personnel;
significant lawsuits, including patent or stockholder litigation;
if securities or industry analysts issue an adverse or misleading opinion regarding our common stock;
changes in the market valuations of similar companies;
changes in the structure of healthcare payment systems;
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sales of our common stock by us or our stockholders in the future;
a potential additional reverse stock split if we are unable to maintain a stock price above $1.00 per share of common stock; and
trading volume of our common stock.
In addition, companies trading in the stock market in general, and on the Nasdaq Capital Market and biotechnology companies in particular, have
experienced extreme price and volume fluctuations, and we have in the past experienced volatility that has been unrelated or disproportionate to our
operating performance. From January 1, 2020 through March 22, 2021 the closing price of our common stock has ranged between $3.53 and $8.06 per
shares. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
Our executive officers, directors, 5% holders and their affiliates currently own a significant percentage of our stock and will be able to exert significant
control over matters submitted to stockholders for approval.
As of March 19, 2021, based on the latest information available to us, our executive officers, directors, holders known by us to own 5% of our
voting stock and their affiliates own approximately 28.9% of our voting stock. Therefore, our executive officers, directors, holders known by us to own 5%
of our voting stock and their affiliates will have the ability to influence us through their ownership positions and may be able to determine all matters
requiring stockholder approval. For example, these stockholders, acting together, may be able to control elections of directors, amendments of our
organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited
acquisition proposals or offers for our common stock that you may believe are in your best interest as one of our stockholders.
Future sales and issuances of equity securities could result in dilution to our stockholders, impose restrictions or limitations on our business and could
cause our stock price to fall.
We will need additional capital in the future to continue our planned operations, and we may seek additional funding through a combination of
equity offerings, debt, grant funding, collaborations, strategic partnerships and/or licensing arrangements. For example, in February 2020, we completed an
underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of $4.25 per share and in March 2020, the
underwriters fully exercised their option to purchase additional shares for the issuance of an additional 635,294 shares of common stock which resulted in
total offering gross proceeds of approximately $20.7 million, before deducting underwriting discounts, commissions and offering expenses payable by us.
In May 2019, we entered into a sales agreement with Wainwright with respect to an ATM Offering Program under which we could offer and sell
shares of our common stock having an aggregate offering price of up to $10.0 million. In November 2020, we entered into an amendment to our sales
agreement with Wainwright to increase the amount of the ATM Offering Program from $10.0 million to $20.0 million. Wainwright was entitled to a
commission at a fixed rate equal to 3% of the gross proceeds. Under the ATM Offering Program, during 2019, we had sold an aggregate of 611,687 shares
of common stock at an average price of $5.43 per share for gross proceeds of approximately $3.3 million. During 2020, we sold an aggregate of 1,657,075
shares of common stock at an average price of $4.07 per share for gross proceeds of $6.8 million under the ATM Offering Program. Subsequently, through
March 22, 2021, we sold 1,988,254 shares of common stock at a weighted average price of $4.99 per share for a gross proceeds of $9.9 million under the
ATM Offering Program, and no further sales will be made under this ATM Offering Program.
Additionally, in September 2020, we entered into a common stock purchase agreement (the Purchase Agreement) with Aspire Capital, which
provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of
$20.0 million of shares of our common stock at our request from time to time during the 30 month term of the Purchase Agreement. Concurrently with
entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more
registration statements, as permissible and necessary to register under the Securities Act, registering the sale of the shares of our common stock that have
been and may be issued to Aspire Capital under the Purchase Agreement. As of December 31, 2020, we had not sold any shares of common stock to Aspire
Capital under the Purchase Agreement. Subsequently, through March [22], 2021, we sold 3,000,000 shares of common stock at a weighted average price of
$5.09 per share for a gross proceeds of $15.3 million.
On March 23, 2021, we entered into a Capital on DemandTM Sales Agreement with JonesTrading Institutional Services LLC (JonesTrading) for a
new ATM Offering Program, pursuant to which we can sell from time to time, at our option, up to an aggregate of $25.0 million of shares of our common
stock through JonesTrading, as sales agent or principal. JonesTrading is entitled to a commission at a fixed rate equal to up to 3% of the gross proceeds. As
of March 23, 2021, we had not issued any shares under this ATM Offering Program.
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These financing activities may have an adverse effect on our stockholders’ rights, the market price of our common stock and on our operations, and
may require us to relinquish rights to some of our technologies, intellectual property or product candidates, issue additional equity or debt securities, or
otherwise agree to terms unfavorable to us.
In addition, sales of a substantial number of shares of our common stock by our existing stockholders in the public market or the perception that
these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional
equity securities. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock, even if there
is no relationship between such sales and the performance of our business.
We have also registered or plan to register all common stock that we may issue under our employee benefits plans as well as shares of common
stock underlying options to purchase shares of our common stock that were granted as inducement grants. As a result, once registered, these shares can be
freely sold in the public market upon issuance, subject to restrictions under the securities laws. In addition, our directors and executive officers may
establish programmed selling plans under Rule 10b5-1 of the Exchange Act for the purpose of effecting sales of our common stock. If any of these events
cause a large number of our shares to be sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to
raise future capital.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
We have incurred substantial losses during our history, we do not expect to become profitable in the near future and we may never achieve
profitability. Net operating loss carryforwards (NOLs) that expire unused will be unavailable to offset future income tax liabilities. Under the Tax Cuts and
Jobs Act of 2017, as modified by Coronavirus Aid, Relief, and Economic Security Act, (CARES Act) federal net operating losses incurred in tax years
beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs in tax years beginning after December
31, 2020, is limited to 80% of taxable income.
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (Code) a corporation that undergoes an “ownership change” (as
defined under Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset
post-change taxable income. We have experienced ownership changes in the past, and may experience a future ownership change, under Section 382 of the
Code that could affect our ability to utilize the NOLs to offset our income. Furthermore, our ability to utilize NOLs of companies that we may acquire in
the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs or other unforeseen
reasons, portions of our existing NOLs could expire or otherwise be unavailable to reduce future income tax liabilities, including for state tax purposes. For
example, California recently imposed limits on the usability of California state NOLs to offset taxable income in tax years beginning after 2019 and before
2023. For these reasons, we may not be able to utilize a material portion of our NOLs, even if we attain profitability, which could potentially result in
increased future tax liability to us and could adversely affect our operating results and financial condition.
We do not intend to pay dividends on our common stock, and therefore any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain future earnings for the development,
operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders
will therefore be limited to the appreciation of their stock.
In addition, future debt instruments may materially restrict our ability to pay dividends on our common stock. Any future determination related to
dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial
condition, capital requirements, tax considerations, legal or contractual restrictions, business prospects, the requirements of current or then-existing debt
instruments, general economic conditions and other factors our board of directors may deem relevant.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could
make it more difficult for a third party to remove our current management, acquire us or increase the cost of acquiring us, even if doing so would
benefit our stockholders.
Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect
of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and amended and
restated bylaws include provisions that:
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voting, liquidation, dividend and other rights superior to our common stock;
create a classified board of directors whose members serve staggered three-year terms;
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specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, our
chief executive officer or our president;
prohibit stockholder action by written consent;
establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including
proposed nominations of persons for election to our board of directors;
provide that our directors may be removed only for cause;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
specify that no stockholder is permitted to cumulate votes at any election of directors;
expressly authorize our board of directors to modify, alter or repeal our amended and restated bylaws; and
require supermajority votes of the holders of our common stock to amend specified provisions of our amended and restated certificate of
incorporation and amended and restated bylaws.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,
which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of
delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and
could also affect the price that some investors are willing to pay for our common stock.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for certain disputes between us
and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or
employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers
or employees to our company or our stockholders, (iii) any action asserting a claim against our company arising pursuant to any provision of the Delaware
General Corporation Law or our amended and restated certificate of incorporation or bylaws, or (iv) any action asserting a claim against our company
governed by the internal affairs doctrine. This choice of forum provision does not apply to suits brought to enforce a duty or liability created by the
Securities Act or the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction.
This choice of forum provision may limit a stockholder’s ability to bring certain claims in a judicial forum that it finds favorable for disputes with
us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders
will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. If a court were to find this choice
of forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions, which could adversely affect our business and financial condition.
General Risk Factors
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials,
including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the
disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury
resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also
could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting
from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate
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coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety
laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with
these laws and regulations also may result in substantial fines, penalties or other sanctions.
We are subject to anti-corruption laws in the jurisdictions in which we operate.
We are subject to a number of anti-corruption laws, including the Foreign Corrupt Practices Act of 1977, as amended (FCPA), and various other
anti-corruption laws. The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose
of obtaining or keeping business and/or other benefits. Our business relies on approvals and licenses from government and regulatory entities, and as a
result, we are subject to certain elevated risks associated with interactions with these entities. Although we have adopted a code of business conduct and
ethics that includes provisions governing the interactions of employees with government entities to mitigate these risks, there can be no assurance that this
will be successful in preventing violations of anti-corruption laws. If we are not in compliance with anti-corruption laws and other laws governing the
conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which
could harm our reputation and have a material adverse impact on our business, financial condition, results of operations and prospects. Any investigation of
any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, prospects, financial condition and
results of operations.
Our business and operations would suffer in the event of system failures.
We utilize information technology systems and networks to process, transmit and store electronic information in connection with our business
activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer
systems and networks, which could result in the theft of our intellectual property, have increased in frequency and sophistication. These threats pose a risk
to the security of our systems and networks and the confidentiality, availability and integrity of our data. There can be no assurance that we will be
successful in preventing cyber-attacks or mitigating their effects.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to
damage from such cyber-attacks, including computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures. Such an event could cause interruption of our operations. For example, the loss of data from completed clinical trials for our product candidates
could result in delays in our regulatory approval efforts and significantly increase our costs. Additionally, theft of our intellectual property or proprietary
business information could require substantial expenditures to remedy. To the extent that any disruption or security breach were to result in a loss of or
damage to our data, theft of our intellectual property, or inappropriate disclosure of confidential or proprietary information, we could suffer reputational
harm or face litigation or adverse regulatory action and the development of our product candidates could be delayed.
We have incurred and will continue to incur significant costs as a result of operating as a public company, and our management will be required to
devote substantial time to new compliance initiatives.
As a public company, we have incurred and will continue to incur legal, accounting and other expenses. In addition, the Sarbanes-Oxley as well as
rules subsequently implemented by the SEC and The Nasdaq Stock Market have imposed various requirements on public companies. In July 2010, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was enacted. There are significant corporate governance and
executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say
on pay” and proxy access. Stockholder activism, the current political environment and the current high level of government intervention and regulatory
reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which
we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to
these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities
more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to maintain
director and officer liability insurance and we have been required to incur substantial costs to maintain our current levels of such coverage.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock
could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our
business. If no or few analysts commence coverage or continue coverage of us, the trading price of our stock would likely decrease. If one or more of the
analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover
our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
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We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against companies following a decline in the market price of their securities.
This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility. If we face such litigation, it
could result in substantial costs and a diversion of management’s attention and resources, which could harm our business and cause our stock price to
decline.
We have broad discretion in the use of our cash, cash equivalents and investments and are exposed to risks related to the marketable securities we may
purchase.
We have considerable discretion in the application of our existing cash, cash equivalents and investments. We expect to use our existing cash to
fund research and development activities and for working capital and general corporate purposes, including funding the costs of operating as a public
company. In addition, pending their use, we may invest our existing cash in certain short-term investments, including but not limited to investment-grade,
interest-bearing securities. Historically, investment in these securities has been highly liquid and has experienced only very limited defaults. However,
volatility in the financial markets in recent years has created additional uncertainty regarding the liquidity and safety of these investments. Additionally, we
may use these proceeds for purposes that do not yield a significant return or any return at all for our stockholders.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We lease our headquarters located at 3545 John Hopkins Court, Suite #250, San Diego, California pursuant to a lease agreement that expires on
May 15, 2023. The lease covers 20,508 rentable square feet of office and laboratory space. We believe that our facility is sufficient to meet our needs and
that suitable additional space will be available as and when needed.
Item 3. Legal Proceedings.
We are not a party to any material legal proceedings at this time. From time to time, we may be subject to various legal proceedings and claims that
arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we
are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to
have a material adverse effect on our results of operations or financial condition. Regardless of the outcome, litigation can have an adverse effect 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 Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded on the Nasdaq Capital Market under the symbol “LIFE”.
Holders of Record
As of March 19, 2021, there were approximately 32 holders of record of our common stock. The approximate number of holders is based upon the
actual number of holders registered in our records at such date and excludes holders in “street name” or persons, partnerships, associations, corporations, or
other entities identified in security positions listings maintained by depository trust companies.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings
to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the
foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon,
among other factors, our results of operations, financial condition, capital requirements, tax considerations, legal or contractual restrictions, business
prospects, the requirements of current or then-existing debt instruments, general economic conditions and other factors our board of directors may deem
relevant.
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Securities Authorized for Issuance Under Equity Compensation Plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.
Recent Sales of Unregistered Securities
During the year ended December 31, 2020, we did not issue or sell any unregistered securities not previously disclosed in a Quarterly Report on
Form 10-Q or in a Current Report on Form 8-K.
Issuer Purchases of Equity Securities
We did not repurchase any securities during the year ended December 31, 2020.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis together with “Item 6. Selected Financial Data” and the consolidated financial statements
and related notes included elsewhere in this Annual Report on Form 10-K (Annual Report). The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result
of various factors, including those set forth under the caption “Item 1A. Risk Factors.”
Overview
We are a biotherapeutics company engaged in the discovery and development of innovative medicines based on novel biological pathways. We
have concentrated our research and development efforts on a newly discovered area of biology, the extracellular functionality and signaling pathways of
tRNA synthetases. Built on more than a decade of foundational science on extracellular tRNA synthetase biology and its effect on immune responses, we
have built a global intellectual property estate directed to a potential pipeline of protein compositions derived from 20 tRNA synthetase genes and their
extracellular targets, such as neuropilin-2 (NRP2).
Our lead clinical product candidate, ATYR1923, a is a selective modulator of NRP2 that downregulates both the innate and adaptive immune
responses in uncontrolled inflammatory disease states. We are developing ATYR1923 as a potential disease-modifying therapy for patients with severe
inflammatory lung diseases with high unmet medical need. This includes interstitial lung diseases (ILD), a group of rare immune-mediated disorders that
cause progressive fibrosis of the lung, and severe respiratory complications caused by COVID-19. We selected pulmonary sarcoidosis as our first ILD
indication and recently completed enrollment in a Phase 1b/2a multi-center clinical trial. The study has been designed to evaluate the safety, tolerability,
steroid-sparing effect and immunogenicity of multiple doses of ATYR1923 and to evaluate established clinical endpoints and certain biomarkers to assess
preliminary clinical activity of ATYR1923. The results of this study will guide future development of ATYR1923 in pulmonary sarcoidosis and provide
insight for the potential of ATYR1923 in other ILD such as chronic hypersensitivity pneumonitis (CHP) and connective tissue disease related ILD (CTD-
ILD). In response to the COVID-19 pandemic, we conducted a Phase 2 study in patients with COVID-19 related severe respiratory complications. The
study was designed to evaluate the safety and preliminary efficacy of ATYR1923 as compared to placebo through the assessment of key clinical outcome
measures. In early 2021, we reported positive data which showed that the trial met its primary endpoint of safety, demonstrating that a single, intravenous
(IV) dose of ATYR1923 was generally safe and well-tolerated in both the 1.0 and 3.0 mg/kg treatment groups, with no drug-related serious adverse events.
The study also showed a signal of activity in the 3.0 mg/kg cohort. In addition, patients treated with ATYR1923 demonstrated a trend of overall
improvement in key biomarkers analyzed compared to placebo.
In January 2020, we entered into a collaboration and license agreement with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and
commercialization of ATYR1923 for ILD in Japan. Under the agreement (the Kyorin Agreement), Kyorin received an exclusive right to develop and
commercialize ATYR1923 in Japan for all forms of ILD. Under the terms of the Kyorin Agreement, Kyorin is obligated to fund all research, development,
regulatory, marketing and commercialization activities in Japan. In September 2020, Kyorin began dosing patients in a Phase 1 clinical trial of ATYR1923
(known as KRP-R120 in Japan) and completed the last subject visit in December 2020. The Phase 1 clinical trial, which was conducted and funded by
Kyorin, is a placebo-controlled clinical trial to evaluate the safety, pharmacokinetics (PK) and immunogenicity of ATYR1923 in 32 healthy Japanese male
volunteers. Results from this clinical trial are intended to enable Kyorin to initiate clinical trials in ILD in Japan. We received an $8.0 million upfront
payment in January 2020 and a $2.0 million milestone payment in January 2021 upon completion of enrollment in the Phase 1 clinical trial, and are eligible
to receive up to an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered
royalties ranging from the mid-single digits to mid-teens on net sales in Japan.
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In conjunction with our clinical development of ATYR1923, we have in parallel been advancing our discovery pipeline of NRP2 antibodies and
tRNA synthetases. In November 2020, we declared our lead Investigational New Drug (IND) candidate in oncology from our NRP2 antibody program,
ATYR2810. ATYR2810 is a fully humanized monoclonal antibody that specifically and functionally blocks the interaction between NRP2 and one of its
primary ligands, vascular endothelial growth factor (VEGF). ATYR2810 is in preclinical development for the potential treatment of certain aggressive
cancers where NRP2 is implicated. NRP2 is highly expressed on certain tumors and increased NRP2 expression is associated with worse outcomes in many
cancers, such as overall survival, metastasis and resistance to targeted therapies. The role of NRP2 and VEGF signaling in the tumor microenvironment and
its importance in the progression of certain aggressive cancers is becoming increasingly validated.
In March 2020, our subsidiary, Pangu BioPharma Limited (Pangu BioPharma), together with the Hong Kong University of Science and Technology
(HKUST) was awarded a grant of approximately $750,000 to build a high-throughput platform for the development of bi-specific antibodies. The two-year
project is being funded by the Hong Kong government’s Innovation and Technology Commission under the Partnership Research Program (PRP). The PRP
aims to support research and development projects undertaken by companies in collaboration with local universities and public research institutions. The
grant is expected to fund approximately 50% of the total estimated project cost, and we expect to contribute the remaining 50%.
In February 2021, we announced two new discovery programs from our tRNA synthetase platform. These programs will investigate the
functionality of selected fragments of Alanyl-tRNA synthetase (AARS) and Aspartyl-tRNA synthetase (DARS) in immunology, fibrosis and cancer. We are
also advancing our preclinical pipeline of NRP2 targeting candidates through internal research efforts, industry and academic collaborations.
The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will
likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to our
business have included the delay in enrollment of our Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and the discontinuation of some
patients in that trial, temporary closures of portions of our facilities and those of our licensees and collaborators, disruptions or restrictions on our
employee's ability to travel and delays in certain research and development activities. Other potential impacts to our business include, but are not limited to
disruptions to or delays in other clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away
from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and
our ability to raise capital and conduct business development activities.
Liquidity and Capital Resources
Other than the net income generated in the three months ended March 31, 2020, we have incurred losses and negative cash flows from operations
since our inception. As of December 31, 2020, we had an accumulated deficit of $338.5 million and we expect to continue to incur net losses for the
foreseeable future. As of December 31, 2020, we had cash, cash equivalents and available-for-sale investments of $31.7 million. Subsequent to December
31, 2020, we received $2.0 million related to the Kyorin Agreement, approximately $9.9 million in gross proceeds from our at-the-market offering (ATM
Offering Program) with H.C. Wainwright (Wainwright), before deducting commissions and offering expenses payable by us and approximately $15.3
million in gross proceeds from our purchase agreement (Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital). We believe that our current
cash, cash equivalents and available-for-sale investments, will be sufficient to meet our anticipated cash requirements for a period of at least one year from
the date of this Annual Report.
Sources of Liquidity
From our inception through December 31, 2020, we have financed our operations primarily through the sale of equity securities and convertible
debt and through venture debt and term loans and through license and collaboration agreement revenues.
Debt Financing
We were previously a party to a loan and security agreement, as amended (Loan Agreement) with Silicon Valley Bank (SVB) and Solar Capital Ltd.
(Solar Capital) (together with SVB, the Lenders), pursuant to which we could borrow up to $20.0 million, issuable in three tranches (the Term Loans), all
of which we previously drew on. In November 2020, we fully repaid all Term Loans and made a final payment equal to 8.75% of the funded amounts.
Sales of Equity Securities
In May 2019, we entered into a sales agreement with H.C. Wainwright & Co., LLC (Wainwright) for an ATM Offering Program under which we
may offer and sell shares of our common stock having an aggregate offering price of up to $10.0 million. In November 2020, we amended our sales
agreement with Wainwright to increase the amount of the ATM Offering Program to $20.0 million. Wainwright is entitled to a commission at a fixed
commission rate equal to 3% of the gross proceeds. Under the ATM
57
Offering Program with Wainwright, as of December 31, 2020, we had sold an aggregate of 1,657,075 shares of common stock at an average price of $4.07
per common share for net proceeds of $6.8 million.
In February 2020, we completed an underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of
$4.25 per share. In March 2020, the underwriters fully exercised their over-allotment option for the issuance of an additional 635,294 shares of common
stock. The total gross proceeds from the underwritten follow-on public offering, including from the exercise of the over-allotment option, was
approximately $20.7 million, before deducting underwriting discounts, commissions and offering expenses payable by us.
Additionally, in September 2020, we entered into the Purchase Agreement with Aspire Capital, which provides that, upon the terms and subject to
the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock
at our request from time to time during the 30 month term of the Purchase Agreement. Concurrently with entering into the Purchase Agreement, we also
entered into a registration rights agreement with Aspire Capital, in which we agreed to file one or more registration statements, as permissible and
necessary to register under the Securities Act, registering the sale of the shares of our common stock that have been and may be issued to Aspire Capital
under the Purchase Agreement. As of December 31, 2020, we had not sold any shares of common stock to Aspire Capital under this Purchase Agreement.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
2020
Years Ended December 31,
2019
2018
$
$
(15,301) $
6,900
16,143
7,742 $
(20,013) $
4,925
1,336
(13,752) $
(31,063)
37,172
(4,238)
1,871
Operating activities. Net cash used in operating activities was $15.3 million, $20.0 million and $31.1 million for the years ended December 31,
2020, 2019 and 2018, respectively. The net cash used in operating activities in each of these periods was primarily due to our net losses. The primary
differences between net cash used in operating activities and our net loss in the year ended December 31, 2020 related to non-cash charges including: $0.6
million for depreciation, $1.5 million for stock-based compensation, $0.7 million for accretion of right-of-use asset and a $2.3 million increase in our net
operating assets and liabilities. The primary differences between net cash used in operating activities and our net loss in the year ended December 31, 2019
related to non-cash charges including: $0.6 million for depreciation, $1.8 million for stock-based compensation, $0.7 million for debt discount accretion
and non-cash interest expense, $0.7 million for accretion of right-of-use asset and a $0.2 million decrease in our net operating assets and liabilities. The
primary differences between net cash used in operating activities and our net loss in the year ended December 31, 2018 related to non-cash charges
including: $0.7 million for depreciation and amortization, $3.4 million for stock-based compensation, $1.0 million for debt discount accretion and non-cash
interest expense, and a $1.4 million increase in our net operating assets and liabilities.
Investing activities. Net cash provided by investing activities for the year ended December 31, 2020 consisted primarily of $7.0 million of net
maturities of investment securities. Net cash provided by investing activities for the year ended December 31, 2019 consisted primarily of $5.0 million of
net maturities of investment securities. Net cash provided in investing activities for the year ended December 31, 2018 consisted of $37.8 million of net
maturities of investment securities offset in part by $0.6 million of property and equipment purchases.
Financing activities. Net cash provided by financing activities for the year ended December 31, 2020 was $16.1 million and consisted primarily of
$18.8 million in proceeds from an underwritten follow-on public offering in February 2020 net of offering costs, and $6.4 million proceeds from the ATM
Offering Program, net of issuance costs, offset in part by $9.1 million of principal payments and final payment on the Term Loans. Net cash provided by
financing activities for the year ended December 31, 2019 was $1.3 million and consisted primarily of $4.4 million in proceeds from the ATM Offering
Program, net of issuance costs, and $4.9 million in proceeds from a registered direct offering, net of issuance costs, offset in part by $8.0 million of
principal payments on the Term Loans. Net cash used by financing activities during the year ended December 31, 2018 was $4.2 million and consisted
primarily of $4.7 million of principal payments on the Term Loans, partially offset by $0.4 million of net proceeds from the ATM Offering Program, net of
issuance costs.
58
Funding Requirements
To date, we have not generated any revenues from product sales. We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue to advance ATYR1923 in clinical development, continue IND-enabling studies and manufacturing activities for ATYR2810,
continue our research and development activities with respect to other potential therapies based on tRNA synthetase biology and NPR2 biology, and seek
marketing approval for product candidates that we may develop. In addition, if we obtain marketing approval for any of our product candidates, we expect
to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. We currently have no sales or
marketing capabilities and would need to expand our organization to support these activities. Accordingly, we will need to obtain substantial additional
funding in connection with our continuing operations. Our forecast of the period of time through which our financial resources will be adequate to support
our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
•
•
•
•
•
•
•
•
•
•
the type, number, scope progress, expansions, results, costs and timing of, our clinical trials and preclinical studies for our product candidates
or other potential product candidates or indications which we are pursuing or may choose to pursue in the future;
delays of our current and planned clinical trials of ATYR1923 and any resulting cost increases as a result of the COVID-19 outbreak;
the number and characteristics of product candidates that we pursue;
the scope, progress, results and costs of preclinical development, and clinical trials for other product candidates;
the manufacturing of preclinical study and clinical trial materials;
our ability to maintain existing and enter into new collaboration and licensing arrangements and the timing of any payments we may receive
under such arrangements;
the costs, timing and outcome of regulatory review of our product candidates;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and
defending any intellectual property-related claims;
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our
product candidates for which we receive marketing approval; and
the extent to which we acquire or in-license other products and technologies.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity
offerings, grant funding, collaborations, strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product
candidates potentially through debt financings. To the extent we raise additional capital through the sale of equity, the ownership interest of our
stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common
stockholders. If we raise additional funds through collaborations, strategic partnerships or licensing arrangements with third parties, we may have to
relinquish valuable rights to our product candidates, our other technologies, future revenue streams or research programs or grant licenses on terms that
may not be favorable to us. The incurrence of additional indebtedness would increase our fixed payment obligations and may require us to agree to certain
restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business. We may be unable to raise additional funds on
acceptable terms or at all. As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have
experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in
economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any
necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional funds, we may be required to delay,
limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if
we would otherwise prefer to develop and market such product candidates ourselves.
59
Contractual Obligations and Commitments
We enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturing organizations and with vendors
for preclinical safety and research studies, research supplies and other services and products purposes. These contracts generally provide for termination
after a notice period, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
Term Loans were fully repaid in November 2020, including the final payment equal to 8.75% of the funded amounts.
We have a non-cancelable facility lease that is subject to base lease payments, which escalate over the term of the lease, additional charges for
common area maintenance and other costs. In July 2018, we entered into a lease amendment that reduced the space we lease from 24,494 square feet to
20,508 square feet and extended the lease term to May 2023. With the lease amendment, we do not have an option to extend the lease. As of December 31,
2020, the aggregate present value of the lease payments was $2.2 million.
Financial Operations Overview
Organization and Business; Principles of Consolidation
We conduct substantially all of our activities through aTyr Pharma, Inc., a Delaware corporation, at our facility in San Diego, California. aTyr
Pharma, Inc. was incorporated in the State of Delaware in September 2005. The consolidated financial statements include our accounts and our 98%
majority-owned subsidiary in Hong Kong, Pangu BioPharma, as of December 31, 2020. All intercompany transactions and balances are eliminated in
consolidation.
Revenue Recognition
In January 2020, we entered into a collaboration and license agreement with Kyorin for the development and commercialization of ATYR1923 for
ILD in Japan. Under the Kyorin Agreement, Kyorin received an exclusive right to develop and commercialize ATYR1923 in Japan for all forms of ILD.
Under the terms of the Kyorin Agreement, Kyorin will fund all research, development, regulatory, marketing and commercialization activities in Japan. In
September 2020, Kyorin began dosing of its Phase 1 trial of ATYR1923 (known as KRP-R120 in Japan) and completed the last subject visit in December
2020. This achievement triggered a $2.0 million milestone payment, which we received in January 2021. The Phase 1 trial, which was conducted and
funded by Kyorin, is a placebo-controlled study to evaluate the safety, PK and immunogenicity of ATYR1923 in 32 healthy Japanese male volunteers.
Results from this study are intended to enable Kyorin to initiate patient trials in ILD in Japan. We received an $8.0 million upfront payment and a $2.0
milestone payment and we are eligible to receive an additional $165.0 million in the aggregate upon achievement of certain development, regulatory and
sales milestones, as well as tiered royalties ranging from the mid-single digits to mid-teens on net sales in Japan.
Following the first anniversary of the effective date of the Kyorin Agreement, Kyorin has the right to terminate the agreement for any reason upon
90 days advance written notice. Either party may terminate the Kyorin Agreement in the event that the other party breaches the agreement and fails to cure
the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement.
For the year ended December 31, 2020, we recognized $10.0 million as license and collaboration agreement revenue under the Kyorin Agreement.
In March 2019, we entered into a research collaboration and option agreement with CSL for the development of product candidates derived from
up to four tRNA synthetases from our preclinical pipeline (CSL Agreement). In February 2021, the CSL Agreement was terminated.
For the years ended December 31, 2020 and 2019, we recognized $0.5 million and $0.4 million, respectively, as license and collaboration
agreement revenue under the CSL Agreement.
Research and Development Expenses
To date, our research and development expenses have related primarily to the development of, and clinical trials for, our product candidates, and to
research efforts targeting the potential therapeutic application of other tRNA synthetase-based immuno-modulators and, more recently research efforts
related to NRP2 biology. These expenses consist primarily of:
•
salaries and employee-related expenses, including stock-based compensation and benefits for personnel in research and product development
functions;
60
•
•
•
•
•
costs associated with conducting our preclinical, development and regulatory activities, including fees paid to third-party professional
consultants, service providers and our scientific, therapeutic and clinical advisory board;
costs to acquire, develop and manufacture preclinical study and clinical trial materials;
costs incurred under clinical trial agreements with clinical research organizations (CROs) and investigative sites;
costs for laboratory supplies; and
allocated facilities, depreciation and other allocable expenses.
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. We expect that the levels of our research and development
expenses will increase in the current year and potentially future years and will consist primarily of costs related to our clinical development and
manufacturing of ATYR1923 for patients with pulmonary sarcoidosis, our preclinical development and manufacturing of ATYR2810 and other potential
therapeutics based on tRNA synthetase biology and NRP2 biology.
We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical
trials of our product candidates. In particular, as a result of the COVID-19 pandemic, many clinical trial sites in our ongoing Phase 1b/2a clinical trial in
patients with pulmonary sarcoidosis temporarily suspended dosing of previously-enrolled patients and/or enrollment of new patients and some patients
discontinued from the trial. If continued dosing of enrolled patients is delayed for an extended period of time, our Phase 1b/2a clinical trial could be further
delayed or otherwise adversely affected.
At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs, we are
unable to estimate with any certainty the costs we will incur or the timelines we will require in the continued development of our product candidates.
Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that
we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in
response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product
candidate’s commercial potential. In addition, we cannot forecast which programs or product candidates may be subject to future collaborations, when such
arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration,
corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant general and
administrative expenses include accounting, legal services, expenses associated with applying for and maintaining patents, cost of insurance, cost of
various consultants, occupancy costs, information systems costs and depreciation.
Other Expense, Net
In November 2016, we entered into a Loan Agreement with the Lenders for the Term Loans, $10.0 million of which was funded in November 2016,
$5.0 million of which was funded in June 2017 and $5.0 million of which was funded in December 2017. Other expense, net consists primarily of interest
income earned on cash, cash equivalents and available-for-sale investments and interest expense on the Term Loans which were fully repaid in November
2020.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities as of the date of the consolidated financial statements, as well as the reported expenses during the reporting periods. We monitor and analyze
these items for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our
historical experience and on various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported
results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best
information available to us in our critical accounting estimates.
61
We discuss our accounting policies and assumptions that involve a higher degree of judgment and complexity within Note 2 to our audited
consolidated financial statements appearing elsewhere in this Annual Report. We believe that our accounting policies related to research and development
expense accruals involve the most significant estimation and judgment in accounting for our reported consolidated financial results.
Research and Development Expense Accruals
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves
reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and
estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the
actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make
estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at
that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated
accrued research and development expenses include fees paid to investigative sites and CROs in connection with clinical trials; service providers in
connection with preclinical development activities; and service providers related to product manufacturing, development and distribution of clinical
supplies.
We currently rely on third parties for the clinical development of our product candidates and the manufacture of our product candidates to support
our ongoing and future clinical trials. We pay these third parties, including consultants, CROs, manufacturers and other service providers, pursuant to
contractual arrangements, which may include provisions for time and materials-based payments, project-based fees and milestone payments. We base our
accrual for these expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements. The financial terms of
these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which
payments made to our service providers will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some
of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical milestones. In accruing service fees, we
estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance
of services or the level of effort varies from our estimate, we adjust our accrual or prepaid expenses accordingly.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of
services performed differs from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular
period. To date, there have been no material differences between our estimates and the amounts actually incurred.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019 (in thousands):
License and collaboration agreement revenues
Research and development expenses
General and administrative expenses
Other expense, net
$
10,455 $
17,291
9,075
(319)
422 $
14,048
9,352
(785)
10,033
3,243
(277)
(466)
Years Ended December 31,
2019
2020
Increase /
(Decrease)
License and collaboration agreement revenues. Revenues were $10.5 million and $0.4 million for the years ended December 31, 2020 and 2019,
respectively. The increase was due primarily to $10.0 million from license and collaboration agreement earned under the Kyorin Agreement.
Research and development expenses. Research and development expenses were $17.3 million and $14.0 million for the years ended December 31,
2020 and 2019, respectively. The increase was due primarily to the progression of our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary
sarcoidosis and our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complication. Both clinical trials completed enrollment
as of December 31, 2020.
General and administrative expenses. General and administrative expenses were consistent between periods at $9.1 million and $9.4 million for the
years ended December 31, 2020 and 2019, respectively.
62
Other income (expense), net. Other expense was $0.3 million and $0.8 million for the years ended December 31, 2020 and 2019, respectively. The
$0.5 million decrease was primarily a result of lower principal balances on the Term Loans with our Lenders which we started repaying in June 2018. The
Term Loans were paid in full in November 2020.
Recent Accounting Pronouncements
For discussion of recently issued accounting pronouncements, refer to the Section titled “Recent Accounting Pronouncements” within Note 2 of our
consolidated financial statements included in this Annual Report.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and
regulations of the SEC.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
63
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of aTyr Pharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of aTyr Pharma, Inc. (the Company) as of December 31, 2020 and 2019, the related
consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December
31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2008.
San Diego, California
March 23, 2021
64
aTyr Pharma, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
Available-for-sale investments
Other receivables
Prepaid expenses
Total current assets
Property and equipment, net
Right-of-use assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Contract liability
Current portion of operating lease liability
Term loans, net of issuance costs and discount (Note 6)
Total current liabilities
Long-term operating lease liability, net of current portion
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 5,000,000 undesignated authorized shares; Class X
Convertible Preferred Stock issued and outstanding shares – 0 and 1,643,961 as of December 31,
2020 and December 31, 2019, respectively
Common stock, $0.001 par value per share; 21,425,000 and 10,714,286 authorized shares as of
December 31, 2020 and December 31, 2019, respectively; issued and outstanding shares –
11,018,954 and 3,891,787 as of December 31, 2020 and December 31, 2019, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total aTyr Pharma stockholders’ equity
Noncontrolling interest in Pangu BioPharma Limited
Total stockholders' equity
Total liabilities and stockholders’ equity
See accompanying notes.
65
$
$
$
$
16,952 $
14,737
2,039
1,803
35,531
899
2,083
213
38,726 $
1,431 $
3,572
—
861
—
5,864
1,378
9,210
21,934
100
681
31,925
1,270
2,821
172
36,188
847
2,376
208
755
8,737
12,923
2,239
—
2
11
370,210
(43)
(338,528)
31,650
(166)
31,484
38,726 $
4
343,524
(40)
(322,304)
21,186
(160)
21,026
36,188
aTyr Pharma, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Revenues:
License and collaboration agreement revenues
Total revenues
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Total other expense, net
Consolidated net loss
Net loss attributable to noncontrolling interest in Pangu BioPharma Limited
Net loss attributable to aTyr Pharma, Inc.
Net loss per share, basic and diluted
2020
Years Ended December 31,
2019
2018
$
$
$
$
10,455
10,455
17,291 $
9,075
26,366
(15,911)
(319)
(16,230)
6
(16,224)
(1.77) $
$
422
422
14,048 $
9,352
23,400
(22,978)
(785)
(23,763)
160
(23,603)
(7.03) $
—
—
20,385
12,435
32,820
(32,820)
(1,695)
(34,515)
—
(34,515)
(16.11)
Shares used in computing net loss per share, basic and diluted
9,160,269
3,355,600
2,141,961
See accompanying notes.
66
aTyr Pharma, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
2020
Years Ended December 31,
2019
2018
$
(16,230) $
(23,763) $
(34,515)
Consolidated net loss
Other comprehensive gain (loss):
Change in unrealized gain (loss) on available-for-sale investments, net of tax
Comprehensive loss
Comprehensive loss attributable to noncontrolling interest Pangu BioPharma Limited
Comprehensive loss attributable to aTyr Pharma, Inc. common stockholders
(3)
(16,233)
6
20
(23,743)
160
$
(16,227) $
(23,583)
$
60
(34,455)
—
(34,455)
See accompanying notes.
67
aTyr Pharma, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Convertible
Preferred Stock
Shares
Amount
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Other
Comprehensive
Gain/(Loss)
Accumulated
Deficit
Noncontrolling
Interest
Total
Stockholders’
Equity
2,285,952
2
2,129,968
2
328,547
(120)
(264,186)
—
64,245
—
—
3,670
—
14
—
—
—
14
—
—
3,028
—
36
—
—
—
36
—
—
—
—
49,723
—
—
—
—
—
—
—
—
—
—
—
379
3,431
—
—
—
—
60
—
—
—
—
(34,515)
2,285,952
2
2,186,389
2
332,407
(60)
(298,701)
—
—
—
—
—
379
3,431
60
(34,515)
33,650
(641,991)
—
229,283
—
—
—
—
—
—
—
—
7,487
—
—
—
—
—
—
—
—
3,117
—
13
—
—
—
13
—
—
805,357
1
4,404
—
—
—
4,405
—
—
—
—
660,154
—
—
—
—
—
—
—
1
—
—
—
4,917
1,783
—
—
—
—
20
—
1,643,961 $
2
3,891,787
$
4
$
343,524
$
(40)
—
—
—
—
4,918
1,783
—
(23,603)
—
(160)
20
(23,763)
(322,304)
$
(160)
$
21,026
$
$
(1,643,961)
(2)
587,444
1
1
—
—
—
—
—
—
4,870,588
4
18,775
—
—
—
18,779
—
—
1,657,075
2
6,435
—
—
—
6,437
Balance as of
December 31,
2017
Exercise of
common
stock options
and release of
restricted
stock units
Issuance of
common
stock
pursuant to
employee
stock
purchase plan
Issuance of
common
stock from at
the market
offerings, net
of offering
costs
Stock-based
compensation
Net
unrealized
gain on
investments,
net of tax
Net loss
Balance as of
December 31,
2018
Conversion of
preferred
stock to
common
stock
Issuance of
common
stock upon
release of
restricted
stock units
Issuance of
common
stock
pursuant to
employee
stock
purchase plan
Issuance of
common
stock from at
the market
offerings, net
of offering
costs
Issuance of
common
stock from
registered
direct
offering, net
of offering
costs
Stock-based
compensation
Net
unrealized
gain on
investments,
net of tax
Net loss
Balance as of
December 31,
2019
Conversion of
preferred
stock to
common
stock
Issuance of
common
stock from
underwritten
follow-on
offering, net
of offering
costs
Issuance of
common
stock from at
the market
offerings, net
of offering
costs
Issuance of
common
stock upon
release of
restricted
stock units
Issuance of
common
stock
pursuant to
employee
stock
purchase plan
Stock-based
compensation
Net
unrealized
loss on
investments,
net of tax
Net loss
Balance as of
December 31,
2020
—
—
8,678
—
—
—
—
—
—
—
—
—
—
3,382
—
—
—
—
—
—
—
—
—
—
—
10
1,465
—
—
—
—
(3)
—
—
—
—
(16,224)
—
—
—
(6)
10
1,465
(3)
(16,230)
—
—
11,018,954
11
370,210
(43)
(338,528)
(166)
31,484
See accompanying notes.
68
aTyr Pharma, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Consolidated net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation
Debt discount accretion and non-cash interest expense
Amortization (accretion) of premium (discount) of available-for-sale investment
securities
Amortization of right-of-use assets
Loss (gain) on disposal of property and equipment
Changes in operating assets and liabilities:
Other receivables
Prepaid expenses and other assets
Accounts payable and accrued expenses
Contract liability
Operating lease liability
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Purchases of available-for-sale investment securities
Maturities of available-for-sale investment securities
Proceeds from sale of property and equipment
Net cash provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock through employee stock purchase plan
Proceeds from issuance of common stock through option exercises
Proceeds from issuance of common stock through at the market offerings, net of offering
costs
Proceeds from issuance of common stock through registered direct offering, net of
offering costs
Proceeds from issuance of common stock through underwritten follow-on offering, net of
offering costs
Repayments on borrowings
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at the end of period
Supplemental disclosure of cash flow information:
Interest paid
Purchase of fixed assets included in accounts payable
Years Ended December 31,
2019
2018
2020
$
(16,230) $
(23,763) $
(34,515)
569
1,465
346
110
697
3
(1,939)
(1,122)
1,763
(208)
(755)
(15,301)
(202)
(21,066)
28,150
18
6,900
10
—
6,437
—
635
1,783
707
(284)
731
(28)
58
276
162
208
(498)
(20,013)
(79)
(40,647)
45,600
51
4,925
13
—
4,405
4,918
18,779
(9,083)
16,143
7,742
9,210
16,952 $
—
(8,000)
1,336
(13,752)
22,962
9,210 $
308 $
17 $
1,122 $
— $
$
$
$
746
3,431
966
(261)
—
18
(53)
663
(2,058)
—
—
(31,063)
(594)
(40,299)
78,065
—
37,172
36
14
379
—
—
(4,667)
(4,238)
1,871
21,091
22,962
1,700
4
See accompanying notes.
69
aTyr Pharma, Inc.
Notes to Consolidated Financial Statements
1. Organization, Business and Basis of Presentation
Organization and Business
We were incorporated in the state of Delaware on September 8, 2005. We are focused on the discovery and development of innovative medicines
based on novel immunological pathways.
Principles of Consolidation
Our consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited
(Pangu BioPharma). All intercompany transactions and balances are eliminated in consolidation.
Liquidity and Financial Condition
Other than the net income generated in the three months ended March 31, 2020, we have incurred losses and negative cash flows from operations
since our inception. As of December 31, 2020, we had an accumulated deficit of $338.5 million and we expect to continue to incur net losses for the
foreseeable future. As of December 31, 2020, our cash, cash equivalents and available-for-sale investments were $31.7 million. Subsequent to December
31, 2020, we received $2.0 million related to the Kyorin Agreement, approximately $9.9 million in gross proceeds from our at-the-market offering (ATM
Offering Program) before deducting commissions and offering expenses and approximately $15.3 million in gross proceeds from our purchase agreement
(Purchase Agreement) before deducting offering expenses payable by us. We believe that our current cash, cash equivalents and available-for-sale
investments, will be sufficient to meet our anticipated cash requirements for a period of at least one year from the date of this Annual Report.
We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory
approval for one or more of our product candidates, which we expect will take a number of years at a minimum. If we obtain regulatory approval for any of
our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.
Accordingly, we will need to raise substantial additional capital to fund our operations. The amount and timing of our future funding requirements will
depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory
approval process for our product candidates. We anticipate that we will seek to fund our operations through equity offerings, grant funding, collaborations,
strategic partnerships and/or licensing arrangements, and when we are closer to commercialization of our product candidates potentially through debt
financings. However, we may be unable to raise additional capital or enter into such arrangements when needed on favorable terms or at all. Our failure to
raise capital or enter into such arrangements when needed would have a negative impact on our financial condition and ability to develop our product
candidates.
Use of Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The preparation of our
consolidated financial statements requires us to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the
disclosure for these items in our consolidated financial statements and accompanying notes. The most significant estimates in our consolidated financial
statements relate to the fair value of equity issuances and awards, and clinical trial and research and development expenses. Although these estimates are
based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ materially from these estimates
and assumptions.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The reclassifications were not material
to the consolidated financial statements.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by
the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. We view our operations and manage our
business in one operating segment.
70
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of readily available checking, money market accounts and money market funds. We consider all highly
liquid investments that mature in three months or less when purchased to be cash equivalents.
Investment Securities
Investment securities primarily consist of investment grade corporate debt securities, asset-backed securities and commercial paper. We classify all
investment securities as available-for-sale. Investment securities are carried at fair value, with the unrealized gains and losses, if any, reported as a
component of other comprehensive income (loss) in stockholders’ equity until realized. Realized gains and losses from the sale of investment securities, if
any, are determined on a specific identification basis. A decline in the market value of any investment security below cost that is determined to be other
than temporary will result in an impairment charge to earnings and a new cost basis for the security is established. No such impairment charges were
recorded for any period presented. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the
straight-line method and are included in interest income. Interest income is recognized when earned. As of December 31, 2020, we held an aggregate total
of $14.7 million of investment securities which consisted of corporate debt securities, asset-backed securities, and commercial paper all of which will
mature in less than one year, and there was an unrealized gain of approximately $7,000 between the amortized cost and fair value of these investment
securities. As of December 31, 2019, we held $21.9 million of corporate debt securities, asset-backed securities and commercial paper, all of which mature
in less than one year, and there was an unrealized gain of approximately $10,000 between the amortized cost and fair value of these investment securities.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash equivalents and investment
securities. We have established guidelines regarding diversification of investments and their maturities, which are designed to maintain principal and
maximize liquidity. We maintain deposits in federally insured financial institutions in excess of federally insured limits. We have not experienced any
losses in such accounts and we believe that we are not exposed to significant credit risk due to the financial position of the depository institutions in which
those deposits are held.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets (generally three
to seven years). Leasehold improvements are stated at cost and amortized on a straight-line basis over the lesser of the remaining term of the related lease
or the estimated useful life of the leasehold improvements. Repairs and maintenance costs are charged to expense as incurred.
Impairment of Long-Lived Assets
Long-lived assets consist primarily of property and equipment. An impairment loss is recorded if and when events and circumstances indicate that
assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While
our current and historical operating losses are indicators of impairment, we believe that future cash flows to be received support the carrying value of our
long-lived assets and, accordingly, have not recognized any impairment losses since inception.
Accrued Expenses
Expenses related to clinical studies, preclinical development activities and product manufacturing are based on estimates of the services received
and efforts expended pursuant to our contractual arrangements. There may be instances in which payments made to our service providers will temporarily
exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as, for
clinical studies, the successful enrollment of patients, site initiation and the completion of clinical milestones. We make estimates of our accrued expenses
as of each balance sheet date based on facts and circumstances known at the time. In accruing service fees, we estimate the time period over which services
will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from
our estimate, we adjust the accrual or prepaid expense balance accordingly. Historically, our estimated accrued liabilities have materially approximated
actual expenses incurred.
Leases
We follow Accounting Standards Codification (ASC) Topic 842, Leases in recording our operating and financing leases. For our long-term
operating leases, we recognized a right-of-use asset and a lease liability in our consolidated balance sheets. The lease liability is determined as the present
value of future lease payments using an estimated rate of interest that we would pay to borrow
71
equivalent funds on a collateralized basis at the lease commencement date. The right-of-use asset is based on the liability adjusted for any prepaid or
deferred rent. We determine the lease term at the commencement date by considering whether renewal options and termination options are reasonably
assured of exercise. We also made accounting policy elections not to apply the recognition requirements under Topic 842 to any of our short-term leases
and to account for each separate lease and associated non-lease components as a single lease component for all of our leases. Under Topic 842 we
determine if an arrangement is a lease at inception. Our right-of-use assets consist of an operating lease for our facility headquarters. We have a
noncancelable operating lease that included certain tenant improvement allowances and is subject to base lease payments, which escalate over the term of
the lease, additional charges for common area maintenance and other costs.
We do not separate lease and non-lease components for our long-term leases.
Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses in our
consolidated statements of operations.
Revenue Recognition
We evaluate our agreements under ASC Topic 606, Revenue from Contracts with Customers and ASC Topic 808, Collaborative Arrangements. We
recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled
in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our
agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised
goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price,
including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue
when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must develop assumptions that require judgment
to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone
selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of
technical and regulatory success.
We recognize revenue in one of two ways, over time or at a point in time. We recognize revenue over time when we are executing on our
performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide research and
development services. We recognize revenue at a point in time when we transfer control of a distinct performance obligation to our partner. For example, if
a license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize
revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit
from the license.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs include: salaries and employee-related expenses,
including stock-based compensation and benefits for personnel in research and product development functions; costs associated with conducting our
preclinical, development and regulatory activities, including fees paid to third-party professional consultants, service providers and our scientific,
therapeutic and clinical advisors; costs to acquire, develop and manufacture preclinical study and clinical trial materials; costs incurred under clinical trial
agreements with clinical research organizations and investigative sites; costs for laboratory supplies; payments related to licensed products and
technologies; allocated facilities and information technology costs; and depreciation.
Patent Costs
Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since
recoverability of such expenditures is uncertain.
Stock-Based Compensation
Stock-based compensation expense represents the grant date fair value of employee stock option grants recognized as expense over the requisite
service period of the awards (usually the vesting period) on a straight-line basis. We estimate fair value of stock option grants using the Black-Scholes
option pricing model. We estimate the fair value using assumptions, including the risk-free interest rate, the expected volatility of a peer group of similar
companies, the expected term of the awards and the expected dividend yield. These estimates involve inherent uncertainties and the application of
management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the
future. We follow ASC Topic 718, Compensation – Stock Compensation as guidance for accounting modification.
72
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are
determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income in the
period that includes the enactment date.
We recognize net deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a
determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected
future taxable income, tax-planning strategies and results of recent operations. If we determine that we would be able to realize the deferred tax assets in
the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the
provision for income taxes.
We record uncertain tax positions on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax
positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition
threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within
the related tax liability.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common
shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share attributable to common stockholders is
calculated by dividing the net loss attributable to common stockholders by the weighted average number of common stock and common stock equivalents
outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of convertible preferred stock,
warrants for common stock, options and restricted stock units outstanding under our stock option plan and estimated shares to be purchased under our
employee stock purchase plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares
outstanding due to our net loss position.
Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in
common share equivalents):
Class X Preferred Stock (if-converted to common stock)
Common stock warrants
Common stock options and restricted stock units
Employee stock purchase plan
Total
The following table summarizes our net loss per share (in thousands, except per share data):
Years Ended December 31,
2019
2018
2020
—
13,904
584,211
1,602
599,717
587,445
13,904
363,553
1,958
966,860
816,851
477,639
371,823
1,610
1,667,923
Years Ended December 31,
2019
2018
2020
Numerator:
Net loss attributable to aTyr Pharma, Inc.
$
(16,224) $
(23,603) $
(34,515)
Denominator:
Shares used in computing net loss per share, basic and diluted
9,160,269
3,355,600
2,141,961
Net loss per share - basic and diluted
$
(1.77) $
(7.03) $
(16.11)
Derivative Financial Instruments
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial
instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. We generally use
the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent
73
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed
at the end of each reporting period.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments
– Credit Losses (Topic 326), to provide financial statement users with more decision-useful information about the expected credit losses on financial
instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in Topic
326 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration
of a broader range of reasonable and supportable information to inform credit loss estimates. Topic 326 is effective for fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. We expect the adoption of the amendments in
ASU 2016-13 to not have an effect on its financial position and the results of its operations when such amendment is adopted.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes to identify,
evaluate, and improve areas of GAAP for which costs and complexity can be reduced while maintaining or improving the usefulness of the information
provided to users of financial statements. The amendments for Topic 740 simplify the accounting for income taxes by removing certain exceptions to the
general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and
amending existing guidance. Topic 740 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early
adoption is permitted. An entity that elects early adoption must adopt all the amendments in the same period. We expect the adoption of the amendments in
ASU 2019-12 will not have an effect on its financial position and the results of its operations when such amendment is adopted.
3. Fair Value Measurements
The carrying amounts of cash equivalents, prepaid and other assets, accounts payable and accrued liabilities are considered to be representative of
their respective fair values because of the short-term nature of those instruments. Investment securities are recorded at fair value.
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major
asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-
based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value
as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Financial assets measured at fair value on a recurring basis consist of investment securities. Investment securities are recorded at fair value, defined
as the exit price in the principal market in which we would transact, representing the amount that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants. Level 2 securities are valued using quoted market prices for similar instruments, non-binding
market prices that are corroborated by observable market data, or discounted cash flow techniques and include our investments in asset-backed securities,
commercial paper, and corporate debt securities. We have no financial liabilities measured at fair value on a recurring basis. None of our non-financial
assets and liabilities is recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.
Assets measured at fair value on a recurring basis are as follows (in thousands):
As of December 31, 2020
Assets:
Current:
Cash equivalents
Available-for-sale investments:
Asset-backed securities
Commercial paper
Corporate debt securities
Total available-for-sale investments
Total assets measured at fair value
As of December 31, 2019
Assets:
Current:
Cash equivalents
Available-for-sale investments:
Asset-backed securities
Commercial paper
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
13,708 $
13,708 $
— $
2,219
5,494
7,024
14,737
28,445 $
$
—
—
—
—
13,708 $
2,219
5,494
7,024
14,737
14,737 $
—
—
—
—
—
—
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
8,248 $
8,248 $
— $
6,304
7,568
—
—
6,304
7,568
—
—
—
Corporate debt securities
Total available-for-sale investments
Total assets measured at fair value
8,062
21,934
30,182 $
$
—
—
8,248 $
8,062
21,934
21,934 $
—
—
—
As of December 31, 2020 and 2019, available-for-sale investments are detailed as follows (in thousands):
Available-for-sale investments:
Asset-backed securities
Commercial paper
Corporate debt securities
Available-for-sale investments:
Asset-backed securities
Commercial paper
Corporate debt securities
Gross
Amortized
Cost
December 31, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Market
Value
$
$
2,218 $
5,491
7,021
14,730 $
1 $
3
3
7 $
— $
—
—
— $
2,219
5,494
7,024
14,737
Gross
Amortized
Cost
December 31, 2019
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Market
Value
6,299 $
7,568
8,057
21,924 $
5 $
—
5
10 $
— $
—
—
— $
6,304
7,568
8,062
21,934
$
$
74
At each reporting date, we perform an evaluation of impairment to determine if the unrealized losses are other-than-temporary. Factors considered
in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the
financial condition of the issuer, and our intent and ability to hold the investment until recovery of its amortized cost basis.
As of December 31, 2020, except of one investment security, all available-for-sale investments were in a gross unrealized gain position. The
unrealized loss for one investment security was immaterial.
4. License, Collaboration and Other Agreements
Kyorin Pharmaceutical Co., Ltd.
In January 2020, we entered into a collaboration and license agreement with Kyorin Pharmaceutical Co., Ltd. (Kyorin) for the development and
commercialization of ATYR1923 for ILD in Japan. Under the agreement (the Kyorin Agreement), Kyorin received an exclusive right to develop and
commercialize ATYR1923 in Japan for all forms of interstitial lung diseases (ILD). Under the terms of the Kyorin Agreement, Kyorin is obligated to fund
all research, development, regulatory, marketing and commercialization activities in Japan. In September 2020, Kyorin began dosing patients in a Phase 1
clinical trial of ATYR1923 (known as KRP-R120 in Japan) and completed the last subject visit in December 2020. The Phase 1 clinical trial, which was
conducted and funded by Kyorin, is a placebo-controlled study to evaluate the safety, pharmacokinetics and immunogenicity of ATYR1923. Results from
this study are intended to enable Kyorin to initiate clinical trials in ILD in Japan. We received an $8.0 million upfront payment in January 2020 and a $2.0
milestone payment in January 2021 upon completion of enrollment in the Phase 1 clinical trial, and we are eligible to receive up to an additional $165.0
million in the aggregate upon achievement of certain development, regulatory and sales milestones, as well as tiered royalties ranging from the mid-single
digits to mid-teens on net sales in Japan. As of December 31, 2021, the $2.0 million milestone payment is recorded as Other receivables in the
Consolidated Balance Sheets.
Following the first anniversary of the effective date of the Kyorin Agreement, Kyorin has the right to terminate the agreement for any reason upon
90 days advance written notice. Either party may terminate the Kyorin Agreement in the event that the other party breaches the agreement and fails to cure
the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement.
We assessed our license and collaboration with Kyorin in accordance with Topic 606 and concluded that Kyorin is a customer. We identified the
following performance obligations under the Kyorin Agreement: 1) the license of ATYR1923 for ILD in Japan; and 2) free clinical trial material for
Kyorin’s Phase 1 clinical trial. The $8.0 million upfront payment received from Kyorin is non-refundable and non-creditable and is considered fixed
consideration. We determined that the relative stand-alone selling price was $7.9 million when the license was delivered to Kyorin in January 2020. We
determined that the relative standalone selling price was $0.1 million for the free clinical trial material delivered to Kyorin in June 2020, using the
“expected cost plus a margin” approach. In December 2020, Kyorin completed the last subject visit in its Phase 1 trial of ATYR1923. This achievement
triggered a $2.0 million milestone payment, which we received in January 2021. For the year ended December 31, 2020, we recognized $10.0 million as
license and collaboration agreement revenue for the upfront payment and milestone achievement.
Both the milestones and royalty payments under the Kyorin Agreement are variable consideration. Since milestone payments are binary in nature,
we will use the “most-likely” method to evaluate whether the milestones should be included as revenue. We will apply constraint to these amounts until the
milestone is probable of being achieved. The royalties are dependent on future sales by Kyorin which are at the full discretion of Kyorin. Accordingly, we
will apply a constraint to these amounts until the future sale sales have occurred.
CSL Behring
In March 2019, we entered into a research collaboration and option agreement with CSL Behring (CSL) for the development of product candidates
derived from up to four tRNA synthetases from our preclinical pipeline (CSL Agreement). Under the terms of the CSL Agreement, CSL will fund all
research and development activities related to the development of the applicable product candidates for the duration of the collaboration. CSL reimburses
us for all research and development activities. The research and development activities will be performed in six phases by both parties. The first phase
totaling $0.6 million was funded in May 2019 and future phases will be funded on a quarterly basis.
In June 2020, the CSL Agreement was amended to extend the work on the first phase of the research program through September 30, 2020 and
provided $0.2 million of additional funding for research and development activities. In February 2021, the CSL Agreement was terminated.
We assessed our research collaboration with CSL in accordance with Topic 606 and concluded that CSL is a customer. We identified the following
performance obligations under the CSL Agreement: 1) research services; and 2) participation in the Joint
75
Steering Committee. We concluded that the performance obligations are interrelated and do not have a standalone basis. CSL has the right to terminate the
research collaboration upon 45 days notice, which is considered to be the legally enforceable contract term. Therefore, during the first phase of research
services, we have a 45 day performance obligation and all research services beyond the initial 45 days performance obligation are considered a material
right. In addition, each phase of research services represents a separate customer option since CSL must provide written notice of its intent to advance to
the next phase.
Under the CSL Agreement, CSL is obligated to pay us for the costs incurred by us under the research programs. The payment of $0.6 million for
the first phase of the research program received in May 2019 as well as the $0.2 million related to the amendment in June 2020 were considered fixed
consideration and we will recognize revenue on the payment for the research service performance obligation as the services are performed. We are utilizing
a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. We believe this is the
best measure of progress because other measures do not reflect how we transfer the performance obligation to our counterparty. In applying the cost-based
input methods of revenue recognition, we use actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. These costs
consist primarily of third-party contract costs and internal full-time equivalent effort. A cost-based input method of revenue recognition requires us to make
estimates of costs to complete the performance obligations. The cumulative effect of revisions to estimated costs to complete the performance obligations
will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and
estimates could have a material impact on the timing and amount of revenue recognized in future periods. As of December 31, 2020, all activities under the
CSL Agreement were complete and the contract liability had been recognized.
For the years ended December 31, 2020 and 2019, we recognized $0.5 million and $0.4 million, respectively, as license and collaboration
agreement revenues under the CSL Agreement.
Hong Kong University of Science and Technology
In March 2020, our subsidiary, Pangu BioPharma, together with the Hong Kong University of Science and Technology (HKUST) was awarded a
grant of approximately $750,000 to build a high-throughput platform for the development of bi-specific antibodies. The two-year project is being funded by
the Hong Kong Government’s Innovation and Technology Commission (ITC) under the Partnership Research Program (PRP). The PRP aims to support
research and development projects undertaken by companies in collaboration with local universities and public research institutions. The grant will fund
approximately 50% of the total estimated project cost, with aTyr contributing the remaining 50%. The research grant agreement between Pangu
BioPharma, HKUST and the Government of the Hong Kong Special Administration Region was effective April 1, 2020.
All the contributions provided by the ITC are paid to HKUST and we record expenses under this grant award when incurred. Expenses for the year
ended December 31, 2020 were $0.2 million.
5. Balance Sheet Details
Prepaid expenses consist of the following (in thousands):
Prepaid clinical and research expense
Prepaid manufacturing expenses
Other prepaid expenses
Property and equipment consist of the following (in thousands):
Computer and office equipment
Scientific and laboratory equipment
Tenant improvements
Less accumulated depreciation and amortization
December 31,
2020
2019
583 $
513 $
707
1,803 $
22
172
487
681
December 31,
2020
2019
552 $
5,270
1,701
7,523
(6,624)
899 $
543
5,241
1,700
7,484
(6,214)
1,270
$
$
$
$
$
As of December 31, 2020, 2019 and 2018, depreciation expense was $0.6 million, $0.6 million and $0.7 million, respectively.
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Accrued expenses consist of the following (in thousands):
Accrued salaries, wages and benefits
Other accrued expenses (1)
December 31,
2020
2019
$
$
1,809 $
1,763
3,572 $
1,275
1,101
2,376
(1) Other accrued expenses include expenses for clinical research organizations and contract manufacturing organizations.
6. Debt, Commitments and Contingencies
Term Loans
In November 2016, we entered into a loan and security agreement and subsequently entered amendments (collectively, the Loan Agreement), for
term loans with Silicon Valley Bank (SVB) and Solar Capital Ltd. (Solar), to borrow up to $20.0 million issuable in three separate tranches (the Term
Loans), $10.0 million of which was funded in November 2016, $5.0 million of which was funded in June 2017 and $5.0 million of which was funded in
December 2017.
In November 2020, the Term Loans were fully repaid, including the final payment equal to 8.75% of the funded amounts.
In connection with the first tranche, we issued warrants to each of SVB and Solar to purchase an aggregate of 3,415 shares of our common stock
with an exercise price of $43.93 per share. In connection with the second tranche, we issued warrants to each of SVB and Solar to purchase an aggregate of
1,489 shares of our common stock with an exercise price of $50.37 per share. In connection with the third tranche, we issued warrants to each of SVB and
Solar to purchase an aggregate of 1,443 shares of our common stock with an exercise price of $51.98 per share. The warrants are immediately exercisable
and have a maximum contractual term of seven years. The aggregate fair value of the warrants was determined to be $0.5 million using the Black-Scholes
option pricing model and was recorded as debt discount which were accreted to interest expense over the life of Term Loans.
Facility Lease
We have a non-cancelable facility lease that is subject to base lease payments, which escalate over the term of the lease, additional charges for
common area maintenance and other costs. In July 2018, we entered into a lease amendment that reduced the space we lease from 24,494 square feet to
20,508 square feet and extended the lease term to May 2023. With the lease amendment, we do not have an option to extend the lease.
Operating lease expense for each of the years ended December 31, 2020, 2019 and 2018 was $1.0 million. As of December 31, 2020 and 2019, the
weighted average remaining lease term was 2.4 years and 3.4 years, respectively, and the weighted average discount rate for each years was 9.6%.
Future minimum payments under the non-cancelable facility lease and reconciliation to the operating lease liability as of December 31, 2020 were
as follows (in thousands):
2021
2022
2023
Less: Amount representing interest
Present value of lease payments
Less: Current portion of operating lease liability
Long-term operating lease liability, net of current portion
Operating
Lease
$
$
1,031
1,062
404
(258)
2,239
(861)
1,378
7. Stockholders’ Equity
At the Market Offering Program
In June 2016, we entered into a sales agreement with Cowen and Company, LLC (Cowen) for at the market offerings (ATM Offering Program),
under which we were able to offer and sell shares of our common stock having an aggregate offering price of up to $35.0 million from time to time. In May
2019, we terminated the ATM Offering Program with Cowen. During the year ended
77
December 31, 2019 and prior to termination in May 2019, we sold an aggregate of 193,670 shares of common stock at an average price of $7.35 per
common share for net proceeds of $1.4 million under the ATM Offering Program with Cowen
In May 2019, we entered into a sales agreement with H.C. Wainwright & Co., LLC (Wainwright) to create an ATM Offering Program under which
we may offer and sell shares of our common stock having an aggregate offering price of up to $10.0 million. In November 2020, we amended our sales
agreement with Wainwright to increase the amount of the ATM Offering Program up to $20.0 million. Wainwright is entitled to a commission at a fixed
commission rate equal to 3% of the gross proceeds. During the year ended December 31, 2020, we sold an aggregate of 1,657,075 shares of common stock
at an average price of $4.07 per share for gross proceeds of $6.8 million under the ATM Offering Program. During the year ended December 31, 2019, we
sold an aggregate of 611,687 shares of common stock at an average price of $5.43 per common share for gross proceeds of $3.3 million under the ATM
Offering Program with Wainwright.
Underwritten Follow-On Public Offering
In February 2020, we completed an underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of
$4.25 per share. In March 2020, the underwriters fully exercised their option to purchase additional shares resulting in the issuance of an additional 635,294
shares of common stock. The total gross proceeds from the underwritten follow-on public offering, including the underwriters’ option to purchase
additional shares, was approximately $20.7 million, before deducting underwriting discounts, commissions and offering expenses payable by us.
Purchase Agreement
In September 2020, we entered into a common stock purchase agreement (Purchase Agreement) with Aspire Capital Fund, LLC (Aspire Capital),
which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an
aggregate of $20.0 million of shares of our common stock at our request from time to time during the 30 month term of the Purchase Agreement.
Concurrently with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, in which we agreed to
file one or more registration statements, as permissible and necessary to register under the Securities Act of 1933, as amended, for the resale of the shares
of our common stock that have been and may be issued to Aspire Capital under the Purchase Agreement. As of December 31, 2020, we had not sold any
shares of common stock to Aspire Capital under this Purchase Agreement.
2014 Stock Plan
We adopted a stock option plan in 2007 (the 2007 Plan), which was subsequently amended, restated and renamed in July 2014 (the 2014 Plan) to
provide for the incentive stock options, nonstatutory stock options, stock and rights to purchase restricted stock to eligible recipients. Recipients of
incentive stock options are eligible to purchase shares of our common stock at an exercise price equal to no less than the estimated fair market value of
such stock on the date of grant. The maximum term of options under the 2014 Plan is ten years. Options granted generally vest over four years. Shares
underlying any awards under the 2014 Plan that are forfeited, canceled, reacquired by us prior to vesting, satisfied without the issuance of stock or
otherwise terminated (other than by exercise) will be added to shares available for issuance under the 2015 Plan.
2015 Stock Plan
In April 2015, our board of directors adopted, and our stockholders approved, the 2015 Stock Plan (the 2015 Plan). The 2015 Plan became effective
on May 6, 2015 and we ceased granting any new awards under our 2014 Plan. Awards granted under the 2014 Plan prior to our IPO that are forfeited,
canceled, reacquired by us prior to vesting satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added to shares
available for issuance under the 2015 Plan. A total of 112,469 shares of our common stock were initially reserved for issuance under the 2015 Plan. In
addition, the number of shares reserved and available for issuance under the 2015 Plan automatically increased each January 1, beginning on January 1,
2016 and thereafter until January 1, 2019, by the lesser of (i) 131,428 shares, (ii) 4% of the outstanding number of shares of our common stock on the
immediately preceding December 31 or (iii) an amount determined by our board of directors. Pursuant to this provision, through January 1, 2019, an
aggregate of 307,949 additional shares were reserved for issuance under the 2015 Plan. At our 2020 Annual Meeting of Stockholders, our stockholders
approved an amendment to increase the number of shares of common stock reserved under the 2015 Plan by 350,000 shares. Total shares available for
issuance under the 2015 Plan as of December 31, 2020 were 381,663. Shares underlying any awards under the 2015 Plan that are forfeited, canceled,
reacquired by us prior to vesting, satisfied without the issuance of stock or otherwise terminated (other than by exercise) will be added to shares available
for issuance under the 2015 Plan.
The maximum term of options granted under 2015 Plan is ten years. For an initial grant to an employee, 25% of the options generally vest on the
first anniversary of the original vesting date, with the balance vesting monthly over the remaining three years. For subsequent grants to an employee, the
options generally vest monthly over a four-year term.
78
Inducement Grants
Options under inducement grants vest over a period of four years, with 25% vesting on the one year anniversary of the grant date and the remaining
75% vesting on a monthly basis over three years thereafter, subject to continuous employment. These options were inducement grants issued outside of the
2015 Plan in accordance with Nasdaq Listing Rule 5635(c)(4). In addition, from time to time, we may make inducement grants of stock options to new
employees. During the year ended December 31, 2020, we did not make inducement grants of stock options.
Employee Stock Purchase Plan
In April 2015, our board of directors adopted, and our stockholders approved, our 2015 Employee Stock Purchase Plan (the 2015 ESPP). The 2015
ESPP became effective on May 6, 2015. A total of 16,258 shares of our common stock were initially reserved for issuance under the 2015 ESPP. In
addition, the number of shares reserved and available for purchase under the 2015 ESPP automatically increased each January 1, beginning on January 1,
2016 and thereafter until January 1, 2019, by 1% of the outstanding number of shares of our common stock on the immediately preceding December 31 or
such lesser number of shares as determined by the administrator of the 2015 ESPP. Pursuant to this provision, through January 1, 2019, an aggregate of
76,988 additional shares were reserved for issuance under the 2015 ESPP. As of December 31, 2020, total shares reserved for issuance under the 2015
ESPP were 75,315.
Stock-based Compensation
Stock Options
Stock option activity is summarized as follows:
Outstanding as of December 31, 2019
Granted
Canceled/forfeited/expired
Outstanding as of December 31, 2020
Options vested and expected to vest as of December 31, 2020
Options exercisable as of December 31, 2020
Number of
Outstanding
Stock Options
351,078
412,432
(186,976)
576,534
Weighted
Average
Exercise Price
51.34
$
4.18
$
33.73
$
23.33
$
576,534
268,039
$
$
23.33
41.06
Weighted
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
7.89 $
7.89 $
6.70 $
15,087
15,087
1,233
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend yield
2020
Years Ended December 31,
2019
5.50– 6.08
0.3% – 1.5%
102.2% – 109.7%
0.0%
5.51– 6.07
1.4% – 2.6%
97.2% – 105.4%
0.0%
2018
5.50 – 6.08
2.3% – 3.0%
87.9% – 98.4%
0.0%
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the ESPP offering were as follows:
Expected term (in years)
Risk-free interest rate
Expected volatility
Expected dividend yield
2020
Years Ended December 31,
2019
0.50
0.1% – 1.6%
89.7% – 143.2%
0.0%
0.50
1.6% – 2.5%
99.7% – 141.7%
0.0%
2018
0.50
1.4% – 2.1%
71.5% – 99.7%
0.0%
Expected term. The expected term represents the period of time that options are expected to be outstanding. Because we do not have sufficient
history of exercise behavior, we determine the expected life assumption using the simplified method, which is an average of the contractual term of the
option and its vesting period.
79
Risk-free interest rate. We base the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with
maturities similar to those of the expected term of the award being valued.
Expected volatility. The expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly
available. The peer group was developed based on companies in the biotechnology industry.
Expected dividend yield. We base the expected dividend yield assumption on the fact that we have never paid cash dividends and have no present
intention to pay cash dividends.
Restricted Stock Units
Occasionally, we grant restricted stock units to employees. The fair value of restricted stock is determined by the closing price of the Company's
common stock reported on the Nasdaq Global Select Market on the date of grant. Restricted stock unit activity is summarized as follows:
Balance as of December 31, 2019
Granted
Released
Forfeited
Balance as of December 31, 2020
Number of Outstanding
Restricted Stock Units
Weighted Average
Grant Date
Fair Value
12,475
5,000
(8,678)
(1,120)
7,677
$
$
$
$
$
9.90
4.29
10.47
11.90
5.32
The allocation of stock-based compensation for all options, including performance options with market condition and restricted stock units is as
follows (in thousands):
Research and development
General and administrative
Total stock-based compensation expense
Years Ended December 31,
2019
2018
2020
$
$
254 $
1,211
1,465 $
354 $
1,429
1,783 $
1,216
2,215
3,431
The weighted–average grant date fair value per share of stock options granted by us, during the years ended December 31, 2020, 2019 and 2018
was $3.39, $5.67 and $25.76, respectively. The total grant date fair value of restricted stock units granted by us during the years ended December 31, 2020,
2019 and 2018 was $21,000, $39,000 and $0.2 million, respectively. The aggregate intrinsic value of stock options exercised during the years ended
December 31, 2018 was $6,000. We did not have any options exercised during the years ended December 31, 2020 and 2019. The aggregate intrinsic value
of restricted stock units released during the years ended December 31, 2020, 2019 and 2018 was $34,000, $31,000 and $19,000, respectively. As of
December 31, 2020, total unrecognized share-based compensation expense related to unvested stock options and restricted stock units was approximately
$1.8 million and $17,000, respectively. These unrecognized costs for options and restricted stock units are expected to be recognized ratably over a
weighted-average period of approximately 2.8 years and 1.7 years, respectively.
Warrants
Warrants outstanding for the purchase of common stock as of December 31, 2020 were as follows:
Number
Outstanding
Exercise Price
Per Share
144
1,066
6,830
2,978
2,886
13,904
$
$
$
$
$
80
104.65
281.50
43.93
50.37
51.98
Expiration
Date
March 2021
July 2023
November 2023
June 2024
December 2024
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance was as follows:
Common stock warrants
Common stock options and restricted stock units
Shares available under the 2015 equity incentive plan
Shares available under the employee stock purchase plan
December 31, 2020
13,904
584,211
381,663
75,315
1,055,093
8. Income Tax
Pretax losses were generated by both domestic and foreign operations as follows (in thousands):
United States
Foreign
Years Ended December 31,
2019
2020
2018
$
$
(15,950) $
(280)
(16,230) $
(23,315) $
(448)
(23,763) $
(34,021)
(494)
(34,515)
For the years ended December 31, 2020, 2019, and 2018, we did not record a provision for income taxes due to a full valuation allowance against
our deferred taxes. A reconciliation of the expected statutory federal income tax provision to the actual income tax provision is summarized as follows (in
thousands):
Expected income taxes benefit at federal statutory rate
State income taxes, net of federal benefit
Permanent items and other
Stock compensation
Research credits
Unrecognized tax benefits
Foreign rate differential
Change in tax rate
Change in valuation allowance
Income tax (benefit) expense
Years Ended December 31,
2019
2018
2020
$
$
(3,408) $
(12)
169
804
(835)
334
13
(7)
2,942
— $
(4,990) $
(19)
49
701
(817)
327
20
(49)
4,778
— $
(7,248)
(14)
(80)
850
(1,222)
489
22
(11)
7,214
—
Deferred income taxes are provided for temporary differences in recognizing certain income and expense items for financial and tax reporting
purposes. The deferred tax assets consisted primarily of the income tax benefits from net operating loss (NOL) carryforwards, research and development
credits and capitalized research and development expenses, along with other accruals and reserves. Valuation allowances of $74.6 million and $71.7 million
as of December 31, 2020 and 2019, respectively, have been recorded to offset deferred tax assets as realization of such assets does not meet the more-
likely-than-not threshold under ASC 740, Accounting for Income Taxes.
81
Significant components of our deferred tax assets are summarized as follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Capitalized research and development expenses
Research credits and other state credits
Intangible assets
Reserve and accruals
Share-based compensation expense
Lease liability
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Right of use lease assets
Total deferred tax liabilities
Net deferred tax assets
December 31,
2020
2019
41,203 $
17,007
12,954
1,655
544
1,253
472
(74,646)
442 $
(442)
(442)
— $
38,180
16,900
12,452
1,841
481
1,829
631
(71,702)
612
(612)
(612)
—
$
$
$
As of December 31, 2020, we had federal NOL carryforwards of approximately $177.8 million, with $65.3 million of NOLs generated after
December 31, 2017 carrying forward indefinitely and $112.5 million of NOLs that will begin to expire in 2025. NOLs generated after January 1, 2018 are
subject to an 80% of taxable income limitation when utilized after December 31, 2020 in accordance with the Tax Cuts and Jobs Act of 2017 as modified
by the Coronavirus Aid, Relief and Economic Security Act (CARES Act). We had state net operating loss carryforwards of approximately $164.1 million,
and foreign net operating loss carryforwards of $8.3 million. The state net operating losses will begin to expire in 2021. The foreign net operating losses
carry over indefinitely.
As of December 31, 2020, we had federal and state research and development credit carryforwards of approximately $5.5 million and $4.5 million,
respectively, which begin to expire in 2026 for federal purposes and carry over indefinitely for state purposes. We had $12.5 million of federal Orphan
Drug Credits as of December 31, 2020, which will begin to expire in 2035.
Utilization of the domestic NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to
ownership change limitations that may have occurred or that could occur in the future, as required by Sections 382 and 383 of the Internal Revenue Code of
1986, as amended (the Code), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and research and
development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as
defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more
than 50 percentage points of the outstanding stock of a company by certain stockholders. Since the Company’s formation, we raised capital through the
issuance of capital stock on several occasions which on its own or combined with the purchasing stockholders’ subsequent disposition of those shares, has
resulted in such an ownership change, and could result in an ownership change in the future.
Upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the NOL and research and development credit
carryforwards become subject to an annual limitation under Section 382 of the Code, which is determined by first multiplying the value of our stock at the
time of the ownership change by the applicable long-term, tax-exempt rate, which could be subject to additional adjustments. Any limitation may result in
expiration of a portion of our NOL or research and development credit carryforwards before utilization. Due to the existence of the valuation allowance,
any impact to the NOL and research and development tax credit carryforwards from Section 382 analysis will be offset by a corresponding adjustment to
valuation allowance, resulting in no tax provision impact.
We recognize a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not
recognition threshold to be recognized.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense. We had no accrual for interest and penalties
on our balance sheet and had not recognized interest or penalties in the consolidated statements of operations for the years ended December 31, 2020, 2019
and 2018.
Due to the existence of the valuation allowance, future changes in unrecognized tax benefits will not impact our effective tax rate.
82
Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment
based upon new information may lead to changes in recognition, derecognition, and measurement. Adjustments may result, for example, upon resolution of
an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue.
The activity related to our unrecognized tax benefits is summarized as follows (in thousands):
Balance as of beginning of year
Increase related to prior year tax positions
Increase related to current year tax positions
Balance as of end of year
December 31,
2019
2020
$
$
21,302 $
3
402
21,707 $
19,643 $
—
1,659
21,302 $
2018
16,558
2
3,083
19,643
We do not anticipate that the amount of unrecognized tax benefits as of December 31, 2020 will change within the next twelve months.
We are subject to taxation in the United States, Hong Kong and state jurisdictions. Our tax years from inception are subject to examination by the
United States, Hong Kong and California authorities due to carry forward of unutilized NOLs and research and development credits.
On March 27, 2020, the CARES Act was enacted and signed into law in response to COVID-19. The CARES Act, among other things, included
several significant provisions that impacted corporate taxpayers’ accounting for income taxes. Prior to the enactment of the CARES Act, the 2017 Tax Cuts
and Jobs Act generally eliminated the ability to carryback net operating losses (NOLs), and permitted the NOLs arising in tax years beginning after
December 31, 2017 to be carried forward indefinitely, limited to 80% of the taxpayer’s income. The CARES Act amended the NOL rules, suspending the
80% limitation on the utilization of NOLs generated after December 31, 2017 and before January 1, 2021. Additionally, the CARES Act allows corporate
NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five taxable years preceding
the taxable year of the loss. Also, the CARES Act allows companies to defer making certain payroll tax payments until future years. With the enactment of
the CARES Act, we do not expect a material impact on our consolidated financial positions or results of operations.
On December 27, 2020, the United States enacted the Consolidated Appropriations Act of 2021 (CAA). The CAA includes provisions extending
certain CARES Act provisions and adds coronavirus relief, tax and health extenders. We will continue to evaluate the impact of the CAA and its impact on
our consolidated financial positions or results of operations in 2021 and future years.
In June 29, 2020, the state of California passed Assembly Bill 85 (AB 85) which suspends the California net operating loss deduction during tax
years 2020 through 2022. AB 85 also applies limitation to the amount of tax that can be offset by business credits to $5.0 million for tax years 2020
through 2022. These suspensions were considered in preparation of our 2020 consolidated financial positions or results of operations.
9. Employee Benefits
401(k) Plan
We maintain a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an
individual basis, limited to the maximum amount allowable under federal tax regulations. In April 2015, our Board of Directors approved a policy,
beginning on June 1, 2015, to match employee contributions equal to 50% of the participant’s contribution of up to a maximum of 6% of the participant’s
annual salary. We made discretionary contributions totaling $0.2 million during each of the years ended December 31, 2020, 2019 and 2018.
10. Subsequent Events
From January 1, 2021 through March 22, 2021 we sold an aggregate of 1,988,254 shares of common stock at a weighted average price of $4.99 per
share through our ATM Offering Program for gross proceeds of $9.9 million.
From January 1, 2021 through March 22, 2021 we sold an aggregate of 3,000,000 shares of common stock at a weighted average price of $5.09 per
share through our Purchase Agreement with Aspire Capital for gross proceeds of $15.3 million.
On March 23, 2021, we entered into Capital on DemandTM Sales Agreement with JonesTrading Institutional Services LLC (JonesTrading) create an
ATM Offering Program under which we may offer and sell shares of our common stock having an aggregate
83
offering price of up to $25.0 million. Jones Trading is entitled to a commission at a fixed commission rate equal to up to 3% of the gross proceeds.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to ensure
that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including
our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance,
management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the
design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in
conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and
Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of December 31, 2020.
Management’s 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
Rules 13a-15(f) and 15-d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the
participation of our management, including our Principal Executive Officer and Principal Financial Officer, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America.
As of December 31, 2020, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – 2013 Integrated Framework (2013 Framework). Based on
this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
This Annual Report does not include an attestation report of our registered public accounting firm under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)).
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2020, there have been no changes in our internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item 9B. Other Information.
On March 23, 2021, we entered into a Capital on DemandTM Sales Agreement (the Sales Agreement) with JonesTrading Institutional Services LLC
(JonesTrading) pursuant to which we may sell from time to time, at our option, up to an aggregate of $25.0 million of shares of our common stock through
JonesTrading, as sales agent or principal. Sales of our common stock made pursuant to the Sales Agreement, if any, will be made on the Nasdaq Capital
Market under our Registration Statement on Form S-3 (File No. 333-250095), in sales deemed to be “at the market offerings” as defined in Rule 415
promulgated under the Securities Act of 1933, as amended. Under the terms of the Sales Agreement, JonesTrading may not engage in any proprietary
trading for JonesTrading’s own
84
account. JonesTrading will use its commercially reasonable efforts to sell the shares of our common stock from time to time, based upon our instructions
(including any price, time or size limits or other customary parameters or conditions we may impose).
We are not obligated to make any sales of our common stock under the Sales Agreement, and we cannot provide any assurances that we will issue
any shares pursuant to the Sales Agreement. The offering of our common stock pursuant to the Sales Agreement will terminate upon the earlier of (i) the
sale of all of the shares of our common stock subject to the Sales Agreement or (ii) the termination of the Sales Agreement as permitted therein. The Sales
Agreement may be terminated by us or JonesTrading at any time upon notice to the other party. We are obligated to pay JonesTrading an aggregate sales
agent commission equal to up to 3% of the gross proceeds of the sale price for our common stock sold under the Sales Agreement. We have also provided
JonesTrading with customary indemnification rights and expense reimbursements for up to $45,000 of expenses and quarterly disbursements of counsel to
JonesTrading of up to $2,500 per calendar quarter.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Except as set forth below, the information required by this item will be contained in our Definitive Proxy Statement to be filed with the SEC in
connection with our 2021 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2020, and is incorporated
herein by reference.
We have adopted a written code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal
accounting officer or persons performing similar functions) and employees, known as the Code of Business Conduct and Ethics. The Code of Business
Conduct and Ethics is available on our website at http://www.atyrpharma.com under the Corporate Governance section of our Investors page. If we make
any substantive amendments to, or grant any waivers from, the Code of Business Conduct and Ethics for any officer or director, we will disclose the nature
of such amendment or waiver on our website or in a Current Report on Form 8-K.
Item 11. Executive Compensation.
The information required by this item will be contained in our Definitive Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item will be contained in our Definitive Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be contained in our Definitive Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item will be contained in our Definitive Proxy Statement and is incorporated herein by reference.
85
Item 15. Exhibits and Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report.
1. Index list to Financial Statements:
PART IV
Report of Independent Registered Public Accounting Firm
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
2. Financial Statement Schedules.
Schedules have been omitted as all required information has been disclosed in the financial statements and related footnotes.
3. Exhibits.
The Exhibits listed in the Exhibit Index are filed as a part of this Annual Report.
86
Page
64
65
66
67
68
69
70
EXHIBIT INDEX
Exhibit Title
Form
Incorporated by Reference
File No.
Exhibit
Filing Date
Exhibit
Number
3.1
3.2
3.3
3.4
3.5
4.10
4.11
5.1
10.1*
10.2*
10.3*
10.4
10.5
10.6
10.7
Restated Certificate of Incorporation of the Registrant
Certificate of Amendment to Restated Certificate of Incorporation of the
Registrant
S-1/A 333-203272
8-K
001-37378
Certificate of Amendment to Restated Certificate of Incorporation of the
Registrant
10-Q
001-37378
Amended and Restated Bylaws of the Registrant
Certificate of Designation of Preferences, Rights and Limitations of Class X
Convertible Preferred Stock
4.1
Specimen Common Stock Certificate
4.2 Warrant to Purchase Stock issued to Comerica Bank on March 18, 2011
4.3 Warrant to Purchase Stock issued to Silicon Valley Bank on July 24, 2013
4.4 Warrant to Purchase Stock issued to Silicon Valley Bank on November 18,
10-K
001-37378
2016
4.5 Warrant to Purchase Stock issued to Solar Capital Ltd on November 18, 2016
4.6 Warrant to Purchase Stock issued to Silicon Valley Bank on June 30, 2017
4.7 Warrant to Purchase Stock issued to Solar Capital Ltd on June 30, 2017
4.8 Warrant to Purchase Stock issued to Silicon Valley Bank on December 22,
2017
4.9 Warrant to Purchase Stock issued to Solar Capital Ltd on December 22, 2017
Registration Rights Agreement, by and between the Registrant and Aspire
Capital Fund, LLC, dated September 11, 2020
Description of Common Stock of the Registrant
Opinion of Cooley LLP
2014 Stock Plan and forms of agreements thereunder
2015 Stock Option and Incentive Plan, as amended
Forms of agreement under 2015 Stock Option and Incentive Plan
Lease by and between the Registrant and BMR-John Hopkins Court LLC,
dated December 22, 2011
First Amendment to Lease between the Registrant and BMR-3545-3575 JOHN
HOPKINS LP (as successor-in-interest to BMR-John Hopkins Court LLC),
dated January 4, 2017
Form of Indemnification Agreement entered into between the Registrant and
its directors
3.2
3.1
3.3
3.4
3.1
4.1
4.3
4.4
4.5
4.6
4.7
4.8
4.8
4.9
4.1
S-1/A 333-203272
8-K
001-37378
S-1/A 333-203272
S-1
S-1
333-203272
333-203272
10-K
10-Q
10-Q
10-K
10-K
8-K
001-37378
001-37378
001-37378
001-37378
001-37378
001-37378
10-K
001-37378
—
—
S-1/A 333-203272
8-K
001-37378
S-1/A 333-203272
333-203272
S-1
4.10
—
10.1
10.1
10.2
10.9
May 1, 2015
June 28, 2019
May 12, 2020
April 27, 2015
August 31, 2017
April 27, 2015
April 6, 2015
April 6, 2015
March 16, 2017
March 16, 2017
August 14, 2017
August 14, 2017
March 20, 2018
March 20, 2018
September 14, 2020
March 26, 2020
Filed herewith
April 27, 2015
May 8, 2020
April 27, 2015
April 6, 2015
10-K
001-37378
10.8
March 16, 2017
S-1/A 333-203272
10.12
April 27, 2015
Form of Indemnification Agreement entered into between the Registrant and
its officers
S-1/A 333-203272
10.13
April 27, 2015
87
Exhibit
Number
10.8*
2015 Employee Stock Purchase Plan
S-1/A 333-203272
10.14
April 27, 2015
Exhibit Title
Form
Incorporated by Reference
File No.
Exhibit
Filing Date
10.9*
Senior Executive Cash Incentive Bonus Plan
8-K
001-37378
10.1
January 29, 2016
10.10* Executive Severance and Change in Control Policy
10.11* Registrant’s Non-Qualified Stock Option Agreement for Non-Plan Inducement
10-K
10-Q
001-37378
001-37378
10.16
10.1
March 30, 2016
November 14, 2016
Grant
10.12
Second Amendment to Lease between the Registrant and BMR-3545-3575
John Hopkins LP (as successor-in-interest to BMR-John Hopkins Court, LLC),
dated April 27, 2017
10-Q
001-37378
10.1
May 11, 2017
10.13* Employment Agreement, dated November 1, 2017, by and between the
10-Q
001-37378
10.4
November 14, 2017
Company and Sanjay S. Shukla, M.D., M.S.
10.14# Employment Offer Letter by and between the Registrant and Jill M. Broadfoot,
8-K
001-37378
10.1
August 1, 2018
dated July 16, 2018
10.15
Third Amendment to Lease between Registrant and BMR-3545-3575 John
Hopkins LP (as successor-in interest to BMR-John Hopkins Court, LLC),
dated July 30, 2018
10-Q
001-37378
10.1
November 11, 2018
10.16* Employment Offer Letter by and between Registrant and Ms. Nancy Krueger,
10-Q
001-37378
10.2
May 14, 2019
Esq., dated October 7, 2014
10.17† Collaboration and License Agreement by and between Registrant and Kyorin
S-1/A 333-235951
10.21
February 3, 2020
Pharmaceutical Co., Ltd., dated January 6, 2020
10.18
Common Stock Purchase Agreement, by and between the Registrant and
Aspire Capital Fund, LLC, dated September 11, 2020
10.19* First Amendment to Employment Agreement dated February 5, 2021, by and
between the Company and Sanjay S. Shukla, M.D., M.S.
10.20
14.1
21.1
23.1
23.2
24.1
31.1#
31.2#
32.1#
32.2#
Common Stock Capital on DemandTM Sales Agreement, between the
Registrant and JonesTrading Institutional Services LLC
Code of Business Conduct and Ethics, as amended
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Opinion of Cooley LLP (included in Exhibit 5.1)
Power of Attorney (included on signature page to this Annual Report)
Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
88
8-K
001-37378
99.1
September 14, 2020
—
—
—
S-1
—
—
—
—
—
—
—
—
—
—
333-203272
—
—
—
—
—
—
—
—
—
—
21.1
—
—
—
—
—
—
—
Filed herewith
Filed herewith
Filed herewith
April 6, 2015
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Exhibit
Number
101.INS XBRL Instance Document
Exhibit Title
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Form
Incorporated by Reference
File No.
Exhibit
Filing Date
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
*
†
#
Indicates a management contract or compensatory plan, contract or arrangement.
Certain portions have been omitted because the Registrant has determined that the information is not material and would likely cause competitive
harm to the Registrant if publicly disclosed.
The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this
Quarterly Report on Form 10-Q), unless the Registrant specifically incorporates the foregoing information into those documents by reference.
Item 16. Form 10-K Summary.
None.
89
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 23, 2021
aTyr Pharma, Inc.
By
/s/ Sanjay S. Shukla
Sanjay S. Shukla, M.D., M.S.
President, Chief Executive Officer and Director
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sanjay S. Shukla, M.D.,
M.S. and Jill M. Broadfoot, jointly and severally, and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him
or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or
their substitute or substitutes may do or cause to be done by virtue hereof.
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
/s/ Sanjay S. Shukla
Sanjay S. Shukla, M.D., M.S.
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Jill M. Broadfoot
Jill M. Broadfoot
/s/ John K. Clarke
John K. Clarke
/s/ Timothy P. Coughlin
Timothy P. Coughlin
/s/ Jane A. Gross
Jane A. Gross, Ph.D.
/s/ Jeffrey S. Hatfield
Jeffrey S. Hatfield
/s/ Svetlana Lucas
Svetlana Lucas, Ph.D.
/s/ Paul Schimmel
Paul Schimmel, Ph.D.
Chief Financial Officer
(Principal Financial and Accounting Officer)
Chairman of the Board
Director
Director
Director
Director
Director
90
Date
March 23, 2021
March 23, 2021
March 23, 2021
March 23, 2021
March 23, 2021
March 23, 2021
March 23, 2021
March 23, 2021
Sean M. Clayton
T: +1 858 550 6034
sclayton@cooley.com
March 23, 2021
aTyr Pharma, Inc.
3545 John Hopkins Court, Suite 250
San Diego, California 92121
Ladies and Gentlemen:
You have requested our opinion, as counsel to aTyr Pharma, Inc., a Delaware corporation (the “Company”), with respect to
certain matters in connection with the offering by the Company of $25,000,000 of shares of the Company’s common stock, par
value $0.001 per share (the “Shares”), pursuant to the Registration Statement on Form S-3 (No. 333-250095) (the
“Registration Statement”) filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of
1933, as amended (the “Act”), the prospectus included in the Registration Statement (the “Base Prospectus”) and the related
prospectus supplement filed with the Commission pursuant to Rule 424(b) under the Act (together with the Base Prospectus, the
“Prospectus”). The Shares are to be sold by the Company in accordance with a Capital on DemandTM Sales Agreement,
dated March 23, 2021, between the Company and JonesTrading Institutional Services LLC (the “Agreement”), as described in
the Prospectus.
In connection with this opinion, we have examined and relied upon the Registration Statement and the Prospectus, the
Agreement, the Company’s Certificate of Incorporation and Bylaws, each as currently in effect, and originals or copies certified
to our satisfaction of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below. We have assumed the genuineness of all signatures; the
authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies;
and the accuracy, completeness and authenticity of certificates of public officials and the due authorization, execution and
delivery of all documents by all persons other than by the Company where authorization, execution and delivery are a
prerequisite to the effectiveness thereof. As to certain factual matters, we have relied upon a certificate of an officer of the
Company and have not independently verified such matters.
We have assumed (i) that each sale of Shares will be duly authorized by the Board of Directors of the Company, a duly
authorized committee thereof or a person or body pursuant to an authorization granted in accordance with Section 152 of the
General Corporation Law of the State of Delaware (the DGCL”), (ii) that no more than 4,300,000 Shares will be sold under the
Agreement pursuant to the Prospectus and (iii) that the price at which the Shares are sold will equal or exceed the par value of
the Shares. We express no opinion to the extent that future issuances of securities of the Company and/or anti-dilution
adjustments to outstanding securities of the Company cause the number of shares of the Company’s common stock outstanding
or issuable upon conversion or exercise of outstanding securities of the Company to exceed the number of Shares then issuable
under the Agreement.
Cooley LLP 4401 Eastgate Mall San Diego, CA 92121
t: (858) 550-6000 f: (858) 550-6420 cooley.com
aTyrPharma, Inc.
March 23, 2021
Page 2
Our opinion herein is expressed solely with respect to the DGCL. Our opinion is based on these laws as in effect on the date
hereof. We express no opinion to the extent that any other laws are applicable to the subject matter hereof and express no
opinion and provide no assurance as to compliance with any federal or state securities law, rule or regulation.
On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, when sold and issued against
payment therefor in accordance with the Agreement, the Registration Statement and the Prospectus, will be validly issued, fully
paid and nonassessable.
We consent to the reference to our firm under the caption “Legal Matters” in the Prospectus and to the filing of this opinion as an
exhibit to an Annual Report on Form 10-K to be filed with the Commission for incorporation by reference into the Registration
Statement.
Very truly yours,
Cooley LLP
By:/s/ Sean M. Clayton
Sean M. Clayton
Cooley LLP 4401 Eastgate Mall San Diego, CA 92121
t: (858) 550-6000 f: (858) 550-6420 cooley.com
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit 10.19
This First Amendment to Employment Agreement (the “First Amendment”) is entered into effective as of February 5, 2021 (the
“Effective Date”) by and between aTyr Pharma, Inc., a Delaware corporation (the “Company”) and Sanjay S. Shukla, M.D., M.S.
("Executive").
WHEREAS, Company and Executive entered into that certain Employment Agreement dated as of November 1, 2017 (the
“Agreement”) whereby the Company retained Executive to serve as a member of the Company’s Board of Directors and Chief Executive
Officer and President of the Company (capitalized terms used but not otherwise defined in this First Amendment shall have the meanings
given such terms in the Agreement); and
WHEREAS, Company and Executive wish to amend the Agreement to increase the compensation payable to Executive following
a Change in Control as set forth herein.
NOW THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties hereto agree as follows:
1.
Amendment and Restatement of Section 5(a)(i). Section 5(a)(i) of the Agreement is hereby amended and restated as
follows:
(i)
the Company shall pay the Executive in cash an amount equal to the sum of (A) 1.5 times the
Executive’s then-current Base Salary (or the Executive’s Base Salary in effect immediately prior to the Change in Control, if
higher) plus (B) the Executive’s annual target incentive compensation for the year of termination; and
2.
Full Force and Effect. Except as specifically amended by this First Amendment, the terms and conditions of the
Agreement shall remain in full force and effect.
3.
Governing Law. This is a California contract and shall be construed under and be governed in all respects by the laws
of the State of California, without giving effect to the conflict of laws principles of such State. With respect to any disputes concerning federal
law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of
Appeals for the Ninth Circuit.
4.
Counterparts. This First Amendment may be executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. Any signature page delivered by facsimile or electronic image
transmission shall be binding to the same extent as an original signature page.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of the Effective Date.
“Company”
“Executive”
aTyr Pharma, Inc., a Delaware corporation
By: \s\ Nancy E. Denyes___________________
Name: Nancy E. Denyes
Title: General Counsel
By:\s\ Sanjay S. Shukla__________________
Name: Sanjay S. Shukla, M.D., M.S.
ATYR PHARMA, INC.
Code of Business Conduct and Ethics
Exhibit 14.1
Introduction
Purpose and Scope
The Board of Directors of aTyr Pharma, Inc. (the “Company”) established this Code of Business Conduct and Ethics
(this “Code”) to aid the Company’s directors, officers and employees in making ethical and legal decisions when conducting the
Company’s business and performing their day-to-day duties.
The Company’s Board of Directors (the “Board”) or a committee of the Board is responsible for administering the
Code. The Board has delegated day-to-day responsibility for administering and interpreting the Code to a Compliance
Officer. Our General Counsel has been appointed the Company’s Compliance Officer under this Code.
The Company expects its directors, officers and employees to exercise reasonable judgment when conducting the
Company’s business. The Company encourages its directors, officers and employees to refer to this Code frequently to ensure
that they are acting within both the letter and the spirit of this Code. The Company also understands that this Code will not
contain the answer to every situation you may encounter or every concern you may have about conducting the Company’s
business ethically and legally. In these situations, or if you otherwise have questions or concerns about this Code, the Company
encourages each officer and employee to speak with his or her supervisor (if applicable) or, if you are uncomfortable doing that,
with the Compliance Officer under this Code.
Contents of this Code
This Code has two sections which follow this Introduction. The first section, “Standards of Conduct,” contains the
actual guidelines that our directors, officers and employees are expected to adhere to in the conduct of the Company’s
business. The second section, “Compliance Procedures,” contains specific information about how this Code functions including
who administers this Code, who can provide guidance under this Code and how violations may be reported, investigated and
punished. This section also contains a discussion about waivers of and amendments to this Code.
A Note About Other Obligations
The Company’s directors, officers and employees generally have other legal and contractual obligations to the
Company. This Code is not intended to reduce or limit the other obligations that you may have to the Company. Instead, the
standards in this Code should be viewed as the minimum standards that the Company expects from its directors, officers and
employees in the conduct of the Company’s business.
1
Standards of Conduct
Conflicts of Interest
The Company recognizes and respects the right of its directors, officers and employees to engage in outside activities
which they may deem proper and desirable, provided that these activities do not impair or interfere with the performance of their
duties to the Company or their ability to act in the Company’s best interests. In most, if not all, cases this will mean that the
Company’s directors, officers and employees must avoid situations that present a potential or actual conflict between their
personal interests and the Company’s interests.
A “conflict of interest” occurs when a director’s, officer’s or employee’s personal interest interferes with the
Company’s interests. Conflicts of interest may arise in many situations. For example, conflicts of interest can arise when a
director, officer or employee takes an action or has an outside interest, responsibility or obligation that may make it difficult for
him or her to perform the responsibilities of his or her position objectively and/or effectively in the Company’s best
interests. Conflicts of interest may also occur when a director, officer or employee or his or her immediate family member
receives some personal benefit (whether improper or not) as a result of the director’s, officer’s or employee’s position with the
Company. Each individual’s situation is different and in evaluating his or her own situation, a director, officer or employee will
have to consider many factors.
Any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest should be
reported promptly to the Compliance Officer. The Compliance Officer may notify the Board or a committee thereof as he or she
deems appropriate. Actual or potential conflicts of interest involving a director or executive officer other than the Compliance
Officer should be disclosed directly to the Compliance Officer. Actual or potential conflicts of interest involving the Compliance
Officer should be disclosed directly to the Chief Executive Officer.
Compliance with Laws, Rules and Regulations
The Company seeks to conduct its business in compliance with applicable laws, rules and regulations. No director,
officer or employee shall engage in any unlawful activity in conducting the Company’s business or in performing his or her day-
to-day company duties, nor shall any director, officer or employee instruct others to do so.
Regulatory Compliance
The Company’s business is subject to, or may in the future be subject to, a number of legal and regulatory
requirements, including standards related to ethical research and development procedures, and proper scientific conduct. We
expect employees to comply with all such requirements.
Protection and Proper Use of the Company’s Assets
The Company’s assets include its intellectual property rights and Company equipment, among other items. Loss, theft
and misuse of the Company’s assets has a direct impact on the
2
Company’s business and its profitability. Employees, officers and directors are expected to protect the Company’s assets that are
entrusted to them and to protect the Company’s assets in general. Employees, officers and directors are also expected to take
steps to ensure that the Company’s assets are used only for legitimate business purposes.
Corporate Opportunities
Employees, officers and directors owe a duty to the Company to advance its legitimate business interests when the
opportunity to do so arises. Each employee, officer and director is prohibited from:
•
•
•
diverting to himself or herself or to others any opportunities that are discovered through the use of the Company’s
property or information or as a result of his or her position with the Company unless such opportunity has first
been presented to, and rejected by, the Company;
using the Company’s property or information or his or her position for improper personal gain; or
competing with the Company.
Confidentiality
Confidential information generated and gathered in the Company’s business plays a vital role in the Company’s
business, prospects and ability to compete. “Confidential information” includes all non‑public information that might be of use
to competitors or harmful to the Company or its customers if disclosed. Directors, officers and employees may not disclose or
distribute the Company’s confidential information, except when disclosure is authorized by the Company or required by
applicable law, rule or regulation or pursuant to an applicable legal proceeding. Directors, officers and employees shall use
confidential information solely for legitimate company purposes. Directors, officers and employees must return all of the
Company’s confidential and/or proprietary information in their possession to the Company when they cease to be employed by or
to otherwise serve the Company.
Fair Dealing
Competing vigorously, yet lawfully, with competitors and establishing advantageous, but fair, business relationships
with customers and suppliers is a part of the foundation for long-term success. However, unlawful and unethical conduct, which
may lead to short-term gains, may damage a company’s reputation and long-term business prospects. Accordingly, it is the
Company’s policy that directors, officers and employees must endeavor to deal ethically and lawfully with the Company’s
collaborators, customers, suppliers, competitors and employees in all business dealings on the Company’s behalf. No director,
officer or employee should take unfair advantage of another person in business dealings on the Company’s behalf through the
abuse of privileged or confidential information or through improper manipulation, concealment or misrepresentation of material
facts.
3
Accuracy of Records
The integrity, reliability and accuracy in all material respects of the Company’s books, records and financial statements
is fundamental to the Company’s continued and future business success. No director, officer or employee may cause the
Company to enter into a transaction with the intent to document or record it in a deceptive or unlawful manner. In addition, no
director, officer or employee may create any false or artificial documentation or book entry for any transaction entered into by the
Company. Similarly, officers and employees who have responsibility for accounting and financial reporting matters have a
responsibility to accurately record all funds, assets and transactions on the Company’s books and records.
Quality of Public Disclosures
The Company is committed to providing its stockholders with complete and accurate information about its financial
condition and results of operations as required by the securities laws of the United States. It is the Company’s policy that the
reports and documents it files with or submits to the Securities and Exchange Commission, and its earnings releases and similar
public communications made by the Company, include full, fair, accurate, timely and understandable disclosure. Officers and
employees who are responsible for these filings and disclosures, including the Company’s principal executive, financial and
accounting officers, must use reasonable judgment and perform their responsibilities honestly, ethically and objectively in order
to ensure that this disclosure policy is fulfilled. The Company’s senior management are primarily responsible for monitoring the
Company’s public disclosure.
Political Contributions/Gifts
Business contributions to political campaigns are strictly regulated by federal, state, provincial and local law in the
United States, Canada and other jurisdictions. Accordingly, all political contributions proposed to be made with the Company’s
funds must be coordinated through and approved by the Compliance Officer. Directors, officers and employees may not, without
the approval of the Compliance Officer, use any of the Company’s funds for political contributions of any kind to any political
candidate or holder of any national, state, provincial or local government office. Directors, officers and employees may make
personal contributions, but should not represent that he or she is making any such contribution on the Company’s behalf. Similar
restrictions on political contributions may apply in other countries. Specific questions should be directed to the Compliance
Officer.
Bribes, Kickbacks and Other Improper Payments
The Company does not permit or condone bribes, kickbacks or other improper payments, transfers or receipts. No
director, officer or employee should offer, give, solicit or receive any money or other item of value for the purpose of obtaining,
retaining or directing business or bestowing or receiving any kind of favored treatment. In particular, the U.S. Foreign Corrupt
Practices Act (“FCPA”) prohibits any U.S. individual or business from authorizing, offering or paying money or anything of
value, directly or indirectly, to any foreign official or employee, political party, or candidate for public office for the purpose of
obtaining or maintaining business
4
or for any other business advantage. Violation of the FCPA could subject the Company and its individual directors, officers and
employees to serious fines and criminal penalties.
International Trade Controls
Many countries regulate international trade transactions, such as imports, exports and international financial
transactions. In addition, the United States prohibits any cooperation with boycotts against countries friendly to the United States
or against firms that may be “blacklisted” by certain groups or countries. It is the Company’s policy to comply with these laws
and regulations even if it may result in the loss of some business opportunities. Employees should learn and understand the
extent to which U.S. and international trade controls apply to transactions conducted by the Company.
Compliance Procedures
Communication of Code
All directors, officers and employees will be supplied with a copy of the Code upon the later of the Board’s adoption of
the Code or beginning service at the Company. Updates of the Code will be provided from time to time. A copy of the Code is
also available to all directors, officers and employees by requesting one from the human resources department or by accessing the
Company’s website at www.atyrpharma.com.
Monitoring Compliance and Disciplinary Action
The Company’s management, under the supervision of its Board or a committee thereof or, in the case of accounting,
internal accounting controls, auditing or securities law matters, the Audit Committee of the Board of Directors (the “Audit
Committee”), shall take reasonable steps from time to time to (i) monitor compliance with the Code, and (ii) when appropriate,
impose and enforce appropriate disciplinary measures for violations of the Code.
Disciplinary measures for violations of the Code will be determined in the Company’s sole discretion and may include,
but are not limited to, counseling, oral or written reprimands, warnings, probation or suspension with or without pay, demotions,
reductions in salary, termination of employment or service, and restitution.
The Company’s management shall periodically report to the Board or a committee thereof on these compliance efforts
including, without limitation, periodic reporting of alleged violations of the Code and the actions taken with respect to any such
violation.
Reporting Concerns/Receiving Advice
Communication Channels
Be Proactive. Every employee is encouraged to act proactively by asking questions, seeking guidance and reporting
suspected violations of the Code and other policies and procedures of the Company, as well as any violation or suspected
violation of applicable law, rule or regulation arising in the conduct of the Company’s business or occurring on the Company’s
property. If any
5
employee believes that actions have taken place, may be taking place, or may be about to take place that violate or would
violate the Code or any law, rule or regulation applicable to the Company, he or she is obligated to bring the matter to the
attention of the Company.
Seeking Guidance. The best starting point for an officer or employee seeking advice on ethics‑related issues or
reporting potential violations of the Code will usually be his or her supervisor. However, if the conduct in question involves his or
her supervisor, if the employee has reported the conduct in question to his or her supervisor and does not believe that he or she
has dealt with it properly, or if the officer or employee does not feel that he or she can discuss the matter with his or her
supervisor, the employee may raise the matter with the Compliance Officer.
Our whistleblower hotline number
is 1-855-405-6642. There
is also an online
reporting option:
http://atyrpharma.ethicspoint.com.
Communication Alternatives. Any officer or employee may communicate with the Compliance Officer, or report
potential violations of the Code, by any of the following methods:
•
•
•
By e-mail to ndenyes@atyrpharma.com (anonymity cannot be maintained);
In writing (which may be done anonymously as set forth below under “Anonymity”), addressed to the Compliance
Officer, by U.S. mail to c/o aTyr Pharma, Inc., 3545 John Hopkins Court, Suite #250, San Diego, CA 92121; or
Online at http://atyrpharma.ethicspoint.com (which may be done anonymously as set forth below under
“Anonymity”).
Reporting Accounting and Similar Concerns. Any concerns or questions regarding any potential violations of the Code,
any company policy or procedure or applicable law, rules or regulations that involves accounting, internal accounting controls,
auditing or securities law (including FCPA) matters will be directed to the Audit Committee or a designee of the Audit
Committee in accordance with the procedures established by the Audit Committee for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or auditing matters. Officers and employees may also
communicate directly with the Audit Committee or its designee regarding such matters by the following methods (which may be
done anonymously as set forth below under “Anonymity”):
•
•
•
By e-mail to auditcommitteechair@atyrpharma.com (anonymity cannot be maintained);
In writing (which may be done anonymously as set forth below under “Anonymity”), addressed to the Chairperson
of the Audit Committee, by U.S. mail to c/o aTyr Pharma, Inc., 3545 John Hopkins Court, Suite #250, San Diego,
CA 92121; or
Online at http://atyrpharma.ethicspoint.com (which may be done anonymously as set forth below under
“Anonymity”).
6
Cooperation. Employees are expected to cooperate with the Company in any investigation of a potential violation of
the Code, any other company policy or procedure, or any applicable law, rule or regulation.
Misuse of Reporting Channels. Employees must not use these reporting channels in bad faith or in a false or frivolous
manner or to report grievances that do not involve the Code or other ethics-related issues.
Director Communications. In addition to the foregoing methods, a director may also communicate concerns or seek
advice with respect to this Code by contacting the Board through its Chairperson or the Audit Committee.
Anonymity
When reporting suspected violations of the Code, the Company prefers that officers and employees identify themselves
to facilitate the Company’s ability to take appropriate steps to address the report, including conducting any appropriate
investigation. However, the Company also recognizes that some people may feel more comfortable reporting a suspected
violation anonymously.
If an officer or employee wishes to remain anonymous, he or she may do so, and the Company will use reasonable
efforts to protect the confidentiality of the reporting person subject to applicable law, rule or regulation or to any applicable legal
proceedings. In the event the report is made anonymously, however, the Company may not have sufficient information to look
into or otherwise investigate or evaluate the allegations. Accordingly, persons who make reports anonymously should provide as
much detail as is reasonably necessary to permit the Company to evaluate the matter(s) set forth in the anonymous report and, if
appropriate, commence and conduct an appropriate investigation.
No Retaliation
The Company expressly forbids any retaliation against any officer or employee who, acting in good faith on the basis
of a reasonable belief, reports suspected misconduct. Specifically, the Company will not discharge, demote, suspend, threaten,
harass or in any other manner discriminate against, such an officer or employee in the terms and conditions of his or her
employment. Any person who participates in any such retaliation is subject to disciplinary action, including termination.
Waivers and Amendments
No waiver of any provisions of the Code for the benefit of a director or an executive officer (which includes without
limitation, for purposes of this Code, the Company’s principal executive, financial and accounting officers) shall be effective
unless (i) approved by the Board or, if permitted by the rules of The Nasdaq Stock Market, the Audit Committee, and (ii) if
applicable, such waiver is promptly disclosed to the Company’s stockholders in accordance with applicable U.S. securities laws
and/or the rules and regulations of the exchange or system on which the Company’s shares are traded or quoted, as the case may
be.
7
Any waivers of the Code for other employees may be made by the Compliance Officer, the Board or, if permitted, the
Audit Committee.
All amendments to the Code must be approved by the Board or the Audit Committee and, if applicable, must be
promptly disclosed to the Company’s stockholders in accordance with applicable U.S. securities laws and the rules of The
Nasdaq Stock Market as the case may be.
ADOPTED:
EFFECTIVE:
AMENDED:
April 25, 2015
May 6, 2015
February 5, 2020
8
ATYR PHARMA, INC.
Common Stock
($0.001 par value per share)
Capital on Demand™ Sales Agreement
EXHIBIT 10.20
March 23, 2021
JonesTrading Institutional Services LLC
757 Third Avenue, 23rd Floor
New York, NY 10017
Ladies and Gentlemen:
aTyr Pharma, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated herein, to issue and sell from
time to time to or through JonesTrading Institutional Services LLC (“JonesTrading”), as sales agent and/or principal (“Agent”), shares (the “Shares”) of the
Company’s common stock, $0.001 par value per share (the “Common Stock”), having an aggregate offering price of up to $25,000,000 on the terms set
forth in Section 2 of this Capital on Demand™ Sales Agreement (the “Agreement”). The Company agrees that whenever it determines to sell Shares
directly to the Agent as principal, it will enter into a separate agreement (each, a “Terms Agreement”) in substantially the form of Annex I hereto, relating
to such sale in accordance with Section 3 of this Agreement.
Section 1. Representations and Warranties. Except as disclosed in the Registration Statement (as defined below), Prospectus (as defined
below) or General Disclosure Package (as defined below), the Company represents and warrants to the Agent that as of the date of this Agreement and as
of each Applicable Time (as defined in Section 1(a) below):
(a)
Compliance with Registration Requirements. The Company has filed with the Securities and Exchange Commission (the
“Commission”) a registration statement under the Securities Act of 1933, as amended (the “1933 Act”), on Form S-3 (File No. 333-250095), in respect of
the Company’s Common Stock (including the Shares); such registration statement, and any post-effective amendment thereto, shall have become effective
prior to the effectiveness of any Terms Agreement or instructions to sell shares delivered pursuant to Section 2(b) hereunder; and no stop order suspending
the effectiveness of such registration statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or, to
the knowledge of the Company, threatened by the Commission; the base prospectus filed as part of such registration statement is hereinafter called the
“Basic Prospectus”; the various parts of such registration statement, including all exhibits thereto and any prospectus supplement relating to the Shares that
is filed with the Commission and deemed by virtue of Rule 430B to be part of such registration statement, each as amended at the time such part of the
registration statement became effective, are hereinafter collectively called the “Registration Statement”; the Company has prepared a prospectus
supplement to the prospectus included as a part of such registration statement specifically relating to the Shares to be filed with the Commission pursuant to
Rule 424(b) under the 1933 Act, hereinafter called the “Prospectus Supplement”; the Basic Prospectus, including all documents incorporated therein by
reference, included in the Registration Statement, as it may be supplemented by the Prospectus Supplement, in the form in which such prospectus and/or
Prospectus Supplement have most recently been filed by the Company with the Commission pursuant to Rule 424(b) under the Securities Act is herein
called the “Prospectus”; any reference herein to the Basic Prospectus, the Prospectus Supplement or the Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act; any reference to any amendment or supplement to
the Basic Prospectus, the Prospectus Supplement or the Prospectus shall be deemed to refer to and include any post-effective amendment to the
Registration Statement, any prospectus supplement relating to the Shares filed with the Commission pursuant to Rule 424(b) under the 1933 Act and any
documents filed under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the rules and regulations of the Commission thereunder (the
“1934 Act Regulations”), and incorporated therein, in each case after the date of the Basic Prospectus, the Prospectus
1
Supplement or the Prospectus, as the case may be; any reference to any amendment to the Registration Statement shall be deemed to refer to
and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the 1934 Act after the effective date of the Registration Statement
that is incorporated by reference in the Registration Statement; and any “issuer free writing prospectus” as defined in Rule 433 under the 1933 Act relating
to the Shares is hereinafter called an “Issuer Free Writing Prospectus”.
No order preventing or suspending the use of the Basic Prospectus, the Prospectus Supplement, the Prospectus or any Issuer Free Writing
Prospectus has been issued by the Commission, and the Basic Prospectus and the Prospectus Supplement, at the time of filing thereof, conformed in all
material respects to the requirements of the 1933 Act and the rules and regulations of the Commission thereunder (the “1933 Act Regulations”) and did not
contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
For the purposes of this Agreement, the “Applicable Time” means, with respect to any Shares, the time of sale of such Shares pursuant to this
Agreement; the Prospectus and the applicable Issuer Free Writing Prospectus(es) issued at or prior to such Applicable Time, taken together (collectively,
and, with respect to any Shares, together with the public offering price of such Shares, the “General Disclosure Package”) as of each Applicable Time and
each Settlement Date, will not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading; and each applicable Issuer Free Writing Prospectus will not conflict
with the information contained in the Registration Statement, the Prospectus Supplement or the Prospectus and each such Issuer Free Writing Prospectus,
as supplemented by and taken together with the General Disclosure Package as of such Applicable Time, will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not
misleading.
(b)
Incorporation of Documents by Reference. The documents incorporated or deemed to be incorporated by reference in the
Registration Statement and the Prospectus, when they became effective or were filed with the Commission, as the case may be, complied in all material
respects with the applicable requirements of the 1934 Act and the 1934 Act Regulations, and, when read together with the other information in the
Prospectus, (a) at the time the Registration Statement became effective, (b) at the time the Prospectus was issued and (c) on the date of this Agreement, did
not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c)
Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations.
(d)
Financial Statements. The financial statements included or incorporated by reference in the Registration Statement, the General
Disclosure Package and the Prospectus, together with the related schedules and notes, present fairly, in all material respects, the financial position of the
Company and its consolidated Subsidiaries (as defined below) at the dates indicated and the statement of operations, stockholders’ equity and cash flows of
the Company and its consolidated Subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally
accepted accounting principles in the United States (“GAAP”) applied on a consistent basis throughout the periods involved except as may be set forth in
the notes included or incorporated by reference and except that unaudited financial statements may not contain footnotes required by GAAP. The
supporting schedules, if any, present fairly, in all material respects, in accordance with GAAP the information required to be stated therein. The selected
financial data and the summary financial information included in the Prospectus present fairly, in all material respects, the information shown therein and
have been compiled on a basis consistent with that of the audited financial statements included or incorporated by reference in the Registration
Statement. Any financial measures contained in the Registration Statement, the General Disclosure Package or the Prospectus, or incorporated by reference
therein, that constitute “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation
G of the 1934 Act and Item 10 of Regulation S-K of the 1933 Act, to the extent applicable.
2
(e)
No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration
Statement, the General Disclosure Package or the Prospectus (A) there has been no material adverse change, or any development that could reasonably be
expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a “Material Adverse Effect”),
(B) there have been no transactions entered into by the Company or any of its Subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company and its Subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(f)
Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its organization and has corporate power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material
Adverse Effect.
(g)
Good Standing of Subsidiaries. Each subsidiary listed on Schedule 1 hereto (each a “Subsidiary” and, collectively, the
“Subsidiaries”) has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as would not result in a Material Adverse Effect, all of the issued and outstanding capital stock of each such Subsidiary has been
duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, or adverse claim; none of the outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of such Subsidiary except where such failure would not result in a Material Adverse
Effect. Any significant subsidiaries (as such term is defined in Rule 1-02 of Regulation S-X promulgated by the Commission), direct and indirect, of the
Company are listed on Schedule 1 hereto.
(h)
Capitalization. The shares of issued and outstanding Common Stock have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of capital stock was issued in violation of the preemptive or other similar rights of any
securityholder of the Company. The Company’s Common Stock has been registered pursuant to Section 12(b) of the 1934 Act and is listed on the Nasdaq
Capital Market (the “Nasdaq”), and the Company has taken no action designed to terminate the registration or listing of the Common Stock from the
Nasdaq, nor has the Company received any notification that the Commission or the Nasdaq is contemplating terminating such registration or listing.
(i)
Authorization of Agreements. This Agreement and any Terms Agreement have been duly authorized by the Company. This
Agreement has been, and any Terms Agreement will be, executed and delivered by the Company.
(j)
Authorization and Description of Shares. The Shares have been duly authorized and reserved for issuance and sale pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this Agreement or any Terms Agreement against payment of the consideration set
forth herein or therein, will be validly issued and fully paid and non‑assessable; the Common Stock conforms to all statements relating thereto contained in
the Prospectus and such description conforms to the rights set forth in the instruments defining the same; no holder of the Shares will be subject to personal
liability by reason of being such a holder; and the issuance of the Shares is not subject to the preemptive or other similar rights of any securityholder of the
Company.
(k)
Absence of Defaults and Conflicts. (a) Neither the Company nor any of its Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note,
3
lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any Subsidiary is subject (collectively, “Agreements and Instruments”) except for such violations and
defaults as would not have a Material Adverse Effect; (b)(i) and the execution, delivery and performance of this Agreement or of any Terms Agreement and
the consummation of the transactions contemplated herein or in any Terms Agreement and in the Registration Statement (including the issuance and sale of
the Shares and the use of the proceeds from the sale of the Shares as described in the Prospectus under the caption “Use of Proceeds”) and compliance by
the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to, the Agreements
and Instruments, (ii) nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any Subsidiary, (iii) nor will
such action result in any violation of any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their assets, properties or operations. As
used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company
or any Subsidiary.
(l)
Absence of Labor Dispute. Except where the failure thereof would not result in a Material Adverse Effect, no labor dispute with the
employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any Subsidiary’s principal suppliers, manufacturers, customers or contractors.
(m)
Absence of Proceedings. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or
any Subsidiary, which would reasonably be expected to result in a Material Adverse Effect, or which might materially and adversely affect the
consummation of the transactions contemplated in this Agreement or any Terms Agreement or the performance by the Company of its obligations
hereunder or thereunder.
(n)
Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement or the
Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed as required.
(o)
Possession of Intellectual Property. Except where the failure thereof would not reasonably be expected to result in a Material
Adverse Effect, (i) the Company and its Subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business
now operated by them, and (ii) neither the Company nor any of its Subsidiaries has received any notice of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate
to protect the interest of the Company or any of its Subsidiaries therein.
(p)
Absence of Further Requirements. Except where the absence thereof would not result in a Material Adverse Effect, no filing with,
or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Shares hereunder or the
consummation of the transactions contemplated by this Agreement or any Terms Agreement, except such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations or state securities laws or by the rules of the Nasdaq or the Financial Industry Regulatory
Authority, Inc. (“FINRA”).
(q)
Absence of Manipulation.
Neither the Company nor to the Company’s knowledge any affiliate of the Company has taken,
nor will the Company take, directly or indirectly, any action which is designed to or which
4
has constituted or which would be reasonably expected to cause or result in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(r)
Possession of Licenses and Permits. The Company and each of its Subsidiaries have made all filings, applications, declarations and
submissions required by, and own or possess all approvals, licenses, certificates, clearances, consents, exemptions, marks, notifications, orders,
authorizations and permits issued by the appropriate local, state, federal or foreign regulatory agencies or bodies, including all such registrations, approvals,
certificates, authorizations and permits required by the United States Food and Drug Administration (the “FDA”) which are required for the ownership of
their respective properties or the conduct of their current respective businesses as described in the Registration Statement, General Disclosure Package and
the Prospectus (each, a “Governmental License”) except where any failures to possess or any noncompliance would not, singly or in the aggregate, have a
Material Adverse Effect and neither the Company nor any of its Subsidiaries has received any notice of any revocation, modification or cancellation of,
any such Governmental License, which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be
expected to result in a Material Adverse Effect. Where required by applicable laws and regulations of the FDA, the Company has submitted to the FDA an
Investigational New Drug Application or amendment or supplement thereto for each clinical trial it has conducted or sponsored or is conducting or
sponsoring, except where such failure would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; all such submissions
were in material compliance with applicable laws and rules and regulations when submitted and no material deficiencies have been asserted by the FDA
with respect to any such submissions, except any deficiencies which could not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(s)
Title to Property. Except where the failure thereof would result in a Material Adverse Effect, to the Company’s knowledge, (i) the
Company and its Subsidiaries have good and marketable title to all real property owned by the Company and its Subsidiaries and good title to all other
properties owned by it that are material to the business of the Company, in each case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as do not, singly or in the aggregate, affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any of its Subsidiaries; and (ii) all of the leases and subleases material to
the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease.
(t)
Investment Company Act. The Company is not required, and upon the issuance and sale of the Shares as herein contemplated and
the application of the net proceeds therefrom as described in the Prospectus will not be required, to register as an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.
(u)
Environmental Laws. Except as would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse
Effect: (A) neither the Company nor any of its Subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree
or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold
(collectively, “Hazardous Materials”) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, “Environmental Laws”), (B) the Company and its Subsidiaries have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the Company’s knowledge threatened
administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or any of its Subsidiaries and (D) there are no events or circumstances of which the
Company is aware that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by
5
any private party or governmental body or agency, against or affecting the Company or any of its Subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(v)
Registration Rights. There are no persons with registrations rights or other similar rights to have any securities registered pursuant
to the Registration Statement, except for such rights as have been duly waived.
(w)
Accounting Controls and Disclosure Controls. The Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorization;
(B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets;
(C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Since the end of the Company’s
most recent audited fiscal year, the Company is not aware of any (1) material weakness in the Company’s internal control over financial reporting (whether
or not remediated) and (2) change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
The Company and its consolidated Subsidiaries employ disclosure controls and procedures that are designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms, and is accumulated and communicated to the Company’s management, including its principal
executive officer or officers and principal financial officer or officers, as appropriate, to allow timely decisions regarding disclosure.
(x)
S-3 Eligibility. (A)(i) At the time of filing the Registration Statement and (ii) at the time of the most recent amendment thereto for
the purposes of complying with Section 10(a)(3) of the 1933 Act (whether such amendment was by post-effective amendment, incorporated report filed
pursuant to Section 13 or 15(d) of the 1934 Act or form of prospectus), the Company met the then applicable requirements for use of Form S-3 under the
1933 Act and (B) at the earliest time after the filing of the Registration Statement that the Company or JonesTrading acting under a valid Terms Agreement
made a bona fide offer (within the meaning of Rule 164(h)(2) under the 1933 Act) of the Shares, the Company was not an “ineligible issuer” as defined in
Rule 405 under the 1933 Act.
(y)
No Commissions. Neither the Company nor any of its Subsidiaries is a party to any contract, agreement or understanding with any
person (other than as contemplated by this Agreement or any Terms Agreement) that would give rise to a valid claim against the Company or any of its
Subsidiaries or the Agent for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Shares.
(z)
Deemed Representation. Any certificate signed by any officer of the Company delivered to the Agent or to counsel for the Agent
pursuant to or in connection with this Agreement or any Terms Agreement shall be deemed a representation and warranty by the Company to the Agent as
to the matters covered thereby as of the date or dates indicated in such certificate.
(aa)
Compliance with the Sarbanes-Oxley Act. The Company is in compliance in all material respects with all applicable provisions of
the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, including Section 402 related to loans and Sections 302
and 906 related to certifications.
(bb)
Intentionally omitted.
(cc)
Payment of Taxes. All United States federal income tax returns of the Company and its Subsidiaries required by law to be filed
have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except assessments against which
appeals have been or will be promptly taken and as to which adequate reserves have been provided and except where the failure to do so would not
reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries have filed all other tax returns that are required to have been
filed by them pursuant to applicable foreign, state, local or other law and have paid all taxes due pursuant to such returns or pursuant to any assessment
received by the Company and its
6
Subsidiaries, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided and except where the
failure to do so would reasonably be expected to have a Material Adverse Effect.
(dd)
Insurance. The Company and its Subsidiaries carry or are entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and covering such risks as is generally maintained by companies of established repute engaged in the same or similar
business, and all such insurance is in full force and effect. The Company has no reason to believe that it or any Subsidiary will not be able (A) to renew its
existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect. During the prior three year period,
neither of the Company nor any Subsidiary has been denied any material insurance coverage which it has sought or for which it has applied.
(ee)
Statistical and Market-Related Data. Any statistical and market-related data included in the Registration Statement, the General
Disclosure Package and the Prospectus are based on or derived from sources that the Company believes to be reliable and accurate, and, where required,
the Company’s good faith estimates that are made on the basis of such data from such sources.
(ff)
Foreign Corrupt Practices Act. Neither the Company nor, to the knowledge of the Company, any director, officer, agent, employee,
affiliate or other person acting on behalf of the Company or any of its Subsidiaries is aware of or has taken any action, directly or indirectly, that would
result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”),
including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment,
promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to
any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in
contravention of the FCPA and the Company and, to the knowledge of the Company, its affiliates have conducted their businesses in compliance with the
FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued
compliance therewith.
(gg)
Money Laundering Laws. The operations of the Company are and have been conducted at all times in compliance with applicable
financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering
statutes of all applicable jurisdictions, the applicable rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any
court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to the
knowledge of the Company, threatened.
(hh)
OFAC. Neither the Company nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or person
acting on behalf of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of this offering, or lend, contribute or otherwise make available
such proceeds to any Subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person whom the Company
has knowledge is currently subject to any U.S. sanctions administered by OFAC.
(ii)
Tests and Preclinical and Clinical Studies. The Company has operated and currently is in compliance with the United States Federal
Food, Drug, and Cosmetic Act, all applicable rules and regulations of the FDA and other federal, state, local and foreign governmental bodies exercising
comparable authority, except where the failure to so operate or be in compliance would not reasonably be expected to have a Material Adverse Effect. The
preclinical and clinical studies conducted by or, to the Company’s knowledge, on behalf of the Company that are described in the Registration Statement
and the Prospectus were, and if still pending, are being, conducted in all material respects in accordance with experimental protocols, procedures and
controls pursuant to, where applicable, accepted professional and scientific standards for products or product candidates comparable to those being
developed by the Company; the descriptions of the tests and preclinical and clinical studies, and results thereof,
7
conducted by or, to the Company’s knowledge on the behalf of the Company contained in the Registration Statement, the General Disclosure Package and
the Prospectus are accurate and complete in all material respects; the Company is not aware of any trials or studies not described or referred to in the
Registration Statement, the General Disclosure Package and the Prospectus, the results of which reasonably call into question the results described or
referred to in the Registration Statement, the General Disclosure Package and the Prospectus; the Company is not in receipt of any notices or
correspondence from the FDA or any foreign, state or local governmental body exercising comparable authority that reasonably call into question results of
the trials or studies described or referred to in the Registration Statement, the General Disclosure Package and the Prospectus; and the Company has not
received any notice or correspondence from the FDA or any foreign, state or local governmental body exercising comparable authority requiring the
termination, suspension, or clinical hold of any tests or preclinical or clinical studies, or such notice or correspondence from any Institutional Review Board
or comparable authority requiring the termination or suspension of a clinical study, conducted by or on behalf of the Company, which termination,
suspension, or clinical hold would reasonably be expected to have a Material Adverse Effect.
(jj)
IT Systems. (i)(x) To the knowledge of Company, there has been no security breach or other compromise of any of the Company’s
information technology and computer systems, networks, hardware, software, data (including the data of their respective customers, employees, suppliers,
vendors and any third party data maintained by or on behalf of them), equipment or technology (collectively, “IT Systems and Data”) and (y) the Company
has not been notified of, and has no knowledge of any event or condition that would reasonably be expected to result in, any security breach or other
compromise to their IT Systems and Data, except as would not, in the case of this clause (i), individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect; and (ii) the Company is presently in material compliance with all applicable laws or statutes and all judgments, orders,
rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy
and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification,
except as would not, in the case of this clause (ii), individually or in the aggregate, have a Material Adverse Effect.
Section 2. Sale and Delivery of Shares.
(a)Subject to the terms and conditions set forth herein, the Company agrees to issue and sell exclusively through the Agent acting as
sales agent or directly to the Agent acting as principal from time to time, and the Agent agrees to use its commercially reasonable efforts to sell as sales
agent for the Company, the Shares. Sales of the Shares, if any, through the Agent acting as sales agent or directly to the Agent acting as principal may be
made in negotiated transactions or transactions that are deemed to be “at the market offerings” as defined in Rule 415 of the 1933 Act. Anything to the
contrary notwithstanding in this Agreement, without the Company’s prior written consent (which may be included explicit authorization in a Terms
Agreement), the Agent may not place Shares by any method other than those deemed to be an “at the market offering” as defined in Rule 415 of the 1933
Act. Nothing contained herein restricts, nor may be deemed to restrict, the Company from undertaking another offering of its securities pursuant to a
separate registration under the 1933 Act (or any exemption from such registration), or another offering under the Registration Statement, provided the
Company complies with Section 3(p).
(b)
Subject to the applicable Terms Agreement or instructions to sell shares delivered pursuant to this Section 2(b), the
Shares to be sold pursuant to this Agreement are to be sold on a daily basis or otherwise as shall be agreed to by the Company and the Agent on that trading
day (other than a day on which the Nasdaq is scheduled to close prior to its regular weekday closing time, each, a “Trading Day”) that the Company has
satisfied its obligations under Section 6 of this Agreement and that the Company has instructed the Agent to make such sales. For the avoidance of doubt,
the foregoing limitation shall not apply to sales solely to employees or security holders of the Company or its Subsidiaries, or to a trustee or other person
acquiring such securities for the accounts of such persons in which JonesTrading is acting for the Company in a capacity other than as Agent under this
Agreement. On any Trading Day, the Company may instruct the Agent by telephone (confirmed promptly by telecopy or email, which confirmation will be
promptly acknowledged by the Agent) as to the maximum aggregate dollar value or number of Shares to be sold by the Agent on such day (in any event
not in excess of the number available for issuance under the Prospectus and the currently effective Registration Statement) and the minimum price per
Share at which such Shares may be sold. Subject to the terms and conditions hereof, the Agent shall use its commercially reasonable efforts to sell as sales
agent all of the Shares so designated by the Company and in the
8
manner and on the terms so designated in writing by the Company. The Company and the Agent each acknowledge and agree that (A) there can be no
assurance that the Agent will be successful in selling the Shares, (B) the Agent will incur no liability or obligation to the Company or any other person or
entity if they do not sell Shares for any reason other than a failure by the Agent to use its commercially reasonable efforts consistent with its normal trading
and sales practices and applicable law and regulations to sell such Shares as required by this Agreement, and (C) the Agent shall be under no obligation to
purchase Shares on a principal basis except as otherwise specifically agreed by each of the Agent and the Company pursuant to a Terms Agreement. In the
event of a conflict between the terms of this Agreement and the terms of a Terms Agreement, the terms of such Terms Agreement will control.
(c) Notwithstanding the foregoing, the Company shall not authorize the issuance and sale of, and the Agent as sales agent shall not
be obligated to use its commercially reasonable efforts to sell, any Shares (i) at a price lower than the minimum price therefor authorized from time to time,
or (ii) in a number in excess of the number or maximum aggregate dollar value of Shares authorized from time to time to be issued and sold under this
Agreement, in each case, by the Company’s board of directors, or a duly authorized committee thereof, and notified to the Agent in writing. In addition,
the Company may, upon notice to the Agent, suspend the offering of the Shares or the Agent may, upon notice to the Company, suspend the offering of the
Shares with respect to which the Agent is acting as sales agent for any reason and at any time; provided, however, that such suspension or termination shall
not affect or impair the parties’ respective obligations with respect to the Shares sold hereunder prior to the giving of such notice. Any notice given
pursuant to the preceding sentence may be given by telephone (confirmed promptly by telecopy or email, which confirmation will be promptly
acknowledged).
(d) The gross sales price of any Shares sold pursuant to this Agreement by the Agent acting as sales agent of the Company shall be
the market price prevailing at the time of sale for shares of the Company’s Common Stock sold by the Agent on the Nasdaq or otherwise, at prices relating
to prevailing market prices or at negotiated prices. The compensation payable to the Agent for sales of Shares with respect to which the Agent acts as sales
agent shall be equal to up to 3.0% of the gross sales price of the Shares for amounts of Shares sold pursuant to this Agreement. The Company may sell
Shares to the Agent, acting as principal, at a price agreed upon with the Agent at the relevant Applicable Time and pursuant to a separate Terms
Agreement. The remaining proceeds, after further deduction for any transaction fees imposed by any governmental, regulatory or self-regulatory
organization in respect of such sales, shall constitute the net proceeds to the Company for such Shares (the “Net Proceeds”). The Agent shall notify the
Company as promptly as practicable if any deduction referenced in the preceding sentence will be required.
(e) If acting as a sales agent hereunder, the Agent shall provide written confirmation to the Company following the close of trading
on the Nasdaq, each day in which Shares are sold under this Agreement setting forth the number of Shares sold on such day, the aggregate gross sales
proceeds of the Shares, the Net Proceeds to the Company and the compensation payable by the Company to such Agent with respect to such sales.
(f) Under no circumstances shall the aggregate offering price or number, as the case may be, of Shares sold pursuant to this
Agreement and any Terms Agreement exceed the aggregate offering price or number, as the case may be, of shares of Common Stock (i) set forth in the
preamble paragraph of this Agreement, (ii) available for issuance under the Prospectus and the then currently effective Registration Statement, (iii)
authorized from time to time to be issued and sold under this Agreement or any Terms Agreement by the Company’s board of directors, or a duly
authorized committee thereof, and notified to the Agent in writing or (iv) authorized but unissued pursuant to the Company’s certificate of incorporation. In
addition, under no circumstances shall any Shares with respect to which the Agent acts as sales agent be sold at a price lower than the minimum price
therefor authorized from time to time by the Company’s board of directors, or a duly authorized committee thereof, and notified to the Agent in writing.
(g)
Settlement for sales of Shares pursuant to this Section 2 will occur on the second business day that is also a Trading
Day following the trade date on which such sales are made, unless another date shall be agreed to by the Company and the Agent (each such day, a
“Settlement Date”). On each Settlement Date, the Shares sold through the Agent for settlement on such date shall be delivered by the Company to the
Agent against payment of the Net Proceeds from the sale of such Shares. Settlement for all Shares shall be effected by book-entry delivery of Shares to the
Agent’s account at The Depository Trust Company against payments by the Agent of the Net Proceeds from the sale of such Shares in same day funds
delivered to an account designated by the Company. If the
9
Company shall default on its obligation to deliver Shares on any Settlement Date, the Company shall, in addition to any indemnification obligation
pursuant to Section 7, pay the Agent any commission to which it would otherwise be entitled absent such default.
(h)
Notwithstanding any other provision of this Agreement, the Company and the Agent agree that no sales of Shares shall
take place, and the Company shall not request the sale of any Shares that would be sold, and the Agent shall not be obligated to sell, during any period in
which the Company is, or would reasonably be deemed to be, in possession of material non-public information.
(i)
Any obligation of the Agent to use its commercially reasonable efforts to sell the Shares on behalf of the Company as
sales agent shall be subject to the continuing accuracy of the representations and warranties of the Company herein, to the performance by the Company of
its obligations hereunder and to the continuing satisfaction of the additional conditions specified in Section 6 of this Agreement.
Section 3. Covenants. The Company agrees with the Agent:
(a)
During any period when the delivery of a prospectus is required in connection with the offering or sale of Shares (whether
physically or through compliance with Rule 153 or 172, or in lieu thereof, a notice referred to in Rule 173(a) under the 1933 Act), (i) to make no further
amendment or any supplement to the Registration Statement or the Basic Prospectus (other than an amendment or supplement relating to an offering of the
Company’s securities which is unrelated to the offering of the Shares hereunder) prior to any Settlement Date which shall be disapproved by the Agent
promptly after reasonable notice thereof and to advise the Agent, promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any amendment or supplement to the Basic Prospectus (other than an amendment or
supplement relating to an offering of the Company’s securities which is unrelated to the offering of the Shares hereunder) has been filed and to furnish the
Agent with copies thereof, (ii) to file promptly all other material required to be filed by the Company with the Commission pursuant to Rule 433(d) under
the 1933 Act, (iii) to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act, (iv) to advise the Agent, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the use of the Prospectus or other prospectus in respect of the Shares, of the
suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose,
or of any request by the Commission for the amending or supplementing of the form of the Registration Statement or the Prospectus or for additional
information, and (v) in the event of the issuance of any such stop order or of any such order preventing or suspending the use of the Prospectus in respect of
the Shares or suspending any such qualification, to promptly use its commercially reasonable efforts to obtain the withdrawal of such order; and in the
event of any such issuance of a notice of objection, promptly to take such reasonable steps as may be necessary to permit offers and sales of the Shares by
the Agent, which may include, without limitation, amending the Registration Statement or filing a new registration statement, at the Company’s expense
(references herein to the Registration Statement shall include any such amendment or new registration statement). Notwithstanding the foregoing, the
Company shall not be obligated to furnish copies of any report or statement filed with the Commission to the extent it is available on the Commission’s
Electronic Data-Gathering, Analysis, and Retrieval System (“EDGAR”).
(b)
Promptly from time to time to take such action as the Agent may reasonably request to qualify the Shares for offering and sale
under the securities laws of such jurisdictions as the Agent may request and to comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the sale of the Shares, provided that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; and to promptly advise the Agent of
the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for offer or sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
(c)
During any period when the delivery of a prospectus is required (whether physically or through compliance with Rules 153 or 172,
or in lieu thereof, a notice referred to in Rule 173(a) under the 1933 Act) in connection with the offering or sale of Shares, the Company will make
available to the Agent, as soon as practicable
10
after the execution of this Agreement, and thereafter from time to time furnish to the Agent, copies of the most recent Prospectus in such quantities and at
such locations as the Agent may reasonably request for the purposes contemplated by the 1933 Act. During any period when the delivery of a prospectus is
required (whether physically or through compliance with Rules 153 or 172, or in lieu thereof, a notice referred to in Rule 173(a) under the 1933 Act) in
connection with the offering or sale of Shares, and if at such time any event shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the Prospectus or to file under the 1934 Act any document incorporated by reference in the
Prospectus in order to comply with the 1933 Act or the 1934 Act, to notify the Agent and to file such document and to prepare and furnish without charge
to the Agent as many written and electronic copies as the Agent may from time to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such compliance. Notwithstanding the foregoing, the Company shall not be required to
furnish any document to the extent such document is available on EDGAR.
(d)
To make generally available to its securityholders as soon as practicable, but in any event not later than sixteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under the 1933 Act), an earnings statement of the Company and its Subsidiaries
(which need not be audited) complying with Section 11(a) of the 1933 Act and the rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158).
(e)
To pay the required Commission filing fees relating to the Shares within the time required by Rule 456(a) under the 1933 Act and
otherwise in accordance with Rule 457(o) under the 1933 Act.
(f)
To use the Net Proceeds received by it from the sale of the Shares pursuant to this Agreement and any Terms Agreement in the
manner specified in the General Disclosure Package.
(g)
In connection with the offering and sale of the Shares, the Company will file with the Nasdaq all documents and notices, and make
all certifications, required by the Nasdaq of companies that have securities that are listed or quoted on the Nasdaq and will maintain such listings or
quotations.
(h)
To not take, directly or indirectly, and to use commercially reasonable efforts to cause its affiliates (as defined in Rule 405 of the
1933 Act Regulations) to refrain from taking, any action designed to cause or result in, or that has constituted or might reasonably be expected to
constitute, under the 1934 Act or otherwise, the stabilization or manipulation of the price of any securities of the Company to facilitate the sale or resale of
the Shares.
(i)
In each Annual Report on Form 10-K or Quarterly Report on Form 10-Q filed by the Company in respect of any quarter in which
sales of Shares were made by or through the Agent under this Agreement or any Terms Agreement (each date on which any such document is filed, and any
date on which an amendment to any such document is filed, a “Company Periodic Report Date”), the Company shall set forth with regard to such quarter
the approximate number of Shares sold through the Agent under this Agreement or any Terms Agreement and the Net Proceeds received by the Company
with respect to sales of Shares pursuant to this Agreement or any Terms Agreement.
(j)
Upon commencement of the offering of Shares under this Agreement (the “Commencement Date”) and each time the Shares are
delivered to the Agent as principal on a Settlement Date and promptly after each (i) date the Registration Statement or the Prospectus shall be amended or
supplemented (other than (1) by an amendment or supplement providing solely for the determination of the terms of the Shares, (2) in connection with the
filing of a prospectus supplement that contains solely the information set forth in Section 3(i), (3) in connection with the filing of any current reports on
Form 8-K (other than any current reports on Form 8-K which contain financial statements, supporting schedules or other financial data, including any
current report on Form 8-K under Item 2.02 of such form that is considered “filed” under the 1934 Act) or (4) by a prospectus supplement relating to the
offering of other securities (including, without limitation, other shares of Common Stock)) (each such date, a “Registration Statement Amendment Date”)
and (ii) Company Periodic Report Date, the Company will furnish or
11
cause to be furnished forthwith to the Agent a certificate dated the date of effectiveness of such amendment or the date of filing with the Commission of
such supplement or other document, as the case may be, in a form reasonably satisfactory to the Agent to the effect that the statements contained in the
certificate referred to in Section 6(e) of this Agreement which were last furnished to the Agent are true and correct at the time of such amendment,
supplement or filing, as the case may be, as though made at and as of such time (except that such statements shall be deemed to relate to the Registration
Statement, the General Disclosure Package and the Prospectus as amended and supplemented to such time) or, in lieu of such certificate, a certificate of the
same tenor as the certificate referred to in said Section 6(e), but modified as necessary to relate to the Registration Statement and the Prospectus as
amended and supplemented, or to the document incorporated by reference into the Prospectus, to the time of delivery of such certificate. As used in this
paragraph, to the extent there shall be an Applicable Time on or following the date referred to in clause (i) or (ii) above, promptly shall be deemed to be on
or prior to the next succeeding Applicable Time. Notwithstanding the forgoing, the Company shall not be required to deliver any such certificate at any
time there is no Terms Agreement or instructions to sell shares delivered pursuant to this Section 2(b) then in effect; provided, however, that such a
certificate shall then be required to be delivered to the Agent prior to any further sales of Shares under this Agreement covering the period which would
most recently have been required but for this sentence.
(k)
On the Commencement Date and each time the Shares are delivered to the Agent as principal on a Settlement Date pursuant to a
Terms Agreement, and promptly after each (i) Registration Statement Amendment Date and (ii) filing by the Company of a Company Periodic Report, the
Company will furnish or cause to be furnished to the Agent and to counsel to the Agent the written opinion and letter of each Company Counsel (as defined
below) or other counsel reasonably satisfactory to the Agent, dated the date of effectiveness of such amendment or the date of filing with the Commission
of such supplement or other document, as the case may be, in a form and substance reasonably satisfactory to the Agent and its counsel, of the same tenor
as the opinions and letters referred to in Section 6(c) of this Agreement, but modified as necessary to relate to the Registration Statement, the General
Disclosure Package and the Prospectus as amended and supplemented, or to the document incorporated by reference into the Prospectus, to the time of
delivery of such opinion and letter or, in lieu of such opinion and letter, counsel last furnishing such letter to the Agent shall furnish such Agent with a letter
substantially to the effect that the Agent may rely on such last opinion and letter to the same extent as though each were dated the date of such letter
authorizing reliance (except that statements in such last letter shall be deemed to relate to the Registration Statement and the Prospectus as amended and
supplemented to the time of delivery of such letter authorizing reliance). As used in this paragraph, to the extent there shall be an Applicable Time on or
following the date referred to in clause (i) or (ii) above, promptly shall be deemed to be on or prior to the next succeeding Applicable
Time. Notwithstanding the forgoing, the Company shall not be required to furnish or cause to be furnished any such opinion or letter at any time there is
no Terms Agreement or instructions to sell shares delivered pursuant to Section 2(b) then in effect; provided, however, that such an opinion or letter shall
then be required to be furnished to the Agent prior to any further sales of Shares under this Agreement covering the period which would most recently have
been required but for this sentence, and following the Agent being furnished with the first opinion(s) pursuant to this Section 3(k), subsequent opinions or
letters furnished pursuant to this Section 3(k) shall only consist of customary “negative assurance” letters.
(l)
On the Commencement Date and each time the Shares are delivered to the Agent as principal on a Settlement Date pursuant to a
Terms Agreement, and promptly after each (i) Registration Statement Amendment Date (other than a Registration Statement Amendment date that occurs
in connection with any filing of a Quarterly Report on Form 10-Q) and (ii) filing by the Company of a Company Annual Report on Form 10-K, the
Company will cause Ernst & Young LLP, or other independent accountants reasonably satisfactory to the Agent, to furnish to the Agent a letter, dated the
date of effectiveness of such amendment or the date of filing of such supplement or other document with the Commission, as the case may be, in form
reasonably satisfactory to the Agent and its counsel, of the same tenor as the letter referred to in Section 6(d) hereof, but modified as necessary to relate to
the Registration Statement, the General Disclosure Package and the Prospectus, as amended and supplemented, or to the document incorporated by
reference into the Prospectus, to the date of such letter. As used in this paragraph, to the extent there shall be an Applicable Time on or following the date
referred to in clause (i) or (ii) above, promptly shall be deemed to be on or prior to the next succeeding Applicable Time. Notwithstanding the forgoing, the
Company shall not be required to furnish or cause to be furnished any such letter at any time there is no Terms Agreement or instructions to sell shares
delivered pursuant to Section 2(b) then in effect; provided, however, that
12
such a letter shall then be required to be furnished to the Agent prior to any further sales of Shares under this Agreement covering the period which would
most recently have been required but for this sentence.
(m)
The Company consents to the Agent trading in the Company’s Common Stock for the Agent’s own account and for the account of
its clients at the same time as sales of Shares occur pursuant to this Agreement or any Terms Agreement, provided that at all times the Agent is in
compliance with Regulation M under the 1934 Act with respect to the Common Stock and provided that in no event shall the Agent trade the Common
Stock for its or its affiliates’ proprietary accounts.
(n)
(o)
[Intentionally Omitted]
The Company will cooperate timely with any reasonable due diligence review conducted by the Agent or its counsel from time to
time in connection with the transactions contemplated hereby or in any Terms Agreement, including, without limitation, and upon reasonable notice
providing information and making available documents and appropriate corporate officers, during regular business hours and at the Company’s principal
offices, as the Agent may reasonably request.
(p)
During the time any instruction to sell shares delivered pursuant to Section 2(b) hereof or any Terms Agreement is in effect, the
Company will not, without giving the Agent at least three business days’ prior written notice specifying the nature of the proposed sale and the date of such
proposed sale and the Agent suspending activity under this program for such period of time as requested by the Company, (A) offer, pledge, announce the
intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for
the sale of, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or securities convertible into or exchangeable or
exercisable for or repayable with Common Stock, or file any registration statement under the 1933 Act with respect to any of the foregoing (other than a
shelf registration statement under Rule 415 under the 1933 Act, a registration statement on Form S-8 or post-effective amendment to the Registration
Statement) or (B) enter into any swap or other agreement or any transaction that transfers in whole or in part, directly or indirectly, any of the economic
consequence of ownership of the Common Stock, or any securities convertible into or exchangeable or exercisable for or repayable with Common Stock,
whether any such swap or transaction described in clause (A) or (B) above is to be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (x) any securities issuable upon the exercise or conversion of warrants, options, convertible securities
or other rights either in existence prior to the date of this Agreement or issued thereafter in compliance with this Section 3(p), (y) the Shares to be offered
and sold through the Agent pursuant to this Agreement or any Terms Agreement and (z) equity incentive awards approved by the board of directors of the
Company or the compensation committee thereof or the issuance of Common Stock upon exercise thereof.
(q)
If immediately prior to the third anniversary (the “Renewal Deadline”) of the initial effective date of the Registration Statement,
any of the Shares remain unsold, the Company will, prior to the Renewal Deadline file, if it has not already done so and is eligible to do so, an “automatic
shelf registration statement” (as defined in Rule 405 under the 1933 Act) relating to the Shares, in a form reasonably satisfactory to the Agent. If the
Company is not eligible to file an automatic shelf registration statement, the Company will, prior to the Renewal Deadline, if it has not already done so, file
a new shelf registration statement relating to the Shares, in a form reasonably satisfactory to the Agent, and will use its commercially reasonable efforts to
cause such registration statement to be declared effective within 60 days after the Renewal Deadline. The Company will use commercially reasonable
efforts to take all other action necessary or appropriate to permit the issuance and sale of the Shares to continue as contemplated in the expired registration
statement relating to the Shares. References herein to the Registration Statement shall include such new automatic shelf registration statement or such new
shelf registration statement, as the case may be.
Section 4. Free Writing Prospectus.
(i)The Company represents and agrees that without the prior consent of the Agent (which consent may not be unreasonably
(a)
withheld, delayed or conditioned), it has not made and will not make any offer relating to the Shares that would constitute a “free writing
prospectus” as defined in Rule 405 under the 1933 Act; and
13
(ii) the Agent represents and agrees that, without the prior consent of the Company (which consent may not be unreasonably withheld, delayed
or conditioned), it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus required to be
filed with the Commission.
(b)
The Company has complied and will comply with the requirements of Rule 433 under the 1933 Act applicable to any Issuer Free
Writing Prospectus (including any free writing prospectus identified in Section 4(a) hereof), including timely filing with the Commission or retention where
required and legending.
Section 5. Payment of Expenses. The Company covenants and agrees with the Agent that the Company will pay or cause to be paid the
following: (i) the fees, disbursements and expenses of the Company’s counsel and accountants in connection with the registration of the Shares under the
1933 Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, the Basic Prospectus, Prospectus
Supplement, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies
thereof to the Agent; (ii) the cost of printing or producing this Agreement or any Terms Agreement, any Blue Sky and Legal Investment Memoranda,
closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 3(b) hereof,
including the reasonable fees and disbursements of counsel for the Agent in connection with such qualification and in connection with the Blue Sky and
Legal Investment Surveys; (iv) any filing fees incident to, and the reasonable fees and disbursements of counsel for the Agent in connection with, any
required review by FINRA of the terms of the sale of the Shares; (v) the cost of preparing the Shares; (vi) the costs and charges of any transfer agent or
registrar or any dividend distribution agent; (vii) the reasonable fees and disbursements of counsel to the Agent up to $45,000 (which amount shall include
all fees and disbursements of such counsel described in clauses (iii) and (iv) above) and quarterly disbursements of counsel to the Agent up to $10,000 per
calendar year; and (ix) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided
for in this Section. It is understood, however, that, except as provided in this Section, and Section 7 hereof, the Agent will pay all of its own costs and
expenses, including the fees of its counsel, transfer taxes on resale of any of the Shares by it, and any advertising expenses connected with any offers it may
make.
Section 6. Conditions of Agent’s Obligation. The obligations of the Agent hereunder shall be subject, in its discretion, to the condition that all
representations and warranties and other statements of the Company herein or in certificates of any officer of the Company delivered pursuant to the
provisions hereof are true and correct as of the time of the execution of this Agreement, the date of any executed Terms Agreement and as of each
Registration Statement Amendment Date, Company Periodic Report Date, Applicable Time and Settlement Date, to the condition that the Company shall
have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions:
(a)
The Prospectus Supplement shall have been filed with the Commission pursuant to Rule 424(b) under the 1933 Act in accordance
with Section 3(a) hereof, any other material required to be filed by the Company pursuant to Rule 433(d) under the 1933 Act shall have been filed with the
Commission within the applicable time periods prescribed for such filings by Rule 433; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission and no
notice of objection of the Commission to the use of the form of the Registration Statement or any post-effective amendment thereto pursuant to Rule 401(g)
(2) under the 1933 Act shall have been received; no stop order suspending or preventing the use of the Prospectus or any Issuer Free Writing Prospectus
shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been
complied with to the reasonable satisfaction of the Agent.
(b)
On every date specified in Section 3(k) hereof and on such other dates as reasonably requested by Agent, Duane Morris LLP,
counsel for the Agent, shall have furnished to the Agent such written opinion or opinions, dated as of such date, with respect to such matters as the Agent
may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon
such matters.
14
(c)
On every date specified in Section 3(k) hereof, Cooley LLP, counsel for the Company, shall have furnished to the Agent written
opinion or opinions, dated as of such date, in form and substance reasonably satisfactory to the Agent (it being understood and agreed that, other than the
first such opinion furnished to the Agent, such opinions shall consist of a customary “negative assurance” letter).
(d)
At the dates specified in Section 3(l) hereof, the independent accountants of the Company who have certified the financial
statements of the Company and its Subsidiaries included or incorporated by reference in the Registration Statement, the General Disclosure Package and
the Prospectus shall have furnished to the Agent a letter dated as of the date of delivery thereof and addressed to the Agent in form and substance
reasonably satisfactory to the Agent and its counsel, containing statements and information of the type ordinarily included in accountants’ “comfort letters”
to underwriters with respect to the financial statements of the Company and its Subsidiaries included or incorporated by reference in the Registration
Statement, the General Disclosure Package and the Prospectus.
(e)
Prior to commencement of the offering of Shares under this Agreement, the Agent shall have received a certificate, signed on behalf
of the Company by its corporate Secretary, in form and substance satisfactory to the Agent and its counsel, to the effect that (A) each of the charter and
bylaws of the Company (as the same may be amended and/or restated) is true and complete, has not been modified and is in full force and effect, and
(B) the resolutions of the Company’s board of directors relating to the sales of Shares pursuant to this Agreement are in full force and effect and have not
been modified.
(f)
On each date specified in Section 3(j), the Agent shall have received a certificate of executive officers of the Company, one of
whom shall be the Chief Financial Officer, Chief Accounting Officer, Treasurer, or Executive Vice President in the area of capital markets and investments,
dated as of the date thereof, to the effect that (A) there has been no Material Adverse Effect since the date as of which information is given in the General
Disclosure Package and the Prospectus as then amended or supplemented, (B) the representations and warranties in Section 1 hereof are true and correct as
of such date and (C) the Company has complied with all of the agreements entered into in connection with the transaction contemplated herein and satisfied
all conditions on its part to be performed or satisfied hereunder.
(g)
(h)
(i)
[Intentionally Omitted]
The Company shall have complied with the provisions of Section 3(c) hereof with respect to the timely furnishing of prospectuses.
On such dates as reasonably requested by the Agent, the Company shall have conducted due diligence sessions, in form and
substance reasonably satisfactory to the Agent.
(j)
All filings with the Commission required by Rule 424 under the 1933 Act to have been filed by each Applicable Time or related
Settlement Date shall have been made within the applicable time period prescribed for such filing by Rule 424 (without reliance on Rule 424(b)(8)).
(k)
(l)
The Shares shall have received approval for listing or quotation on the Nasdaq prior to the first Settlement Date.
Prior to any Settlement Date, the Company shall have furnished to the Agent such further information, documents or certificates as
the Agent may reasonably request.
Section 7. Indemnification.
(a)
The Company will indemnify and hold harmless the Agent against any losses, claims, damages or liabilities, joint or several, to
which the Agent may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Basic
Prospectus, the Prospectus Supplement or the Prospectus or any amendment or supplement thereto, any Issuer Free Writing
15
Prospectus or any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the 1933 Act, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and
will reimburse the Agent for any legal or other expenses reasonably incurred by the Agent in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration
Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing
Prospectus, in reliance upon and in strict conformity with written information furnished to the Company by the Agent expressly for use therein.
(b)
The Agent will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Basic Prospectus, the Prospectus
Supplement or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the
Registration Statement, the Basic Prospectus, the Prospectus Supplement or the Prospectus, or any such amendment or supplement thereto, or any Issuer
Free Writing Prospectus, in reliance upon and in strict conformity with written information furnished to the Company by the Agent expressly for use
therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c)
Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any
indemnified party otherwise than under such subsection except and then only to the extent such indemnifying party is materially prejudiced thereby. In case
any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 7 for any legal
expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
(d)
If the indemnification provided for in this Section 7 is unavailable to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Agent on the other from the offering of the
Shares to which such loss, claim, damage or liability (or action in respect thereof) relates. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Agent
on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable
16
considerations. The relative benefits received by the Company on the one hand and the Agent on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total commissions received by the Agent. The
relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Agent on the other and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Agent agree that it would
not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding
the provisions of this subsection (d), the Agent shall not be required to contribute any amount in excess of the amount by which the total compensation
received by the Agent with respect to sales of the Shares sold by it to the public exceeds the amount of any damages which the Agent has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e)
The obligations of the Company under this Section 7 shall be in addition to any liability which the Company may otherwise have
and shall extend, upon the same terms and conditions, to the directors, officers, employees, attorneys and agents of the Agent and to each person, if any,
who controls the Agent within the meaning of the 1933 Act and each broker dealer affiliate of the Agent; and the obligations of the Agent under this
Section 7 shall be in addition to any liability which the Agent may otherwise have and shall extend, upon the same terms and conditions, to each director,
officer, employee, attorney and agent of the Company and to each person, if any, who controls the Company within the meaning of the 1933 Act.
Section 8. Representations, Warranties and Agreements to Survive Delivery. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Agent, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the
Agent or any controlling person of the Agent, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of
and payment for the Shares.
Section 9. No Advisory or Fiduciary Relationship. The Company acknowledges and agrees that (i) the Agent is acting solely in the capacity of
an arm’s length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with
determining the terms of such offering) and (ii) the Agent has not assumed an advisory or fiduciary responsibility in favor of the Company with respect to
the offering contemplated hereby or the process leading thereto (irrespective of whether the Agent has advised or is currently advising the Company on
other matters) or any other obligation to the Company except the obligations expressly set forth in this Agreement and (iii) the Company has consulted its
own legal and financial advisors to the extent it deemed appropriate. The Company agrees that it will not claim that the Agent has rendered advisory
services of any nature or respect, or owe a fiduciary or similar duty to the Company, in connection with such transaction or the process leading thereto.
Section 10. Termination.
(a)
The Company shall have the right, by giving written notice as hereinafter specified, to terminate this Agreement in its sole
discretion at any time. Any such termination shall be without liability of any party to any other party, except that (i) with respect to any pending sale
through the Agent for the Company, the obligations of the Company, including in respect of compensation of the Agent, shall remain in full force and effect
notwithstanding such termination; and (ii) the provisions of Section 1, Section 5, Section 7, Section 8, Section 14 and Section 15 of this Agreement shall
remain in full force and effect notwithstanding such termination.
(b)
The Agent shall have the right, by giving written notice as hereinafter specified, to terminate this Agreement in its sole discretion at
any time. Any such termination shall be without liability of any party to any
17
other party, except that (i) with respect to any pending sale through the Agent for the Company, the obligations of the Agent shall remain in full force and
effect through completion of the sale notwithstanding such termination; and (ii) the provisions of Section 1, Section 5, Section 7, Section 8, Section 14 and
Section 15 of this Agreement shall remain in full force and effect notwithstanding such termination.
(c)
Unless earlier terminated pursuant to this Section 10, this Agreement shall automatically terminate upon the issuance and sale of all
of the Shares by the Agent on the terms and subject to the conditions set forth herein except any termination pursuant to this clause (c) shall in all cases be
deemed to provide that Section 1, Section 5, Section 7, Section 8, Section 14 and Section 15 of this Agreement shall remain in full force and effect.
(d)
This Agreement shall remain in full force and effect until and unless terminated pursuant to Section 10(a), (b) or (c) above or
otherwise by mutual agreement of the parties; provided that any such termination by mutual agreement or pursuant to this clause (c) shall in all cases be
deemed to provide that Section 1, Section 5(b), Section 7, Section 8, Section 14 and Section 15 of this Agreement shall remain in full force and effect.
(e)
Any termination of this Agreement shall be effective on the date specified in such notice of termination; provided that such
termination shall not be effective until the close of business on the date of receipt of such notice by the Agent or the Company, as the case may be. If such
termination shall occur prior to the Settlement Date for any sale of Shares, such sale shall settle in accordance with the provisions of Section 2(h) hereof.
(f)
In the case of any purchase by the Agent pursuant to a Terms Agreement, the Agent may terminate this Agreement, at any time at or
prior to the Settlement Date of such purchase (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which
information is given in the General Disclosure Package or the Prospectus, any Material Adverse Effect, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity
or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case
the effect of which is such as to make it, in the judgment of the Agent, impracticable or inadvisable to market the Shares or to enforce contracts for the sale
of Shares, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the Nasdaq, or if trading
generally on the Nasdaq or the New York Stock Exchange has been suspended or materially limited, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, FINRA or any other
governmental authority, or (iv) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States,
or (v) if a banking moratorium has been declared by either Federal or New York authorities.
Section 11. Notices. All statements, requests, notices and agreements hereunder shall be in writing, and if to JonesTrading shall be delivered
or sent by mail, telex or facsimile transmission to:
JonesTrading Institutional Services LLC
900 Island Park Drive, Suite 160
Daniel Island, SC 29492
Attention: Burke Cook
Email: Burke@jonestrading.com
and
Duane Morris LLP
1540 Broadway
New York, NY 10036
Attn: Dean M. Colucci
E-mail: dmcolucci@duanemorris.com
and if to the Company to:
aTyr Pharma, Inc.
18
3545 John Hopkins Court, Suite 250
San Diego, CA 92121
Attention: Jill Broadfoot
Email: jbroadfoot@atyrpharma.com
with a copy to:
Cooley LLP
4401 Eastgate Mall
San Diego, California 92121
Attention: Sean Clayton
E-mail: sclayton@cooley.com
Any such statements, requests, notices or agreements shall take effect upon receipt thereof.
Section 12. Parties. This Agreement shall be binding upon, and inure solely to the benefit of, the Agent and the Company and, to the extent
provided in Sections 7 and 8 hereof, the officers, directors, employees, attorneys and agents of the Company and the Agent and each person who controls
the Company or the Agent, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of Shares through the Agent shall be deemed a successor or assign by reason merely of such purchase.
Section 13. Time of the Essence. Time shall be of the essence of this Agreement. As used herein, the term “business day” shall mean any day
when the Commission’s office in Washington, D.C. is open for business.
Section 14. Waiver of Jury Trial. The Company and the Agent hereby irrevocably waive, to the fullest extent permitted by applicable law, any
and all right to jury trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
Section 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW.
Section 16. Counterparts. This Agreement and any Terms Agreement may be executed by any one or more of the parties hereto and thereto in
any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same
instrument. This Agreement and any Terms Agreement may be delivered by any party by facsimile or other electronic transmission.
Section 17. Severability. The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it
valid and enforceable.
[Signature Page Follows]
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If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between the Agent and the Company in accordance with its terms.
Very truly yours,
ATYR PHARMA, INC.
By: /s/ Jill M. Broadfoot
Name: Jill M. Broadfoot
Title: Chief Financial Officer
Accepted as of the date hereof:
JONESTRADING INSTITUTIONAL SERVICES LLC
By: /s/ Burke Cook
Name: Burke Cook
Title: General Counsel
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Pangu BioPharma Limited
Schedule 1
Subsidiaries
21
ATYR PHARMA, INC.
Common Stock
($0.001 par value per share)
TERMS AGREEMENT
Annex 1
JonesTrading Institutional Services LLC
757 Third Avenue, 23rd Floor
New York, NY 10017
Ladies and Gentlemen:
aTyr Pharma, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated herein and in the Capital on
Demand™ Sales Agreement, dated March 23, 2021 (the “Sales Agreement”), between the Company and JonesTrading Institutional Services LLC (the
“Agent”), to issue and sell to the Agent the securities specified in the Schedule hereto (the “Purchased Securities”) [, and solely for the purpose of covering
over-allotments, to grant to the Agent the option to purchase the additional securities specified in the Schedule hereto (the “Additional Securities”)]*.
[The Agent shall have the right to purchase from the Company all or a portion of the Additional Securities as may be necessary to cover over-
allotments made in connection with the offering of the Purchased Securities, at the same purchase price per share to be paid by the Agent to the Company
for the Purchased Securities. This option may be exercised by the Agent at any time (but not more than once) on or before the thirtieth day following the
date hereof, by written notice to the Company. Such notice shall set forth the aggregate number of shares of Additional Securities as to which the option is
being exercised, and the date and time when the Additional Securities are to be delivered (such date and time being herein referred to as the “Option
Closing Date”); provided, however, that the Option Closing Date shall not be earlier than the Time of Delivery (as set forth in the Schedule hereto) nor
earlier than the second business day after the date on which the option shall have been exercised nor later than the fifth business day after the date on which
the option shall have been exercised. Payment of the purchase price for the Additional Securities shall be made at the Option Closing Date in the same
manner and at the same office as the payment for the Purchased Securities.]*
Each of the provisions of the Sales Agreement not specifically related to the solicitation by the Agent, as agent of the Company, of offers to
purchase securities is incorporated herein by reference in its entirety, and shall be deemed to be part of this Terms Agreement to the same extent as if such
provisions had been set forth in full herein. Each of the representations and warranties set forth therein shall be deemed to have been made at and as of the
date of this Terms Agreement [and] [,] the Applicable Time [and any Option Closing Date]*, except that each representation and warranty in Section 1 of
the Sales Agreement which makes reference to the Prospectus (as therein defined) shall be deemed to be a representation and warranty as of the date of the
Sales Agreement in relation to the Prospectus, and also a representation and warranty as of the date of this Terms Agreement [and] [,] the Settlement Date
[and any Option Closing Date]* in relation to the Prospectus as amended and supplemented to relate to the Purchased Securities.
An amendment to the Registration Statement (as defined in the Sales Agreement), or a supplement to the Prospectus, as the case may be,
relating to the Purchased Securities [and the Additional Securities]*, in the form heretofore delivered to the Agent is now proposed to be filed with the
Securities and Exchange Commission.
Subject to the terms and conditions set forth herein and in the Sales Agreement which are incorporated herein by reference, the Company
agrees to issue and sell to the Agent and the latter agrees to purchase from the
22
Company the number of shares of the Purchased Securities at the time and place and at the purchase price set forth in the Schedule hereto.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding agreement between the Agent and the Company in accordance with its
terms.
Very truly yours,
ATYR PHARMA, INC.
By:
Name:
Title:
Accepted as of the date hereof:
JONESTRADING INSTITUTIONAL SERVICES LLC
By:
Name:
Title:
*
Include only if the Agent has an over-allotment option.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-1 No. 333-248905) of aTyr Pharma, Inc.,
(2) Registration Statements (Form S-3 Nos. 333-220463 and 333-250095) of aTyr Pharma, Inc.,
(3) Registration Statement (Form S-8 No. 333-203955) pertaining to ATYR PHARMA, INC. 2014 STOCK PLAN, ATYR PHARMA,
INC. 2015 STOCK OPTION AND INCENTIVE PLAN, and the ATYR PHARMA, INC. 2015 EMPLOYEE STOCK PURCHASE PLAN,
(4) Registration Statements (Form S-8 Nos. 333-210543 and 333-223865) pertaining to the ATYR PHARMA, INC. 2015 STOCK
OPTION AND INCENTIVE PLAN, and the ATYR PHARMA, INC. 2015 EMPLOYEE STOCK PURCHASE PLAN, and
(5) Registration Statements (Form S-8 Nos. 333-216880 and 333-231594) pertaining to the ATYR PHARMA, INC. 2015
STOCK OPTION AND INCENTIVE PLAN, the ATYR PHARMA, INC. 2015 EMPLOYEE STOCK PURCHASE PLAN,
and the NON-QUALIFIED STOCK OPTION INDUCEMENT AWARD;
(6) Registration Statement (Form S-8 No. 333-248090) pertaining to the ATYR PHARMA, INC. 2015 STOCK OPTION
AND INCENTIVE PLAN, AS AMENDED
of our report dated March 23, 2021, with respect to the consolidated financial statements of aTyr Pharma, Inc. included in this Annual Report
(Form 10-K) of aTyr Pharma, Inc. for the year ended December 31, 2020.
/s/ Ernst & Young LLP
San Diego, California
March 23, 2021
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a) OF THE SECURITIES EXCHANGE ACT,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Sanjay S. Shukla, certify that:
1. I have reviewed this Annual Report on Form 10-K of aTyr Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 23, 2021
/s/ Sanjay S. Shukla
Sanjay S. Shukla, M.D., M.S.
President, Chief Executive Officer and Director
(Principal Executive Officer)
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) AND 15d-14(a) OF THE SECURITIES EXCHANGE ACT,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Jill M. Broadfoot, certify that:
1. I have reviewed this Annual Report on Form 10-K of aTyr Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 23, 2021
/s/ Jill M. Broadfoot
Jill M. Broadfoot
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of aTyr Pharma, Inc. (the “Company”) for the period ended December 31, 2020, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Sanjay S. Shukla, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.1
Date: March 23, 2021
/s/ Sanjay S. Shukla
Sanjay S. Shukla, M.D., M.S.
President, Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made
before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by
Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff
upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
In connection with the Annual Report on Form 10-K of aTyr Pharma, Inc. (the “Company”) for the period ended December 31, 2020, as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Jill M. Broadfoot, Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.2
Date: March 23, 2021
/s/ Jill M. Broadfoot
Jill M. Broadfoot
Chief Financial Officer
(Principal Financial and Accounting Officer)
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made
before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by
Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff
upon request.