Table of Contents
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
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
or
Commission File Number 001-36751
___________________________________________________________
OCUGEN, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
04-3522315
(I.R.S. Employer
Identification No.)
11 Great Valley Parkway
Malvern, Pennsylvania 19355
(Address of principal executive offices, including zip code)
(484) 328-4701
(Registrant's telephone number, including area code)
___________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Trading
symbol(s)
OCGN
Securities registered pursuant to section 12(g) of the Act: None
___________________________________________________________
Title of each class
Common Stock
Name of each exchange
on which registered
The Nasdaq Stock Market LLC
(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 Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any
of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2023, the last day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-
affiliates of the registrant was approximately $137.3 million, based upon the closing price of the registrant's common stock on June 30, 2023.
As of April 9, 2024, there were 257,325,264 outstanding shares of the registrant's common stock, $0.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates certain information by reference from the registrant's proxy statement for the 2024 annual meeting of
stockholders to be filed no later than 120 days after the end of the registrant's fiscal year ended December 31, 2023.
Table of Contents
EXPLANATORY NOTE
FORWARD LOOKING STATEMENTS
TABLE OF CONTENTS
Page
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Item 5.
Item 7.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
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
Part IV
Exhibit and Financial Statement Schedules
Form 10-K Summary
Signatures
Consolidated Financial Statements
1
32
79
79
80
80
80
81
82
92
92
92
92
93
93
94
94
94
94
94
95
99
F-1
Unless the context otherwise requires, references to the "Company," "we," "our," or "us" in this report refer to Ocugen, Inc. and its subsidiaries, and
references to "OpCo" refer to Ocugen OpCo, Inc., the Company's wholly owned subsidiary.
i
Table of Contents
General
EXPLANATORY NOTE
Ocugen, Inc. (the “Company”) is filing this Annual Report on Form 10-K for the fiscal year ended December 31, 2023. This Form 10-K contains our
audited financial statements for the year ended December 31, 2023, and restates certain financial information and related footnote disclosures in the
Company’s previously issued audited financial statements included in the Company's 2022 Annual Report on Form 10-K as well as unaudited interim
financial statements included in the Company’s Quarterly Reports on Forms 10-Q for each of the quarterly and year to date periods ended September 30,
2022, June 30, 2022, March 31, 2022, September 30, 2023, June 30, 2023, and March 31, 2023 (collectively, the “Previously Issued Financial Statements”).
Background of Restatement
On April 1, 2024, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors, after discussion with senior management and the
Company’s independent registered public accountants, concluded that the Company's Previously Issued Financial Statements should be restated and no
longer relied upon due to the Company not appropriately accounting for the estimated non-cash consideration and expense in its collaboration
arrangements.
The financial information that had been previously filed or otherwise reported for the Previously Issued Financial Statements is superseded by the
information in this Form 10-K, and should no longer be relied upon. Similarly, any previously issued or filed reports, earnings releases, and investor
presentations or other communications describing the Company’s financial statements and other related financial information covering the Previously
Issued Financial Statement should no longer be relied upon.
Refer to “Part I. Item 1A. Risk Factors”, “Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations”, and
“Part IV. Note 16—Restatement of Previously Issued Financial Statements” to the accompanying financial statements for additional information, including
the impact on the specific accounts.
Internal Control Considerations
In connection with the restatement, management has re-evaluated the effectiveness of the Company’s disclosure controls and procedures and internal
control over financial reporting as of the dates of the Previously Issued Financial Statements. The Company’s management has concluded that, in light of
the restatement described above, a material weakness exists in the Company’s internal control over financial reporting with respect to the design and
operating effectiveness of controls over the accounting for collaborative arrangement revenue and that the Company’s disclosure controls and procedures
were not effective. For a discussion of management’s consideration of our disclosure controls and procedures, internal controls over financial reporting, and
the material weaknesses identified, see Part II, Item 9A, “Controls and Procedures” of this Form 10-K.
ii
Table of Contents
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and the documents incorporated by reference herein contain forward-looking statements that involve substantial risks
and uncertainties. All statements, other than statements of historical facts contained in this Annual Report on Form 10-K or the documents incorporated by
reference herein, regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, and objectives of
management are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause
our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by
the forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would," or
the negative of such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain
these identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks,
uncertainties, and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.
The forward-looking statements in this Annual Report on Form 10-K and the documents incorporated herein by reference include, among other things,
statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
our estimates regarding expenses, future revenues, and capital requirements, as well as the timing, availability of, and the need for, additional
financing to continue to advance our product candidates;
our activities with respect to OCU400, OCU410 and OCU410ST including the results from our ongoing Phase 1/2 trials, our ability to initiate a
Phase 3 trial for OCU400 for the treatment of retinitis pigmentosa ("RP"), our ability to reach alignment with the FDA on the Phase 3 study design
for OCU400 for the treatment of Leber congenital amaurosis ("LCA"), and our ability to subsequently initiate and complete a Phase 3 trial;
our ability to obtain additional funding from government agencies in the United States and/or other countries to continue the development of our
inhaled mucosal vaccine platform;
the uncertainties associated with the clinical development and regulatory approval of our product candidates including potential delays in the
initiation, enrollment, and completion of current and future clinical trials, including our ability to resolve the FDA's clinical hold on our IND
application for OCU200;
our ability to realize any value from our product candidates and preclinical programs being developed and anticipated to be developed, in light of
inherent risks and difficulties involved in successfully commercializing products and the risk that our products, if approved, may not achieve
broad market acceptance;
our ability to comply with regulatory schemes and other regulatory developments applicable to our business in the United States and other
countries;
the performance of third-parties upon which we depend, including contract development and manufacturing organizations, suppliers,
manufacturers, group purchasing organizations, distributors, and logistics providers;
the pricing and reimbursement of our product candidates, if commercialized;
the size and growth potential of the markets for our product candidates, and our ability to serve those markets;
developments relating to our competitors and our industry;
our ability to obtain and maintain patent protection, or obtain licenses to intellectual property and defend our intellectual property rights against
third-parties;
our ability to maintain our relationships and contracts with our key collaborators and commercial partners and our ability to establish additional
collaborations and partnerships;
our ability to recruit and retain key scientific, technical, commercial, and management personnel and to retain our executive officers;
• matters relating to or arising from the restatement of our Previously Issued Financial Statements;
•
•
our ability to comply with stringent United States and applicable foreign government regulations with respect to the manufacturing of
pharmaceutical products, including compliance with current Good Manufacturing Practice regulations, and other relevant regulatory authorities;
and
the extent to which health epidemics and other outbreaks of communicable diseases, geopolitical turmoil, macroeconomic conditions, social
unrest, political instability, terrorism, or acts of war could disrupt our business and operations, including impacts on our development programs,
global supply chain, and collaborators and manufacturers.
iii
Table of Contents
We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on
our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-
looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly
under "Risk Factors," that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our
forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, investments,
or other significant transactions we may make.
You should read this Annual Report on Form 10-K and the documents that we incorporate by reference herein and have filed as exhibits to this Annual
Report on Form 10-K, completely and with the understanding that our actual future results may be materially different from what we expect. We do not
assume any obligation to update any forward-looking statements.
In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such
statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we
claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Solely for convenience, tradenames and trademarks referred to in this Annual Report on Form 10-K appear without the ® or ™ symbols, but those
references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner
will not assert its rights, to these tradenames or trademarks, as applicable. All tradenames, trademarks, and service marks included or incorporated by
reference in this Annual Report on Form 10-K are the property of their respective owners. The name NeoCart has not been evaluated or cleared by the
FDA.
iv
Table of Contents
Item 1. Business.
OVERVIEW
PART I
We are a biotechnology company focused on discovering, developing, and commercializing novel gene and cell therapies and vaccines that improve health
and offer hope for patients across the globe.
Our technology pipeline includes:
• Modifier Gene Therapy Platform — Based on the use of nuclear hormone receptors ("NHRs"), we believe our modifier gene therapy platform
has the potential to address many retinal diseases, including rare diseases such as retinitis pigmentosa ("RP") (OCU400) and Leber congenital
amaurosis ("LCA") (OCU400), with a gene-agnostic approach. We also believe our modifier gene therapy platform has the potential to address
many retinal diseases, including a multifactorial dry age-related macular degeneration ("dAMD") using OCU410, which we believe has the
potential to treat millions of patients, and Stargardt disease (OCU410ST), which is also a rare disease. We received clearance from FDA to initiate
a Phase 3 trial for OCU400 for the treatment of RP and intend to begin dosing patients in 2Q, 2024. We further expect to expand OCU400 Phase 3
development in LCA patients in the second half of 2024 based on Phase 1/2 study results in LCA patients and subject to alignment with the FDA.
Currently both OCU410, for the treatment of geographic atrophy ("GA") patients, and OCU410ST, for the treatment of Stargardt patients,
programs are in Phase 1/2 clinical development.
• Novel Biologic Therapy for Retinal Diseases — OCU200 is a novel fusion protein consisting of two human proteins, tumstatin and transferrin.
OCU200 possesses unique features which potentially enable it to treat vascular complications of diabetic macular edema ("DME"), diabetic
retinopathy ("DR") and wet AMD. Tumstatin is the active component of OCU200 and binds to integrin receptors, which play a crucial role in
disease pathogenesis. Transferrin is expected to facilitate the targeted delivery of tumstatin into the retina and choroid and potentially help increase
the interaction between tumstatin and integrin receptors. We continue to work with the FDA to address comments to lift the clinical hold.
• Regenerative Medicine Cell Therapy Platform — Our Phase 3-ready regenerative medicine cell therapy platform technology, which includes
NeoCart (autologous chondrocyte-derived neocartilage), is being developed for the repair of knee cartilage injuries in adults. We received
concurrence from the FDA on the confirmatory Phase 3 trial design and have completed renovating an existing facility into a current Good
Manufacturing Practice ("GMP") facility to support clinical study and initial commercial launch.
•
Inhaled Mucosal Vaccine Platform — Our next-generation, inhaled mucosal vaccine platform includes OCU500, a COVID-19 vaccine;
OCU510, a seasonal quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine. We are conducting
IND enabling and product development activities for our OCU500 product and planning to submit an Investigational New Drug ("IND") in 2024.
We are currently collaborating with the National Institute of Allergy and Infectious Diseases ("NIAID") for early clinical studies for the OCU500
program. We expect OCU500 clinical trials to begin mid-2024. We are continuing discussions with relevant government agencies regarding
developmental funding for our OCU510 and OCU520 platforms.
Modifier Gene Therapy Platform
We are developing a modifier gene therapy platform designed to fulfill unmet medical needs related to retinal diseases, including inherited retinal diseases
("IRDs"), such as RP, LCA, Stargardt disease and multifactorial diseases such as dAMD and GA. Our modifier gene therapy platform is based on the use of
NHRs, which have the potential to restore homeostasis — the basic biological processes in the retina from disease state to normal state. Unlike single-gene
replacement therapies, which only target one genetic mutation, our modifier gene therapy platform, through its use of NHRs, represents a unique approach
and has demonstrated potential to address multiple retinal diseases caused by mutations in multiple genes in our Phase 1/2 clinical study. This has potential
of a gene-agnostic therapy addressing complex diseases that are potentially caused by imbalances in multiple gene networks in the disease condition.
OCU400, our first product candidate in our modifier gene therapy platform, has received Orphan Drug Designation ("ODD") from the United States Food
and Drug Administration ("FDA") for RP and LCA, a regenerative medicine advanced therapy ("RMAT") designation to OCU400 for the treatment of RP
associated with NR2E3 and rhodopsin ("RHO") mutations from the FDA, and Orphan Medicinal Product Designation ("OMPD") from the European
Commission ("EC"), based on the recommendation of the European Medicines Agency ("EMA"), for RP and LCA. These broad ODD, RMAT, and OMPD
designations further support broad-spectrum (gene agnostic) therapeutic potential of OCU400 to treat multiple IRDs such as RP and LCA associated with
mutations in multiple genes.
1
Table of Contents
We completed enrolling, dosing, and recruiting RP and LCA patients in the Phase 1/2 trial for OCU400. The objective of this study was to assess the safety
and efficacy using 3 different treatment doses of unilateral subretinal administration of OCU400 in NR2E3 and rhodopsin ("RHO")-related RP patients and
centrosomal protein 290 ("CEP290")-related LCA patients in the United States.
In February 2024, in continuation of the preliminary analyses update, we announced an update for 18 participants. The trial update was an extension of the
positive preliminary data from September 2023. The positive trial update demonstrated that OCU400 continued to be generally safe and well-tolerated in
subjects across different mutations and dose levels. 89% of participants demonstrated preservation or improvement in the treated eye either on BCVA or
LLVA or MLMT scores from baseline. 78% of participants demonstrated preservation or improvement in the treated eyes in MLMT scores from baseline.
80% of RHO mutation subjects experienced either preservation or improvement in MLMT scores from baseline.
In April 2024, the FDA cleared our IND amendment to initiate a Phase 3 trial of OCU400 for RP. OCU400 is the first gene therapy program to enter Phase
3 with a broad RP indication. This Phase 3 trial will enroll 150 subjects, distributed 1:1 into two separate arms (RHO: N=75, and Gene Agnostic: N=75). In
each arm subjects will be further randomized into 2:1 ratio to treated and untreated control groups. Subjects will be followed for a year after dosing for
primary end point analyses. In the Phase 1/2 OCU400 clinical trial a MLMT scale was the primary functional endpoint. For the Phase 3 OCU400 clinical
trial, an updated mobility course will be used, Luminance Dependent Navigation Assessment ("LDNA") that includes a wider range of light intensity (0.04-
500 Lux) and Lux Levels (0-9) with a uniform correlation between Lux level and Lux intensity.
In April 2024, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) reviewed the study design,
endpoints and planned statistical analysis of the pivotal OCU400 Phase 3 liMeliGhT clinical trial for retinitis pigmentosa (RP) and provided acceptability
of the U.S. based trial for submission of a Marketing Authorization Application (MAA). The EMA provided this opinion based on safety, tolerability, and
efficacy of OCU400 demonstrated in the Phase 1/2 study.
We intend to begin dosing patients in Phase 3 trial for OCU400 for the treatment of RP in 2Q, 2024. Subsequently, we expect to expand OCU400 Phase 3
development in LCA patients in the second half of 2024 based on Phase 1/2 study results in LCA patients and subject to alignment with the FDA.
We are also developing OCU410 and OCU410ST, utilizing the nuclear receptor genes RAR-related orphan receptor A ("RORA"), for the treatment of
dAMD and Stargardt disease, respectively. OCU410 is a potential one-time, curative therapy with a single sub-retinal injection. OCU410 targets multiple
pathways associated with AMD pathogenesis, in contrast to currently approved or under development products, and has potential to provide better safety
and efficacy outcomes. OCU410ST has received ODD from the FDA for the treatment of ABCA4-associated retinopathies, including Stargardt disease.
Currently both OCU410 and OCU410ST programs are in Phase 1/2 clinical development, actively enrolling patients. In November 2023, the first patient
was dosed in the Phase 1/2 trial to assess the safety and efficacy of OCU410ST for Stargardt disease. In February 2024, we announced dosing was
completed in the first cohort of Phase 1/2 study. Phase 1 is a multicenter, open-label, dose ranging study. Phase 2 is a randomized, outcome accessor-
blinded, dose-expansion study in which adult and pediatric subjects will be randomized in a 1:1:1 ratio to either one of two OCU410ST dose groups or to
an untreated control group. In April 2024, we announced that the Data Safety and Monitoring Board ("DSMB") approved to proceed dosing with the
medium dose of OCU410ST in the dose-escalation phase of the study. Three patients with Stargardt disease have been dosed in the Phase 1/2 trial to date.
An additional three patients will be dosed with the medium dose in the second cohort and three patients with the high dose in the third cohort in the dose-
escalation phase.
In December 2023, the first patient was dosed in the Phase 1/2 trial to assess the safety and efficacy of OCU410 for GA secondary to dAMD. In March
2024, we announced dosing was completed in the first cohort of Phase 1/2 study. Phase 1 is a multicenter, open-label, dose-ranging study. Phase 2 is a
randomized expansion phase in which subjects will be randomized in a 1:1:1 ratio to either one of two OCU410 dose groups or to an untreated control
group. In April 2024, we announced that the Data Safety and Monitoring Board ("DSMB") approved to proceed dosing with the medium dose of OCU410
in the dose-escalation phase of the study. Three patients with GA have been dosed in the Phase 1/2 trial to date. An additional three patients will be dosed
with the medium dose in the second cohort and three patients with the high dose in the third cohort in the dose-escalation phase.
Novel Biologic Therapy for Retinal Diseases
We are developing OCU200, which is a novel fusion protein containing parts of human transferrin and tumstatin. OCU200 is designed to treat DME, DR,
and Wet AMD. We have completed the technology transfer of manufacturing processes to our contract development and manufacturing organization
("CDMO") and have produced trial materials to initiate a Phase 1 trial. In
2
Table of Contents
April 2023, the FDA placed our IND application to initiate a Phase 1 trial targeting DME on clinical hold, as part of the FDA's request for additional
information related to Chemistry Manufacturing and Controls ("CMC"). We continue to work with the FDA to address comments to lift the clinical hold.
Regenerative Medicine Cell Therapy Platform
NeoCart is a Phase 3-ready, regenerative medicine cell therapy technology that combines breakthroughs in bioengineering and cell processing to enhance
the autologous cartilage repair process. NeoCart is a three-dimensional tissue-engineered disc of new cartilage that is manufactured by growing the patient's
own chondrocytes, the cells responsible for maintaining cartilage health. Current surgical and nonsurgical treatment options are limited in their efficacy and
durability. In prior clinical studies, Phase 2 and Phase 3, NeoCart has shown potential to accelerate healing, reduce pain, and provide regenerative native-
like cartilage strength with durable benefits post transplantation. NeoCart was shown to be generally well-tolerated and demonstrated greater clinical
efficacy than microfracture surgery at two years after treatment. Based on this clinical benefit, the FDA granted a RMAT designation to NeoCart for the
repair of full-thickness lesions of knee cartilage injuries in adults. Additionally, we received concurrence from the FDA on the confirmatory Phase 3 trial
design where chondroplasty will be used as a control group. We have completed renovating an existing facility into a current Good Manufacturing Practice
("GMP") facility in accordance with the FDA's regulations in support of NeoCart manufacturing for personalized Phase 3 trial material. We intend to
initiate the Phase 3 trial in the second half of 2024, contingent on adequate availability of funding.
Inhaled Mucosal Vaccine Platform
We are party to an exclusive license agreement (as amended, "WU License Agreement") with The Washington University in St. Louis ("Washington
University"), pursuant to which we licensed the rights to develop, manufacture, and commercialize an inhaled mucosal COVID-19 vaccine for the
prevention of COVID-19 in the United States, Europe, Japan, South Korea, Australia, China, and Hong Kong (the "Mucosal Vaccine Territory"). In
addition, we internally developed technology related to the flu and COVID-19's vaccine design and filed intellectual property. We are developing a next-
generation, inhalation-based mucosal vaccine platform based on a novel ChAd vector, which includes OCU500, a COVID-19 vaccine; OCU510, a seasonal
quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine. Our inhaled mucosal vaccine platform is driven
by our conviction to serve a public health concern, which requires the endorsement and support of government funding in order to develop and ultimately
commercialize our vaccine candidates. As these vaccine candidates are being developed to be administered via inhalation, we believe they have the
potential to generate rapid local immune response in the upper airways and lungs, where viruses enter and infect the body. We believe this novel delivery
route method may help reduce or prevent infection and transmission as well as provide protection against new virus variants. In October 2023, OCU500
was selected by the NIAID Project NextGen for inclusion in clinical trials. OCU500 will be tested via two different mucosal routes, inhalation into the
lungs and as a nasal spray. The clinical trials are expected to begin mid-2024. We are continuing discussions with relevant government agencies regarding
developmental funding for our OCU510 and OCU520 platforms.
OUR STRATEGY
We are developing novel solutions to medical challenges and approaching healthcare innovation with purpose and agility to deliver new options for people
facing serious diseases and conditions. We believe our product candidates have the potential to treat blindness diseases, treat serious conditions such as
articular cartilage lesions, and reduce transmission or prevent respiratory diseases such as the flu and COVID-19. Key elements of the strategy we employ
to accomplish this mission include:
•
Continuing to advance our modifier gene therapy platform into and through clinical development.
We are developing our modifier gene therapy platform, inclusive of OCU400, OCU410, and OCU410ST, for the treatment of multiple IRDs,
including RP, LCA, Stargardt disease and multifactorial diseases such as dAMD and GA. We intend to begin dosing patients in Phase 3 trial for
OCU400 for the treatment of RP in 2Q, 2024. We expect to expand OCU400 Phase 3 development in LCA patients in the second half of 2024
based on Phase 1/2 study results in LCA patients and alignment with the FDA. We also currently have both OCU410 and OCU410ST programs in
Phase 1/2 clinical development, actively enrolling patients.
•
Expanding and exploring partnerships with current and future key collaborators and commercial partners to maximize patient access, global
reach, and the value of our product candidates.
We intend to explore strategic licensing, acquisition, and collaboration opportunities with qualified partners to maximize the potential benefit of
our product candidates for patients globally and to expand our product candidate pipeline to support our future growth.
3
Table of Contents
• Obtaining government funding to advance our vaccine programs towards commercialization.
We are developing a next-generation, inhalation-based mucosal vaccine platform based on a novel ChAd vector, which includes OCU500, a
COVID-19 vaccine; OCU510, a seasonal quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine.
In October 2023, OCU500 was selected by the NIAID Project NextGen for inclusion in clinical trials. We are continuing discussions with relevant
government agencies regarding developmental funding for our OCU510 and OCU520 platforms.
•
Advancing the clinical development of our regenerative medicine platform towards market authorization and developing in-house
manufacturing capability.
We are developing NeoCart, our regenerative medicine platform technology for the repair of knee cartilage injuries in adults. We have received
concurrence from the FDA on the confirmatory Phase 3 clinical trial design. We have completed renovating an existing facility into a current GMP
facility in accordance with the FDA's regulations in support of NeoCart manufacturing for Phase 3 clinical trial material. We intend to initiate the
Phase 3 trial in the second half of 2024, contingent on adequate availability of funding.
COMPETITIVE STRENGTHS
Our key competitive strengths include:
• Platform Technologies. Our cutting-edge modifier gene therapy platform provides a competitive advantage over traditional approaches for gene
therapy, such as gene augmentation, replacement or editing. This platform technology utilizes NHR genes, master regulators inside cells, which
promotes homeostasis – a balanced physiological state within cells. Our OCU400 modifier gene therapy product candidate can address >100 gene
mutations associated with RP and LCA diseases, in contrast, the traditional approach can address only one gene mutation at a time with single
product. This technology has versatility in addressing various diseases of retina with potential to expansion into other disease areas. Our OCU410
modifier gene therapy product candidate has potential to treat both genetic (Stargardt disease) as well as complex multifactorial disease (AMD).
Our 3D tissue engineering platform technology utilizes state-of-the-art bioreactor which can be used to produce native cartilage-like tissues for
implantation. Our first product candidate based on this platform technology, NeoCart, is an autologous cartilage tissue–engineered implant
designed for use in repair of articular cartilage injuries in the knee. In contrast to approved cell-matrix based product, NeoCart showed rapid
healing and durable benefit in clinical studies. Our inhaled vaccine platform technology utilizes combination of ChAd vector technology and
inhalation delivery technology, which can be utilized for vaccine development for various respiratory diseases. The OCU500 vaccine series is
based on a novel ChAd platform designed to reduce transmission and protect against new variants with long-term durability. The inhaled method
offers the potential for broad, durable protection from severe disease and reduction in transmission.
•
•
•
Experienced Management Team and Esteemed Scientific and Business Advisory Boards. Our management team and key advisors have
extensive experience with a proven track record of success in developing, launching, and managing the life cycle of biopharmaceuticals and
vaccines at leading pharmaceutical and biotechnology companies. Our retina and vaccine scientific advisory boards are composed of leading
academic and industry experts with extensive experience in the ocular and infectious disease fields. Our business advisory board members have
been selected based on their extensive professional backgrounds and proven track record of creating partnerships among the public and private
sector. We believe that the experience of our management team, our scientific advisory board members, business advisory board, and our broad
network of relationships with leaders within the industry and the medical community provides us with insight into the identification of product
candidate opportunities as well as supports us in advancing the development and commercialization of our product candidates.
Key Partnerships and Internal Capabilities. We have established a partnership with CanSino Biologics, Inc. ("CanSinoBIO") for our modifier
gene therapy platform. CanSinoBIO has state-of-the-art facilities and proven expertise in the gene therapy field, which is critical to advancing our
gene therapy product candidates into and through clinical trials as well as accelerating development timelines, reducing our associated costs, and
increasing the reliability of our product candidate manufacturing. We have a state-of-the-art R&D center to support innovation and development of
our product pipeline through commercialization. Ocugen's recently renovated GMP facility is designed to support manufacturing of cell and gene
therapy-based products for clinical development as well as commercial launch. Ocugen's R&D, clinical, regulatory, quality and manufacturing
teams consist of experienced, highly qualified researchers and industry professionals from top institutional and leading companies, which help
drive pipeline development with greater efficiency.
Product Designations. OCU400 has received ODD from the FDA for RP and LCA as well as been granted a RMAT designation from the FDA
for the treatment of RP associated with NR2E3 and RHO mutations. OCU400 has also
4
Table of Contents
received OMPD from the EC, based on the recommendation of the EMA, for RP and LCA. These designations demonstrate the potential broad-
spectrum application of OCU400, through its use of NHRs, to treat the more than 125 genes associated with RP and LCA with one product rather
than developing individual treatments for each gene mutation. OCU410ST has received ODD from the FDA for the treatment of ABCA4-
associated retinopathies, including Stargardt disease. NeoCart, our regenerative medicine cell therapy technology, was granted RMAT designation
from the FDA for the repair of knee cartilage injuries in adults. The RMAT designation was created to expedite the development and review of
regenerative medicine therapies intended to treat, modify, reverse, or cure a serious condition.
•
Licensing and Development Arrangements and Intellectual Property Portfolio. We have licensing and development arrangements with leading
companies, academic institutions, and medical institutions that cover our product candidates. These licensing and development arrangements
include the licensing agreement with The Schepens Eye Research Institute, Inc. ("SERI"), an affiliate of Harvard Medical School, through which
we acquired the technology used in our modifier gene therapy platform as well as access to technologies for other NHR genes, the license
agreement with Purpose Co., Ltd. ("Purpose") relating to NeoCart, the WU License Agreement with Washington University with respect to
inhaled mucosal COVID-19 vaccines in the Mucosal Vaccine Territory, and the license agreement with the University of Colorado ("CU")
pursuant to which we acquired rights to the transferrin-tumstatin fusion protein technology used in our OCU200 product candidate. As of April 10,
2024, our global intellectual property portfolio contains 87 patents and 27 pending patent applications related to composition of matter,
pharmaceutical compositions, methods of use for our product candidates, and other proprietary technology including those under our licensing and
development arrangements. We will leverage these domestic and global partnerships and our intellectual property portfolio to advance our near-
and long-term product pipeline opportunities.
OUR PRODUCT CANDIDATE PIPELINE
Our product candidate pipeline is summarized in the following chart:
5
Table of Contents
OUR MODIFIER GENE THERAPY PLATFORM AND GENE THERAPY PRODUCT CANDIDATES
We are developing our modifier gene therapy platform, inclusive of OCU400, OCU410, and OCU410ST for the treatment of multiple IRDs, such as RP,
LCA, Stargardt disease and multifactorial diseases such as dAMD and GA. Our modifier gene therapy platform is a cutting-edge technology licensed from
SERI, an affiliate of Harvard Medical School, and involves the targeted delivery and expression of one or more NHRs in the disease tissues and is designed
to introduce a functional gene to modify the expression of multiple genes and gene-networks, which potentially enables it to address multiple retinal
diseases with one product.
Overview of RP and LCA and Current Treatment Options
IRDs are caused by genetic mutations that are passed down within families and lead to progressive disease, severe visual impairment, and blindness. They
are a diverse disease class with large phenotypic and genetic heterogeneity. IRDs are a common cause of irreversible blindness due to retinal cell
degeneration. Treating these conditions has been a significant challenge due to the sheer volume of potential therapeutic gene targets. Gene replacement
therapy is a promising approach to provide sustained restoration of normal retinal function for a mutated gene, but such therapies can only address one gene
at a time, limiting their potential therapeutic use. Developing a custom gene therapy for each of the more than 125 mutated genes linked to RP and LCA
would not only be expensive but also may not be possible due to size, class, or localization that will impact delivery of the gene. Not all genes and disease
expressions are amenable to gene therapy. For example, the genetic mutations of approximately 40% of RP patients remain unknown with few or no known
therapeutic options available. Modifier gene therapy to ameliorate multiple forms of RP and LCA without requiring knowledge of the mutated gene, may
provide a potentially robust and feasible treatment for RP and LCA.
RP and LCA are the most common IRDs involving photoreceptors and the retinal pigment epithelium ("RPE"). RP is a group of rare, genetic disorders that
involve a breakdown and loss of cells in the retina. RP affects approximately 110,000 and 190,000 individuals in the United States and Europe,
respectively. In RP, progressive retinal degeneration starts in the mid-periphery and advances toward the macula and the fovea. The fovea is the part of the
retina that is responsible for sharp central vision. Common symptoms of RP include difficulty seeing in poor lighting or in the dark, loss of central vision or
side (peripheral) vision, and difficulty reading print and deciphering detailed images. RP is associated with over 100 mutated genes that affect 1.5 million
individuals worldwide. RP is heterogeneous and varies greatly in age of onset, rate of progression, and even genetic etiology, yet all of the mutations lead
to a common pathology of photoreceptor cell degeneration.
There is currently no approved treatment that slows or stops the progression of multiple forms of RP. Proposed treatments for RP include gene-replacement
therapy, retinal implant devices, retinal transplantation, stem cells, vitamin therapy, and other pharmacological treatments. While gene-replacement
therapies may provide a new functional gene, they do not necessarily eliminate the underlying genetic defect, which may still cause stress and toxic effects.
Therefore, the development of gene specific replacement therapy is highly challenging, especially when multiple and unknown genes are involved.
Similar to RP, minimal treatment options are available for LCA, which is a group of IRDs characterized by severe impairment of vision or blindness at
birth. LCA affects approximately 15,000 and 18,000 individuals in the United States and Europe, respectively. It is an autosomal recessive pattern of
inheritance, wherein both parents, called carriers, have one mutated copy of the gene and one normal gene. They are unaffected carriers of LCA. However,
each of their children has a 25% chance of inheriting the two LCA gene copies (one from each parent) needed to cause the disorder. LCA is caused by a
degeneration and/or dysfunction of photoreceptor rod cells and cone cells in the eye. This affects the processing of electrical signals. The electrical signals
travel from the retina through the optic nerve to the brain. The brain then turns the signals into images that are seen. The less electrical activity there is, the
less sight one will have. Electroretinography is used to measure the electrical signals in the retina. Common symptoms of LCA include a child habitually
pressing their eyes, formations of cataracts, thinning and gradual decline of the cornea which bulges outward into a cone shape. In some cases, the eyes of
individuals with LCA can appear sunken. LCA is associated with over 25 mutated genes and affects approximately 180,000 individuals worldwide.
Luxturna, developed by Spark Therapeutics, Inc., has been approved by the FDA to treat IRDs caused by retinoid isomerohydrolase ("RPE65") gene
mutations. The RPE65 gene represents just one of more than 125 mutated genes linked to RP and LCA. No treatment options have been approved by the
FDA for RP and LCA caused by mutations in other RP and LCA causing genes.
OCU400 for IRDs
OCU400 is our first product candidate being developed with our modifier gene therapy platform. OCU400 has the potential to restore retinal integrity and
function across a range of genetically diverse IRDs. OCU400 consists of a functional copy of the retina-specific NHR gene, NR2E3, delivered to target
cells in the retina using an AAV5 vector that has the potential to be used as a gene therapeutic not only for the treatment of retinal diseases associated with
mutations in genes such as NR2E3, RHO,
6
Table of Contents
CEP290, and PDE6ß, but also other gene mutations associated with IRDs, including RP and LCA. As a potent modifier gene, expression of NR2E3 may
help reset retinal cell homeostasis, metabolism, and visual cycle function (Figure 9). OCU400 has received ODD for RP and LCA, a RMAT designation to
OCU400 for the treatment of RP associated with NR2E3 and rhodopsin (“RHO’), and OMPD from the EC, based on the recommendation of the EMA, for
RP and LCA. We believe these broad ODD, RMAT, and OMPD designations demonstrate that OCU400 has the potential to be a broad-spectrum
therapeutic to treat multiple IRDs. These ODD, RMAT, and OMPD designations represent gene-agnostic broad coverage for RP and LCA and are not
mutation-specific designations.
Figure 9: Mechanism of our modifier gene therapy.
Figure 9 demonstrates the mechanism of our modifier gene therapy. In single-gene replacement therapies such as gene augmentation, only the non-
functional gene is targeted. and accordingly, this therapy cannot improve a multitude of disease-causing genetic defects. In our modifier gene therapy
platform, a functional gene of the retina-specific NHR gene, NR2E3, is introduced to modify the expression of many genes and gene networks and restore
homeostasis.
We have completed dosing of RP patients and four LCA patients including a pediatric patient in the Phase 1/2 clinical trial for OCU400. We received FDA
clearance to initiate a Phase 3 trial for OCU400 for the treatment of RP. We intend to begin patient dosing in Phase 3 study in 2Q, 2024. We expect to
expand OCU400 Phase 3 development in LCA patients in the second half of 2024 based on Phase 1/2 study results in LCA patients and alignment with the
FDA.
Overview of Dry AMD and Stargardt Disease and Current Treatment Options
Dry AMD is attributed to the thinning of the macula of the retina, which leads to impairment and loss of central vision. The macula is the part of the retina
responsible for clear vision in one's direct line of sight. dAMD is characterized by the thickening and loss of normal architecture within the Bruch's
membrane, lipofuscin accumulation in the RPE, and drusen formation beneath the RPE in the Bruch's membrane. These deposits consist of complement
components, other inflammatory molecules, lipids, lipoproteins B and E, and glycoproteins. Common risk factors for dAMD include genetics, smoking,
nutrition and vitamin deficiency, and heart disease. dAMD, which affects over 266 million individuals worldwide, involves the slow deterioration of the
retina with submacular drusen (small white or yellow dots on the retina), atrophy, loss of macular function, and central vision impairment. Common
symptoms of dAMD include visual distortions, reduced central vision in one or both eyes, increased difficulty adapting to low levels of light, and a well-
defined blind spot in one's field of vision. Geographic Atrophy (GA) is an advanced form of dAMD that affects approximately 1 million people in the U.S.
and 8 million people worldwide. GA involves several biological factors and pathways, including lipid metabolism, oxidative stress, inflammation, and
activation of the complement system. The currently approved treatments for GA only focus on the complement system with limited treatment benefits.
Similarly, Stargardt disease is a rare genetic eye disorder that causes retinal degeneration and ultimately leads to loss of central vision. It is the most
common form of inherited macular degeneration, affecting approximately 1 million individuals worldwide. Stargardt disease happens when lipofuscin, a
fatty yellow pigment, accumulates on the macula, which leads to the degeneration of the photoreceptor cells in the macula and ultimately leads to
progressive central vision loss. The photoreceptor cells convert light into electrical signals, which are then sent to the brain where they are processed to
create the images we see. Stargardt disease is usually caused by mutations in the ABCA4 gene and is inherited in an autosomal recessive manner. This gene
affects how one's body uses vitamin A. The body uses vitamin A to make cells in the retina. Common symptoms of Stargardt disease include gray, black, or
hazy spots in one's central vision, sensitivity to light, increased time for eyes to adjust between light and dark places, color blindness, and gradual central
vision loss in both eyes. Currently no treatment options exist to address dAMD or reverse or slow the progression of Stargardt disease and accordingly,
there remains a significant unmet medical need for these ocular diseases.
7
Table of Contents
OCU410 and OCU410ST for the Treatment of Dry AMD and Stargardt Disease
We are developing OCU410 and OCU410ST for the treatment of dAMD and Stargardt disease, respectively. OCU410 and OCU410ST utilize an AAV
delivery platform for the retinal delivery of the RORA gene. RORA regulated gene networks are relevant in the treatment of dAMD and Stargardt disease.
RORA reduces oxidative stress, limits lipofuscin deposits, reduces chronic inflammation, regulates complement activation, and improves choroidal blood
flow. Gene variants of the ABCA4 gene are associated with both AMD and Stargardt disease. Stargardt disease is usually caused by mutations in the
ABCA4 gene. This gene transports oxidized retinol compounds from photoreceptors to RPE cells for detoxification. In mice models, ABCA4 -/- displayed
low levels of CD59. A cell-surface glycoprotein, CD59, prevents the formation of the complement membrane attack complex. We also currently have both
OCU410 and OCU410ST programs in Phase 1/2 clinical development, actively enrolling patients. We completed dosing subjects in Cohort 1 (low dose
group) for both of these programs. In April 2024, we announced that the DSMB approved to proceed dosing with the medium dose of OCU410 as well as
OCU410ST in the dose-escalation phase of the study. No serious adverse events (SAEs) have been reported to date.
Modifier Gene Therapy Platform Based on the Use of NHRs
NHRs are intracellular receptors that regulate gene expression, acting as master regulator genes in the retina. NHRs play a vital role in regulating retinal
cell development, maturation, metabolism, visual cycle function, survival, and maintaining the cellular and molecular homeostasis in retinal tissues. Our
modifier gene therapy platform is designed to target NHRs to potentially provide therapeutic benefit to patients suffering from genetically diverse IRDs.
The use of genetic modifiers represent a broadened means of potentially treating a variety of retinal degenerative diseases, as compared to single-gene
replacement therapy. While single-gene replacement therapies have shown tremendous promise in rare retinal diseases, they are highly specific and cannot
improve a multitude of disease-causing genetic defects. Our modifier gene therapy platform has the potential to restore retinal integrity and function across
a range of genetically diverse IRDs and other degenerative retinal diseases providing us with significant potential long-term value.
Our modifier gene therapy platform encompasses the targeted delivery and expression of certain NHRs that are expressed naturally in retinal tissue.
Preclinical studies have shown that NR2E3, a member of the NHR family, is a dual activator and repressor that, with other transcription factors, modulates
cell fate and differentiation of rod and cone photoreceptor cells, specialized cells for detecting light, in the eye. Disease outcome is a result of a primary
mutation as well as modifier alleles. NR2E3 is a master regulator of several key pathways in retinal development and function. NR2E3 potentially prevents
and rescues degenerating retina by resetting the homeostatic state of key gene networks in the presence of a primary mutation.
The delivery of Nr2e3 in a mouse lacking a functional Nr2e3 gene restored the retina structure and function. We believe that NR2E3 may partially or fully
rescue photoreceptors from degeneration in patients with IRDs and improve patients' vision. It was also demonstrated preclinically that RORA offers a
protective allele in AMD where the loss of photoreceptor cells leads to blindness. NR2E3 regulates the expression of both Nuclear Receptor Subfamily 1
Group D Member 1 ("NR1D1") and RORA. Thus, the nuclear receptors work in overlapping networks to modulate normal retinal development and
function. These receptors impact gene expression of hundreds of genes and numerous networks and, as such, may be potent modifiers of retinal disease and
degeneration.
OCU400 Phase 1/2 Clinical Study Results
In the Phase 1/2 OCU400-101 study, a total of 22 subjects aged 9 to 77 years, male and female, received OCU400 subretinal injection in 3 dose levels of up
to 300 µL. All subjects had a confirmed molecular diagnosis of either a biallelic autosomal recessive NR2E3 mutations, or autosomal dominant NR2E3
mutation, or autosomal dominant RHO mutations or CEP290 mutation. In February 2024, in continuation of the preliminary analyses update, we
announced an update for 18 participants. The trial update was an extension of the positive preliminary data from September 2023. The positive trial update
demonstrated that OCU400 continued to be generally safe and well-tolerated in subjects across different mutations and dose levels. 89% of participants
demonstrated preservation or improvement in the treated eye either on BCVA or LLVA or MLMT scores from baseline. 78% of participants demonstrated
preservation or improvement in the treated eyes in MLMT scores from baseline. 80% of RHO mutation subjects experienced either preservation or
improvement in MLMT scores from baseline.
NOVEL BIOLOGIC PRODUCT CANDIDATE FOR RETINAL DISEASES
We are developing OCU200, which is a novel fusion protein containing parts of human transferrin and tumstatin. OCU200 is designed to treat DME, DR,
and Wet AMD. We have completed the technology transfer of manufacturing processes to our contract development and manufacturing organization
("CDMO") and have produced trial materials to initiate a Phase 1 trial. In April 2023, the FDA placed our IND application to initiate a Phase 1 trial
targeting DME on clinical hold, as part of the FDA's
8
Table of Contents
request for additional information related to CMC. We have submitted a response to the FDA with additional information. We continue to work with the
FDA to address comments to lift the clinical hold. The planned Phase 1 clinical study will assess the unilateral intravitreal administration of OCU200 alone
or in combination with an approved anti-VEGF therapy in participants with DME. This is a multicenter, open-label, dose ranging study with three cohorts
in the dose-escalation portion of the study and one cohort in the combination therapy portion of the study.
Overview of DR and DME
DR is a sight-threatening complication of diabetes arising from the over-accumulation of glucose, which can block blood vessels in the retina and cut off
blood supply, leading to the damage of blood vessels in the retina. DR is classified into two subtypes: non-proliferative DR and proliferative DR. Non-
proliferative DR is the early stage of DR wherein blood vessels are unable to grow, blood vessel walls weaken, and nerve fibers in the retina may swell.
Proliferative DR is the advanced stage of DR in which damaged blood vessels close off, leading to the growth of new, abnormal blood vessels in the retina.
This growth of new, abnormal blood vessels in the retina can lead to scar tissue, which can result in the detachment of the retina from the back of the eye.
Complications from DR could lead to DME. In DME, bulges can protrude from the blood vessel walls, leading to the leakage of fluid and blood into the
retina. This leakage results in swelling, or "edema," in the macula, which is a part of the retina. DME may occur at any stage of DR but is more likely to
occur as the disease progresses. DME is the most common reason for vision loss in patients with DR.
DR and DME are the most common vision-threatening diseases in patients with diabetes. Approximately 162 million individuals are affected with DR and
approximately 21 million with DME worldwide. As the population of people experiencing diabetes increases, these statistics are expected to increase, due
to poor disease management, lifestyle-related changes and the aging population. There are limited treatment options available for patients with DR and
DME. Current first-line treatments for DR and DME include the use of anti-vascular endothelial growth factor ("VEGF") therapy and anti-inflammatory
therapy, such as corticosteroids. These treatments do not work effectively in approximately 50% of patients with DME. There is a significant need to
develop a novel, differentiated therapeutic to treat DR and DME.
Additionally, current therapies target only one pathway associated with DR and DME, either angiogenesis (development of new blood vessels) with anti-
VEGF therapy, such as Ranibizumab or Aflibercept, or inflammation in case of corticosteroid therapy, such as Dexamethasone or Fluocinolone. The
development of a therapeutic which targets multiple causative pathways of DR and DME, such as angiogenesis, oxidation, and inflammation, would offer a
potential treatment option for all patients. We believe that OCU200 possesses unique characteristics to target these pathways and has the potential to offer
better treatment options for all patients with DR and DME.
Overview of Wet AMD
OCU200 also has the potential to represent a better treatment option for patients suffering from Wet AMD. Most AMD cases begin as dAMD and may
progress towards the advanced "Wet" form. Wet AMD is caused by abnormal blood vessels in the retina that leak fluid or blood into the macula. The result
can be irreversible damage to photoreceptor cells and rapid, severe vision loss, particularly in the center of the field of vision, causing significant functional
impairment. If left untreated, neovascularization in Wet AMD patients typically results in significant vision loss and the formation of a scar under the
macula. Wet AMD affects approximately 10-15% of patients with AMD but progresses more rapidly and is known to be responsible for approximately
90% of all AMD-related blindness.
AMD is a leading cause of blindness worldwide. The incidence of Wet AMD increases substantially with age, and it is expected that the number of cases of
Wet AMD will increase with the growth of the elderly population. It has been estimated that approximately 296 million individuals worldwide have some
form of AMD of which, approximately 30 million, or 10%, suffer from Wet AMD.
Current FDA approved therapeutics for Wet AMD include intravitreal injection of either Ranibizumab or Aflibercept, which are anti-VEGF therapies.
Though treatments have been effective in mitigating the disease symptoms, clinical studies suggest substantial limitations remain. For example, a
significant percentage of people do not respond to therapy and experience continuous deterioration of their vision. Additionally, the repeated use of anti-
VEGF therapy becomes less effective over time. Between 30-50% of people affected by Wet AMD continue to have fluid remain in the middle of the eye,
also called the subretinal space, even after one to two years of treatment.
9
Table of Contents
Given the above limitations of these existing treatments, we believe that a substantial unmet medical need exists for the treatment of DR, DME, and Wet
AMD.
OCU200 for the Treatment of DR, DME, and Wet AMD
OCU200 is a novel fusion protein containing parts of human transferrin and tumstatin, that are already present normally in retinal tissues. Patients affected
by these diseases share common symptoms, such as blurriness in vision and continued vision loss through disease progression. The formation of fragile and
leaky new abnormal blood vessels leads to fluid accumulation in and around the retina, causing vision damage.
We believe OCU200 possesses unique features to efficiently target retina and choroid and inhibit vascular leakage and/or growth of new blood vessels.
Tumstatin, which acts as an anti-angiogenic, anti-inflammatory, and anti-oxidative agent, is the active component of OCU200. It binds to integrin receptors,
which play a crucial role in disease pathogenesis. Transferrin is expected to enhance the delivery of fused proteins across cellular barriers, including retinal
barriers. OCU200 is designed to address the limitations of current therapies by targeting multiple mechanisms associated with ocular neovascularization
and inflammation specifically focusing on non-responders to currently available treatment options.
A proof-of-concept study involving different animal models demonstrated the therapeutic potential of OCU200 in the treatment of DR, DME, and Wet
AMD. In an animal model for DME and DR (oxygen-induced retinopathy in mice), OCU200, at a significantly lower dose (10 micrograms per eye), was
comparable to existing approved anti-VEGF therapy (Eylea, 20 micrograms per eye) in preventing disease manifestation and progression. Studies in animal
models for Wet AMD (laser induced choroidal neovascularization in mice and rats) suggest that OCU200 may possess comparable or slightly better
activity compared to anti-VEGF control groups in preventing the formation and growth of new leaky blood vessels and subsequently disease symptoms.
We believe that OCU200's distinct mechanism of action by targeting the integrin pathway could potentially provide benefit to patients, particularly to those
patients that do not respond to currently approved therapies.
NEOCART (AUTOLOGOUS CHONDROCYTE-DERIVED NEOCARTILAGE) CELL THERAPY PLATFORM
We diversified our innovative pipeline in 2022 by introducing NeoCart (autologous chondrocyte-derived neocartilage), a Phase 3-ready, regenerative
medicine cell therapy technology that combines breakthroughs in bioengineering and cell processing to enhance the autologous cartilage repair process. We
believe NeoCart has the potential to accelerate healing and reduce pain by reconstructing a patient's previously damaged knee cartilage. In May 2022, the
FDA granted an RMAT designation to NeoCart for the repair of full-thickness lesions of knee cartilage injuries in adults.
NeoCart was acquired in our reverse merger in 2019 with Histogenics Corporation ("Histogenics"). Prior to 2019, Phase 1 and Phase 2 clinical trials were
conducted to demonstrate the safety and efficacy of NeoCart. These clinical trials reported a decrease in pain and improved function of the knee.
Additionally, per the results of the Phase 2 clinical trial, more patients responded to NeoCart than microfracture surgery. No Serious Adverse Events
("SAEs") were reported. A Phase 3 clinical trial was conducted to demonstrate the safety and effectiveness of NeoCart as compared to microfracture
surgery to treat cartilage defects in the knee. This clinical trial enrolled 249 subjects between the ages of 18 and 59. The Phase 3 clinical trial of NeoCart
narrowly missed the primary endpoint of a statistically significant improvement in pain and function in a dual threshold responder analysis one year after
the treatment as compared to microfracture surgery.
We have received concurrence from the FDA on the confirmatory Phase 3 clinical trial design. This study will be a randomized, controlled clinical trial
designed to evaluate the efficacy and safety of NeoCart in comparison to the current standard of care, chondroplasty, in subjects with articular cartilage
defects. We intend to initiate the Phase 3 trial in the second half of 2024, contingent on adequate availability of funding. Our Phase 3 clinical trial will use
chondroplasty as the control instead of microfracture, which was used in the Phase 3 clinical trial conducted by Histogenics. Additionally, the Phase 3
clinical trial conducted by Histogenics used a responder analysis for the co-primary endpoint (as opposed to microfracture) that included an improvement
of at least 12 points in outcome compared to baseline at one year on the knee injury and OA outcome score pain assessment test and an improvement of at
least 20 points in outcome compared to baseline on the International Knee Documentation Committee subjective test. In contrast, our Phase 3 clinical trial
will use a co-primary efficacy endpoint defined as the mean change from baseline (as opposed to chondroplasty) to two years for the patients' Knee Injury
and Osteoarthritis Outcome Score Pain and Function (Activities of Daily Living) subscale scales. Additionally, the Phase 3 clinical trial conducted by
Histogenics enrolled patients with a total lesion size of less than six cm , while our Phase 3 clinical trial will enroll patients with total lesion sizes between
2
one to three cm .
2
The cartilage is a complex tissue which protects the various joints and bones in the human body. It acts as a shock absorber throughout the body
withstanding significant pressure and allowing for joints to glide smoothly with minimal friction. Cartilage
10
Table of Contents
damage can be caused by acute trauma, such as a bad fall or a sports-related injury, or by repetitive trauma, such as general wear over time. Unlike other
tissues in the body, cartilage in the joints has no innate ability to repair itself, making any injury permanent. If left untreated, even a small defect can
expand in size and progress to debilitating Osteoarthritis ("OA"), ultimately requiring a joint replacement procedure. Over 528 million individuals
worldwide are diagnosed with OA. This number is expected to increase as the population of aging yet active individuals and the rates of obesity increase.
We believe the current therapies available to treat cartilage damage in the knee are suboptimal with varying outcomes due to variable cellular responses.
Chondroplasty is often recommended in patients with small cartilage lesions (between one and three cm ). This procedure is performed through small
incisions on the sides of the knee with the aid of an arthroscope. During this procedure, the damaged cartilage is trimmed, and the remaining surface is
smoothed. Microfracture surgery is a frequently used procedure for severe cartilage damage which yields varying outcomes from patient to patient. This
surgery consists of the creation of tiny holes or "fractures" in the bone underneath the injured cartilage, leading to the formation of a blood clot in the
affected area. The blood and bone marrow that form the blood clot contain stem cells, which are expected to grow into cartilage-building cells, as well as
growth factors to support cell function and development of replacement cartilage matrix. Approximately 30% of patients that have undergone microfracture
surgery continue to have pain and reduced knee function. Additionally, current therapies require extensive recovery time. They are often ineffective in the
long term as they do not adequately address cartilage damage, which leads to additional corrective surgeries. Autologous culture chondrocytes on porcine
collagen membrane (MACI) is used for the repair of symptomatic, single, or multiple full-thickness cartilage defects of the knee with or without bone
2
involvement in adults less than 55 years of age. It is a three-by-five centimeter cellular sheet with a density of 500,000 cells per cm .
2
The other options for cartilage repair include osteochondral autograft transplantation ("OAT"), osteochondral allograft resurfacing ("OCA"), and
autologous chondrocyte implantation ("ACI"). During OAT, damaged cartilage is removed and replaced with healthy cartilage from a non-weight-bearing
area of the joint. OAT is recommended for small to medium sized lesions (between 1.5 and four cm ) and is limited by the amount of donor tissue available,
the need for open surgery, and donor site morbidity. OCA is a similar process to OAT except that the tissue is sourced from cadaveric donor bone and
cartilage. OCA is recommended for large lesions (between four and 10 cm ) and can be performed in a single procedure but is limited by the availability of
cadaveric tissue. ACI is a process where cartilage cells are harvested from a non-weight bearing part of the knee and are cultured in a laboratory. They are
subsequently implanted into the injured area.
2
2
Over one million arthroscopies are performed annually as a procedure to diagnose and treat issues of the joint. Patients and physicians are in need of
treatment options that offer more rapid and durable recovery compared to the current treatment options. The attributes of an optimal treatment for a
damaged knee cartilage involve the reduction in pain, repair of the knee cartilage, rapid return to daily activities, durable response, and a non-opioid
approach. We believe NeoCart would represent a better solution to treat cartilage damage in the knee as it has the potential to solve for the limitations of the
current therapies and has the potential to provide improved efficacy, long-term patient benefits, accelerated patient recovery, and predictable patient
outcomes.
NeoCart is designed to treat pain at the source, improve function, and potentially prevent a patient's progression to OA. NeoCart is a three-dimensional
tissue-engineered disc of new cartilage that is manufactured by growing chondrocytes, the cells responsible for maintaining cartilage health. The
chondrocytes are derived from the patient on a unique scaffold. In this therapy, the patient's cells are separated from a tissue biopsy specimen and
multiplied in a manufacturing facility. The cells are then infused into the scaffold, which is a three-dimensional structure that enables the proper delivery,
distribution, and organization of cells in their natural environment to support tissue formation. Before NeoCart is implanted in a patient, the patient's cells
and the scaffold undergo a bioengineering process in a Tissue Engineering Processor ("TEP"). The TEP is designed to mimic the conditions inside a
functional joint so that the tissue is prepared to begin functioning like normal healthy cartilage prior to implantation. Once NeoCart is ready to be
implanted, a bioadhesive is used to anchor NeoCart at the site of cartilage injury and seal the implant to the surrounding native cartilage. The bioadhesive is
a natural, biocompatible material which acts as adhesives for biological tissue, thereby eliminating the need for complicated suturing (Figure 10).
11
Table of Contents
Figure 10: Mechanism of the regenerative medicine cell therapy technology, NeoCart.
Figure 10 demonstrates the mechanism of our regenerative medicine cell therapy technology, NeoCart. We believe NeoCart has the potential to accelerate
healing and reduce pain by reconstructing a patient's previously damaged knee cartilage. In this therapy, healthy cartilage tissue is grown and implanted in
the patient.
INHALED MUCOSAL VACCINE PLATFORM
We are developing a next-generation, inhalation-based mucosal vaccine platform based on a novel ChAd vector, which includes OCU500, a COVID-19
vaccine; OCU510, a seasonal quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine.
Overview of COVID-19
COVID-19, caused by the SARS-CoV-2 virus, was first reported to have surfaced in Wuhan, China in December 2019 and was declared a global pandemic
by the World Health Organization ("WHO") in March 2020. COVID-19 is a highly transmissible disease that spreads from person to person through
respiratory droplets that are produced when an infected person coughs, sneezes, or talks. Since being discovered, new variants of SARS-CoV-2 have
emerged. New variants of a virus emerge when a mutation to the virus' genes occurs. As of January 28, 2024, SARS-CoV-2 and its variants have caused
approximately over 774.4 million cases of COVID-19 and 7.0 million deaths, with the United States alone accounting for over 103.4 million cases and 1.2
million deaths. The JN.1 variant is a descendent lineage of SARS-CoV-2 variant BA.2.86, with the earliest sample collected on August 25, 2023 and has
continued to be deemed a variant of interest by the WHO due to at least one of the following characteristics: increase in transmissibility or detrimental
change in COVID-19 epidemiology, an increase in virulence or change in clinical disease presentation, or a decrease in effectiveness of public health and
social measures or available diagnostics, vaccines, or therapeutics. Since being identified, JN.1 continues to be reported in multiple countries, and its
prevalence has been rapidly increasing globally and now represents the vast majority of BA.2.86 descendent lineages reported. On May 11, 2023, the U.S.
Department of Health and Human Services announced the COVID-19 public health emergency ended, yet the cases remain high as new variants emerge
since the current intramuscular vaccines do not provide significant protection against respiratory mucosal infection.
Overview of the Seasonal Flu
The seasonal flu, or seasonal influenza, is an acute respiratory infection caused by influenza viruses circulating globally. In temperate climates, seasonal
epidemics occur mainly during the winter, while in other regions, transmission may occur throughout the year, causing outbreaks more irregularly. The
seasonal flu causes illnesses that range in severity and may lead to hospitalization and death in certain cases. As of October 3, 2023, worldwide, the
seasonal flu is estimated to result in 3 to 5 million cases of severe illness, and 0.3 million to 0.7 million respiratory deaths.
12
Table of Contents
The seasonal flu spreads easily and rapidly transmits in crowded areas. The seasonal flu is transmitted when an infected person coughs or sneezes and
droplets containing the virus are dispersed into the air and infects those in close proximity that breathe the droplets in. The seasonal flu can also spread
through physical contact, although this type of transmission is less common than airborne transmission. The flu is most commonly prevented by getting an
annual flu vaccine and taking preventative actions to avoid transmission such as staying away from those who are sick, frequent handwashing, and covering
coughs and sneezes. As of October 10, 2023, for the 2022 to 2023 flu season, over 49.3% of the U.S. population six months of age and older have received
a seasonal flu shot. As of August 31, 2023, 173.4 million vaccine doses have been administered for the 2022 to 2023 season. Several flu antiviral drugs are
also available in different dosage forms to treat the seasonal flu, including pills, liquid, an inhaled powder, or an intravenous solution. These flu antiviral
drugs are only available through a prescription from a healthcare provider and are not sold over the counter.
Novel Inhaled Mucosal Vaccine Platform for the Prevention of COVID-19 and the Seasonal Flu
We are developing a next-generation, inhalation-based mucosal vaccine platform based on a novel ChAd vector, which includes OCU500, a monovalent
COVID-19 vaccine; OCU510, a seasonal quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine.
Our novel inhaled mucosal vaccine platform is specifically designed to generate local mucosal immunity in the nasopharyngeal region. The mucosal
vaccination method has demonstrated potent induction of both mucosal and systemic immune responses, which prevents infection and spread, thereby
limiting the origins of new variants. We believe our novel inhaled mucosal vaccine platform is unique as it is designed to induce mucosal immunity, which
is crucial for preventing upper respiratory tract infection, as compared to intramuscular vaccines. The advantages of these inhaled mucosal vaccines include
needle-free administration, the potential for increased compliance, scalable manufacturing, storage and shipping at standard refrigerated conditions, and the
potential to develop multi-strain and variant-specific versions. As these vaccine candidates are being developed to be administered through inhalation, we
believe our novel inhaled mucosal vaccine platform has the potential to generate rapid local immunity in the upper airways and lungs where viruses enter
and infect the body, which we believe may help reduce or prevent infection and transmission as well as provide protection against new virus variants.
The Spike (S) protein of SARS-CoV-2 is the principal target for antibody-based and vaccine countermeasures. The S protein serves as the primary viral
attachment and entry factor to promote SARS-CoV-2 entry into human cells. In preclinical studies that have been conducted to assess the durability, dose
response, and cross-protective activity in mice, it was demonstrated that a single dose of our inhaled mucosal COVID-19 vaccine induced durably high
neutralizing and antibody effector responses in serum and S protein specific IgG and Immunoglobulin A, which is essential for reducing infection and
transmission of COVID-19. This approach represents a potential universal booster, regardless of previous COVID-19 vaccination. OCU520, our
combination quadrivalent seasonal flu and COVID-19 vaccine, is designed to provide the unique ease of getting both an annual COVID-19 booster vaccine
and an annual seasonal flu vaccine in one vaccine.
Pursuant to the WU License Agreement, we obtained the rights to develop, manufacture, and commercialize an inhaled mucosal COVID-19 vaccine in the
Mucosal Vaccine Territory. In addition, we internally developed technology related to the flu and COVID-19's vaccine design and filed intellectual
property. In October 2023, OCU500 was selected by the National Institute of Allergy and Infectious Diseases' ("NIAID") Project NextGen for inclusion in
clinical trials. OCU500 will be tested via two different mucosal routes, inhalation into the lungs and as a nasal spray. The clinical trials are expected to
begin mid-2024. We are continuing discussions with relevant government agencies regarding developmental funding for our OCU510 and OCU520
platforms.
COMPETITION
The biotechnology industry is characterized by rapidly advancing technologies as well as a strong emphasis on intellectual property leading to a highly
competitive environment for the development and commercialization of therapeutic products, regenerative medicines, and vaccines. We face competition
with respect to our current product candidates and will face competition with respect to any product candidates that we may seek to develop or
commercialize in the future. We face competition from many different sources, including from major pharmaceutical companies, specialty pharmaceutical
companies, biotechnology companies, academic institutions, government agencies, and other public and private research organizations that conduct
research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization. We plan to
compete in the segments of pharmaceutical, biotechnological, and other related markets with therapeutics, regenerative medicines, and vaccines that have
an acceptable safety profile and target commercially attractive indications.
13
Table of Contents
The development and commercialization of gene therapies is highly competitive. We are aware of several companies focusing on gene therapies for various
ophthalmic indications including Applied Genetic Technologies Corporation, as acquired by Syncona Limited, Astellas Pharma Inc., MeiraGTx Holdings
plc in partnership with Janssen Pharmaceuticals, Inc., Nanoscope Therapeutics Inc., REGENXBIO Inc., Novartis AG, F. Hoffmann-La Roche AG ("Roche
AG"), Kiora Pharmaceuticals, Inc., Genentech, Inc. in partnership with Lineage Cell Therapeutics, Inc., and Luxturna, the product developed by Spark
Therapeutics, Inc. and marketed by Roche AG, is currently the only gene therapy approved to treat IRDs in the United States which addresses only
mutations in the one gene, RPE65. The mutation associated with the RPE65 gene represents just one of more than 125 mutated genes linked to RP and
LCA.
The regenerative medicine sector is characterized by innovative science, rapidly advancing technologies, and a strong emphasis on proprietary products.
The competitive landscape in the field of articular cartilage repair in the U.S. is emerging and has stimulated a substantial amount of interest from
companies developing tissue repair solutions. Companies that may compete with our NeoCart product candidate include Vericel Corporation's MACI, the
only FDA-approved ACI product in the United States, and Aesculap Biologics, LLC's NOVOCART 3D, which is currently enrolling subjects in their Phase
3 clinical trial.
We face, and will continue to face, intense competition from companies as well as institutions that are pursuing or have commercialized vaccines that
would compete with our novel inhaled mucosal vaccine platform, if commercialized. The competitive landscape of COVID-19 vaccines has been rapidly
developing since the beginning of the COVID-19 pandemic and includes competitors such as Pfizer Inc./BioNTech SE, Moderna, Inc., AstraZeneca PLC,
Novavax, Inc., Sinovac Biotech Ltd., Gamaleya Research Institute of Epidemiology and Microbiology, and Center for Genetic Engineering and
Biotechnology. Each of the aforementioned vaccines have been authorized or approved in at least one country within the Ocugen Mucosal Vaccine
Territory and are intramuscular vaccines. CanSinoBIO's Convidecia Air, an intranasal vaccine targeting COVID-19, has been approved in China. Other
competitors for our novel inhaled mucosal vaccine platform include CyanVac LLC, Meissa Vaccines, Inc., Codagenix, Inc., Intravacc B.V., McMaster
University, and Tetherex Pharmaceuticals Corporation. Companies such as Pfizer Inc./BioNTech SE, Moderna, Inc., CureVac N.V in partnership with GSK
plc, Vivaldi Biosciences Inc., and Novavax, Inc. are also in the process of developing a combination vaccine that will protect against COVID-19 and the
seasonal flu. Vivaldi Biosciences Inc. is also currently undergoing clinical trials for their intranasal vaccine for the seasonal flu.
The development and commercialization of biologic products is highly competitive as well. Companies that may compete with our OCU200 product
candidate include Roche AG, Regeneron Pharmaceuticals, Inc., AsclepiX Therapeutics, Inc., Outlook Therapeutics, Inc., Novartis AG, Oxurion NV, Unity
Biotechnology, Inc., Opthea Limited, and 4D Molecular Therapeutics, Inc. Roche AG, Regeneron Pharmaceuticals, Inc., and Novartis AG have marketed
anti-VEGF products.
Many of our competitors, either alone or with strategic partners, may have significantly greater financial resources to support research and development,
manufacturing, preclinical studies, and clinical trials, as well as regulatory, commercialization, and marketing efforts. These organizations also compete
with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites, patient registration for clinical trials,
licensing or acquiring technologies necessary for our programs, and in our commercialization efforts if our product candidates are approved. Early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Mergers
and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our
competitors.
MANUFACTURING AND SUPPLY
We utilize our in-house expertise and know-how as well as the expertise and know-how of our industry leading manufacturing partners to develop and
scale up our manufacturing processes for both the clinical and commercial supply of our product candidates. Our in-house expertise includes personnel
with extensive product development and commercialization experience who actively manage our manufacturing partners that produce products in our
product candidate pipeline. Our current manufacturing partners have state-of-the-art facilities with significant expertise in biotechnology manufacturing.
Clinical Supply of Our Modifier Gene Therapy Platform
We have a co-development and commercialization agreement with CanSinoBIO with respect to the development and commercialization of our modifier
gene therapy platform including OCU400, OCU410 and OCU410ST. CanSinoBIO is responsible for the CMC development and manufacture of clinical
supplies of such product candidates and is responsible for the costs associated with such activities. CanSinoBIO has an exclusive license to develop,
manufacture, and commercialize our modifier gene therapy platform in and for China, Hong Kong, Macau, and Taiwan (the "CanSinoBIO Territory"), and
we maintain exclusive development, manufacturing, and commercialization rights with respect to our modifier gene therapy platform outside the
CanSinoBIO Territory (the "Company Territory").
14
Table of Contents
We partner with CanSinoBIO for the process development, manufacturing, testing, and release of drug product candidates for use in IND-enabling studies
and clinical trials. We perform discovery and analytical development activities in our research and development lab. The partnership with CanSinoBIO
enables us in completing manufacturing, with release of clinical trial materials in an expedited manner and helps in mitigating the risk of delay that can be
associated when working with highly competitive CDMOs that have long wait times with regard to gene therapy manufacturing. Although we rely on our
partnership for manufacturing, we have personnel with extensive experience in gene therapy manufacturing to oversee and guide the process and analytical
development, scale-up, release, and stability testing at our partner site. We perform periodic audits of our manufacturing partner to confirm compliance
with applicable regulations.
For more information about our partnership with CanSinoBIO, see "—License and Development Agreements—Co-Development and Commercialization
Agreement with CanSinoBIO" and see Note 3 in our notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-
K.
Clinical and Commercial Supply of NeoCart
We have completed renovating an existing facility into a current GMP facility in accordance with the FDA's regulations in support of NeoCart
manufacturing for Phase 3 clinical trial material.
Clinical Supply of Inhaled Mucosal Vaccine Platform
In October 2023, OCU500 was selected by the NIAID Project NextGen for inclusion in clinical trials. Project NextGen is a $5 billion multi-government
agency initiative to develop the next generation of vaccines and therapeutics to combat the spread of COVID-19. NIAID, with funding from Project
NextGen, will cover the full cost of the clinical trials, including operations and related analysis. Ocugen will be responsible for providing clinical trial
materials and upon completion will have full right of reference to the findings, which Ocugen believes will provide clinical evidence to support the further
development of the Company’s lead mucosal vaccine candidate.
Clinical Supply of OCU200
In October 2020, we entered into a manufacturing agreement with a CDMO for the manufacture of OCU200. Under the manufacturing agreement, our
CDMO will manage all CMC and clinical manufacturing activities for OCU200. We have completed the technology transfer of manufacturing processes to
our CDMO and have produced clinical trial materials to initiate the planned Phase 1 clinical trial. In April 2023, the FDA placed our IND application to
initiate a Phase 1 trial targeting DME on clinical hold, as part of the FDA's request for additional information related to CMC. We have submitted a
response to the FDA with additional information. We continue to work with the FDA to address comments to lift the clinical hold.
LICENSE AND DEVELOPMENT AGREEMENTS
We are party to license and development agreements under which we license or co-own patents, patent applications, technical information, and other
intellectual property for our product candidates. Certain diligence and financial obligations are tied to these agreements. We consider the following
agreements to be material to our business.
Modifier Gene Therapy Program
Exclusive License Agreement with SERI
In December 2017, we entered into an exclusive license agreement with SERI, which was amended in January 2021 (as amended, the "SERI Agreement").
The SERI Agreement gives us an exclusive, worldwide, sublicensable license to patent rights, biological materials, and technical information for NHR
genes NR1D1, NR2E3 (OCU400), RORA (OCU410 and OCU410ST), Nuclear Protein 1, Transcriptional Regulator ("NUPR1"), and Nuclear Receptor
Subfamily 2 Group C Member 1 ("NR2C1"). The January 2021 amendment to the SERI Agreement additionally granted us rights in co-owned intellectual
property pursuant to certain patent applications and provisional patent applications at the time of the amendment. Under the SERI Agreement, we may
make, have made, use, offer to sell, and import licensed products, and must use commercially reasonable efforts to bring one or more licensed products to
market as soon as reasonably practicable.
SERI maintains control of patent preparation, filing, prosecution, and maintenance. We are responsible for SERI’s out-of-pocket expenses related to the
filing, prosecution, and maintenance of the licensed patent rights. In the event that SERI decides to discontinue the prosecution or maintenance of the
licensed patent rights, we have the right, but not the obligation, to file for,
15
Table of Contents
or continue to prosecute, maintain, or enforce such licensed patent rights. We have assumed prosecution of certain licensed patent rights under the SERI
Agreement.
Co-Development and Commercialization Agreement with CanSinoBIO
We entered into the CanSinoBIO Agreement with CanSinoBIO with respect to the development and commercialization of our modifier gene therapy
product candidates, OCU400, OCU410, and OCU410ST. The CanSinoBIO Agreement was originally entered into in September 2019 with regards to
OCU400, and was subsequently amended in September 2021 and November 2022 to include OCU410 and OCU410ST, respectively. Pursuant to the
CanSinoBIO Agreement, we are collaborating with CanSinoBIO on the development of our modifier gene therapy platform. CanSinoBIO is responsible for
the CMC development and manufacture of clinical supplies of such product candidates and is responsible for the costs associated with such activities.
CanSinoBIO has an exclusive license to develop, manufacture, and commercialize our modifier gene therapy platform in and for the CanSinoBIO Territory,
and we maintain exclusive development, manufacturing, and commercialization rights with respect to our modifier gene therapy platform in the Company
Territory.
CanSinoBIO will pay us an annual royalty between mid- and high-single digits based on Net Sales (as defined in the CanSinoBIO Agreement) of the
products included in our modifier gene therapy platform in the CanSinoBIO Territory. We will pay CanSinoBIO an annual royalty between low- and mid-
single digits based on Net Sales of the products included in our modifier gene therapy platform in the Company Territory.
NeoCart
License Agreement with Purpose
In December 2005, Histogenics entered into an exclusive agreement (the "Purpose Agreement") to sublicense certain technology from Purpose, which we
assumed as a result of our reverse merger with Histogenics. Purpose entered into the original license agreement ("BWH-Purpose Agreement") with
Brigham and Women’s Hospital, Inc. ("BWH") in August 2001. The BWH-Purpose Agreement granted Purpose an exclusive, royalty-bearing, worldwide,
sublicensable license, under its rights in licensed patents and patent applications co-owned by BWH and Purpose to make, use, and sell (1) an apparatus for
cultivating a cell or tissue, (2) cell or tissue products made using such apparatus, (3) cell or tissue products made using processes for cultivating a cell or
tissue as disclosed in the licensed patents and patent applications, and (4) any apparatus that cultivates cells or tissues using such processes, in each case,
whose manufacture, use, or sale is covered by a valid claim of the licensed patents and patent applications, only for therapeutic use.
The Purpose Agreement was amended and restated in June 2012, pursuant to which Purpose granted Histogenics outside of Japan: (a) exclusive rights to all
of Purpose's technology (owned or licensed) related to the exogenous tissue processors, which is used in the development of NeoCart, (b) continued supply
of exogenous tissue processors, and (c) rights to manufacture the exogenous tissue processors at any location we choose. In exchange for such
consideration, Purpose was granted an exclusive license in Japan for the use of all of our NeoCart technology and was reimbursed for development costs on
a multi-unit exogenous tissue processor. In May 2016, the Purpose Agreement was amended, whereby Histogenics reacquired the development and
commercialization rights to NeoCart in Japan.
The Purpose Agreement, as amended, provides us with the ability, worldwide, to (i) use, make, have made, sell, offer for sale, import or otherwise exploit
products or services covered by claims of Purpose's patents and (ii) use, reproduce, modify, create derivative works of and otherwise exploit Purpose’s
technology for the design, development, manufacture, testing, support, and commercialization of any product or service that incorporates or builds upon
Purpose’s technology, in each case, only in connection with articular cartilage, ligaments, tendons, and meniscus. Purpose retains the right to sell its single
unit exogenous tissue processer machines to research institutes for general but noncommercial use anywhere in the world.
Vaccines
Exclusive License Agreement with Washington University
In September 2022, we entered into the WU License Agreement with Washington University, pursuant to which we were granted an exclusive,
sublicensable, royalty-bearing license to patent rights for an inhaled mucosal COVID-19 vaccine, as well as a license to certain tangible research property
and technical information necessary to exploit the patent rights within the United States, Europe, and Japan. In January 2023, we amended the WU License
Agreement to add the countries of South Korea, Australia, and China to the Mucosal Vaccine Territory, and in November 2023, we further amended the
WU License Agreement to add Hong Kong to the Mucosal Vaccine Territory.
16
Table of Contents
Pursuant to the WU License Agreement, we may make, have made, sell, offer for sale, use, market, promote, distribute, export, and import licensed
products in the Mucosal Vaccine Territory. We will use commercially reasonable efforts to develop, manufacture, promote, and sell the licensed products in
the Mucosal Vaccine Territory.
Washington University maintains control of patent preparation, filing, prosecution, and maintenance. We are responsible for Washington University's out-
of-pocket expenses related to the preparation, filing, prosecution, issuance, and maintenance of the licensed patent rights incurred pursuant to the WU
License Agreement.
NIAID Project NextGen Clinical trial support
In October 2023, OCU500 was selected by the NIAID Project NextGen for inclusion in clinical trials. Project NextGen is a $5 billion multi-government
agency initiative to develop the next generation of vaccines and therapeutics to combat the spread of COVID-19. NIAID, with funding from Project
NextGen, will cover the full cost of the clinical trials, including operations and related analysis. Ocugen will be responsible for providing clinical trial
materials and upon completion will have full right of reference to the findings, which Ocugen believes will provide clinical evidence to support the further
development of the Company’s lead mucosal vaccine candidate.
Novel Biologic Therapy for Retinal Diseases
Exclusive License Agreement with the University of Colorado
In March 2014, we entered into an exclusive license agreement with CU, which was amended in January 2017 and clarified by a letter of understanding in
November 2017 (as amended and clarified, the "CU Agreement"). The CU Agreement gives us an exclusive, worldwide, sublicensable license to patents
for OCU200 to make, have made, use, import, offer to sell, sell, have sold, and practice the licensed products in all therapeutic applications. Under the CU
Agreement, we must use commercially reasonable efforts to develop, manufacture, sublicense, market, and sell the licensed products and have assumed
primary responsibility for preparing, filing, and prosecuting broad patent claims for OCU200 for CU's benefit. Further, we have assumed primary
responsibility for all patent activities, including all costs associated with the perfection and maintenance of the patents for OCU200.
INTELLECTUAL PROPERTY
Our success depends in part upon our ability to protect our core technologies and intellectual products. We have applied, obtained, and licensed patent
protection for our product candidates. We intend to maintain and defend our intellectual property rights to protect our technology, inventions, processes,
and improvements that are commercially important to the development of our business. There is no guarantee that any of our current or future intellectual
property will advance the commercial success of our product candidates. There is also no guarantee patents will be issued or registered for any pending
patent applications or patent applications that we may file in the future. Our commercial success also depends in part on our non-infringement of the
patents and proprietary rights of third parties.
As of April 10, 2024, our patent portfolio for our product candidates included a total of 24 issued patents in the United States, 63 issued or registered
patents in foreign countries, 12 pending patent applications in the United States, and 15 pending patent applications in foreign countries. Our issued or
registered patents and pending patent applications include those licensed from SERI, Purpose Co, Washington University, and CU. Certain issued patents
and pending patent applications cover multiple of our product candidates. Our intellectual property includes compositions of matter, methods of use,
product candidates, and other proprietary technology. As of April 10, 2024, we had exclusive rights or owned rights to: (i) one issued U.S. patent related to
OCU400; (ii) one issued U.S. patent, two pending U.S. patent applications, and four pending foreign patent applications related to OCU410 and
OCU410ST; (iii) 21 issued U.S. patents; four pending U.S. patent applications, 38 issued or registered foreign patents, and eight pending foreign patent
applications related to NeoCart; (iv) six pending U.S. patent applications and three pending foreign patent applications related to OCU500, OCU510 and
OCU520; and (v) one issued U.S. patent and 25 issued or registered foreign patents related to OCU200. Our current portfolio of issued patents in the U.S.
and issued or registered patents in foreign countries related to our product candidates expire between 2024 and 2038.
In some instances, we may need to license additional patents and trade secrets to commercialize our product candidates in certain territories. In addition to
patents, we may rely, in some circumstances, on trade secrets to protect our technology. We seek to protect our proprietary technology and processes, and
obtain and maintain ownership of certain technologies, in part, by confidentiality and invention assignment 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.
17
Table of Contents
GOVERNMENT REGULATION AND PRODUCT APPROVAL
Government authorities in the United States, at the federal, state, and local level, and in other countries including Canada, extensively regulate, among
other things, the research, development, testing, approval, manufacture, packaging, storage, recordkeeping, monitoring and reporting, labeling, advertising,
promotion, distribution, marketing, sales, import, and export of biotechnological and drug products such as those we are developing. In addition, labelers of
biotechnology and drug products (the entity owning the National Drug Code listed for a product) participating in Medicaid and Medicare are required to
comply with mandatory price reporting, discounts, rebates, and other requirements. The processes for obtaining regulatory approvals in the United States
and in other countries including Canada, along with compliance with applicable statutes and regulations, require the expenditure of substantial time and
financial resources.
FDA Regulation
In the United States, the FDA regulates biologics and drug products under the Federal Food, Drug, and Cosmetic Act ("FDCA") and its implementing
regulations. In addition to the FDCA and its implementing regulations, biological products are regulated under the Public Health Service Act ("PHSA") and
its implementing regulations. The process required by the FDA before product candidates may be marketed in the United States generally involves the
following:
•
•
•
•
•
•
•
•
•
completion of preclinical laboratory tests, animal studies, and formulation studies in compliance with the FDA's Good Laboratory Practice
("GLP") regulations, applicable requirements for the human use of laboratory animals, such as the Animal Welfare Act ("AWA"), or other
applicable regulations;
submission to the FDA of an IND application, which must become effective before human clinical trials may begin at U.S. clinical trial sites;
approval by an Institutional Review Board ("IRB") for each clinical site, or centrally, before a clinical trial may be initiated at that site;
adequate and well-controlled human clinical trials to establish the safety and efficacy, in the case of a drug product candidate, or safety, purity, and
potency, in the case of a biological product candidate for its intended use, performed in accordance with Good Clinical Practices ("GCPs") and
additional requirements for the protection of human research subjects and their health information;
development of manufacturing processes to ensure the product candidate's identity, strength, quality, purity, and potency in compliance with
current GMP;
submission to the FDA of a New Drug Application ("NDA"), in the case of a drug product candidate, or a BLA, in the case of a biological product
candidate, including results of preclinical testing, detailed information about the CMC, and proposed labeling and packaging for the product
candidate;
satisfactory completion of an FDA advisory committee review, if applicable;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the products are produced to assess compliance
with current GMP, and to assure that the facilities, methods, and controls are adequate to preserve the therapeutics' identity, strength, quality,
purity, and potency as well as satisfactory completion of an FDA inspection of selected clinical sites, selected clinical investigators to determine
GCP compliance, and payment of user fees; and
FDA review and approval of the NDA, or licensure of a BLA to permit commercial marketing for particular indications for use, including
agreement on post-marketing commitments, if applicable.
Preclinical Studies and IND Submission
The testing and approval process of product candidates requires substantial time, effort, and financial resources. Satisfaction of FDA pre-market approval
requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or
disease. Preclinical studies include laboratory evaluation of chemistry, pharmacology, toxicity, and product formulation, as well as animal studies to assess
potential safety and efficacy. Such studies must generally be conducted in accordance with GLP, the AWA, and other applicable regulations and
requirements. Prior to commencing the first clinical trial at a U.S. investigational site with a product candidate, an IND sponsor must submit the results of
the preclinical tests and preclinical literature, together with manufacturing information, analytical data, any available clinical data or literature, and
proposed clinical study protocols, among other things, to the FDA as part of an IND submission. Some preclinical studies may continue even after the IND
is in effect.
18
Table of Contents
An IND application becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, notifies the applicant of safety
concerns or questions related to one or more proposed clinical trials and places the trial on a clinical hold. In such a case, the IND sponsor and the FDA
must resolve any outstanding concerns before the clinical trial may begin. A separate submission to an existing IND application must also be made for each
successive clinical trial conducted during product development.
Clinical Trials
Clinical trials involve the administration of the investigational product to human subjects (healthy volunteers or patients) under the supervision of qualified
investigators. Clinical trials must be conducted in accordance with federal regulations and GCP requirements, which include the requirements that all
research subjects provide their informed consent in writing for their participation in any clinical trial, as well as the review and approval of the study by an
IRB. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to make certain financial disclosures to the
FDA. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trial procedures, the parameters to be used
in monitoring safety, the effectiveness criteria to be evaluated, and a statistical analysis plan. A protocol for each clinical trial, and any subsequent protocol
amendments, must be submitted to the FDA as part of the IND submission. If a product candidate is being investigated for multiple intended indications,
separate IND applications may also be required. In addition, an IRB at each study site participating in the clinical trial and/or a central IRB must review and
approve the plan for any clinical trial, informed consent forms, and communications to study subjects before a study commences at that site. An IRB is
charged with protecting the welfare and rights of trial participants, and considers, among other things, whether the risks to individuals participating in the
trials are minimized and are reasonable in relation to anticipated benefits, and whether the planned human subject protections are adequate. The IRB must
continue to oversee the clinical trial while it is being conducted. Progress reports detailing the results of the clinical trials must also be submitted at least
annually to the FDA and the IRB and more frequently if serious adverse events ("SAEs") or other significant safety information is found.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical
trial investigators. Sponsors are required to submit periodic progress reports and safety reports to FDA throughout the clinical development program. Phase
1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA may order the temporary, or
permanent, discontinuation of a clinical trial at any time or impose other sanctions, if it believes that the clinical trial either is not being conducted in
accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. If the FDA issues a clinical hold halting a clinical trial, the
agency must notify the IND sponsor of the grounds for the hold. Any identified deficiencies must be resolved before the FDA will lift the hold and allow
the clinical trial to begin or resume. There is no guarantee the FDA will ever lift a clinical hold once put in place. An IRB may also require the clinical trial
at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements or if the trial poses an unexpected serious harm
to subjects. The FDA or an IRB may also impose conditions on the conduct of a clinical trial. Clinical trial sponsors may also choose to discontinue clinical
trials as a result of risks to subjects, a lack of favorable results, or changing business priorities.
The manufacture of investigational drugs and biologics for the conduct of human clinical trials is subject to current GMP requirements. Investigational
drugs, biologics, active ingredients, and therapeutic substances imported into the United States are also subject to regulation by the FDA. Further, the
export of investigational products outside of the United States is subject to regulatory requirements of the receiving country, as well as U.S. export
requirements under the FDCA.
In general, for purposes of NDA and BLA approval, human clinical trials are typically conducted in three sequential phases, which may overlap or be
combined.
•
•
•
Phase 1 — Studies are initially conducted in a small group of healthy human volunteers or subjects (e.g., 10 to 20 subjects) with the target disease
or condition to test the product candidate for safety, dosage tolerance, structure-activity relationships, mechanism of action, absorption,
metabolism, distribution, and excretion. If possible, Phase 1 trials may also be used to gain an initial indication of product effectiveness.
Phase 2 — Controlled studies are conducted in larger but still limited subject populations with a specified disease or condition to evaluate
preliminary efficacy, identify optimal dosages, dosage tolerance and schedule, possible adverse effects and safety risks, and expanded evidence of
safety.
Phase 3 — These adequate and well-controlled clinical trials are undertaken in expanded subject populations (e.g., several hundred to several
thousand patients), generally at geographically dispersed clinical trial sites, to generate enough data to provide statistically significant evidence of
clinical efficacy and safety of the product candidate for approval, to establish the overall risk-benefit profile of the product candidate, and to
provide adequate information for the labeling of the product candidate. Typically, two Phase 3 trials are required by the FDA for product approval.
19
Table of Contents
Under some limited circumstances, however, the FDA may approve an NDA or BLA based upon a single Phase 3 clinical study.
The FDA may also require, or companies may conduct, additional clinical trials for the same indication after a product is approved. These are referred to as
Phase 4 studies and may be made a condition to be satisfied after approval. The results of Phase 4 studies can confirm or refute the effectiveness of a
product candidate, and can provide important long-term safety information.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and
physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with
current GMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among
other things, manufacturers must develop methods for testing the identity, strength, quality, potency, and purity of the final product. Additionally,
appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo
unacceptable deterioration over its shelf life.
Marketing Application Submission, Review by the FDA, and Marketing Approval
Assuming successful completion of the required clinical and preclinical testing, the results of product development, including CMC, non-clinical studies,
and clinical trial results, including negative or ambiguous results, as well as positive findings, are all submitted to the FDA, along with the proposed
labeling, as part of an NDA, in the case of a drug, or BLA, in the case of a biologic, requesting approval to market the product for one or more indications.
In most cases, the submission of a marketing application is subject to a substantial application user fee.
In addition, under the Pediatric Research Equity Act ("PREA"), a BLA or NDA or supplement to a BLA or NDA for a new active ingredient, indication,
dosage form, dosage regimen, or route of administration, must contain data that is adequate to assess the safety and effectiveness of the product for the
claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the
product is safe and effective. 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 the approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Orphan products are also exempt
from the PREA requirements.
The FDA also may require submission of a risk evaluation and mitigation strategy ("REMS") to ensure that the benefits of the product candidate outweigh
the risks. Following product approval, a REMS may also be required by the FDA if new safety information is discovered and the FDA determines that a
REMS is necessary to ensure that the benefits of the product continue to outweigh the risks. Any of these limitations on approval or marketing could
restrict the commercial promotion, distribution, prescription, or dispensing of products.
Once the FDA receives an application, it generally takes 60 days to review the NDA or BLA (collectively, the "marketing application") to determine if it is
substantially complete to permit a substantive review, before it accepts the application for filing. The FDA may refuse to review any application that it
deems incomplete or not properly reviewable at the time of submission and may request additional information. If the submission is accepted for filing, the
FDA begins an in-depth review of the marketing application. Under the goals and policies agreed to by the FDA under PDUFA, the FDA aims to complete
its initial review of a marketing application and respond to the applicant within 10 months from the filing date for a standard marketing application, and
within six months from the filing date for a priority marketing application. The FDA does not always meet its PDUFA goal dates for standard and priority
marketing applications, and the review process is often significantly extended by FDA requests for additional information or clarification.
The FDA may also refer certain applications to an advisory committee. Before approving a product candidate for which no active ingredient (including any
ester or salt of an active ingredient) has previously been approved by the FDA, the FDA must either refer that product candidate to an external advisory
committee or provide in an action letter a summary of the reasons why the FDA did not refer the product candidate to an advisory committee. The FDA is
not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA reviews applications to determine, among other things, whether a product candidate meets the agency's approval standards and whether the
manufacturing methods and controls are adequate to assure and preserve the product's identity, strength, quality, potency, and purity. Before approving a
marketing application, the FDA typically will inspect the facility or facilities where the product is manufactured, referred to as a Pre-Approval Inspection.
The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and
subcontractors, are in compliance with current GMP requirements and are adequate to assure consistent production of the product within required
20
Table of Contents
specifications. Additionally, before approving a marketing application, the FDA will inspect one or more clinical trial sites to assure compliance with
GCPs. To assure current GMP and GCP compliance, an applicant will incur significant expenditure of time, money, and effort in the areas of training,
recordkeeping, production, and quality control.
After evaluating the marketing application and all related information, including the advisory committee recommendation, if any, and inspection reports
regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a Complete Response Letter ("CRL").
A CRL indicates that the review cycle for the application is complete and the application is not ready for approval. It also describes all of the specific
deficiencies that the FDA identified. A CRL generally contains a statement of specific conditions that must be met in order to secure final approval of the
marketing application, and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. If a CRL is issued, the
applicant may either: resubmit the marketing application addressing all of the deficiencies identified in the letter; withdraw the application; or request an
opportunity for a hearing.
Even if the FDA approves a product, it may limit the approved indications or populations for use of the product, require that contraindications, warnings, or
precautions be included in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be
conducted to further assess a product's safety and efficacy after approval, require testing and surveillance programs to monitor the product after
commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS, which can
materially affect the potential market and profitability of the product.
Pediatric Exclusivity
Pediatric exclusivity is one type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six
months of marketing protection to the term of any existing regulatory exclusivity and patent periods. Conditions for exclusivity include the FDA's
determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making
a written request for pediatric studies, and the applicant agreeing to perform and report on the requested studies within the statutory timeframe.
Orphan Products
The Orphan Drug Act provides incentives for the development of products for rare diseases or conditions. Specifically, sponsors may apply for and receive
ODD if a product candidate is intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 0.2 million
individuals in the United States, or affecting more than 0.2 million individuals in the United States and for which there is no reasonable expectation that the
cost of developing and making the product available in the United States will be recovered from U.S. sales. ODD must be requested before submitting an
NDA or BLA. Additionally, sponsors must present a plausible hypothesis for clinical superiority to obtain ODD if there is a product already approved by
the FDA that is considered by the FDA to be the same and is intended for the same indication. This hypothesis must be demonstrated to obtain ODD
exclusivity. If granted, prior to product approval, ODD entitles a party to financial incentives such as opportunities for grant funding towards clinical study
costs, tax advantages, and certain user-fee waivers. The tax advantages, however, were limited in the 2017 Tax Cuts and Jobs Act. After the FDA grants
ODD, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. ODD does not convey any advantage in, or shorten
the duration of, the regulatory review and approval process. The first NDA or BLA applicant to receive FDA approval for a particular active moiety to treat
a particular disease with ODD generally is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication.
During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited
circumstances, such as a showing of clinical superiority to the product with ODD exclusivity by means of greater effectiveness, greater safety, or providing
a major contribution to patient care. ODD exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the
same drug for a different disease or condition.
Patent Term Restoration
If approved, drug and biologic products may also be eligible for periods of U.S. patent term restoration. If granted, patent term restoration extends the
patent life of a single unexpired patent, that has not previously been extended, for a maximum of five years. The total patent life of the product with the
extension also cannot exceed 14 years from the product's approval date. Subject to prior limitations, the period of extension is calculated by adding half of
the time from the effective date of an IND application to the initial submission of a marketing application, and all of the time between the submission of the
marketing application and its approval. This period may also be reduced by any time that the applicant did not act with due diligence. Only one patent
claiming each approved product is eligible for restoration and the patent holder must apply for restoration within 60
21
Table of Contents
days of approval. The U.S. Patent and Trademark Office ("USPTO"), in consultation with the FDA, reviews and approves the application for patent term
restoration.
Special FDA Expedited Review and Approval Programs
The FDA has various programs that are intended to expedite or simplify the process for the development and FDA review of certain product candidates that
are intended for the treatment of serious or life-threatening diseases or conditions, and demonstrate the potential to address unmet medical needs or present
a significant improvement over existing therapy. The purpose of these programs is to provide important new therapeutics to patients earlier than under
standard FDA review procedures. These expedited programs include fast track designation, breakthrough therapy designation, priority review, accelerated
approval, and RMAT designation. Each of these programs has its own features and qualifying criteria. A sponsor must submit a request for fast track
designation, breakthrough therapy designation, or priority review, which may or may not be granted by the FDA.
To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product candidate is intended to treat a serious
or life threatening disease or condition and demonstrates the potential to address an unmet medical need. If fast track designation is obtained, sponsors may
be eligible for more frequent development meetings and correspondence with the FDA. In addition, the FDA may initiate review of sections of an
application before the application is complete. This "rolling review" is available if the applicant provides and the FDA approves a schedule for the
remaining information. Fast track designation can be rescinded if the product candidate no longer meets the qualifying criteria.
To be eligible for breakthrough therapy designation, the FDA must determine, based on the request of the sponsor, that a product candidate is intended,
alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence
indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as
substantial treatment effects observed early in clinical development. Products designated as breakthrough therapies are eligible for intensive guidance on an
efficient development program beginning as early as Phase 1 trials, a commitment from the FDA to involve senior managers and experienced review staff
in a proactive collaborative and cross-disciplinary review, rolling review, and the facilitation of cross-disciplinary review. Breakthrough designation can
also be rescinded if FDA determines the product candidate no longer meets qualifying criteria.
Established under the 21st Century Cures Act, RMAT designation is a dedicated program designed to expedite the drug development and review processes
for promising regenerative medicine products, including genetic therapies. A regenerative medicine advanced therapy is eligible for RMAT designation if it
is intended to treat, modify, reverse, or cure a serious or life threatening disease or condition, and preliminary clinical evidence indicates that the drug or
therapy has the potential to address unmet medical needs for such disease or condition. Similar to breakthrough therapy designation, RMAT designation
provides the benefits of intensive FDA guidance on efficient drug development, including the ability for early interactions with FDA to discuss surrogate or
intermediate endpoints, potential ways to support accelerated approval and satisfy post-approval requirements, potential priority review of a BLA, and
other opportunities to expedite development and review.
The FDA may give a priority review designation to product candidates that are intended to treat serious conditions and, if approved, would provide
significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention of the serious condition. A priority review means that the
goal for the FDA is to review an application within six months, rather than the standard review of 10 months under current PDUFA guidelines.
Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic
benefit over existing treatments may be developed and approved under the accelerated approval pathway, which means the FDA may approve the product
candidate based upon 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. A drug or biologic candidate approved under
the accelerated approval pathway is generally subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-
approval clinical trials to confirm the effect of the product.
Post-Approval Requirements
Any products manufactured or distributed pursuant to FDA approvals are subject to extensive and continuing regulation by the FDA, including, among
other things, requirements related to manufacturing, recordkeeping, and reporting, including adverse
22
Table of Contents
experience reporting, deviation reporting, shortage reporting, and periodic reporting, product sampling and distribution, advertising, marketing, promotion,
certain electronic records and signatures, and post-approval obligations imposed as a condition of approval, such as Phase 4 clinical trials, REMS, and
surveillance to assess safety and effectiveness after commercialization.
Future FDA inspections may identify current GMP compliance issues at manufacturing facilities or at the facilities of third-party suppliers that may disrupt
production or distribution or require substantial resources to correct and prevent recurrence of any deficiencies, and could result in fines or penalties by
regulatory authorities.
After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to FDA review and approval.
There also are continuing annual program user fee requirements for approved products, excluding orphan products. In addition, manufacturers and other
entities involved in the manufacture and distribution of approved therapeutics are required to register their establishments with the FDA and certain state
agencies, list their products, and are subject to periodic announced and unannounced inspections by the FDA and these state agencies for compliance with
current GMP and other requirements. Regulatory authorities may undertake regulatory enforcement action, withdraw product approvals, require label
modifications, or request product recalls, among other actions, if a company fails to comply with regulatory standards, if it encounters problems following
initial marketing, or if previously unrecognized problems are subsequently discovered.
Changes to the manufacturing process are strictly regulated and often require FDA approval or notification before being implemented. FDA regulations
also require investigation and correction of any deviations from current GMP and specifications, and impose reporting and documentation requirements
upon the sponsor and any third-party manufacturers that the sponsor may decide to use.
The FDA also strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Physicians, in their independent
professional medical judgment, may prescribe legally available products for unapproved indications that are not described in the product's labeling and that
differ from those tested and approved by the FDA. Biotechnological companies, however, are required to promote their products 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, including,
but not limited to, criminal and civil penalties under the FDCA and False Claims Act ("FCA"), exclusion from participation in federal healthcare programs,
mandatory compliance programs under corporate integrity agreements, suspension and debarment from government contracts, and refusal of orders under
existing government contracts. In addition, newly discovered or developed safety or efficacy data may require changes to a product's approved labeling,
including the addition of new warnings and contraindications.
In addition, the distribution of prescription drug and biological products is subject to the Prescription Drug Marketing Act ("PDMA"), which regulates the
distribution of samples at the federal level. Both the PDMA and state laws limit the distribution of prescription drug and biological product samples and
impose requirements to ensure accountability in distribution. Free trial or starter prescriptions provided through pharmacies are also subject to regulations
under the Medicaid Drug Rebate Program ("MDRP") and potential liability under anti-kickback and false claims laws.
Moreover, the Drug Supply Chain Act ("DSCSA") imposes obligations on sponsors of drug and biological products related to product tracking and tracing.
Among the requirements of this legislation, sponsors are required to provide certain information regarding the products to individuals and entities to which
product ownership is transferred, are required to label products with a product identifier, and are required to keep certain records regarding the product.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing
processes, or failure to comply with regulatory requirements, may result in significant regulatory actions. Such actions may include refusal to approve
pending applications, license or approval suspension or revocation, imposition of a clinical hold or termination of clinical trials, warning letters, untitled
letters, Form 483s, cyber letters, modification of promotional materials or labeling, provision of corrective information, imposition of post-market
requirements including the need for additional testing, imposition of distribution or other restrictions under a REMS, product recalls, product seizures or
detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees,
corporate integrity agreements, suspension and debarment from government contracts, refusal of orders under existing government contracts, exclusion
from participation in federal and state healthcare programs, restitution, disgorgement, civil or criminal penalties including fines and imprisonment, and
adverse publicity, among other adverse consequences.
23
Table of Contents
Additional controls for biologics
To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products
whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there
exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and
enforcement of regulations to prevent the introduction or spread of communicable diseases in the United States and between states.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the
manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release
by the FDA, the manufacturer submits samples of each lot of the product to the FDA together with a release protocol showing the results of all of the
manufacturer's tests performed on the lot.
Gene therapy products are also subject to the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules, which require,
among other things, that trials involving recombinant or synthetic nucleic acid molecules be reviewed by an Institutional Biosafety Committee ("IBC").
The IBC reviews, approves, and supervises research involving recombinant or synthetic nucleic acid molecules.
In addition to the regulations discussed above, there are a number of additional standards that apply to clinical trials involving the use of gene therapy. The
FDA has issued various guidance documents regarding gene therapies, which outline additional factors that the FDA will consider during product
development that relate to, among other things: the proper preclinical assessment of gene therapies; the CMC information that should be included in an
IND application; the proper design of tests to measure product potency in support of an IND or BLA application; and measures to observe delayed adverse
effects in subjects who have been exposed to investigational gene therapies when the risk of such effects is high. Further, the FDA recommends that
sponsors observe subjects for potential gene therapy-related delayed adverse events for a prolonged period of time.
Fraud and Abuse, Data Privacy and Security, and Transparency Laws and Regulations
Our business activities, including but not limited to, research, marketing, sales, promotion, distribution, medical education, and other activities following
product approval will be subject to regulation by numerous federal and state regulatory and law enforcement authorities in the United States in addition to
the FDA, including potentially the Department of Justice, the Department of Health and Human Services and its various divisions, including the Centers for
Medicare and Medicaid Services ("CMS") and the Health Resources and Services Administration, the Department of Veterans Affairs, the Department of
Defense, and state and local governments. Our business activities must comply with numerous healthcare laws, including but not limited to, anti-kickback
and false claims laws and regulations as well as data privacy and security laws and regulations, which are described below, as well as state and federal
consumer protection and unfair competition laws. Moreover, to the extent that we license the right to sell our product candidates, if approved, to another
entity under that entity's labeler code, the licensee would have regulatory responsibilities, including healthcare, reimbursement, pricing, and reporting
regulatory responsibilities.
The federal Anti-Kickback Statute, which prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting, or
receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, or
arranging for or recommending the purchase, lease, or order, or the referral to another for the furnishing or arranging of any item or service reimbursable
under Medicare, Medicaid, or other federal healthcare programs, in whole or in part. The term "remuneration" has been interpreted broadly to include
anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between biotechnological industry members on one hand and
prescribers, purchasers, formulary managers, and beneficiaries on the other. Several courts have interpreted the statute's intent requirement to mean that if
any one purpose of an arrangement involving remuneration is to induce referrals of a federal healthcare covered business, including purchases of products
paid by federal healthcare programs, the statute has been violated. A violation of the Anti-Kickback Statute may be established without proving actual
knowledge of the statute or specific intent to violate it. The government or a whistleblower may assert that a claim for payment of items or services
resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil FCA. Although there are a
number of statutory exemptions and regulatory safe harbors to the federal Anti-Kickback Statute protecting certain common business arrangements and
activities from prosecution or regulatory sanctions, the exemptions and safe harbors are drawn narrowly. Practices that involve remuneration to those who
prescribe, purchase, or recommend pharmaceutical and biological products, including certain discounts, or engaging such individuals as consultants,
advisors, or speakers, may be subject to scrutiny if they do not fit squarely within an exemption or safe harbor. Our practices may not in all cases meet all
of the criteria for safe harbor protection from anti-kickback liability. Moreover, there are no safe harbors for many common practices, such as educational
and research grants, charitable donations, product support and patient assistance.
24
Table of Contents
The federal civil FCA prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim
for payment of federal funds, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to
the federal government, or avoiding, decreasing, or concealing an obligation to pay money to the federal government. A claim includes "any request or
demand" for money or property presented to the U.S. government. Actions under the False Claims Act may be brought by the federal government or as a
qui tam action by a private individual in the name of the government. The civil FCA provides for treble damages and a civil penalty for each false claim,
such as an invoice or pharmacy claim for reimbursement, which can aggregate into millions of dollars, and potential exclusion from federal health care
programs.
The civil monetary penalties statute is another potential statute under which biotechnological companies may be subject to enforcement. Among other
things, the civil monetary penalties statue imposes fines against any person who is determined to have knowingly presented, or caused to be presented,
claims to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is false or
fraudulent.
Payment or reimbursement of prescription therapeutics by Medicaid or Medicare requires the product's labeler to submit certified pricing information to
CMS. The Medicaid Drug Rebate statute requires labelers, as a condition of payment by Medicaid, to calculate and report price points, which are used to
determine Medicaid rebate payments shared between the states and the federal government and Medicaid payment rates for certain therapeutics, to pay
quarterly rebates on prescriptions paid by Medicaid, and to provide a discount based on the Medicaid rebate percentage to certain hospitals and clinics
under the 340B program. For most therapeutics paid under Medicare Part B, labelers must also calculate and report their Average Sales Price, which is used
to determine the Medicare Part B payment rate. In addition, therapeutics covered by Medicaid are subject to an additional inflation penalty which can
substantially increase rebate payments. For products approved under a BLA (including biosimilars) or an NDA, the Veterans Health Care Act ("VHCA")
requires labelers, as a condition of payment by Medicaid, to calculate and report to the Veterans Administration ("VA") a different price called the Non-
Federal AMP, which is used to determine the maximum price that can be charged to certain federal agencies, referred to as the Federal Ceiling Price
("FCP"). Like the Medicaid rebate amount, the FCP includes an inflation penalty. A Department of Defense statute and regulation requires labelers to
provide this discount on therapeutics dispensed by retail pharmacies when paid by the TRICARE Program, the health care program for military personnel,
retirees, and related beneficiaries. All of these price reporting requirements create risk of submitting false information to the government, and potential
FCA liability.
The VHCA also requires labelers of covered therapeutics participating in the Medicaid program to enter into Federal Supply Schedule contracts with the
VA through which their covered therapeutics must be sold to certain federal agencies at FCP. This necessitates compliance with applicable federal
procurement laws and regulations, including submission of commercial sales and pricing information, and subjects us to contractual remedies as well as
administrative, civil, and criminal sanctions. In addition, the VHCA requires labelers participating in Medicaid to agree to provide different mandatory
discounts to certain Public Health Service grantees and other safety net hospitals and clinics under the 340B program based on the labelers' reported
Medicaid pricing information. The 340B program has its own regulatory authority to impose sanctions for non-compliance and adjudicate overcharge
claims against labelers by the purchasing entities.
The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") prohibits, among other actions, knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying,
concealing, or covering up a material fact or making any materially false statements or representations in connection with the delivery of, or payment for,
healthcare benefits, items, or services relating to healthcare matters. The government need not establish actual knowledge of the statute, or the specific
intent in order to prove a violation.
The federal Physician Payment Sunshine Act requires manufacturers of drugs, devices, biologics, and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to direct or
indirect payments and other transfers of value to physicians and teaching hospitals and certain other HCPs (such as physicians assistants and nurse
practitioners), and ownership and investment interests held by physicians and their immediate family members.
Further, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA,
as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH") and its respective implementing regulations imposes
certain requirements on covered entities and their business associates – certain persons or entities that create, receive, maintain, or transmit health
information in connection with providing a specified service or performing a function on behalf of a covered entity – relating to the privacy, security, and
transmission of certain individually identifiable health information, known as protected health information. In addition, other federal and state laws may
govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and may
not be preempted by HIPAA, thus complicating compliance efforts.
25
Table of Contents
Any failure by us or any of our third-party service providers to follow such laws could result in significant liability or reputational harm under such state
and federal privacy and other laws. The landscape of federal and state laws regulating personal data is constantly evolving, and compliance with these laws
requires a flexible privacy framework and substantial resources, and compliance efforts will likely be an increasing and substantial cost in the future.
Many states have also adopted laws similar to each of the above federal laws, which may be broader in scope and apply to items or services reimbursed by
any third-party payor, including commercial insurers. Certain state laws also regulate sponsors' use of prescriber-identifiable data. Certain states also
require implementation of commercial compliance programs and compliance with the pharmaceutical industry's voluntary compliance guidelines and the
applicable compliance guidance promulgated by the federal government, or otherwise restrict payments or the provision of other items of value that may be
made to healthcare providers and other potential referral sources; impose restrictions on marketing practices; or require drug companies to track and report
information related to payments, gifts, and other items of value to physicians and other healthcare providers. Other state laws and local ordinances require
identification or licensing of sales representatives.
Recently, states have enacted or are considering legislation intended to make drug prices more transparent and deter significant price increases, typically as
consumer protection laws. These laws may affect our future sales, marketing, and other promotional activities by imposing administrative and compliance
burdens.
If our operations are found to be in violation of any of the laws or regulations described above or any other applicable laws, we may be subject to penalties
or other enforcement actions, including significant criminal, civil, and administrative monetary penalties, damages, fines, disgorgement, imprisonment,
exclusion from participation in government healthcare programs, corporate integrity agreements, suspension and debarment from government contracts,
and refusal of orders under existing government contracts, reputational harm, diminished profits and future earnings, 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.
To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for
instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance
programs and reporting of payments or transfers of value to healthcare professionals.
Coverage and Reimbursement
The commercial success of our product candidates and our ability to commercialize any approved product candidates successfully will depend in part on
the extent to which governmental payor programs at the federal and state levels, including Medicare and Medicaid, private health insurers, and other third-
party payors provide coverage for and establish adequate reimbursement levels for our product candidates. Government authorities, private health insurers,
and other organizations generally decide which therapeutics they will pay for and establish reimbursement levels for healthcare. Medicare is a federally
funded program managed by CMS through local fiscal intermediaries and carriers that administer coverage and reimbursement for certain healthcare items
and services furnished to the elderly and disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below
state defined levels and who are otherwise uninsured that is both federally and state funded and managed by each state. The federal government sets
general guidelines for Medicaid and each state creates specific regulations that govern its individual program, including supplemental rebate programs that
restrict coverage to therapeutics on the state Preferred Drug List. Similarly, government laws and regulations establish the parameters for coverage of
prescription therapeutics by health plans participating in state exchanges and TRICARE. Some states have also created pharmacy assistance programs for
individuals who do not qualify for federal programs. In the United States, private health insurers and other third-party payors often provide reimbursement
for products and services based on the level at which the government provides reimbursement through the Medicare or Medicaid programs for such
products and services.
In the United States, the EU, and other potentially significant markets for our product candidates, government authorities and third-party payors are
increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which
often has resulted in average selling prices lower than they would otherwise be and sometimes at or below the provider's acquisition cost. In the United
States, it is also common for government and private health plans to use coverage determinations to leverage rebates from labelers in order to reduce the
plans' net costs. These restrictions and limitations influence the purchase of healthcare services and products and lower the realization on labelers' sales of
prescription therapeutics. Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs. Third-party payors may
limit coverage to specific therapeutic products on an approved list, or formulary, which might not include all of the FDA approved products for a particular
indication or might impose high copayment amounts to influence patient choice. Third-party payors also control costs by requiring prior authorization or
imposing other dispensing restrictions before covering certain products and by broadening therapeutic classes to increase competition. Third-party payors
26
Table of Contents
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. Absent clinical differentiators, third-party payors may treat products as therapeutically equivalent and base formulary decisions on net
cost. To lower the prescription cost, labelers frequently rebate a portion of the prescription price to the third-party payors. Recently, purchasers and third-
party payors have begun to focus on value of new therapeutics and sought agreements in which price is based on achievement of performance metrics.
Federal programs also impose price controls through mandatory ceiling prices on purchases by federal agencies and federally funded hospitals and clinics
and mandatory rebates on retail pharmacy prescriptions paid by Medicaid and TRICARE. These restrictions and limitations influence the purchase of
healthcare services and products. Legislative proposals to reform healthcare or reduce costs under government programs may result in lower reimbursement
for our product candidates or exclusion of our product candidates from coverage. In addition, government programs like Medicaid include substantial
penalties for increasing commercial prices over the rate of inflation which can affect realization and return on investment.
Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Therefore, achieving favorable
Medicare coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. In addition, many government
programs as a condition of participation mandate fixed discounts or rebates from labelers regardless of formulary position or utilization, and then rely on
competition in the market to attain further price reductions, which can greatly reduce realization on the sale.
Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the EU will
put additional pressure on product pricing, reimbursement, and utilization, which may adversely affect our future product sales and results of operations.
These pressures can arise from rules and practices of managed care groups, competition within therapeutic classes, judicial decisions and governmental
laws and regulations related to Medicare, Medicaid, and healthcare reform, biotechnological coverage and reimbursement policies, and pricing in general.
Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to
reimburse all or part of the associated healthcare costs. Sales of our product candidates will therefore depend substantially, both domestically and
internationally, on the extent to which the costs of our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy
benefit, and similar healthcare management organizations, or reimbursed by government health administration authorities, such as Medicare and Medicaid,
private health insurers, and other third-party payors.
As a result of the above, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-
effectiveness of our product candidates, if approved, in addition to the costs required to obtain FDA approvals. Our product candidates may not be
considered medically necessary or cost-effective, or the rebate percentages required to secure coverage may not yield an adequate margin over cost.
Additionally, companies are increasingly finding it necessary to establish bridge programs to assist patients with access to new therapies during protracted
initial coverage determination periods.
Moreover, a payor's decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved or that significant
price concessions will not be required to avoid restrictive conditions. High health plan copayment requirements may result in patients refusing prescriptions
or seeking alternative therapies. Additionally, where a new indication has been approved for a drug or biologic previously approved under a different NDA
or BLA, health plans may cover off-label use of the original drug, even if it cannot be marketed for the new indication. Adequate third-party reimbursement
may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in therapeutic development.
Legislative action to reform healthcare or reduce costs under government insurance programs may result in lower reimbursement for our products and
product candidates or exclusion of our products and product candidates from coverage. The cost containment measures that healthcare payors and providers
are instituting and any healthcare reform could significantly reduce our revenues from the sale of any approved product candidates. We cannot provide any
assurances that we will be able to obtain and maintain third-party coverage or adequate reimbursement for our product candidates in whole or in part.
Healthcare Reform Measures
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system. The U.S.
government, state legislatures, and foreign governments also have shown significant interest in implementing cost-containment programs to limit the
growth of government-paid healthcare costs, including price controls, restrictions on reimbursement, and requirements for substitution of generic products
for branded prescription products.
In recent years, Congress has considered reductions in Medicare reimbursement levels for products administered by physicians. CMS, the agency that
administers the Medicare and Medicaid programs, also has authority to revise reimbursement rates and to
27
Table of Contents
implement coverage restrictions for some products. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could
decrease utilization of and reimbursement for any approved products. While Medicare regulations apply only to drug benefits for Medicare beneficiaries,
private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in
reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payers.
The ACA, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical
industry. The ACA is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on
pharmaceutical and medical device manufacturers, and impose additional health policy reforms. Among other things, the ACA expanded manufacturers'
rebate liability under the MDRP by increasing the minimum Medicaid rebate for both branded and generic products, expanded the 340B program, and
revised the definition of AMP, which could increase the amount of Medicaid rebates manufacturers are required to pay to states. The legislation also
extended Medicaid rebates, previously due only on fee-for-service Medicaid utilization, to include the utilization of Medicaid managed care organizations
as well and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the amount of rebates
due on those products. CMS has issued final regulations to implement the changes to the MDRP and other changes under the ACA. Since that time, there
have been significant ongoing efforts to modify or eliminate the ACA. For example, the Tax Cuts and Job Act of 2017, repealed the shared responsibility
payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, as amended, or the
Code, commonly referred to as the individual mandate.
Other legislative changes have been proposed and adopted since the passage of the ACA. The Budget Control Act of 2011, among other things, created the
Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve its
targeted deficit reduction of an amount greater than $1.2 trillion for the fiscal years 2012 through 2021, triggering the legislation's automatic reductions to
several government programs. These reductions included aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year,
which went into effect in April 2013. Subsequent legislation extended sequestration to 2031. Sequestration is currently set at 2% and will increase to 2.25%
for the first half of fiscal year 2030, to 3% for the second half of fiscal year 2030, and to 4% for the remainder of the sequestration period that lasts through
the first six months of fiscal year 2031. The American Taxpayer Relief Act among other things, reduced Medicare payments to several types of providers,
including hospitals, imaging centers, and cancer treatment centers, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years. The Inflation Reduction Act of 2022 (the "IRA") contains substantial drug pricing reforms, including
the establishment of a drug price negotiation program within the U.S. Department of Health and Human Services that would require manufacturers to
charge a negotiated "maximum fair price" for certain selected drugs or pay an excise tax for noncompliance, the establishment of rebate payment
requirements on manufacturers of certain drugs payable under Medicare Parts B and D to penalize price increases that outpace inflation, and requires
manufacturers to provide discounts on Part D drugs. Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the IRA.
The IRA could have the effect of reducing the prices we can charge and reimbursement we receive for our products, if approved, thereby reducing our
profitability, and could have a material adverse effect on our financial condition, results of operations, and growth prospects. The effects of the IRA on our
business and the pharmaceutical industry in general is not yet known.
In addition, legislation and regulatory actions have created certain price reporting obligations under the MDRP and 340B Program. Under the MDRP, a
manufacturer is required to pay a rebate to each state Medicaid program for its covered outpatient drugs that are dispensed to Medicaid beneficiaries and
paid for by a state Medicaid program as a condition of having federal funds made available to states for its drugs under Medicaid and Medicare Part B.
Those rebates are based on pricing data that manufacturers report on a monthly and quarterly basis to CMS, the federal agency that administers Medicare
and Medicaid. A manufacturer that becomes aware that its Medicaid reporting for a prior quarter was incorrect, or has changed as a result of recalculation
of the pricing data, is obligated to resubmit the corrected data for up to three years after those data originally were due, which revisions could affect rebate
liability for prior quarters. If a manufacturer fails to pay the required rebate amount or report pricing data on a timely basis, it may be subject to civil
monetary penalties and/or termination of its Medicaid Drug Rebate program agreement, in which case federal payments may not be available under
Medicaid or Medicare Part B for its covered outpatient drugs. Federal law requires that any manufacturer that participates in the Medicaid Drug Rebate
Program also participate in the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B.
The 340B program requires participating manufacturers to agree to charge statutorily defined covered entities no more than the 340B “ceiling price” for the
manufacturer’s covered outpatient drugs. If a manufacturer is found to have knowingly and intentionally charged 340B covered entities more than the
statutorily mandated ceiling price, it could be subject to significant civil monetary penalties and/or such failure also could be grounds for HRSA to
terminate its agreement to participate in the 340B program, in which case its covered outpatient drugs would no longer be eligible for federal payment
under the Medicaid or Medicare Part B program.
28
Table of Contents
We expect that changes to the ACA, the IRA, and the Medicare and Medicaid programs, additional changes allowing the federal government to directly
negotiate prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access or financing or legislation in
individual states, could have a material adverse effect on our business.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that additional federal, state, and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that
federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement and reduced demand
for our products, once approved, or additional pricing pressures.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act ("FCPA") prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering anything
of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in
order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United
States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the
corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement,
oversight, and suspension and debarment from government contracts, and refusal of orders under existing government contracts. Enforcement actions may
be brought by the Department of Justice or the Securities and Exchange Commission ("SEC"), and legislation has expanded the SEC's power to seek
disgorgement in all FCPA cases filed in federal court and extended the statute of limitations in the SEC enforcement actions in intent-based claims such as
those under FCPA from five years to ten years.
Regulation Outside of the United States
In addition to regulations in the U.S., we may be subject to a variety of regulations in foreign jurisdictions that govern, among other things, clinical trials
and any commercial sales and distribution of our product candidates, if approved, either directly or through our distribution partners. Whether or not we
obtain FDA approval for a product candidate, we must obtain the requisite approvals from regulatory authorities in foreign jurisdictions prior to the
commencement of clinical trials or marketing and sale of the product in those countries. The foreign regulatory approval process includes all of the risks
associated with the FDA approval process described above, and the time required to obtain approval in other countries and jurisdictions might differ from
and be longer than that required to obtain FDA approval. Requirements governing the conduct of clinical trials, product approval, pricing, and
reimbursement vary from country to country. 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 other countries. Moreover,
some nations may not accept clinical studies performed for U.S. approval to support approval in their countries or require that additional studies be
performed on natives of their countries. In addition, in certain foreign markets, the pricing of drug products is subject to government control and
reimbursement may in some cases be unavailable or insufficient. Resulting prices could be insufficient to generate an acceptable return to us or any future
partner of ours. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or
withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution.
HUMAN CAPITAL
As of April 10, 2024, we had 65 employees, of which 58 employees are located in the United States and 7 are located in India. The majority of the
employees were full-time. None of our employees are represented by a labor union or covered by a collective bargaining agreement. In addition to our
employees, we engage various consultants to support key areas of our business, including support of our research and development, administrative,
manufacturing, and commercialization activities.
Talent Management
Our human capital is critical to the success of our mission to deliver new options for people facing serious disease and conditions. We consider the
performance, skills, and intellectual capital of our employees to be an essential driver of this mission and a key to our future prospects. As such, we
emphasize a number of measures and objectives in attracting, retaining,
29
Table of Contents
and developing our human capital, including, among others, employee safety, wellness, engagement, development, diversity and inclusion, and
compensation and pay equity. In our employee recruitment process, we adhere to equal employment opportunity policies. We are committed to include
diverse candidates in any pool of candidates from which employees are chosen. Additionally, we recognize that our employees perform best when they
know how their work contributes to our overall strategy. To achieve this, we emphasize open and direct communication through the use of a variety of
channels, including company-wide business updates and written communications from the leadership team.
Compensation and Benefits
Our compensation programs are designed to align our employees' interests with our achievement of our primary business goals. The salaries, bonuses, and
opportunities for equity ownership provided to our employees are competitive within our industry and we engage outside compensation and benefits
consulting firms to independently evaluate the effectiveness of our compensation and benefit programs and to provide benchmarking against our peers
within the industry. The benefit options we provide are comprehensive and allow our employees and their families to live healthier and more secure lives.
All full-time employees are eligible for medical, dental, and vision insurance, paid time off, a 401(k) plan, and group life and disability coverage.
Employee Development and Leadership
The development of our employees is critical to our success. We believe that continued learning and development is an essential part to retaining our
employees and creating a culture of learning and leadership. We encourage employees to participate and to take advantage of a variety of learning and
development resources, including online skills courses, professional development events, and internal and external training programs based on individual
needs.
Diversity and Inclusion
Each employee brings diverse perspectives, backgrounds, and thinking styles, and, by embracing and celebrating these differences, we strengthen our
culture and further our mission. We are committed to preserving and further cultivating our diverse and inclusive workforce, including with respect to our
leadership team and our Board of Directors ("Board"), to ensure an environment where employees feel empowered to achieve their fullest potential. Our
current Board composition represents a deliberate mix of members who have a deep understanding of our business, as well as members who have different
skill sets and points of view. In addition, we are in compliance with the listing requirements of The Nasdaq Stock Market LLC ("Nasdaq") which requires a
public company to have two diverse directors serve on the board, including at least one diverse director who self-identifies as female and at least one
diverse director who self-identifies as an underrepresented minority or LGBTQ+.
We are proud of the fact that our team includes 69% of employees in ethnic and racial minority groups and also that 43% of our employees are women,
both as self-disclosed. We continue to focus on expanding our commitment to diversity and inclusion across our entire workforce, including working with
managers to develop strategies for building diverse teams and promoting the advancement of employees from diverse backgrounds.
Values
We are guided by a commitment to accountability, respect, collaboration, and inclusivity. These principles drive the values of our employees and agents
that enable us to propel the future of medical science. These values include:
•
•
•
•
Respect — Acknowledging individual talents and understanding success requires diversity.
Integrity — An unwavering commitment to do what is right.
Teamwork — Collaboratively arriving at solutions so our people, patients, and shareholders benefit.
Accountability — Taking ownership of key deliverables.
CORPORATE INFORMATION
We were originally incorporated as a Massachusetts corporation in 2000 under the name Histogenics Corporation ("Histogenics") and underwent a
corporate reorganization in 2006, pursuant to which we were reincorporated as a Delaware corporation. On September 27, 2019, we completed a reverse
merger (the "Merger") with Ocugen OpCo, Inc. ("OpCo") in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as
of April 5, 2019, by and among
30
Table of Contents
OpCo, Restore Merger Sub, Inc., our wholly owned subsidiary ("Merger Sub"), and us, as amended, pursuant to which Merger Sub merged with and into
OpCo, with OpCo surviving as our wholly owned subsidiary. Immediately after the completion of the Merger, we changed our name to Ocugen, Inc. and
the business previously conducted by OpCo became the business conducted by us. Our common stock trades on The Nasdaq Capital Market ("Nasdaq")
under the symbol “OCGN.”
Our principal office is located at 11 Great Valley Parkway, Malvern, Pennsylvania 19355, and our telephone number is (484) 328-4701. Our website
address is www.ocugen.com. Our website and the information contained on, or that can be accessed through, our website shall not be deemed to be
incorporated by reference in, and is not considered part of this Annual Report. You should not rely on any such information in making your decision
whether to purchase our common stock.
AVAILABLE INFORMATION
We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The SEC maintains an internet website, www.sec.gov, that contains reports, proxy, and information statements, and other
information regarding issuers, including us, that file electronically with the SEC. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q,
and Form 8-K and amendments to those reports, can be viewed and downloaded free of charge at our website, www.ocugen.com, as soon as reasonably
practicable after the reports and amendments are electronically filed with or furnished to the SEC. Our website and the information contained on, or that
can be accessed through, our website shall not be deemed to be incorporated by reference in, and is not considered part of this Annual Report on Form 10-
K.
A copy of our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of the Audit Committee, Compensation Committee
and Nominating and Corporate Governance Committee are posted on our website, www.ocugen.com, under “Investors”. Any amendments to Code of
Business Conduct and Ethics are also being posted on our website, www.ocugen.com, under “Investors”.
31
Table of Contents
Item 1A. Risk Factors.
Careful consideration should be given to the following risk factors, together with all other information set forth in this Annual Report on Form 10-K
(“Annual Report”), including our consolidated financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” and in other documents that we file with the Securities and Exchange Commission (the “SEC”), in evaluating Ocugen, Inc. and
our subsidiaries (collectively, the “Company”, “we”, or “our”) and our business, before investing in our common stock. Investing in our common stock
involves a high degree of risk. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition and results of
operations could be materially and adversely affected. The market price of our common stock could decline if one or more of these risks or uncertainties
were to occur, which may cause you to lose all or part of the money you paid to buy our common stock. The risk factors described below disclose both
material and other risks, and are not intended to be exhaustive and are not the only risks facing the Company. New risk factors can emerge from time to
time, and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition and
results of operations. Certain statements below are forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this Annual
Report.
Risk Factors Summary
Investing in our securities involves a high degree of risk. Before deciding whether to invest in our securities, you should consider carefully the risks and
uncertainties described in this section of this Annual Report on Form 10-K. These risks and uncertainties include, but are not limited to, the following:
• We have incurred significant losses and negative cash flows from operations since our inception. We may incur losses over the next several years
and may never achieve or maintain profitability. These factors raise substantial doubt about our ability to continue as a going concern absent
obtaining significant additional funding.
• We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate our
product development programs or commercialization efforts.
• We will need additional capital in order to enable us to successfully develop our product candidates, and such funding may not be available on
acceptable terms, or at all. Raising additional capital may cause dilution to stockholders, restrict our operations, or require us to relinquish rights to
our technologies or product candidates.
• We are substantially dependent on the success of our product candidates. We cannot guarantee that our product candidates will successfully
complete development, receive regulatory approval, or be successfully commercialized.
• Our product candidates generated from our modifier gene therapy platform are based on a novel technology and face an uncertain regulatory
environment, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory
approval.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our completion of clinical trials and receipt of necessary
regulatory approvals could be delayed or prevented.
•
• We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or
indications that may be more profitable or for which there is a greater likelihood of success.
• We have no prior experience in the marketing, sale, and distribution of biotechnology products and there can be no assurance that our product
candidates, if approved, will be successfully commercialized.
• We face significant competition from other pharmaceutical and biotechnology companies, academic institutions, government agencies, and other
•
research organizations. Our operating results will suffer if we fail to compete effectively.
If third-party payors do not reimburse patients for our products candidates, if approved, or if reimbursement levels are set too low for us to sell our
product candidates at a profit, our ability to successfully commercialize our product candidates, if approved, and our results of operations will be
harmed.
• We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials we may
initiate, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to
comply with regulatory requirements.
If we encounter difficulties in negotiating commercial manufacturing and supply agreements with third-party manufacturers and suppliers of our
product candidates or any product components, our ability to commercialize our product candidates, if approved, would be impaired.
•
32
Table of Contents
•
If the manufacturers upon whom we rely fail to produce our product candidates or product components pursuant to the terms of contractual
arrangements with us or fail to comply with stringent regulations applicable to biotechnology manufacturers, we may face delays in the
development and commercialization of, or be unable to meet demand for, our product candidates, if approved, and may lose potential revenues.
• We may seek to collaborate with third parties for the development or commercialization of our product candidates. We may not be successful in
establishing or maintaining collaborative relationships, any of which could adversely affect our ability to develop and commercialize our product
candidates.
• We may be unable to obtain and maintain patent protection for our technology and product candidates, or the scope of the patent protection
obtained may not be sufficiently broad or enforceable, such that our competitors could develop and commercialize technology and products
similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be impaired.
• We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming,
•
•
and unsuccessful.
Certain aspects of our product candidates are protected by patents exclusively licensed from other companies or institutions. If these third parties
terminate their agreements with us or fail to maintain or enforce the underlying patents or licenses thereto, or we otherwise lose our rights to these
patents, our competitive position and our market share in the markets for any of our approved products will be harmed.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead
to entrenchment of management.
The trading price of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses.
•
• Our future success depends on our ability to retain key executives and to attract, retain, and motivate qualified personnel.
•
If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements
could be impaired, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline
33
Table of Contents
Risks Related to Our Financial Position and Capital Requirements
We have incurred significant losses and negative cash flows from operations since our inception. We may incur losses over the next several years and
may never achieve or maintain profitability. These factors raise substantial doubt about our ability to continue as a going concern absent obtaining
significant additional funding.
Since inception, we have incurred significant net losses and may continue to incur net losses in the future. Our recurring losses from operations raise
substantial doubt about our ability to continue as a going concern for the next 12 months from the date of the consolidated financial statements included in
this Annual Report on Form 10-K are issued. As a result, our independent public accounting firm included an explanatory paragraph regarding the same in
its report on this Annual Report on Form 10-K. Substantial doubt about our ability to continue as a going concern may create negative reactions to the price
of our common stock and we may have a more difficult time obtaining financing in the future as a result.
We have not generated significant revenue to date and have funded our operations to date through the sale of common stock, warrants to purchase common
stock, the issuance of convertible notes and debt, and grant proceeds. We incurred net losses of approximately $63.1 million and $86.8 million for the years
ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $286.2 million and a cash and cash
equivalents balance of $39.5 million. This amount will not meet our capital requirements over the next 12 months. We estimate that our cash and cash
equivalents will enable us to fund our operations into the fourth quarter of 2024. Based on this estimate, we will need to raise significant additional capital
in order to fund our future operations. We have based this estimate on assumptions that may prove to be wrong, and our operating and capital requirements
may change as a result of many factors currently unknown to us.
There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. If such additional financing is not available
on satisfactory terms, is not available in sufficient amounts, or we do not have sufficient authorized shares, we may be required to delay, limit, or eliminate
the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial condition,
and results of operations will be materially adversely affected. In addition, economic circumstances outside of our control such as a recession or depression
and inflation may reduce our ability to access capital, which could negatively affect our liquidity and ability to continue as a going concern. Further, the
perception that we may not be able to continue as a going concern may cause others to choose not to do business with us due to concerns about our ability
to meet our contractual obligations.
To date, we have not generated any revenues from the sale of products, and absent the realization of sufficient revenues from product sales, if any, of our
current or future product candidates, we may never attain profitability in the future. To date, we have devoted substantially all of our financial resources
and efforts to research and development, including preclinical and clinical studies. We may continue to incur losses from operations in the next several
years as we increase our expenditures in research and development in connection with our ongoing and planned clinical trials and other development and
pre-commercialization activities. Even if we obtain a regulatory approval to market a product candidate, our future revenues will depend upon the size of
any markets in which our product candidates have received such approval, and our ability to achieve sufficient market acceptance, reimbursement from
third-party payors, and adequate market share for our products in those markets.
We anticipate that our expenses will decrease in fiscal year 2024 as compared to fiscal year 2023 due to a reduced headcount, lower legal expenses, as well
as internal cost savings initiatives.
Due to the inherently unpredictable nature of preclinical and clinical development and the numerous risks and uncertainties associated with such activities,
we are unable to predict with any certainty the nature or amounts of the costs we will incur, the timelines we will require in our continued development
efforts or the timing, or if, we will be able to achieve profitability.
Additionally, our expenses will also increase if, and, as we:
•
•
•
•
initiate preclinical studies and clinical trials for any additional product candidates that we may pursue in the future, particularly if there are any
delays in enrollment of patients in or completing our clinical trials or the development of our product candidates;
seek marketing approvals for product candidates that successfully complete clinical development;
establish sales, marketing, and distribution capabilities for our product candidates for which we obtain a regulatory approval;
scale up our manufacturing processes and capabilities to support our clinical trials of our product candidates and commercialization of any of our
product candidates for which we obtain a regulatory approval;
34
Table of Contents
•
•
•
expand our operational, financial, and management systems and increase personnel, including personnel to support our clinical development,
manufacturing, and commercialization efforts, and our operations as a public company;
acquire other companies, products, product candidates, or technologies, or in-license the rights to other products, product candidates, or
technologies; and
develop, maintain, expand, and protect our intellectual property portfolio.
Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate revenue that is sufficient to achieve
profitability unless and until we obtain marketing approval for and commercialize one of our product candidates and even if we obtain marketing approval
for and commercialize one of our product candidates, we may never become profitable. Our product candidates are in various stages of preclinical and
clinical development or pre-commercialization, and it is unknown whether our near-term efforts to obtain regulatory approval or commercial sales may be
successful or whether additional preclinical, clinical, or manufacturing data may be needed before we obtain regulatory approval for any candidate. Even if
we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become profitable or
inability to remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our
research and development efforts, continue or undertake commercialization efforts, diversify our product offerings, or even continue our operations. A
decline in the value of our company could also cause you to lose all or part of your investment.
We have no history of commercializing pharmaceutical products, which may make it difficult for you to evaluate the success of our business to date and
to assess our future viability.
We are a biotechnology company and investment in biotechnological product development is a highly speculative endeavor. Biotechnology product
development entails substantial upfront capital expenditures and there is significant risk that any potential product candidate will fail to demonstrate
adequate efficacy or an acceptable safety profile, to gain any required regulatory approvals or to become commercially viable. To date, our operations have
been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, and developing our product
candidates. We have not yet demonstrated an ability to obtain marketing approvals (only EUA), manufacture a commercial-scale product, or conduct sales
and marketing activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability
may not be as accurate as they could be if we had a longer operating history.
We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in a rapidly developing and
changing industry, such as the biotechnological industry, including challenges in forecasting accuracy, determining appropriate investments of our limited
resources, gaining market acceptance of our products, if approved, managing a complex regulatory landscape, and developing new product candidates. Our
current operating model may require changes in order for us to scale our operations efficiently. We will need to transition from a company with a research
and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition. You should consider our
business and prospects in light of the risks and difficulties we face as a company focused on developing products in the fields of biopharmaceuticals and
biotechnology.
We expect our financial condition and operating results to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors, many
of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating
performance.
We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate our
product development programs or commercialization efforts.
We expect to devote substantial financial resources to our ongoing and planned product development activities, particularly as we continue the
development of and seek EUA or marketing approval for our product candidates and any potential future product candidates, as applicable. As of
December 31, 2023, we had cash and cash equivalents of approximately $39.5 million. This amount will not meet our capital requirements over the next 12
months. We estimate that our cash and cash equivalents will enable us to fund our operations into the fourth quarter of 2024. Based on this estimate, we
will need to raise significant additional capital in order to fund our future operations. We have based this estimate on assumptions that may prove to be
wrong, and our operating and capital requirements may change as a result of many factors currently unknown to us.
Conducting preclinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete. We cannot predict
when we will be able to generate the necessary data or results required to obtain regulatory approval of products with the market potential sufficient to
enable us to achieve profitability, if ever. Accordingly, we may need
35
Table of Contents
to obtain substantial additional funding in connection with our continuing operations. Our future capital requirements will depend on many factors,
including:
•
•
•
•
•
•
•
•
•
•
•
the initiation, progress, timing, costs, and results of clinical trials for our product candidates;
the outcome, timing, and cost of the regulatory approval process for our product candidates;
the costs of manufacturing and commercialization;
the costs related to doing business internationally with respect to the development and commercialization of our product candidates;
the cost of filing, prosecuting, defending, and enforcing our patent claims and other intellectual property rights;
the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
the costs of expanding infrastructure to support our development, commercialization, and business efforts, including the costs related to the
development of a laboratory and manufacturing facility;
the costs involved in recruiting and retaining skilled personnel;
the extent to which we in-license or acquire other products, product candidates, or technologies;
the extent to which we out-license our product candidates; and
the impact of geopolitical turmoil, macroeconomic conditions, social unrest, political instability, terrorism, or other acts of war.
Any additional 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. Moreover, adequate additional financing may not be available to us on acceptable terms, or at all. If adequate funds
are not available to us on a timely basis, we may be required to delay, limit, reduce, or terminate preclinical studies, clinical trials, or other development
activities for one or more of our product candidates or delay, limit, reduce, or terminate our establishment of sales and marketing capabilities or other
activities that may be necessary to commercialize our product candidates.
Due to our limited resources and access to capital, we must, and have in the past decided to, prioritize development of certain product candidates over
other potential product candidates. These decisions may prove to have been wrong and may adversely affect our ability to develop our own programs,
our attractiveness as a commercial partner and may ultimately have an impact on our commercial success.
Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of
resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management, and financial resources toward particular
proprietary molecules in our library, product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert
resources away from better opportunities. Similarly, our decisions to delay, terminate or collaborate with third parties in respect of certain product
development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding
the market potential of our product candidates or misread trends in the biopharmaceutical industry, in particular for our lead product candidates, our
business, financial condition and results of operations could be materially adversely affected.
We will need additional capital in order to enable us to successfully develop our product candidates, and such funding may not be available on
acceptable terms, or at all. Raising additional capital may cause dilution to stockholders, restrict our operations, or require us to relinquish rights to
our technologies or product candidates.
We will need additional capital in order to enable us to successfully develop and obtain authorization or approval for our product candidates. Such funding
may not be available on acceptable terms, or at all. We expect to raise additional capital through public and private placements of equity and/or debt,
payments from potential strategic research and development arrangements, sales of assets, government grants, licensing and/or collaboration arrangements
with pharmaceutical companies or other institutions, funding from the government, or funding from other third parties. We also intend to work closely with
government agencies to obtain funding for the development of our novel inhaled mucosal vaccine platform. In April 2023, the FDA announced the
cancellation of emergency use authorizations ("EUA") issued to monovalent vaccines and the simplification of the vaccination schedule of bivalent
vaccines that have EUAs in the United States, and in May 2023 the public health emergency ended. It is currently unclear what effect, if any, the planned
cessation of the emergency declarations will have on our ability to obtain government funding to advance the development of our vaccine product
candidates.
36
Table of Contents
We are opportunistically pursuing vaccines development. In October 2023, the NIAID selected OCU500, a mucosal vaccine candidate specifically targeted
to fight COVID-19, for inclusion in a Phase 1 trial comparing the administration of OCU500 via different mucosal routes—inhalation into the lungs or up
the nose via a nasal spray.
If we raise additional funds through collaborations, strategic alliances, licensing arrangements, or marketing and distribution arrangements, we may have to
relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be
favorable to us. Such arrangements may require us to grant rights to develop and market products or product candidates that we would otherwise prefer to
develop and market on our own.
Our management has broad discretion in the use of the net proceeds from our capital raises, including our May 2023 public offering, and may not use
these proceeds effectively.
Our management has broad discretion in the application of the net proceeds from our capital raises (our “Capital Raises”), including our May 2023 public
offering, and our stockholders will not have the opportunity as part of their investment decision to assess whether the net proceeds from our Capital Raises
are being used appropriately. Our stockholders may not agree with our decisions, and our use of the proceeds may not yield any return on investment for
our stockholders. Because of the number and variability of factors that will determine our use of the net proceeds from our Capital Raises, their ultimate
use may vary substantially from their currently intended use. Our failure to apply the net proceeds of our Capital Raises effectively could compromise our
ability to pursue our growth strategy and we might not be able to yield a significant return, if any, on our investment of those net proceeds. Our
stockholders will not have the opportunity to influence our decisions on how to use our net proceeds from our Capital Raises. We have and may continue to
invest the net proceeds from our Capital Raises in investment-grade, interest-bearing instruments and U.S. government agency securities and treasuries.
These investments are not likely to yield a significant return. Our management might not apply our existing cash and cash equivalents in ways that
ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business.
Our existing and future indebtedness may limit cash flow available to invest in the ongoing needs of our business.
As of December 31, 2023, we had $2.5 million of outstanding principal borrowings under a Loan Agreement (the "EB-5 Loan Agreement") with EB5 Life
Sciences, L.P. ("EB-5 Life Sciences"), which we are required to repay on the seventh anniversary of the date of the last disbursement under the EB-5 Loan
Agreement (unless terminated earlier pursuant to the terms of the EB-5 Loan Agreement). Our obligations under the EB-5 Loan Agreement are secured by
substantially all of our assets other than our intellectual property. We could in the future incur additional indebtedness beyond our borrowings under the
EB-5 Loan Agreement.
Our existing or future debt could have significant adverse consequences, including:
•
•
•
•
requiring us to dedicate a substantial portion of cash flow from operations or cash on hand to the payment of interest on, and principal of, our debt,
which will reduce the amounts available to fund working capital, capital expenditures, product development efforts, and other general corporate
purposes;
increasing our vulnerability to adverse changes in general economic, industry, and market conditions;
subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing (for
instance, the EB-5 Loan Agreement includes restrictive covenants related to, among other things, the disposition of our property, the incurrence by
us of any additional indebtedness, and the creation by us of any liens or other encumbrances); and
limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and placing us at a competitive disadvantage
compared to our competitors that have less debt or better debt servicing options.
A failure to comply with the covenants under the EB-5 Loan Agreement, including covenants to take or avoid specific actions as set forth above, could
result in an event of default and acceleration of amounts due. If an event of default occurs and EB-5 Life Sciences accelerates the amounts due under the
EB-5 Loan Agreement, we may not be able to make accelerated payments, and EB-5 Life Sciences could seek to enforce security interests in the collateral
securing such indebtedness.
In order to satisfy our current and future debt service obligations, we will be required to raise funds from external sources. We may be unable to arrange for
additional financing to pay the amounts due under our existing debt. Funds from external sources may not be available on acceptable terms, if at all. Our
failure to satisfy our current and future debt obligations could adversely affect our financial condition and results of operations.
37
Table of Contents
Our ability to utilize our tax net operating losses is uncertain.
We have incurred significant net operating losses since our inception. As of December 31, 2023, we had U.S. federal net operating loss carryforwards of
approximately $226.2 million. Our ability to utilize these net operating losses to offset future tax liabilities depends on the successful development of our
product candidates and future financial performance.
Additionally, our net operating losses may be subject to Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"). Generally, if an
ownership change occurs within three years of the closing date of an entity's most recent change in control transaction, any existing net operating losses and
certain built-in losses would be subject to an additional limitation, pursuant to Section 382. Change in control as defined by Section 382 occurs when there
is an ownership change among stockholders owning directly or indirectly 5% or more of our common stock, as well as an aggregate ownership change with
respect to such stockholders of more than 50% of our common stock. We have not yet conducted a comprehensive study to assess whether a change of
ownership as defined by Section 382 has occurred since our inception. If it is determined that we are unable to use our net operating losses to reduce future
tax liabilities, our financial condition, results of operations, and cash flows may be adversely affected.
We may be subject to future changes in tax legislation or exposure to additional tax liabilities that may adversely affect our financial condition, results
of operations, and cash flows.
We are subject to taxes in the United States as well as the foreign jurisdictions where our subsidiaries are organized. Due to economic and political
conditions, tax rates, tax laws, and other non-tax legislation, we may experience significant impacts as a result of prospective changes. Our future effective
tax rates may be affected by changes in the valuation of deferred tax assets and liabilities, changes in available tax credits or tax deductions, as well as
changes in tax law and other non-tax laws, or their interpretation.
Our tax returns and other tax matters are subject to examination by applicable tax authorities and governmental bodies. We regularly assess the likelihood
of an adverse outcome resulting from examination, in order to determine any resulting impact to our provision for income taxes or deferred tax balances.
There can be no assurance as to the outcome of these examinations. As such, if we were to sustain an adjustment as a result of a tax examination in excess
of amounts previously accrued, our financial condition could be adversely affected.
Risks Related to Our Business and the Development of Our Product Candidates
We are substantially dependent on the success of our product candidates. We cannot guarantee that our product candidates will successfully complete
development, receive regulatory approval, or be successfully commercialized.
We have invested a significant portion of our efforts and financial resources in the development of our product candidates. We currently have no products
authorized or approved for which we have successfully commercially distributed, and we have not generated revenues from sales of any products. Our
business and our ability to generate revenues in the near term depends entirely on the successful development, approval, and commercialization of our
product candidates, which may never occur. If the results or timing of regulatory filings, the regulatory process, regulatory developments, clinical trials or
preclinical studies, or other activities, actions, or decisions related to our product candidates do not meet our or others' expectations, the market price of our
common stock could decline significantly.
Our product candidates are susceptible to the risks of failure inherent at any stage of product development, including the appearance of unexpected or
unacceptable adverse events or failure to demonstrate efficacy in clinical trials. Further, our product candidates may not receive regulatory approval even if
they are successful in clinical trials, and our product candidates may not be successfully commercialized even if they receive regulatory approval.
Our product candidates are in various stages of development ranging from preclinical development to pre-commercialization.
The success of our product candidates and our ability to generate revenues from our product candidates, if approved, will depend on many factors including
our ability to:
•
•
•
complete and obtain favorable results from our clinical trials and preclinical studies with respect to our product candidates;
apply for and receive marketing approval from the applicable regulatory authorities;
receive regulatory approval for claims that are necessary or desirable for successful marketing;
38
Table of Contents
•
•
•
•
•
•
•
receive approval for our manufacturing processes and facilities from the applicable regulatory authorities;
recruit and enroll qualified patients for clinical trials with respect to our product candidates in a timely manner;
expand and maintain a workforce of experienced scientists and others with experience in relevant technologies to continue to develop our product
candidates;
hire, train, and deploy marketing and sales representatives or contract with a third-party for marketing and sales representatives to commercialize
product candidates in the United States and key foreign markets;
launch and create market demand for our product candidates, if approved, through marketing and sales activities, and any other arrangements to
promote these product candidates that we may otherwise establish;
achieve market acceptance of our product candidates by patients, the medical community, and third-party payors;
effectively compete with other therapies and establish a market share;
• maintain a continued acceptable safety and efficacy profile of our product candidates, if approved, following commercial launch;
•
achieve appropriate reimbursement, pricing, and payment coverage for our product candidates, if approved;
• manufacture product candidates in sufficient quantities and at acceptable quality and manufacturing cost to meet commercial demand at launch
and thereafter;
•
•
•
establish and maintain agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable terms;
pursue partnerships with, or offer licenses to, qualified third parties to promote and sell product candidates, if approved, in domestic and key
foreign markets where we receive marketing approval;
develop our product candidates for additional indications or for use in broader patient populations;
• maintain patent and trade secret protection and regulatory exclusivity for our product candidates; and
•
qualify for, identify, register, maintain, enforce, and defend intellectual property rights and claims covering our products and intellectual property
portfolio; and not infringe on others’ intellectual property rights.
To the extent we are not able to do any of the foregoing, our business may be materially harmed. If we do not receive FDA or other applicable foreign
regulatory approval for, and successfully commercialize our product candidates, we will not be able to generate revenue from these product candidates in
the United States or other key foreign markets for the foreseeable future or at all.
Our product candidates generated from our modifier gene therapy platform are based on a novel technology and face an uncertain regulatory
environment, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval.
A substantial portion of our product research and development efforts is centered around our modifier gene therapy platform. The regulatory approval and
successful commercialization of OCU400, OCU410, and OCU410ST depend on the successful development of this platform. There can be no assurance
that any development problems we experience in the future related to our modifier gene therapy platform will not cause significant delays or unanticipated
costs, or that such development problems can be solved. The clinical trial requirements of the FDA, the EMA, and other regulatory agencies, and the
criteria used by these regulators to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty,
and intended use and market of such product candidates. The regulatory approval process for novel product candidates such as these can be more expensive
and take longer than for other, better known, or extensively studied pharmaceuticals or other product types.
Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. For example, the
FDA established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research ("CBER") to consolidate the
review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Gene therapy
clinical trials conducted at institutions that receive funding for recombinant deoxyribonucleic acid ("DNA") research from the NIH are also subject to
review by the NIH Novel and Exceptional Technology and Research Advisory Committee ("NExTRAC"), formerly the Recombinant DNA Advisory
Committee, which now focuses on emerging areas of research including, but not restricted to, technologies surrounding advances in recombinant or
synthetic nucleic acid research. Although the FDA decides whether individual gene therapy protocols may proceed, it is possible the NExTRAC review
process, which is still being implemented, could delay the
39
Table of Contents
initiation of a clinical trial, even if the FDA has reviewed the trial design and details and approved its initiation. Before a clinical trial can begin at a study
site, the institution’s IRB and its IBC have to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical
trials of gene therapy products conducted by others may cause the FDA or other regulatory bodies to change the requirements for approval of any of our
product candidates.
These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, require us to
perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and
commercialization of our product candidates, or lead to significant post-approval limitations or restrictions. As we advance our gene therapy product
candidates, we will be required to consult with these regulatory and advisory groups, and comply with applicable guidelines. If we fail to do so, we may be
required to delay or discontinue development of our gene therapy product candidates. These additional processes may result in a review and approval
process that is longer than we otherwise would have expected for orphan ophthalmology product candidates. Delay or failure to obtain, or unexpected costs
in obtaining the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue to
maintain our business.
Existing data on the safety and efficacy of gene therapy is very limited and sometimes include historically poor clinical efficacy of previous non-replicating
gene therapy products. In addition, there have been publicized safety issues associated with previous gene therapy products in third-party clinical trials,
including patient deaths. The results of preclinical and clinical trials performed for our product candidates will not definitively predict safety or efficacy in
humans. OCU400, OCU410, and OCU410ST use an AAV vector. Possible serious side effects of other viral vector-based gene therapies in general include
uncontrolled viral infections and the development of cancer, particularly lymphoma or leukemia. The risk of insertional mutagenesis or oncogenesis
remains a significant concern for gene therapy, and we cannot provide any assurance that it will not occur in any of our ongoing or planned clinical trials
with respect to our product candidates based on our modifier gene therapy platform. There is also the potential risk of delayed adverse events following
exposure to gene therapy products due to persistent biological activity of the genetic material or other components of products used to carry the genetic
material. Potential procedure-related adverse reactions, including inflammation, can also occur. If any such adverse events occur during clinical trials,
further advancement of such clinical trials could be halted or delayed, which would have a material adverse effect on our business and operations.
Finally, the public's attitude may be influenced by claims that gene therapy technology is unsafe, unethical, or immoral. If we are unable to convincingly
demonstrate the safety and efficacy of our product candidates arising from our gene modifier platform, our product candidates, even if approved by the
FDA or foreign regulatory authorities, may not gain the acceptance of the public or the medical community. For example, in November 2023, the FDA
announced it is investigating the risk of T cell malignancies associated with currently approved BCMA- and CD19-directed autologous CAR T cell
immunotherapies. The FDA stated the overall benefits of these products continue to outweigh their potential risks, but the agency is evaluating the need for
regulatory action. It is unclear whether any regulatory action that the FDA may take following its investigation may adversely impact the FDA’s approach
to regulating any product candidates we may develop based on the use of our modifier gene therapy platform, or may negatively impact patients’,
providers’, or public perception of such product candidates.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, and inherently unpredictable. If we
are not able to obtain, or if there are delays in obtaining required regulatory approvals, we will not be able to commercialize our product candidates as
expected, and our ability to generate revenue will be materially impaired.
The research, testing, manufacturing, labeling, approval, selling, marketing, and distribution of pharmaceutical products are subject to extensive regulations
by the FDA and other regulatory authorities, which regulations differ from country to country. The time required to obtain approval by the FDA and
comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials. The outcome of the approval
process is inherently uncertain and depends upon numerous factors, including the substantial discretion of the regulatory authorities. This is especially true
for rare and/or complicated diseases. Failure can occur at any time during the clinical trial process. We cannot predict if or when we might receive
regulatory approvals for any of our product candidates currently under development. Any delay in our obtaining or our failure to obtain required approvals
could materially adversely affect our ability to generate revenue from the particular product candidate, which likely would result in significant harm to our
financial position and adversely impact our stock price.
Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each
therapeutic indication to establish the product candidate’s safety and efficacy for that indication. We may be unable to design and execute a clinical trial to
support marketing approval. Securing marketing approval also requires the submission of information about the product manufacturing process to, and
inspection of manufacturing facilities and clinical trial sites by the regulatory authorities. Regulatory authorities have substantial discretion in the approval
process
40
Table of Contents
and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical, or other studies.
The number and types of preclinical studies and clinical trials that will be required for regulatory approval also varies depending on the product candidate,
the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate. The FDA or
other similar regulatory authorities may determine that our product candidates are not effective or only moderately effective (e.g., studies may not produce
the necessary result on all study endpoints), that our studies failed to reach the necessary level of statistical significance, or that our product candidates have
undesirable or unintended side effects, toxicities, or other characteristics that preclude us from obtaining marketing approval or prevent or limit commercial
use.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval
or commercialize our product candidates, including:
•
regulators, including the FDA and the NIH, or IRBs or IBCs may not authorize us or our investigators to commence or continue a clinical trial,
conduct a clinical trial at a prospective trial site, or amend trial protocols, or regulators, IRBs, or IBCs may require that we modify or amend our
clinical trial protocols;
• we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective
trial sites and our CDMOs;
•
•
•
•
•
•
the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may
be slower than we anticipate, or participants may drop out of these clinical trials, or be lost to follow-up at a higher rate than we anticipate;
our third-party contractors may fail to comply with regulatory requirements or the clinical trial protocol, or meet their contractual obligations to us
in a timely manner, or at all, or we may be required to engage in additional clinical trial site monitoring;
us, the regulators, IRBs, or IBCs may require the suspension or termination of clinical research for various reasons, including noncompliance with
regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects, or other
unexpected characteristics (alone or in combination with other products) of the product candidate, or due to findings of undesirable effects caused
by a chemically or mechanistically similar therapeutic or therapeutic candidate;
changes in marketing approval policies or regulations, or changes in or the enactment of additional statutes or regulations, during the development
period rendering our data insufficient to obtain marketing approval and requiring us to conduct additional studies;
the cost of clinical trials of our product candidates may be greater than we anticipate or we may have insufficient funds for a clinical trial or to pay
the substantial user fees required by the FDA upon the filing of a marketing application;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient
or inadequate;
• we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial sites;
•
•
•
•
•
•
patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial protocol, resulting in the
need to drop the patients from the study, increase the needed enrollment size for the study, or extend the study’s duration;
the FDA or comparable foreign regulatory authorities may disagree with our study design, including endpoints, or our interpretation of data from
preclinical studies and clinical trials or find that a product candidate’s benefits do not outweigh its safety risks;
the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites in foreign countries;
the FDA or comparable foreign regulatory authorities may disagree with our intended indications;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or our
contract manufacturer’s manufacturing facility for clinical and future commercial supplies;
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign
regulatory authorities to support the submission of a marketing application, or other comparable submissions in foreign jurisdictions, or to obtain
regulatory approval in the United States or elsewhere;
41
Table of Contents
•
the FDA or comparable foreign regulatory authorities may take longer than we anticipate to make a decision on our product candidates; and
• we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or future competitive
therapies in development.
Significant delays relating to any preclinical or clinical trials also could shorten any periods during which we may have the exclusive right to
commercialize our product candidates, if approved, or allow our competitors to bring products to market before we do. This may prevent us from receiving
marketing approvals and impair our ability to successfully commercialize our product candidates, if approved, and may harm our business and results of
operations. In addition, many of the factors that cause, or lead to, delays in clinical trials may ultimately lead to the denial of marketing approval of any of
our product candidates. If any of this occurs, our business, financial condition, results of operations, and prospects will be materially harmed.
The failure to comply with FDA and comparable foreign regulatory requirements may, either before or after product approval, if any, subject us to
administrative or judicially imposed sanctions, including:
•
•
restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;
restrictions on our products, manufacturers, or manufacturing process;
• warning letters, Form 483s, or untitled letters alleging violations;
•
•
•
•
•
•
•
•
civil and criminal penalties;
injunctions;
suspension or withdrawal of regulatory approvals;
product seizures, detentions, or import bans;
voluntary or mandatory product recalls and publicity requirements;
total or partial suspension of production;
imposition of restrictions on operations, including costly new manufacturing requirements; and
refusal to approve pending marketing applications or supplements to approved marketing applications.
Even if we were to obtain regulatory approval of a product candidate, the FDA or comparable foreign regulatory authorities may grant approval for fewer
or more limited indications, populations, or uses than we request, may require significant safety warnings, including black box warnings, contraindications,
and precautions, may grant approval contingent on the performance of costly post-marketing clinical trials, surveillance, restrictions on use or other
requirements, including a REMS to monitor the safety or efficacy of the product, or may approve a product candidate with a label that does not include the
labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of these scenarios could compromise the
commercial prospects for our product candidates.
As an organization, we have limited experience in the development, manufacturing, distribution, or commercialization of a vaccine candidate.
We have limited experience in the development of vaccine candidates and have never undertaken the manufacturing, distribution, or commercialization of a
vaccine candidate, and we may be unable to obtain regulatory authorization or approval. Additionally, development of an effective vaccine candidate
depends on the success of our and our partner’s manufacturing capabilities. In addition, the development and manufacture of inhaled mucosal vaccines may
prove to be more complex than the development and manufacture of traditional vaccines. Further, we may be unable to effectively create a supply chain for
our vaccines that will adequately support demand. We may also face challenges with sourcing a sufficient amount of raw materials to support the demand
for a vaccine. While we are currently collaborating with NIAID for early clinical studies for the OCU500 program, there can also be no assurance that we
will be able to obtain the required funding from government agencies for further development of OCU500 or for development of our vaccine candidates,
OCU510 and OCU520.
Due to the end of the COVID-19 public health emergency and decline in vaccination rates, the demand for any COVID-19 vaccine product candidate
we develop may decrease significantly.
As noted elsewhere in this Annual Report, on May 11, 2023, the U.S. Department of Health and Human Services announced the COVID-19 public health
emergency ended. In addition, the demand for COVID-19 vaccines is becoming more endemic and seasonal. As other companies continue to develop,
receive regulatory approval for and commercialize their own COVID-19
42
Table of Contents
vaccines and as demand for such vaccines declines, demand for our COVID-19 product candidates OCU500 and OCU520 may be diminished.
The development and manufacture of biologics is a complex process and entails particular risks.
OCU200 is our novel biologic designed to treat retinal diseases. The process of developing and manufacturing biologics is complex, highly regulated, and
subject to multiple risks, and we have no experience in successfully developing, manufacturing, or commercializing a biologics product. The
manufacturing of biologics is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment,
vendor or operator error, inconsistency in yields, variability in product characteristics, and difficulties in scaling the production process. Even minor
deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions, and higher costs.
The raw materials required in our third-party vendors’ manufacturing processes are derived from biological sources. We cannot assure you that our third-
party vendors have, or will be able to obtain on commercially reasonable terms, or at all, sufficient rights to these materials derived from biological sources.
Such raw materials are difficult to procure and may also be subject to contamination or recall. If microbial, viral, or other contaminations are discovered at
the facilities of our manufacturer, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which
could delay clinical trials, result in higher costs of drug product, and adversely harm our business. A material shortage, recall, or restriction on the use of
biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the clinical and commercial manufacturing
of our product candidates, which could materially and adversely affect our operating results and development timelines. In addition, the U.S. government
may impose restrictions on goods, including biologically derived substances, manufactured in or imported from China. This could have a material adverse
effect on our business and operations.
In addition, our biologic product candidates may expose us to additional potential product liability claims. The development of biologic products entails a
risk of additional product liability claims because of the risk of transmitting disease to human recipients, and substantial product liability claims may be
asserted against us as a result.
OCU400 and OCU410ST have received orphan drug designation, or ODDs from the FDA and OCU400 has received orphan medicinal product
designation, or OMPD from the European Commission, or EC. However, there is no guarantee that we will be able to maintain these designations,
receive these designations for any of our other product candidates, or receive or maintain any corresponding benefits, including periods of exclusivity.
We have obtained from the FDA Office of Orphan Products, ODDs for OCU400 for RP and LCA and had previously received ODDs for the treatment of
the following disease genotypes: NR2E3, RHO, CEP290, and PDE6ß mutation-associated inherited retinal degenerations. OCU400 has additionally
received OMPD from the EC, based on the recommendation of the EMA, for RP and LCA. We have also received ODD for OCU410ST for the treatment
of ABCA4-associated retinopathies including Stargardt, RP19 and CORD3 diseases. We may also seek ODD or OMPD for our other product candidates, as
appropriate. While these ODDs and OMPDs provide us with certain advantages, they neither shorten the development time or regulatory review time of a
product candidate nor give the product candidate any advantage in the regulatory review or approval process.
Generally, if a product candidate with ODD or OMPD is the first to receive marketing approval for the orphan indication, the product is entitled to a period
of marketing exclusivity, which precludes the FDA or EMA from approving another marketing application for the same drug or biologic for the same
indication for a specified time period. The applicable period is seven years in the United States and 10 years in Europe. The European exclusivity period
can be reduced to six years if a product no longer meets the criteria for OMPD or if the product is sufficiently profitable so that market exclusivity is no
longer justified.
We may not be able to obtain any future ODDs or OMPDs that we apply for. Receiving ODDs or OMPDs do not guarantee that we will be able to
successfully develop our product candidates, and there is no guarantee that we will be able to maintain any ODDs or OMPDs that we receive. For instance,
ODDs may be revoked if the FDA finds that the request for designation contained an untrue statement of a material fact or omitted material information, or
if the FDA finds that the product candidate was not eligible for designation at the time of the submission of the request.
Moreover, even if we are able to receive and maintain ODDs or OMPDs, we may ultimately not receive any period of regulatory exclusivity if our product
candidates are approved. For instance, we may not receive orphan product regulatory exclusivity if the indication for which we receive FDA or EMA
regulatory approval is different than the ODD or OMPD. Orphan exclusivity may also be lost for the same reasons that ODD or OMPD may be lost.
Orphan exclusivity may further be
43
Table of Contents
lost if we are unable to assure a sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan exclusivity for any of our current or future product candidates, that exclusivity may not effectively protect the product candidate,
if approved, from competition as different products can be approved for the same condition or products that are the same as ours can be approved for
different conditions. Even after an orphan product is approved, the FDA or EMA can also subsequently approve a product containing the same principal
molecular features for the same condition if the regulatory authority concludes that the latter product is clinically superior by means of greater
effectiveness, greater safety, or providing a major contribution to patient care.
If another sponsor receives approval for such product before we do, we would be prevented from launching our product for the orphan indication during the
period of marketing exclusivity unless we can demonstrate clinical superiority.
We have or may pursue fast track, breakthrough therapy, or RMAT designations from the FDA for one or more of our product candidates. Even if one
or more of our product candidates receives fast track, breakthrough therapy, or RMAT designations, we may be unable to obtain and maintain the
benefits associated with such designations. These designations may not lead to a faster development or regulatory review or approval process, and will
not increase the likelihood that such product candidates will receive marketing approval.
In May 2022, the FDA granted RMAT designation to NeoCart for the repair of full-thickness lesions of the knee cartilage in adults. In December 2023, the
FDA granted RMAT designation to OCU400 for the treatment of RP associated with NR2E3 and RHO mutations. In the future, we may seek additional
product designations, such as fast track, breakthrough therapy, or RMAT designation, which are intended to facilitate the development or regulatory review
or approval process for product candidates. Receipt of such a designation is within the discretion of the FDA. Accordingly, even if we believe one of our
product candidates meets the criteria for a designation, the FDA may disagree. In any event, the receipt of such a designation for a product candidate may
not result in a faster development process, review, or approval compared to product candidates considered for approval under conventional FDA procedures
and does not assure ultimate marketing approval by the FDA. In addition, the FDA may later decide that the product candidates no longer meet the
designation conditions, in which case any granted designations may be revoked.
The FDA may determine that our product candidates have undesirable side effects that could delay or prevent their regulatory approval or
commercialization. If such side effects are identified during the development of our product candidates, we may need to abandon our development of
such product candidates.
Undesirable side effects caused by our product candidates could cause us, IRBs, and other reviewing entities or regulatory authorities to interrupt, delay, or
halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign
authorities. For example, if concerns are raised regarding the safety of one of our product candidates as a result of undesirable side effects identified during
preclinical or clinical testing, the FDA may order us to cease further development or issue a letter requesting additional data or information prior to making
a final decision regarding whether or not to approve the product candidate. FDA requests for additional data or information can result in substantial delays
in the approval of a new product candidate.
Undesirable side effects caused by any unexpected characteristics (alone or in combination with other products) for any of our product candidates could
also result in denial of regulatory approval by the FDA or other comparable foreign authorities for any or all targeted indications or the inclusion of
unfavorable information in our product labeling, such as limitations on the indicated uses or populations for which the products may be marketed or
distributed, a label with significant safety warnings, including boxed warnings, contraindications, and precautions, a label without statements necessary or
desirable for successful commercialization, may result in requirements for costly post-marketing testing and surveillance, or other requirements, including
REMS, to monitor the safety or efficacy of the products. These could prevent us from commercializing and generating revenues from the sale of our
product candidates.
Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause side effects that prevented further
development of the compound. In addition, adverse events which had initially been considered unrelated to the study treatment may later be found to be
caused by the study treatment. Moreover, incorrect or improper use of our product candidates (including use more frequently than is prescribed), if
approved, by patients could cause unexpected side effects or adverse events. There can be no assurance that our product candidates, if approved, will be
used correctly, and if used incorrectly, such misuse could prevent our receipt or maintenance of marketing approval, resulting in label changes or regulatory
authority safety communications or warnings, or hamper commercial adoption of our product candidate, if approved, at the rate we currently expect.
44
Table of Contents
If any of our product candidates are associated with serious adverse events, undesirable side effects, or have properties that are unexpected, we may need to
abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other
characteristics are less prevalent, less severe, or more acceptable from a risk-benefit perspective. The therapeutic-related side effects could affect patient
recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. We may also be held liable for harm caused
to patients and our reputation may suffer. Any of these occurrences may significantly harm our business, financial condition, results of operations, and
prospects.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our completion of clinical trials and receipt of necessary regulatory
approvals could be delayed or prevented.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials
depends on the speed at which we can recruit patients to participate in testing our product candidates. Our ongoing clinical trials could be discontinued
early if they experience slow enrollment, and we may also experience similar difficulties in future clinical trials. If patients are unwilling to participate in
our clinical trials because of negative publicity from adverse events related to vaccines, gene therapy, or in the industry more broadly, in the clinical trials
for related third party product candidates, 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, delays in testing the effectiveness of our product candidates, or termination of the clinical trials
altogether.
We or our clinical trial sites may not be able to identify, recruit, and enroll a sufficient number of patients, or those with the required or desired
characteristics in a clinical trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by other factors including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the size and nature of the patient population (for instance, we are pursuing clinical trials for certain orphan indications, for which the size of the
patient population is limited);
the severity of the disease under investigation;
the existence of current treatments for the indications for which we are conducting clinical trials;
the eligibility criteria for and design of the clinical trial in question, including factors such as frequency of required assessments, length of the
study, and ongoing monitoring requirements;
the perceived risks and benefits of the product candidate, including the potential advantages or disadvantages of the product candidate being
studied in relation to other available therapies;
competition in recruiting and enrolling patients in clinical trials;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
effectiveness of publicity created by clinical trial sites regarding the trial;
patients’ ability to comply with the specific instructions related to the trial protocol, proper documentation, and use of the product candidate;
an inability to obtain or maintain patients' informed consents;
the risk that enrolled patients will drop out before completion or not return for post-treatment follow-up;
the ability to monitor patients adequately during and after treatment;
the ability to compensate patients for their time and effort; and
the proximity and availability of clinical trial sites for prospective patients.
We may not be able to initiate or continue conducting clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of
eligible patients to participate in these clinical trials as required by the FDA or similar regulatory authorities outside the United States. Our inability to
enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials
altogether. In particular, there may be low or slow enrollment, and the studies may enroll subjects that do not meet the inclusion criteria, requiring the
erroneously enrolled subjects to be excluded and the trial population to be increased. Moreover, patients in our clinical trials, especially patients in
45
Table of Contents
our control groups, may be at risk for dropping out of our studies if they are not experiencing relief of their disease. A significant number of withdrawn
patients would compromise the quality of a study's data.
Enrollment difficulties or delays in our clinical trials may result in increased development costs for our product candidates, or the inability to complete
development of our product candidates, which would cause our value to decline, limit our ability to obtain additional financing, and materially impair our
ability to generate revenues.
Data from preclinical studies and early-stage clinical trials may not be predictive of success in later clinical trials.
The results of preclinical studies, preliminary study results, and early-stage clinical trials of our product candidates may not be predictive of the results of
later-stage clinical trials or the ultimately completed clinical trial. Preliminary and final results from such studies may not be representative of study results
that are found in larger, controlled, blinded, and more long-term studies. Product candidates in later stages of clinical trials may fail to show the desired
safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies have suffered significant
setbacks in advanced clinical trials, notwithstanding promising results in earlier clinical trials. In some instances, there can be significant variability in
safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set
forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols, and the rate of dropout
among clinical trial participants.
In addition, from time to time, we may publish interim, “top-line,” initial, or preliminary data from our clinical trials. Interim data from clinical trials are
subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes
available. Preliminary, initial, or “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 previously published. As a result, interim, “top-line”, initial, and preliminary data should be viewed with caution until
the final data are available. Adverse changes between preliminary, initial, “top-line” or interim data and final data could significantly harm our business
prospects.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications
that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific
indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have
greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any
commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through 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.
We may, in the future, conduct clinical trials for product candidates at sites outside the United States, and the FDA may not accept data from clinical
trials conducted in such locations.
We may, in the future, choose to conduct one or more of our clinical trials outside the United States. Although the FDA may accept data from clinical trials
conducted outside the United States, acceptance of data is in either case subject to the respective conditions imposed by the FDA. For example, the clinical
trial must be well designed and conducted and be performed by qualified investigators in accordance with ethical principles, such as IRB or ethics
committee approval and informed consent. The trial population must also adequately represent the U.S. population, and the data must be applicable to the
U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. In addition, while these clinical trials are subject to the
applicable local laws (and therefore failure to comply with such laws could result in regulatory enforcement action), acceptance of the data by the FDA will
be dependent upon its determination that the clinical trials were conducted consistent with all applicable U.S. laws and regulations. If the FDA does not
accept the data from any clinical trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be
costly and time-consuming and could delay or permanently halt our development of the applicable product candidates.
Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
In order to market and sell our products in jurisdictions outside the United States, we must obtain separate marketing approvals in international jurisdictions
and comply with numerous and varying regulatory requirements. The approval procedures vary
46
Table of Contents
among countries and the time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval
process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the
United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. The clinical trials
of our product candidates may not be sufficient to support an application for marketing approval outside the United States. Seeking foreign regulatory
approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming.
We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining
regulatory approval in international markets. We, or any current or eventual collaborators, may not obtain approvals from regulatory authorities outside the
United States on a timely basis, if at all. Approval by the FDA does not guarantee approval by regulatory authorities in other countries or jurisdictions, and
approval by one regulatory authority outside the United States does not guarantee approval by regulatory authorities in other countries or jurisdictions or by
the FDA. However, the failure to obtain approval in one jurisdiction may compromise our ability to obtain approval elsewhere. We may not be able to file
for marketing approvals and may not receive necessary approvals to commercialize our products in any market.
We may be subject to fines, penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of our products, if
approved, for unapproved or “off-label” uses, resulting in damage to our reputation and business.
We must comply with requirements concerning advertising and promotion for any product candidates for which we obtain marketing approval. Promotional
communications with respect to therapeutics are subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Department of
Justice, Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress, and the public. When the
FDA or comparable foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses
and indications for which a product is approved. We may not market or promote them for other indications and uses, referred to as off-label uses. We
further must be able to sufficiently substantiate any claims that we make for our products, if approved, including claims comparing our products to other
companies’ products and must abide by the FDA’s strict requirements regarding the content of promotion and advertising. While physicians may choose to
prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the
regulatory authorities, we are prohibited from marketing and promoting the products for indications and uses that are not specifically approved by the FDA.
If we are found to have impermissibly promoted any of our product candidates, we may become subject to significant liability and government fines. The
FDA and other agencies actively enforce the laws and regulations regarding product promotion, particularly those prohibiting the promotion of off-label
uses, and a company that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied large
civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The
FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or
curtailed.
In the United States, engaging in the impermissible promotion of our products, following approval, for off-label uses can also subject us to false claims and
other litigation under federal and state statutes, including fraud and abuse and consumer protection laws. Such litigation can lead to civil and criminal
penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute therapeutic products
and do business through, for example, corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs,
suspension and debarment from government contracts, and refusal of orders under existing government contracts. These false claims statutes include the
federal civil FCA, which allows any individual to bring a lawsuit against a company on behalf of the federal government ("qui tam" action) alleging
submission of false or fraudulent claims, or causing others to present such false or fraudulent claims, for payment by a federal program such as Medicare or
Medicaid. If the government decides to intervene and prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If
the government declines to intervene, the individual may pursue the case alone. These FCA lawsuits against sponsors of drugs and biologics have increased
significantly in volume and breadth in recent years, leading to several substantial civil and criminal settlements, up to $3.0 billion, pertaining to certain
sales practices and promoting off-label uses. In addition, FCA lawsuits may expose sponsors to follow-on claims by private payors based on fraudulent
marketing practices. This growth in litigation has increased the risk that companies will have to defend a false claim action, and pay settlements fines or
restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare,
Medicaid, or other federal and state healthcare programs. If we do not lawfully promote our approved products, if any, we may become
47
Table of Contents
subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business,
financial condition, results of operations, and prospects.
In the United States, the distribution of product samples to physicians must further comply with the requirements of the U.S. PDMA, and the promotion of
biologic and pharmaceutical products are subject to additional FDA requirements and restrictions on promotional statements. If the FDA determines that
our promotional activities violate our regulations and policies pertaining to product promotion, it could request that we modify our promotional materials or
subject us to regulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved
product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition of operating restrictions, injunctions or criminal
prosecution, and other enforcement actions. These regulatory and enforcement actions could significantly harm our business, financial condition, results of
operations, and prospects.
Even if our product candidates receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may
result in significant additional expense.
Any product candidate for which we obtain marketing approval will be subject to extensive and ongoing requirements of and review by the FDA and other
regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse
event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirements further
include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements,
the payment of annual fees, continued compliance with current GMP requirements relating to manufacturing, quality control, quality assurance, and
corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and GCPs, for any clinical trials
that we conduct post-approval.
Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses and populations for which the
product may be marketed or to the conditions of approval, including significant safety warnings, such as boxed warnings, contraindications, and
precautions that are not desirable for successful commercialization. Any approved products may also be subject to a REMS that render the approved
product not commercially viable or other post-market requirements, such as Phase 4 studies, or restrictions. If the FDA or comparable foreign regulatory
authorities become aware of new safety information after the approval of any of our product candidates, they may, among other actions, withdraw approval,
require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or
impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.
We and any of our collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by the FDA to monitor and
ensure compliance with current GMP and other FDA regulatory requirements. Application holders must further notify the FDA, and depending on the
nature of the change, obtain FDA pre-approval for product and manufacturing changes.
In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with our
products, manufacturers, or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield various
results, including:
•
•
restrictions on manufacturing, distribution, or marketing of such products;
restrictions on the labeling, including restrictions on the indication or approved patient population, and required additional warnings, such as black
box warnings, contraindications, and precautions;
• modifications to promotional pieces;
•
•
•
•
•
•
issuance of corrective information;
requirements to conduct post-marketing studies or other clinical trials;
clinical holds or termination of clinical trials;
requirements to establish or modify a REMS, or a comparable foreign authority may require that we establish or modify a similar strategy;
liability for harm caused to patients or subjects;
reputational harm;
• warning, untitled, Form 483s, or cyber letters;
48
Table of Contents
•
•
•
•
•
•
•
•
•
suspension of marketing or withdrawal or recall of the products from the market;
regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or
other safety information about the product;
refusal to approve pending applications or supplements to approved applications that we submit;
fines, restitution, or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our products;
product seizure or detention;
FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from
federal healthcare programs, consent decrees, or corporate integrity agreements; or
injunctions or the imposition of civil or criminal penalties, including imprisonment.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, or could
substantially increase the costs and expenses of developing and commercializing such product, which in turn could delay or prevent us from generating
significant revenues from its sale. Any of these events could further have other material and adverse effects on our operations and business and could
adversely impact our stock price and could significantly harm our business, financial condition, results of operations, and prospects.
The FDA’s policies may change, and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of our
product candidates, limit the marketability of our product candidates, or impose additional regulatory obligations on us. Changes in medical practice and
standard of care may also impact the marketability of our product candidates, if approved.
We will need to obtain FDA approval of any proposed product names, and any failure or delay associated with such approval may adversely affect our
business.
Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark
registration from the USPTO. The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with
other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims or contributes to an
overstatement of efficacy. If the FDA objects to any of our proposed product names, we may be required to adopt alternative names for our product
candidates. If we adopt alternative names, we would lose the benefit of any existing trademark applications for such product candidate and may be required
to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe
upon the existing rights of third-parties, and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a
timely manner or at all, which would limit our ability to commercialize our product candidates, if approved.
Changes in the economic, political, legal and social conditions and policies of the Chinese government or in relations between China and the United
States may materially and adversely affect our business, financial condition, results of operations, access to capital, and the market price of our
common stock.
We have a co-development and commercialization agreement with CanSinoBIO with respect to the development and commercialization of our modifier
gene therapy platform including OCU400, OCU410 and OCU410ST as well as manufacturing part of our inhaled mucosal vaccine platform including
OCU500, and as a result, have significant operations in China. Due to our operations in China, our business, results of operations, financial condition,
access to capital, market price of our common stock and prospects may be influenced to a significant degree by economic, political, legal and social
conditions in China or changes in government relations between China and the United States or other governments. Furthermore, we face the risk that our
business operations in China will be impacted by government regulations and/or foreign sanctions. Escalation of current geopolitical tensions may
implicate China and could increase the risk of government regulations and/or foreign sanctions and imposition of export controls and import restrictions. In
addition, our information technology systems may be at risk of being blocked from our world-wide operations. Ongoing human rights concerns in China
may result in boycotts of our services or client requests not to use Chinese operations to support their projects.
Risks Related to the Commercialization of Our Product Candidates
49
Table of Contents
We have no prior experience in the marketing, sale, and distribution of biotechnology products and there can be no assurance that our product
candidates, if approved, will be successfully commercialized.
We have no prior experience in the marketing, sale, and distribution of biotechnology products, and there are significant risks involved in the building and
managing of a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market any
products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this
capability. We will have to compete with other pharmaceutical or biotechnology companies to recruit, hire, train, manage, and retain marketing and sales
personnel. Factors that may inhibit our efforts to commercialize our product candidates include:
•
•
•
•
•
•
•
•
•
•
•
•
the inability to recruit, train, manage, and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe our product candidates;
our inability to effectively oversee a geographically dispersed sales and marketing team;
the costs associated with training sales and marketing personnel on legal and regulatory compliance matters and monitoring their actions;
an inability to secure adequate coverage and reimbursement by government and private health plans;
reduced realization on government sales from mandatory discounts, rebates and fees, and from price concessions to private health plans and
pharmacy benefit managers necessitated by competition for access to managed formularies;
the clinical indications for which the products are approved and the claims that we may make for the products;
limitations or warnings, including distribution or use restrictions, contained in the products' approved labeling;
any distribution and use restrictions imposed by the FDA or other foreign regulatory agencies, including those that we may agree to as part of a
mandatory REMS or voluntary risk management plan;
liability for sales or marketing personnel who fail to comply with the applicable legal and regulatory requirements;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with
more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization or engaging a contract sales organization.
Should any of the foregoing occur, we may not be successful in commercializing any product candidates for which we receive marketing approval.
If we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associated with international operations
could materially adversely affect our business.
If any of our product candidates are approved for commercialization, we may enter into agreements with third parties to market them on a worldwide basis
or in more limited geographical regions. We expect that we will be subject to additional risks related to conducting marketing and sales activities in
international jurisdictions and entering into international business relationships, including:
•
•
•
•
•
•
•
different regulatory requirements for approval of drugs and biologics in foreign countries;
the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import
goods from a foreign market (with low or lower prices) rather than buying them locally;
challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect
intellectual property rights to the same extent as the United States;
the need to seek additional patent approvals, licenses to patents held by third parties, and/or face claims of infringing third-party patent rights;
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;
50
Table of Contents
•
•
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing
business in another country;
difficulties staffing and managing foreign operations;
• workforce uncertainty in countries where labor unrest is more common than in the United States;
•
•
•
potential liability under the FCPA, the U.K. Bribery Act 2010 (the "Bribery Act"), or other comparable foreign regulations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including pandemics or other outbreaks
of infectious disease, earthquakes, typhoons, floods, and fires.
These and other risks associated with international operations may materially adversely affect our ability to attain or maintain profitable operations.
If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product
candidates, if approved, we may be unable to generate product revenues.
We currently do not have a commercial infrastructure for the marketing, sale, and distribution of biotechnology products. If approved, in order to
commercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform these
services. If we do not establish sales, marketing, and distribution capabilities successfully, either on our own or in collaboration with third parties, we will
not be successful in commercializing any product candidates for which we receive marketing approval.
Subject to regulatory approval of any of our product candidates, we may build a commercial team of specialty sales and marketing representatives in
support of our product candidates that we develop in the United States or other foreign countries, if approved, as well as distribution capabilities. There are
risks involved with us establishing our own sales, marketing, and distribution capabilities. Recruiting and training a sales force is expensive and time-
consuming, particularly to the extent that we seek to commercialize any product, if approved, for an indication, such as dAMD, that has a large patient
population. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations to recruit, hire, train,
and retain marketing and sales personnel. Further, we may underestimate the size of the sales force required for a successful product launch and may need
to expand our sales force earlier and at a higher cost than we anticipate. If the commercial launch of our product candidates, if approved, 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.
We may also or alternatively decide to collaborate with a third-party or contract sales organization to commercialize any approved product candidates, in
which event, our ability to generate product revenues may be limited. Our product revenues and our profitability, if any, under any third-party
collaboration, distribution, or other marketing arrangements are likely to be lower than if we were to market, sell, and distribute the applicable product
candidate, if approved, entirely ourselves. We may not be successful in entering into arrangements with third parties to sell, market, and distribute our
product candidates, if approved, or may be unable to do so on terms that are favorable to us. In addition, we would have less control over the sales efforts
of any other third parties involved in our commercialization efforts and any of them may fail to devote the necessary resources and attention to sell and
market our product candidates, if approved, effectively. We could also be held liable if such third parties failed to comply with applicable legal or
regulatory requirements.
In the event we are unable to develop a team of marketing and sales representatives or to establish an effective third-party contractual relationship for such
services, we may not be able to commercialize our product candidates, if approved, which would limit our ability to generate product revenues. Even if we
are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in
commercializing our product candidates, if approved.
We face significant competition from other pharmaceutical and biotechnology companies, academic institutions, government agencies, and other
research organizations. Our operating results will suffer if we fail to compete effectively.
The biotechnology industry is characterized by rapidly advancing technologies as well as a strong emphasis on intellectual property leading to a highly
competitive environment for the development and commercialization of therapeutic products,
51
Table of Contents
regenerative medicines, and vaccines. We face competition with respect to our current product candidates and will face competition with respect to any
product candidates that we may seek to develop or commercialize in the future. We face competition from many different sources, including from major
pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, academic institutions, government agencies, and other public
and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development,
manufacturing, and commercialization.
The development and commercialization of gene therapies is highly competitive. We are aware of several companies focusing on gene therapies for various
ophthalmic indications including Applied Genetic Technologies Corporation, as acquired by Syncona Limited, Astellas Pharma Inc., MeiraGTx Holdings
plc in partnership with Janssen Pharmaceuticals, Inc., Nanoscope Therapeutics Inc., REGENXBIO Inc., Novartis AG, F. Hoffmann-La Roche AG ("Roche
AG"), Kiora Pharmaceuticals, Inc., Genentech, Inc. in partnership with Lineage Cell Therapeutics, Inc., and Luxturna, the product developed by Spark
Therapeutics, Inc. and marketed by Roche AG, is currently the only gene therapy approved to treat IRDs in the United States which addresses only
mutations in the RPE65 gene. The mutation associated with the RPE65 gene represents just one of more than 125 mutated genes linked to RP and LCA.
The regenerative medicine sector is characterized by innovative science, rapidly advancing technologies, and a strong emphasis on proprietary products.
The competitive landscape in the field of articular cartilage repair in the U.S. is emerging and has stimulated a substantial amount of interest from
companies developing tissue repair solutions. Companies that may compete with our NeoCart product candidate include Vericel Corporation's MACI, the
only FDA-approved ACI product in the United States, and Aesculap Biologics, LLC's NOVOCART 3D, which is currently enrolling subjects in their Phase
3 clinical trial.
We face, and will continue to face, intense competition from companies as well as institutions that are pursuing or have commercialized vaccines that
would compete with our inhaled mucosal vaccine platform, if commercialized. The competitive landscape of COVID-19 vaccines has been rapidly
developing since the beginning of the COVID-19 pandemic and includes competitors such as Pfizer Inc./BioNTech SE, Moderna, Inc., AstraZeneca PLC,
Novavax, Inc., Sinovac Biotech Ltd., Gamaleya Research Institute of Epidemiology and Microbiology, and Center for Genetic Engineering and
Biotechnology. Each of the aforementioned vaccines have been authorized or approved in at least one country within the Ocugen Mucosal Vaccine
Territory and are intramuscular vaccines. CanSinoBIO's Convidecia Air, an intranasal vaccine targeting COVID-19, has been approved in China. Other
competitors for our novel inhaled mucosal vaccine platform include CyanVac LLC, Meissa Vaccines, Inc., Codagenix, Inc., Intravacc B.V., McMaster
University, and Tetherex Pharmaceuticals Corporation. Companies such as Pfizer Inc./BioNTech SE, Moderna, Inc., CureVac N.V in partnership with GSK
plc, Vivaldi Biosciences Inc., and Novavax, Inc. are also in the process of developing a combination vaccine that will protect against COVID-19 and the
seasonal flu. Vivaldi Biosciences Inc. is also currently undergoing clinical trials for their intranasal vaccine for the seasonal flu.
The development and commercialization of biologic products is highly competitive as well. Companies that may compete with our OCU200 product
candidate include Roche AG, Regeneron Pharmaceuticals, Inc., AsclepiX Therapeutics, Inc., Outlook Therapeutics, Inc., Novartis AG, Oxurion NV, Unity
Biotechnology, Inc., Opthea Limited, and 4D Molecular Therapeutics, Inc. Roche AG, Regeneron Pharmaceuticals, Inc., and Novartis AG have marketed
anti-VEGF products.
Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have
fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop and for which we receive approval. Our
competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for our product candidates,
which could result in our competitors establishing a strong market position before we are able to enter the market. They may obtain patent protection or
other intellectual property rights that allow them to develop and commercialize their products before us and could limit our ability to develop or
commercialize our product candidates.
In addition, our ability to compete may be affected in many cases by insurers or other third-party payors' coverage decisions, particularly Medicare, seeking
to encourage the use of generic or biosimilar products. Many of the products that will compete with our product candidates, if approved, are available on a
generic basis, and our product candidates may not demonstrate sufficient additional clinical benefits to clinicians, patients, or payors to justify a higher
price compared to generic products. Additional competing products are expected to become available on a generic basis over the coming years.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing
approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being
concentrated among a smaller number of our competitors. Early-stage companies may also prove to be significant competitors, particularly through
collaborative
52
Table of Contents
arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary
for, our programs.
If our product candidates for which we receive approval do not achieve broad market acceptance, the revenues that we generate from their sales will be
limited.
Even if our product candidates are approved by the appropriate regulatory authorities for marketing and sale, they may not gain acceptance among
physicians, patients, third-party payors, and others in the medical community. Physicians are often reluctant to switch their patients and patients may be
reluctant to switch from existing therapies even when new and potentially more effective or safer treatments enter the market. We have never
commercialized a product candidate for any indication, and efforts to educate the medical community and third-party payors on the benefits of our product
candidates may require significant resources and may not be successful. With respect to our product candidates being developed based on our modifier
gene therapy platform, market acceptance may also be constrained by ethical, social, and legal concerns about gene therapy and genetic research, which
could result in additional regulations restricting or prohibiting the products and processes we may use. The novelty of the technology and any negative
publicity surrounding adverse events associated with gene therapy may also prevent the medical community, patients, and third-party payors from
accepting gene therapy products in general, and our product candidates in particular, as medically useful, cost-effective, and safe.
Market acceptance of our product candidates by the medical community, patients, and third-party payors will depend on a number of factors, some of
which are beyond our control. If any product candidates for which we obtain regulatory approval does not gain an adequate level of market acceptance, it
may not generate significant product revenues or become profitable.
The degree of market acceptance of any of our product candidates will depend on a number of factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the efficacy of our product candidates;
the prevalence and severity of adverse events associated with such product candidates;
the clinical indications for which the product candidates are approved and the approved claims that we may make for the products;
limitations or warnings contained in the product's FDA-approved labeling, including potential limitations or warnings for such product candidates
that may be more restrictive than other competitive products;
changes in the standard of care for the targeted indications for such product candidates, which could reduce the marketing impact of any claims
that we could make following FDA approval, if obtained;
the relative convenience and ease of administration of such product candidates;
cost of treatment versus economic and clinical benefit in relation to alternative treatments or therapies;
the availability of third-party formulary coverage and adequate coverage or reimbursement by third parties, such as insurance companies and other
healthcare payors, and by government healthcare programs, including Medicaid and particularly by Medicare in light of the prevalence of retinal
diseases in persons over age 55;
the price concessions required by third party payors to obtain coverage;
the extent and strength of our manufacturing, marketing, and distribution of such product candidates;
distribution and use restrictions imposed by the FDA with respect to such product candidates or to which we agree as part of a REMS or voluntary
risk management plan;
the extent of availability of generic or biosimilar versions of any products that compete with any of our product candidates and the extent to which
they are offered at a substantially lower price than we expect to offer for our product candidates, if approved;
adverse publicity about the product or favorable publicity about competitive products; and
potential product liability claims.
If the market opportunities for our product candidates are smaller than we believe, our revenue may be adversely affected and our business may suffer.
The potential market opportunities for our product candidates are difficult to precisely estimate. Our estimates of the potential market opportunities are
predicated on many assumptions, which may include industry knowledge and publications, third-party
53
Table of Contents
research reports, and other surveys, some of which we may have commissioned. Industry publications and third-party research, surveys and studies
generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or
completeness of such information. While we believe these industry publications and third-party research, surveys, and studies are reliable, we have not
independently verified such data. In addition, while we believe that our internal assumptions are reasonable, these assumptions involve the exercise of
significant judgment on the part of our management, are inherently uncertain, and the reasonableness of these assumptions has not been assessed by an
independent source. If any assumptions prove to be inaccurate, the actual markets for our product candidates could be smaller than our estimates of the
potential market opportunities, and as a result, our product revenue may be limited, and it may be more difficult for us to achieve or maintain profitability.
If third-party payors do not reimburse patients for our products candidates, if approved, or if reimbursement levels are set too low for us to sell our
product candidates at a profit, our ability to successfully commercialize our product candidates, if approved, and our results of operations will be
harmed.
Our ability to successfully commercialize our product candidates, if approved, will depend in part on the extent to which coverage and adequate
reimbursement for our product candidates will be available in a timely manner from third-party payors, including governmental healthcare programs such
as Medicare and Medicaid, commercial health insurers, and managed care organizations. This is particularly true with respect to OCU200, our novel
biologic product candidate, in the case of Wet AMD, which is most prevalent in persons over age 55. Government authorities and other third-party payors,
such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels.
Reimbursement decisions by particular third-party payors depend upon a number of factors, including each third-party payor's determination that use of a
product is:
•
•
•
•
a covered benefit under its health plan;
appropriate and medically necessary for the specific condition or disease;
cost effective; and
neither experimental nor investigational.
Obtaining coverage and reimbursement approval for our product candidates from government authorities or other third-party payors may be a time
consuming and costly process that could require us to provide supporting scientific, clinical, and cost-effectiveness data, including expensive
pharmacoeconomic studies beyond the data required to obtain marketing approval, for the use of each product candidate to each government authority or
other third-party payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement.
Third-party payors may deny reimbursement for covered products if they determine that a medical product was not used in accordance with cost-effective
diagnosis methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to reimburse for
procedures and devices deemed to be experimental. Third-party payors may also limit coverage to specific products on an approved list, or formulary,
which might not include all of the approved products for a particular indication.
Increasingly, third-party payors are also requiring that drug companies provide them with predetermined discounts from list prices and are challenging the
prices charged for medical products. These third-party payors could also impose price controls and other conditions that must be met by patients prior to
providing coverage for use of our product candidates, if approved. For example, insurers may establish a "step-edit" system that requires a patient to first
use a lower price alternative product prior to becoming eligible for reimbursement of a higher price product.
Third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products
and services. The process for determining whether a payor will provide coverage for a product may be separate from the process of setting the price or
reimbursement rate that the payor will pay for the product once coverage is approved. Levels of reimbursement may also decrease in the future, and
legislation, regulation, or reimbursement policies of third-party payors may adversely affect the demand for and reimbursement available for our product
candidates, which in turn, could negatively impact pricing. If patients are not adequately reimbursed for our product candidates, if approved, they may
reduce or discontinue purchases of it, which would result in a significant shortfall in achieving revenue expectations and negatively impact our business,
prospects, and financial condition. For example, the IRA contains substantial drug pricing reforms, including the establishment of a drug price negotiation
program within the U.S. Department of Health and Human Services that would require manufacturers to charge a negotiated "maximum fair price" for
certain selected drugs or pay an excise tax for noncompliance, the establishment of rebate payment requirements on manufacturers of certain drugs payable
under Medicare Parts B and D to penalize price increases that outpace inflation, and requires manufacturers to provide
54
Table of Contents
discounts on Part D drugs. Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the IRA. The IRA could have the
effect of reducing the prices we can charge and reimbursement we receive for our products, if approved, thereby reducing our profitability, and could have
a material adverse effect on our financial condition, results of operations, and growth prospects. The IRA's drug price negotiation provisions are subject to
ongoing constitutional challenges, and the effect of IRA on our business and the biotechnology industry in general is not yet known.
Risks Related to Our Dependence on Third Parties
We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials we may initiate, and
those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such preclinical studies or clinical trials or
failing to comply with regulatory requirements.
We rely on third parties, study sites, and others to conduct, supervise, and monitor our preclinical and clinical trials for our product candidates. We expect
to continue to rely on third parties, such as CDMOs, clinical data management organizations, medical and scientific institutions, and clinical and preclinical
investigators to conduct our preclinical studies and clinical trials. We often have to negotiate budgets and contracts with such third parties, and if we are
unsuccessful or if the negotiations take longer than anticipated, this could result in delays to our development timelines and increased costs.
While we have, or expect to have, agreements governing the activities of such third parties, we will have limited influence and control over their actual
performance and activities. Third-party service providers are not our employees, and except for remedies available to us under agreements with such third
parties, we cannot control whether or not they devote sufficient time and resources to our preclinical studies or clinical trials. Nevertheless, we will be
responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the applicable protocol and legal, regulatory,
and scientific standards, and our reliance on third parties will not relieve us of our regulatory responsibilities. For example, we will remain responsible for
ensuring that each of our trials is conducted in accordance with the general investigational plan and protocols for the trial. We must also ensure that our
preclinical studies are conducted in accordance with GLP and under current GMP conditions, as appropriate. Moreover, the FDA and comparable foreign
regulatory authorities require us to comply with GCPs for conducting, recording, and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. The FDA enforces these GCPs through
periodic inspections of trial sponsors, principal investigators, clinical trial sites, and IRBs.
Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat
clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violate federal or
state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
If these third parties upon which we depend do not successfully carry out their contractual duties, meet expected deadlines, conduct our preclinical studies
or any clinical trials in accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the data
they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons:
• we, our CDMOs, or other third-party collaborators may be subject to regulatory enforcement or other legal actions;
•
the data generated in our preclinical studies or clinical trials may be deemed unreliable and our such studies and clinical trials may need to be
repeated, extended, delayed, or terminated;
• we may need to identify new CDMOs with which to partner for the supply of our product candidates;
• we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates; or
• we may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates, if approved.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our preclinical studies or
clinical trials will comply with the applicable regulatory requirements. To the extent we are unable to successfully identify and manage the performance of
third-party service providers in the future, our business may be materially and adversely affected. As a result, our results of operations and the commercial
prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
If we need to identify and retain alternative CDMOs for any reason during our product development programs, the technical skills required to manufacture
our product candidates may be unique or proprietary to the original CDMO and we may have
55
Table of Contents
difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to
transfer such skills at all. In addition, if we are required to change CDMOs for any reason, we will be required to verify that the new CDMO maintains
facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a
manufacturing comparability study, that any new manufacturing process will produce our product candidate according to the specifications previously
submitted to the FDA or another regulatory authority. The delays associated with the verification of a new CDMO could negatively affect our ability to
develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a CDMO may possess technology related to
the manufacture of our product candidate that such CDMO owns independently. This would increase our reliance on such CDMO or require us to obtain a
license from such CDMO in order to have another CDMO manufacture our product candidates. In addition, changes in manufacturers often involve
changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our
clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the
conduct of additional clinical trials.
Our anticipated reliance on third parties for clinical trials will entail additional risks. Our third-party service providers may have relationships with other
entities, some of which may be our competitors, for whom they may also be conducting clinical trials or other therapeutic development activities that could
harm our competitive position. In addition, we will be required to report certain financial interests of our third-party investigators if these relationships
exceed certain financial thresholds or meet other criteria. The FDA or comparable foreign regulatory authorities may question the integrity of the data from
those clinical trials conducted by investigators who may have conflicts of interest. Lastly, we are required to register certain clinical trials and post the
results of certain completed clinical trials on a government-sponsored database, clinicaltrials.gov, within specified timeframes. Failure to do so can result
in enforcement actions and adverse publicity.
Agreements with third parties conducting or otherwise assisting with our clinical or preclinical studies might terminate for a variety of reasons, including a
failure to perform by the third parties. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with
alternative providers or do so on commercially reasonable terms. Switching or adding additional third parties involves additional cost and requires
management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, if we need to enter into
alternative arrangements, it could delay our product development activities and adversely affect our business. Though we intend to carefully manage our
relationships with third parties, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will
not have a material adverse impact on our business, financial condition, prospects, and results of operations.
We will also rely on other third parties to store and distribute our product candidates for preclinical purposes or clinical trials that we conduct. Any
performance failure on the part of our distributors could delay development, marketing approval, or commercialization of our product candidates, if
approved, producing additional losses and depriving us of potential product revenue.
If we encounter difficulties in negotiating commercial manufacturing and supply agreements with third-party manufacturers and suppliers of our
product candidates or any product components, our ability to commercialize our product candidates, if approved, would be impaired.
We have entered into a strategic partnership with CanSinoBIO to manufacture our modifier gene therapy pipeline product candidates. Under this
agreement, CanSinoBIO is responsible for the CMC development and manufacture of clinical supplies for OCU400, OCU410 and OCU410ST. The
agreement also provides commercialization rights to CanSinoBIO in Greater China. This agreement may be adversely affected if the U.S. government were
to impose restrictions related to goods manufactured in or imported from China.
We expect to rely on our qualified suppliers and other third parties to manufacture clinical supplies of our product candidates and commercial supplies of
our products, if and when approved for marketing by applicable regulatory authorities, as well as for packaging, serialization, storage, distribution, and
other production logistics. We, however, may not succeed in our efforts to establish manufacturing relationships or other alternative arrangements for any
of our product candidates, components, and programs, or may be unable to do so on commercially favorable terms. If we are unable to enter into such
agreements on commercially favorable terms, our future profit margins would be adversely affected and our ability to commercialize any products that
receive marketing approval on a timely and competitive basis would be impaired. As a result, our business, financial condition, and results of operations
would be materially adversely affected.
If the manufacturers upon whom we rely fail to produce our product candidates or product components pursuant to the terms of contractual
arrangements with us or fail to comply with stringent regulations applicable to biotechnology
56
Table of Contents
manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, our product candidates, if
approved, and may lose potential revenues.
We rely on third-party contract manufacturers to manufacture some of our preclinical product candidate supplies and some of our clinical trial product
supplies and, if approved, will rely on third-party contract manufacturers to manufacture some of our commercial product supplies, including all of our
drug substance, vialing, labeling, and packaging. We do not own manufacturing facilities for producing any clinical trial or commercial product supplies.
There can be no assurance that our preclinical, clinical development, and, if approved, commercial product supplies will not be limited or interrupted,
including as a result of impacts of current macroeconomic and geopolitical events, increasing rates of inflation, rising interest rates, or that our product
supplies will be of satisfactory quality or continue to be available at acceptable prices.
As with the third parties on which we rely or expect to rely for our preclinical activities and clinical trials, we have agreements governing the activities of
our manufacturers but have limited influence and control over their actual performance and activities. Our third-party manufacturers are not our employees,
and except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and
resources to our manufacturing requirements. If these third-party manufacturers do not successfully carry out their contractual duties, meet expected
deadlines or manufacture our product candidates in accordance with regulatory requirements, and if there are disagreements between us and such parties,
clinical development or marketing approval of our product candidates could be delayed.
The manufacture of biotechnology products requires significant expertise and capital investment, including the development of advanced manufacturing
techniques and process controls. Manufacturers of therapeutics often encounter difficulties in production, particularly in scaling up initial production. These
problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing,
shortages of qualified personnel, and compliance with strictly enforced federal, state, and foreign regulations. If our manufacturers were to encounter any
of these difficulties and were unable to perform as agreed, our ability to provide product candidates to patients in our clinical trials and for commercial use,
if approved, would be jeopardized.
In addition, all manufacturers of our product candidates and therapeutic substances must comply with current GMP requirements enforced by the FDA that
are applicable to both finished products and their active components used for both, clinical and commercial supply. The FDA enforces these requirements
through its facilities inspection program. Our manufacturers must be approved by the FDA pursuant to inspections that will be conducted after we submit
our marketing applications to the agency. Our manufacturers will also be subject to continuing FDA and other regulatory authority inspections should we
receive marketing approval. Further, we, in cooperation with our contract manufacturers, must supply all necessary CMC documentation to the FDA in
support of a marketing application on a timely basis.
The current GMP requirements include quality control, quality assurance, and the maintenance of records and documentation. Manufacturers of our product
candidates, therapeutic substances, and the active pharmaceutical ingredients necessary to produce our product candidates may be unable to comply with
our specifications, current GMP requirements, and with other FDA, state, and foreign regulatory requirements. Poor control of production processes can
lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of a product candidate that may
not be detectable in final product testing. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure or maintain regulatory approval for their
manufacturing facilities. Any such deviations may also require remedial measures that may be costly and/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 resulting delays in obtaining products, if approved, or product candidates that comply with the applicable regulatory requirements may result
in delays to clinical trials, product approvals, and commercialization. It may also require that we conduct additional studies.
While we are ultimately responsible for the manufacture of our product candidates, other than through our contractual arrangements, we have little control
over our manufacturers’ compliance with these regulations and standards. A failure to comply with the applicable regulatory requirements may result in
regulatory enforcement actions against our manufacturers or us, including fines and civil and criminal penalties, including imprisonment, suspension or
restrictions of production, injunctions, delays, withdrawal or denial of product approval or supplements to approved products, clinical holds or termination
of clinical studies, warning or untitled letters, Form 483s, regulatory authority communications warning the public about safety issues with the product,
refusal to permit the import or export of the products, product seizure, detention, or recall, operating restrictions, suits under the civil FCA, corporate
integrity agreements, or consent decrees. Depending on the severity of any potential regulatory action, our clinical or commercial supply could be
interrupted or limited, which could have a material adverse effect on our business.
57
Table of Contents
Any problems or delays we experience in preparing for commercial-scale manufacturing of a product candidate or component, including manufacturing
validation, may result in a delay in FDA approval or commercial launch, if approved, of the product candidate or may impair our ability to manufacture
commercial quantities or such quantities at an acceptable cost, which could result in the delay, prevention, or impairment of commercialization of our
product candidates and could adversely affect our business. The risks associated with any problems or delays may be greater should the U.S. government
impose restrictions relating to goods manufactured in or imported from China.
We or our third-party manufacturers may also encounter shortages in the materials necessary to produce our product candidates in the quantities
needed for our clinical trials or, if our product candidates are approved, in sufficient quantities for commercialization.
We or our third-party manufacturers may also encounter shortages in the raw materials, therapeutic substances, or active pharmaceutical ingredients
necessary to produce our product candidates in the quantities needed for our clinical trials or, if our product candidates are approved, in sufficient quantities
for commercialization or to meet an increase in demand. Such shortages may occur for a variety of reasons, including capacity constraints, delays or
disruptions in the market, and shortages caused by the purchase of such materials by our competitors or others. We or our third-party manufacturers' failure
to obtain the raw materials, therapeutic substances, or active pharmaceutical ingredients necessary to manufacture sufficient quantities of our product
candidates may cause the manufacturers to fail to deliver the required commercial quantities of our product candidates on a timely basis and at
commercially reasonable prices. If such failure occurs, we would likely be unable to meet the demand for our products, if approved, and we would lose
potential revenues.
The number of available, qualified third-party manufactures is limited, and if we are compelled to locate an alternative manufacturing partner, our
product development activities and commercialization could be delayed and additional expense would be incurred.
There are a limited number of manufacturers that operate under current GMP regulations, that are both capable of manufacturing for us and willing to do
so, and therefore our product candidates may compete with other products and product candidates for access to manufacturing facilities. Moreover, because
our product candidates must be manufactured under sterile conditions, the number of manufacturers who can meet this requirement are even more limited.
If our existing third-party manufacturers, or the third parties that we engage in the future to manufacture a product, if approved, or component for
commercial sale or for any clinical trials we expect to initiate in the future should cease to continue to do so for any reason (including the termination of our
agreements with such manufacturers, which can occur for a variety of reasons, or the bankruptcy of such manufacturers), it would be difficult to obtain a
suitable alternative manufacturer. We would likely experience delays in obtaining sufficient quantities of our product candidates for us to meet commercial
demand or to advance our clinical trials while we identify and qualify replacement suppliers. Any change in our manufacturers could be costly because the
commercial terms of any new arrangement could be less favorable and because the expenses relating to the transfer of necessary technology and processes
could be significant.
If the FDA or a comparable foreign regulatory authority inspects the facilities for the manufacture of our product candidates and finds that they are not in
compliance with current GMP regulations now or in the future, we may need to find alternative manufacturing facilities. Any new manufacturers would
need to either obtain or develop the necessary manufacturing know-how, and obtain the necessary equipment and materials, which may take substantial
time and investment. We must also receive FDA approval for the use of any new manufacturers for commercial supply. Any such developments would
significantly impact our ability to develop, obtain, and maintain regulatory authorization or approval for or market our product candidates, if approved.
The number of available third-party facilities may also be further limited by natural disasters, such as pandemics, including any ongoing effects of the
COVID-19 pandemic, floods, fire, or such facilities could face manufacturing issues, such as contamination or regulatory findings following a regulatory
inspection of such facility. In such instances, an appropriate replacement third-party relationship may not be readily available to us or on acceptable terms,
which would cause additional delays and increased expense and may have a material adverse effect on our business.
We may seek to collaborate with third parties for the development or commercialization of our product candidates. We may not be successful in
establishing or maintaining collaborative relationships, any of which could adversely affect our ability to develop and commercialize our product
candidates.
We are in an agreement with CanSinoBIO for the development and commercialization of our modifier gene therapy platform. In the future, we may seek to
enter into additional collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of other
product candidates. We may utilize a variety of types of collaboration,
58
Table of Contents
distribution, and other marketing arrangements with third parties to develop and commercialize our product candidates, both inside and outside the United
States. In particular, we may enter into arrangements with third parties to perform certain services in the United States or other countries if we do not
establish our own sales, marketing, and distribution capabilities in such countries, or if we determine that such third-party arrangements are otherwise
beneficial. We may also consider potential collaborative partnership opportunities for sales, marketing, distribution, development, or licensing or broader
collaboration arrangements, including with mid-size and large pharmaceutical companies, regional and national pharmaceutical companies, and
biotechnology companies.
The success of our current and future collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators
generally have significant discretion in determining the efforts and resources that they will apply to collaboration arrangements. Accordingly, with respect
to any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate
to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend in part on our
collaborator's abilities and efforts to successfully perform the functions assigned to them in these arrangements.
Moreover, disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays
in the development process or commercialization of the applicable product candidate and, in some cases, termination of the collaboration arrangement.
These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Moreover, collaborations with pharmaceutical
companies and other third parties are often terminated or allowed to expire. Any such termination or expiration would adversely affect us financially and
could harm our business reputation.
Our current and future collaborations may pose a number of additional risks, including the following:
•
•
•
•
•
•
•
•
•
•
•
collaborators may not pursue development of product candidates and commercialization of any product candidates that achieve regulatory
approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the
collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate,
repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;
collaborators could fail to make timely regulatory submissions for a product candidate;
collaborators may not comply with all applicable regulatory requirements or may fail to report safety data in accordance with all applicable
regulatory requirements, which could subject them or us to regulatory enforcement actions;
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates
if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are
more economically attractive than ours;
product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or
products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;
a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit
sufficient resources to the marketing and distribution of such product candidate or product;
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or the preferred course of development,
might cause delays or termination of the research, development, or commercialization of product candidates, might lead to additional
responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time consuming and
expensive;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties or fail to maintain intellectual property rights which they license to us,
which may expose us to litigation and potential liability; and
collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to
pursue further development or commercialization of the applicable product candidates.
59
Table of Contents
Collaboration agreements may not lead to development or commercialization of our product candidates in the most efficient manner, or at all. If any
collaborations do not result in the successful development and commercialization of our product candidates or if one of our collaborators subsequently
terminates our agreement with us, we may not receive any future research funding, milestone, or royalty payments under the collaboration, as applicable. If
we do not receive the funding we expect under the agreements, our development of our product candidates could be delayed, and we may need additional
resources to develop our product candidates and our product platform. All of the risks relating to product development, regulatory approval, and
commercialization described in this report also apply to the activities of our collaborators.
Additionally, if any collaborator of ours is involved in a business combination, the collaborator might de-emphasize or terminate development or
commercialization of any product candidate licensed to them by us. If one of our collaborators terminates its agreement with us, we may find it more
difficult to attract new collaborators and our reputation in the business and financial communities could be adversely affected.
Should we desire to pursue a collaboration agreement but are not able to establish collaborations, we may have to alter our development and
commercialization plans and our business could be adversely affected.
For some of our product candidates, we may decide to collaborate with pharmaceutical or biotechnology companies for the development and potential
commercialization of those product candidates. We face significant competition in seeking appropriate collaborators and whether we reach a definitive
agreement for a collaboration will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions
of the proposed collaboration, and the proposed collaborator's evaluation of a number of factors. Those factors may include the design or results of clinical
trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product
candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, if approved, the potential of competing products,
the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the
merits of the challenge, and industry and market conditions generally. We may also be restricted under future license agreements from entering into
agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. Should we desire to
pursue a collaboration agreement but are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may
have to curtail the development of a product candidate, reduce or delay our development program or one or more of our other development programs, delay
our potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or
commercialization activities at our own expense. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the
necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue
to develop our product platform and our business may be materially and adversely affected.
Risks Related to Legal and Compliance Matters
We are currently, and may in the future be, subject to securities litigation, which is expensive and could divert management attention.
In June 2021, a securities class action lawsuit was filed against us and certain of our agents in the U.S. District Court for the Eastern District of
Pennsylvania (“Court”) (Case No. 2:21-cv-02725) that purported to state a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act and
Rule 10b-5 promulgated thereunder, based on statements made by us concerning the announcement of our decision to pursue the submission of a BLA for
COVAXIN for adults ages 18 years and older rather than pursuing an EUA for the vaccine candidate. In July 2021, a second securities class action lawsuit
was filed against us and certain of our agents in the Court (Case No. 2:21-cv-03182) that also purported to state a claim for alleged violations of Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on the same statements as the first complaint. In March 2022, the
Court consolidated these two related securities class action lawsuits and appointed Andre Galan Bernd Benayon to serve as lead plaintiff. The lead
plaintiff's amended complaint was filed in June 2022. In March 2023, the Court granted the Company's motion to dismiss with prejudice. The lead plaintiff
appealed to the United States Court of Appeals for the Third Circuit ("Third Circuit") regarding the order that was entered in March 2023, which dismissed
the action with prejudice. The lead plaintiff's appellant’s brief and joint appendix were filed in July 2023. Our appellees’ brief was filed in August 2023,
and the lead plaintiff's reply brief was filed in September 2023. In March 2024, the Third Circuit affirmed the Court's decision to dismiss with prejudice the
consolidated securities class action lawsuits.
In August 2021, a stockholder derivative lawsuit was filed derivatively on behalf of us against certain of our agents and the nominal defendant Ocugen in
the Court (Case No. 2:21-cv-03876) that purported to state a claim for breach of fiduciary duty and contribution for violations of Sections 10(b) and 21(d)
of the Exchange Act, based on facts and circumstances relating to the securities class action lawsuits and seeking contribution and indemnification in
connection with claims asserted in the securities class action lawsuits. In September 2021, a second stockholder derivative lawsuit was filed derivatively on
behalf of
60
Table of Contents
us against certain of our agents and the nominal defendant Ocugen in the Court (Case No. 2:21-cv-04169) that purported to state a claim for breach of
fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and contribution for violations of Sections 10(b) and 21(d) of the Exchange
Act, based on the same allegations as the first complaint. The parties to both stockholder derivative lawsuits have stipulated to the consolidation of the two
stockholder derivative lawsuits and also have submitted to the Court in each action a proposed order requesting a stay of the litigation pending a decision
on any motion to dismiss filed in the securities class action lawsuits, which the Court entered in April 2022. In March 2023, the Court in the securities class
action lawsuits granted our motion to dismiss with prejudice. The parties to the stockholder derivative lawsuits stipulated to extend the stay of litigation
pending resolution of any appeal filed in the securities class action lawsuits, which the Court entered in March 2023.
In April 2024, a securities class action lawsuit was filed against us and certain of our agents in the Court (Case No. 2:24-cv-01500) that purported to state a
claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on statements made by us
concerning our previously-issued audited consolidated financial statements for each fiscal year beginning January 1, 2020 and our previously-issued
unaudited interim condensed consolidated financial statements for each of the first three quarters in such years and the effectiveness of our disclosure
controls and procedures during each such period.
The complaints seek unspecified damages, interest, attorneys' fees, and other costs. We believe that these lawsuits are without merit and intend to
vigorously defend against them. At this time, no assessment can be made as to their likely outcome or whether the outcome will be material to us. We may
also become subject to additional securities class action lawsuits in the future. This risk is especially relevant for us because life sciences companies have
experienced significant stock price volatility in recent years.
The cost of defending against these types of claims against us or the ultimate resolution of such claims, whether by settlement or adverse court decision,
may divert management’s attention and harm our business. Further, potential claimants may be encouraged to bring lawsuits based on a settlement from us
or adverse court decisions against us. We cannot currently assess the likely outcome of such lawsuits, but the commencement and/or resolution of such
lawsuits (particularly if the outcome were negative), could have a material adverse effect on our reputation, results of operations, financial condition, and
cash flows. They could also cause a decline in the market price of our common stock.
If we fail to comply with federal and state healthcare laws, including fraud, abuse, and health and other information privacy and security laws, we
could face substantial penalties and our business, financial condition, results of operations, and prospects could be adversely affected.
As a biotechnology company, we are subject to many federal and state healthcare laws, such as the federal Anti-Kickback Statute, the federal civil and
criminal FCA, the civil monetary penalties statute, the Medicaid Drug Rebate statute and other price reporting requirements, the VHCA, the HIPAA, the
FCPA, the ACA, and similar state laws. We may also be subject to laws regarding transparency and patient privacy. Even though we do not and will not
control referrals of healthcare services or bills directly to Medicare, Medicaid, or other third-party payors, certain federal and state healthcare laws, and
regulations pertaining to fraud and abuse, reimbursement programs, government procurement, and patients’ rights are and will be applicable to our
business.
It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, or case law
involving applicable fraud, abuse, or other healthcare laws and regulations. If we or our operations are found to be in violation of any federal or state
healthcare law, or any other governmental laws or regulations that applies to us, we may be subject to penalties, including civil, criminal, and
administrative penalties, damages, fines, imprisonment, disgorgement, suspension and debarment from government contracts, and refusal of orders under
existing government contracts, exclusion from participation in U.S. federal or state health care programs, corporate integrity agreements, and the
curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results.
Although an effective compliance program can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely
eliminated. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, reimbursement, and fraud laws may prove
costly. Any action against us for the violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and
divert our management’s attention from the operation of our business.
Healthcare legislative or regulatory reform measures may have a negative impact on our business and results of operations.
61
Table of Contents
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system. The United
States government, state legislatures, and foreign governments also have shown significant interest in implementing cost-containment programs to limit the
growth of government-paid healthcare costs, including price controls, restrictions on reimbursement, and requirements for substitution of generic products
for branded prescription products. In recent years, Congress has considered reductions in Medicare reimbursement levels for products administered by
physicians.
CMS, the agency that administers the Medicare and Medicaid programs, also has authority to revise reimbursement rates and to implement coverage
restrictions for some products. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization
of and reimbursement for any approved products. While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payers often
follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results
from federal legislation or regulation may result in a similar reduction in payments from private payers.
The ACA substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical
industry. The ACA is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on
pharmaceutical and medical device manufacturers, and impose additional health policy reforms. There have been significant ongoing administrative,
executive, and legislative efforts to modify or eliminate the ACA. For example, the Tax Cuts and Jobs Act, enacted on December 22, 2017, repealed the
shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Code, commonly referred to as
the individual mandate. Other legislative changes have been proposed and adopted since passage of the ACA. The ACA has also been subject to challenges
in the courts.
Other legislative changes have been proposed and adopted since the passage of the ACA. For example, the Budget Control Act of 2011, among other
things, includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which in connection with subsequent
legislation are extended to 2032 unless additional Congressional action is taken. Further, 2013, the American Taxpayer Relief Act of 2012 among other
things, reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years. The IRA also contains substantial drug
pricing reforms, including the establishment of a drug price negotiation program within the U.S. Department of Health and Human Services that would
require manufacturers to charge a negotiated “maximum fair price” for certain selected drugs or pay an excise tax for noncompliance, the establishment of
rebate payment requirements on manufacturers of certain drugs payable under Medicare Parts B and D to penalize price increases that outpace inflation,
and requires manufacturers to provide discounts on Part D drugs. Substantial penalties can be assessed for noncompliance with the drug pricing provisions
in the IRA. The IRA could have the effect of reducing the prices we can charge and reimbursement we receive for our products, if approved, thereby
reducing our profitability, and could have a material adverse effect on our financial condition, results of operations, and growth prospects. The drug price
negotiations of the IRA are currently subject to several constitutional challenges. The outcomes of this litigation and the effect of IRA on our business and
the pharmaceutical industry in general are not yet known.
The ACA has also been subject to challenges in the courts. In the most recent challenge in 2021, for example, the Supreme Court ruled that plaintiffs
lacked standing to challenge the law as they had not alleged personal injury traceable to the allegedly unlawful conduct. As a result, the Supreme Court did
not rule on the constitutionality of the ACA or any of its provisions.
Further changes to and under the ACA remain possible, but it is unknown what form any such changes or any law proposed to replace or revise the ACA
would take, and how or whether it may affect our business in the future. We expect that changes to the ACA, the Medicare and Medicaid programs,
changes allowing the federal government to directly negotiate prices and changes stemming from other healthcare reform measures, especially with regard
to healthcare access, financing, or other legislation in individual states, could have a material adverse effect on the healthcare industry.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that additional federal, state, and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that
federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement, and reduced
demand for our products, once approved, or additional pricing pressures.
62
Table of Contents
Our employees, independent contractors, consultants, commercial partners, principal investigators, or CDMOs may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, independent contractors, consultants, commercial partners,
manufacturers, investigators, or CDMOs could include intentional, reckless, negligent, or unintentional failures to (i) comply with FDA regulations or other
similar regulatory requirements, (ii) comply with manufacturing standards, including current GMP requirements, (iii) comply with applicable fraud and
abuse laws, (iv) comply with federal and state data privacy, security, fraud and abuse, and other healthcare laws and regulations in the United States and
abroad, (v) provide accurate information to the FDA, (vi) properly calculate pricing information required by federal programs, (vii) comply with federal
procurement rules or contract terms, (viii) report financial information or data accurately, or (ix) disclose unauthorized activities to us. This misconduct
could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions
and serious harm to our reputation.
It is not always possible to identify and deter this type of 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 be in compliance with such 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 and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties,
damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs, individual
imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if we
become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of our
operations, any of which could adversely affect our ability to operate our business and our results of operations.
We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws, and other laws governing our operations. If we fail
to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, or be precluded from
developing, manufacturing, and selling certain products outside the United States, which could adversely affect our business, results of operations, and
financial condition.
If we expand our operations outside of the United States, we must dedicate additional resources to comply with anti-corruption laws, including the Bribery
Act, the FCPA, and other anti-corruption laws that apply to countries where we do business and may do business in the future. The Bribery Act, FCPA, and
these other laws generally prohibit us, our officers, and our employees and intermediaries from bribing, being bribed, or making other prohibited payments
to government officials or other persons to obtain or retain business or gain some other business advantage.
Compliance with the FCPA, in particular, is expensive and difficult, particularly in countries in which corruption is a recognized problem. The FCPA
presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other
hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be
improper payments to government officials and have led to FCPA enforcement actions. The FCPA also obligates companies whose securities are listed in
the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all
transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for
international operations.
We may in the future operate in jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we may participate in collaborations and
relationships with third parties whose actions could potentially subject us to liability under the Bribery Act, FCPA, or local anti-corruption laws. We are
also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United
Kingdom, the United States, Canada, and authorities in the European Union, including applicable export control regulations, economic sanctions on
countries and persons, customs requirements, and currency exchange regulations, collectively referred to as the Trade Control laws. In addition, various
laws, regulations, and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of
information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence
outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing,
manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our
development costs.
63
Table of Contents
If we are not in compliance with the Bribery Act, the FCPA, and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil
penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial
condition, results of operations, and liquidity. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the
FCPA’s accounting provisions. Any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws
by U.K., U.S., or other authorities could also have an adverse impact on our reputation, our business, results of operations, and financial condition.
Risks Related to Our Intellectual Property
We may be unable to obtain and maintain patent protection for our technology and product candidates, or the scope of the patent protection obtained
may not be sufficiently broad or enforceable, such that our competitors could develop and commercialize technology and products similar or identical
to ours, and our ability to successfully commercialize our technology and product candidates may be impaired.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries, with respect to our
proprietary technology and product candidates. We have sought to protect our proprietary position by filing in the United States and in certain foreign
jurisdictions, patent applications related to our novel technologies and product candidates.
The patent prosecution process is expensive and time-consuming, and we may not have filed, maintained, or prosecuted and may not be able to file,
maintain, and prosecute all necessary or desirable patents or patent applications at a reasonable cost or in a timely manner. We may also fail to identify
patentable aspects of our research and development output before it is too late to obtain patent protection.
The patent position of pharmaceutical and biotechnology companies generally is highly uncertain, involves complex legal and factual questions, and has in
recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are
highly uncertain. Our pending and future patent applications may fail to result in issued patents in the United States or in other foreign countries which may
impact protection of our technology or product candidates, or which may effectively prevent others from commercializing competitive technologies and
products. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and the standards applied
by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, unlike patent law in the United
States, European patent law precludes the patentability of methods of treatment of the human body and imposes substantial restrictions on the scope of
claims it will grant. In addition, unlike the U.S. the European Patent Office typically limits the claims to those commensurate in scope with specifically
disclosed embodiments. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United
States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain whether we
or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors
were the first to file for patent protection of such inventions. Databases for patents and publications, and methods for searching them, are inherently limited
so we may not know the full scope of all issued and pending patent applications. As a result, the issuance, scope, validity, enforceability, and commercial
value of our patent rights are uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or
product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular,
during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional
preclinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis,
or at all. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of
our patents or narrow the scope of our patent protection.
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection for
our proprietary technology and product candidates, prevent competitors from competing with us, or otherwise provide us with any competitive advantage.
Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing
manner. In some instances, we may need to license additional patents and trade secrets to commercialize our product candidates in certain territories.
The issuance of a patent is not conclusive as to our inventorship, ownership, scope, validity, or enforceability, and our owned and licensed patents may be
challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or in patent claims being
narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or
identical technology and products, or limit the
64
Table of Contents
duration of the patent protection of our technology and product candidates. Given the amount of time required for the development, testing, and regulatory
review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result,
our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or
defense of our issued patents.
In 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. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The
USPTO developed new 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, became effective in 2013. The first to file provisions limit the rights of an
inventor to patent an invention if not the first to file an application for patenting that invention, even if such invention was the first invention. 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, which could have a material adverse effect on our business, financial condition, results of operations, and prospects. For
example, the Leahy-Smith Act created a new administrative tribunal known as the Patent Trial and Appeals Board ("PTAB"), that provides a venue for
companies to challenge the validity of competitor patents at a cost that is much lower than district court litigation and on timelines that are much faster.
Although it is not clear what, if any, long term impact the PTAB proceedings will have on the operation of our business, the outcome of patent challenge
proceedings before the PTAB since its inception in 2013 have resulted in the invalidation of many U.S. patent claims. The availability of the PTAB as a
lower-cost, faster, and potentially more potent tribunal for challenging patents could therefore increase the likelihood that our own patents will be
challenged, thereby increasing the uncertainties and costs of maintaining, defending, and enforcing them.
If we are not able to obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation,
thereby potentially extending the term of our marketing exclusivity for our product candidates, our business may be materially harmed.
Depending upon the timing, duration, and specifics of FDA marketing approval of our product candidates, one of the U.S. patents covering each of such
product candidates or the use thereof may be eligible for up to five years of patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act
allows a maximum of one patent to be extended per FDA approved product to account for the patent term lost during the FDA regulatory review process. A
patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims
covering such approved drug product, a method for using it, or a method for manufacturing it may be extended. Patent term extension also may be available
in certain foreign countries upon regulatory approval of our product candidates. Nevertheless, we may not be granted patent term extension either in the
United States or in any foreign country because of, for example, failing to exercise due diligence during the testing phase or regulatory review process,
failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements.
Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less
than we request.
If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will
have the right to exclusively market our product may be shortened and our competitors may obtain approval of competing products following our patent
expiration sooner, and our revenue could be reduced, possibly materially.
It is possible that we will not obtain patent term extension under the Hatch-Waxman Act for a U.S. patent covering one of our product candidates even
where that patent is eligible for patent term extension, or if we obtain such an extension, it may be for a shorter period than we had sought. Further, for our
licensed patents, we do not have the right to control prosecution, including filing with the USPTO, a petition for patent term extension under the Hatch-
Waxman Act. Thus, if one of our licensed patents is eligible for patent term extension under the Hatch-Waxman Act, we may not be able to control whether
a petition to obtain a patent term extension is filed, or obtained, from the USPTO.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming, and
unsuccessful.
Competitors and other third parties may infringe, misappropriate, or otherwise violate our owned and licensed patents, trade secrets, or other intellectual
property. As a result, to discourage, prevent, or counter infringement, misappropriation, or unauthorized use, we may be required to file infringement or
misappropriation claims or other intellectual property related
65
Table of Contents
proceedings, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke such parties to assert
counterclaims against us alleging that we infringed their patents or that our asserted patents are invalid. In addition, in a patent infringement or other
intellectual property related proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims
narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An
adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly.
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 or trade secrets could be compromised by disclosure during this type of litigation.
We may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in other contested proceedings such as
opposition, derivation, reexamination, inter partes review, post-grant review, or interference proceedings in the United States or elsewhere, challenging our
patent rights or the patent rights of others. An adverse determination in any such submission, proceeding, or litigation could reduce the scope of, or
invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to
us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of
protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop, or
commercialize current or future product candidates.
In the United States, the FDA does not prohibit clinicians from prescribing an approved product for uses that are not described in the product’s labeling.
Although use of a product directed by off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical
specialties, particularly in the United States, and such infringement is difficult to detect, prevent, or prosecute.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights,
the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability to develop, manufacture, market, and sell our product candidates and use our proprietary technologies
without infringing, misappropriating, or otherwise violating the intellectual property and other proprietary rights of third parties. There is a considerable
amount of intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, infringement
litigation claims regarding our products and technology, including claims from competitors or from non-practicing entities that have no relevant product
revenue and against whom our own patent portfolio may have no deterrent effect. Moreover, we may become party to future adversarial proceedings or
litigation regarding our patent portfolio or the patents of third parties. Such proceedings could also include contested post-grant proceedings such as
oppositions, inter partes review, reexamination, interference, or derivation proceedings before the USPTO or foreign patent offices.
The legal threshold for initiating litigation or contested proceedings is low, so even lawsuits or proceedings with a low probability of success might be
initiated and require significant resources to defend. Litigation and contested proceedings can be expensive and time-consuming, and our adversaries in
these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we do. The risks of being involved
in such litigation and proceedings may increase as our product candidates near commercialization and as we gain the greater visibility associated with being
a public company. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. We may
not be aware of all such intellectual property rights potentially relating to our product candidates and their uses.
Thus, we do not know with certainty that any of our product candidates, or our development and commercialization thereof, do not and will not infringe or
otherwise violate any third party’s intellectual property.
If we are found to infringe, misappropriate, or otherwise violate a third party’s intellectual property rights, we could be required to obtain a license from
such third party to continue developing and marketing its products and technology. However, we may not be able to obtain any required license on
commercially reasonable terms or at all. Even if we are able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the
same technologies licensed to us and could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to
cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and
attorneys’ fees if we are found to have willfully infringed a patent, and could be forced to indemnify our customers or collaborators. A finding of
infringement could also result in an injunction that prevents us from commercializing our product candidates or forces us to cease some of our business
operations, which could materially harm our business. In addition, we
66
Table of Contents
may be forced to redesign our product candidates, seek new regulatory approvals, and indemnify third parties pursuant to contractual agreements. Claims
that we have misappropriated confidential information or trade secrets of third parties could have a similar negative impact on our business.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment, and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance, renewal, and annuity fees on any issued patent must be paid to the USPTO and foreign patent agencies in several stages or annually
over the lifetime of our owned and licensed patents and patent applications. The USPTO and various foreign governmental patent agencies require
compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. In certain
circumstances, we rely on our licensing partners to pay these fees to, or comply with the procedural and documentary rules of the relevant patent agency.
While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent
rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to
respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If we or our
licensors fail to maintain the patents and patent applications covering our product candidates, it would have a material adverse effect on our business.
Certain aspects of our product candidates are protected by patents exclusively licensed from other companies or institutions. If these third parties
terminate their agreements with us or fail to maintain or enforce the underlying patents or licenses thereto, or we otherwise lose our rights to these
patents, our competitive position and our market share in the markets for any of our approved products will be harmed.
A substantial portion of our patent portfolio is in-licensed. As such, we are party to license agreements and certain aspects of our business depend on
patents and/or patent applications owned by other companies or institutions. For example, we hold exclusive licenses for patent families relating to
OCU400, OCU410, OCU410ST, and OCU200, and an exclusive license in the United States, Europe, Japan, South Korea, Australia, China, and Hong
Kong with respect an inhaled mucosal COVID-19 vaccine, and exclusive licenses for patent families related to NeoCart.
Pursuant to the CU Agreement, which primarily relates to OCU200, we are responsible for and control the patent prosecution of all patent families licensed
under the CU Agreement.
Pursuant to the SERI Agreement, which relates to NHR genes NR1D1, NR2E3 (OCU400), RORA (OCU410 and OCU410ST), NUPR1, and NR2C1, from
and after December 19, 2017, we have the right to assume responsibility and control patent prosecution of licensed patent families relating to these NHR
genes. Additionally, we are responsible for and control patent prosecution for any patent applications developed in connection with the SERI Agreement
filed after December 19, 2017 that are owned jointly by us and SERI, or solely by us.
Pursuant to the WU Agreement, which relates to inhaled mucosal COVID-19 vaccines, Washington University maintains control of patent preparation,
filing, prosecution, and maintenance, subject to our right to negotiate with WU after the first anniversary of the effective date of the WU Agreement to
assume responsibility for and control of the prosecution and maintenance of the patent rights throughout the Mucosal Vaccine Territory in Washington
University's name.
Our rights with respect to in-licensed patents and patent applications may be lost if the applicable license agreement expires or terminates. We are likely to
enter into additional license agreements to in-license patents and patent applications as part of the development of our business in the future, under which
we may not retain control of the preparation, filing, prosecution, maintenance, enforcement, and defense of such patents. If we are unable to maintain these
patent rights for any reason, our ability to develop and commercialize our product candidates could be materially harmed.
Our licensors may not successfully prosecute certain patent applications, the prosecution of which they control, under which we are licensed and on which
our business depends. Even if patents are issued from these applications, our licensors may fail to maintain these patents, may decide not to pursue
litigation against third-party infringers, may fail to prove infringement, or may fail to defend against counterclaims of patent invalidity or unenforceability.
In some cases, our licensors may in-license certain patents licensed to us. If our licensors were to fail to maintain such licenses, we may need to obtain
additional licenses with respect to the applicable product candidates.
67
Table of Contents
Risks with respect to parties from whom we have obtained intellectual property rights may also arise out of circumstances beyond our control. In spite of
our best efforts, our licensors might conclude that we have materially breached our intellectual property agreements and might therefore terminate the
intellectual property agreements, thereby removing our ability to market products covered by these intellectual property agreements. If our intellectual
property agreements are terminated, or if the underlying patents fail to provide the intended market exclusivity, our competitors may severely impact our
business. Moreover, if our intellectual property agreements are terminated, our former licensors and/or assignors may be able to prevent us from utilizing
the technology covered by the licensed or assigned patents and patent applications. This could have a materially adverse effect on our competitive business
position and our business prospects.
Some intellectual property which we own or have licensed may have been discovered through government funded programs and thus may be subject to
federal regulations such as “march-in” rights, certain reporting requirements, and a preference for U.S. industry. Compliance with such regulations
may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with non-
U.S. manufacturers.
Some of the licenses or intellectual property rights that we own have been generated through the use of U.S. government funding and may therefore be
subject to certain federal regulations under the Bayh-Dole Act. To the best of our knowledge, our intellectual property for OCU400 for the treatment of
RHO and other gene-agnostic mutations-associated with RP, is subject to the Bayh-Dole Act. As a result, the U.S. government may have certain rights to
intellectual property embodied in these patents and patent applications. In general, the Bayh-Dole Act provides the U.S. government certain rights in
inventions developed using a government funded program, such as U.S. government’s right to a non-exclusive, non-transferable, irrevocable worldwide
license to use inventions for any governmental purpose. In addition, under the Bayh-Dole Act, the U.S. government has the right to require any invention
developed using U.S. government funding to be granted exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party
if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or
safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”).
Under the Bayh-Dole Act, the U.S. government also has the right to take title to inventions developed using a U.S. government funded program, if one fails
to disclose the invention to the government and fails to file an application to register the intellectual property within specified time limits. In addition, the
U.S. government may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual
property generated under a government funded program is also subject to certain reporting requirements. In addition, the Bayh-Dole Act requires that any
products subject to the Bayh-Dole Act be manufactured substantially in the United States. However, under the Bayh-Dole Act, this manufacturing
preference requirement can be waived if the owner of the intellectual property can show that reasonable efforts to manufacture the product substantially in
the United States were unsuccessful, or that under the circumstances, domestic manufacture is not commercially feasible. Any exercise by the government
of any of the foregoing rights under the Bayh-Dole Act may affect our competitive position, business, financial condition, results of operations, and
prospects.
If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are
important to our business.
Our agreements under which we license certain of our patent rights and a significant portion of the technology for our product candidates, impose royalty
and other financial obligations on us and other substantial performance obligations. We may also enter into additional licensing and funding arrangements
with third parties that may impose diligence, development, and commercialization timelines and milestone payment, royalty, insurance, and other
obligations on us. If we fail to comply with our obligations under current or future license and collaboration agreements, our counterparties may have the
right to terminate these agreements, in which event we might not be able to develop, manufacture, or market any product that is covered by these
agreements or may face other penalties under the agreements. Such an occurrence could diminish the value of our products and product candidates.
Termination of these agreements or reduction or elimination of our rights under these agreements may result in us having to negotiate new or reinstated
agreements with less favorable terms or cause us to lose our rights under these agreements, including our rights to important intellectual property or
technology.
In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in
such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow
what we believe to be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other
obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations,
and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing
arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which
could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
68
Table of Contents
We may not be able to protect our intellectual property and proprietary rights throughout the world.
Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and the laws of
foreign countries may not protect our rights to the same extent as the laws of 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 or licenses, 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 intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and
proprietary 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, could put our patent applications at risk of not being issued, 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 and proprietary rights around the world may be inadequate to obtain
a significant commercial advantage from the intellectual property that we develop or license.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many
countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited
remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third parties with respect to
any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations, and prospects
may be adversely affected.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property or claiming ownership
of what we regard as our own intellectual property.
Many of our and our licensors’ employees and contractors were previously employed at other biotechnology, medical device, or pharmaceutical companies,
including our competitors or potential competitors. Although we try to ensure that our employees and contractors do not use the proprietary information or
know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including
trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute
agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops
intellectual property that we regard as our own. Furthermore, we are unable to control whether our licensors have obtained similar assignment agreements
from their own employees and contractors. Our and their assignment agreements may not be self-executing or may be breached, and we or our licensors
may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our
intellectual property.
If we or our licensors fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property
rights or personnel which could have a material adverse effect on our competitive business position and prospects. Such intellectual property rights could
be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products, which may not
be available on commercially reasonable terms or at all. Even if we are successful in prosecuting or defending against such claims, litigation could result in
substantial costs and be a distraction to management.
Intellectual property litigation or other legal proceedings relating to intellectual property could cause us to spend substantial resources and distract our
personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and
could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results
of hearings, motions, or other interim proceedings or developments and if
69
Table of Contents
securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such
litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales,
marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of
our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources
and may also have an advantage in such proceedings due to their more mature and developed intellectual property portfolios. Uncertainties resulting from
the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and
other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and
confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract
manufacturers, consultants, advisors, and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our
employees and consultants. Despite these efforts, 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. Detecting the disclosure or misappropriation of a trade secret and
enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is
unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets
were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it,
from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a
competitor, our competitive position would be harmed.
Risks Related to Our Common Stock
We do not currently intend to pay dividends on our common stock, and, consequently, your ability to achieve a return on your investment will depend
on appreciation, if any, in the price of our common stock.
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the development,
operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the terms of
any future debt agreements may preclude us from paying dividends. Any return to stockholders will therefore be limited to the appreciation of their stock.
There is no guarantee that the common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
Sales of a substantial number of common stock by our stockholders in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of common stock in the public market, the market price of our common
stock could decline. We had 256.6 million shares of common stock outstanding as of December 31, 2023, which were all freely tradable, without
restriction, in the public market.
If a substantial number of shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common
stock could decline and we are unable to predict the effect that sales may have on the prevailing market price of our common stock.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to
entrenchment of management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could significantly reduce the value of our
shares to a potential acquiror or delay or prevent changes in control or changes in our management without the consent of our Board of Directors. The
provisions in our charter documents include the following:
•
•
a classified Board of Directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a
majority of our Board of Directors;
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
70
Table of Contents
•
•
•
•
•
•
•
•
•
the exclusive right of our Board of Directors, unless the Board of Directors grants such right to the stockholders, to elect a director to fill a
vacancy created by the expansion of the Board of Directors or the resignation, death, or removal of a director, which prevents stockholders from
being able to fill vacancies on our Board of Directors;
the prohibition on removal of directors without cause due to the classified Board of Directors;
the ability of our Board of Directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those
shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a
hostile acquiror;
the ability of our Board of Directors to alter our amended and restated bylaws without obtaining stockholder approval;
the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend, or repeal our amended and restated bylaws or repeal
certain provisions of our amended and restated certificate of incorporation;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our
stockholders;
an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and
proceedings;
the requirement that a special meeting of stockholders may be called only by the chairman of the Board of Directors, the Chief Executive Officer,
or the Board of Directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the
removal of directors; and
advance notice procedures that stockholders must comply with in order to nominate candidates to our Board of Directors or to propose matters to
be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the
acquiror’s own slate of directors or otherwise attempting to obtain control of us.
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law ("DGCL"). Under Section 203, a
corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock
for three years or, among other exceptions, the board of directors has approved the transaction.
Our sixth amended and restated certificate of incorporation, as amended, provides that the Court of Chancery of the State of Delaware is the exclusive
forum for substantially all 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 sixth amended and restated certificate of incorporation, as amended, provides that, unless we consent in writing to the selection of an alternative forum,
the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a
breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our
amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision
would not apply to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended, or any other claim for which the federal
courts have exclusive jurisdiction. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds
favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and
other employees. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws
and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of
incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or
unenforceable. If a court were to find the choice of forum provisions in our certificate of incorporation to be inapplicable or unenforceable in an action, we
may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Our failure to meet the continued listing requirements of The Nasdaq Capital Market (“Nasdaq”) could result in a delisting of our common stock.
We must continue to satisfy Nasdaq continued listing requirements, including, among other things, certain corporate governance requirements and a
minimum closing bid price requirement of $1.00 per share. If a company fails for 30 consecutive business days to meet the $1.00 minimum closing bid
price requirement, Nasdaq will send a deficiency notice to the company, advising that it has been afforded a "compliance period" of 180 calendar days to
regain compliance with the applicable requirements.
71
Table of Contents
On May 1, 2023, we received a deficiency letter from Nasdaq notifying us that, for the last 30 consecutive business days, the closing bid price for our
common stock was below the minimum $1.00 per share required for continued listing on Nasdaq pursuant to the minimum closing bid price requirement.
The Nasdaq deficiency letter had no immediate effect on the listing of our common stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have
been given 180 calendar days, or until October 30, 2023, to regain compliance with the minimum closing bid price requirement by causing our stock to
close above $1.00 for a minimum of 10 consecutive trading days. If we do not regain compliance with the minimum closing bid price requirement by
October 30, 2023, we may be afforded a second 180 calendar day period to regain compliance. To qualify, we would be required to meet the continued
listing requirement for market value of publicly held shares and all other initial listing standards for Nasdaq, except for the minimum bid price requirement.
In addition, we would be required to notify Nasdaq of our intent to cure the deficiency during the second compliance period. On October 31, 2023, we
received a letter from Nasdaq stating that, although we had not regained compliance with the minimum bid price requirement, Nasdaq determined that we
are eligible for an additional 180-day period, or until April 29, 2024, to regain compliance with the minimum bid price requirement. On March 28, 2024,
we received written notice from Nasdaq stating that we have regained compliance with Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”) by maintaining
a minimum closing bid price of our common stock of at least $1.00 per share for the ten consecutive business days from March 13, 2024 to March 27, 2024
and that this matter is now closed.
We can provide no assurance that we will be able to remain in compliance with other Nasdaq continued listing requirements. A delisting of our common
stock from Nasdaq could materially reduce the liquidity of our common stock, impairing your ability to sell or purchase shares of our common stock when
you wish to do so, and could result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to
raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors and
employees. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow
the common stock to become listed again, stabilize the market price or improve the liquidity of the common stock, prevent the common stock from
dropping below the Nasdaq minimum bid price requirement, or prevent future non-compliance with Nasdaq's listing requirements.
The trading price of the shares of our common stock could be highly volatile, and purchasers of our common stock could incur substantial losses.
Our stock price has been, and will likely continue to be volatile. The stock market in general and the market for stock of biotechnology companies in
particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this
volatility, investors may not be able to sell their common stock at or above their purchase price. The market price for our common stock may be influenced
by those factors discussed in this "Risk Factors" section and many others, including:
•
•
•
•
•
•
•
•
•
•
our ability to enroll subjects in our ongoing and planned clinical trials;
the results of our clinical trials and preclinical studies, and the results of trials of our competitors or those of other companies in our market sector;
regulatory approval of our product candidates, or limitations to specific label indications or patient populations for use, or changes or delays in the
regulatory review process;
the level of expenses related to any of our product candidates or clinical development programs;
regulatory developments in the United States and foreign countries;
reports of adverse events in any of our products, competing biologics, or gene therapy products;
changes in the structure of healthcare payment systems, especially in light of current reforms to the U.S. healthcare system;
the success or failure of our efforts to acquire, license, or develop additional product candidates;
innovations or new products developed by us or our competitors;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, or capital commitments;
• manufacturing, supply, or distribution delays or shortages;
•
any changes to our relationship with any manufacturers, suppliers, licensors, future collaborators, or other strategic partners;
72
Table of Contents
•
•
achievement of expected product sales and profitability;
variations in our financial results or those of companies that are perceived to be similar to ours;
• market conditions in the biopharmaceutical sector and issuance of securities analysts' reports or recommendations;
•
•
•
•
•
•
•
•
trading volume of our common stock;
an inability to obtain additional funding;
sales of our stock by insiders and stockholders or the perception that such sales could occur;
our ability to effectively manage our growth;
ineffectiveness of our internal control over financial reporting;
additions or departures of key personnel, including major changes in our board or management;
intellectual property, product liability, or other litigation against us; and
general economic, industry, market conditions, and other events or factors, many of which are beyond our control.
In addition, in the past, stockholders have initiated class action lawsuits against biotechnology companies following periods of volatility in the market
prices of these companies' stock. Such litigation, including the litigation instituted against us in our current class action lawsuit, could cause us to incur
substantial costs and divert management's attention and resources, which could have a material adverse effect on our business, financial condition, and
results of operations.
If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and
trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our
market, or our competitors. We currently have research coverage by six securities and industry analysts. If one or more of the analysts who currently or in
the future may cover us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly
publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.
General Risk Factors
Our future success depends on our ability to retain key executives and to attract, retain, and motivate qualified personnel.
We are highly dependent on the research and development, clinical, and business development expertise of Shankar Musunuri, Ph.D., MBA, our Chief
Executive Officer, Chairman of the Board, and Co-Founder, as well as the other principal members of our management, scientific, and clinical teams.
Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We
do not maintain "key person" insurance for any of our executives or other employees.
Recruiting and retaining qualified scientific, clinical, manufacturing, legal, financial, and sales and marketing personnel will also be critical to our success.
The loss of the services of our executive officers or other key employees could impede the achievement of our research, development, and
commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and
key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of
skills and experience required to successfully develop, gain regulatory approval of, and commercialize products. Competition to hire from this limited pool
is intense, and we may be unable to hire, train, retain, or motivate these key personnel on acceptable terms given the competition among numerous
pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from
universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating
our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have
commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and
retain high quality personnel, our ability to pursue our growth strategy will be limited.
We expect to expand our development, regulatory, and manufacturing capabilities and potentially implement sales, marketing, and distribution
capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
73
Table of Contents
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development,
clinical, regulatory affairs, manufacturing, sales, marketing, and distribution. For example, we have completed renovating an existing facility into a current
GMP facility in accordance with the FDA's regulations in support of NeoCart manufacturing for Phase 3 clinical trial material. To manage our anticipated
future growth, we must continue to implement and improve our managerial, operational, and financial systems, expand our facilities, and continue to recruit
and train additional qualified personnel. Our management may need to devote a significant amount of our attention to managing these growth activities.
Due to our limited financial resources and our limited experience in managing such anticipated growth, we may not be able to effectively manage the
expansion of our operations or recruit and train additional qualified personnel. Our inability to manage the expansion of our operations effectively may
result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees, and reduced productivity
among remaining employees. Our expected growth could also require significant capital expenditures and may divert financial resources from other
projects, such as the development of additional product candidates. If we are unable to effectively manage our expected growth, our expenses may increase
more than expected, our ability to generate revenues could be reduced, and we may not be able to implement our business strategy, including the successful
commercialization of our product candidates.
We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance
initiatives and corporate governance practices.
As a public company we have incurred, and will continue to incur, significant legal, accounting, and other expenses that we did not incur as a private
company. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), the Dodd-Frank Wall Street Reform, the Consumer Protection Act, the listing requirements
of Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and
maintenance of effective disclosure and financial controls and corporate governance practices. We have had to hire additional accounting, finance, and
other personnel in connection with our efforts to comply with the requirements of being a public company and our management and other personnel devote
a substantial amount of time towards maintaining compliance with these requirements. These requirements increase our legal and financial compliance
costs and make some activities more time-consuming and costly. These rules and regulations are often subject to varying interpretations, in many cases due
to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing
bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and
governance practices.
In addition, Sarbanes-Oxley, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of Sarbanes-Oxley, impose significant
requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in
corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted
additional rules and regulations in these areas, such as mandatory "say on pay" voting requirements that are applicable to us. Stockholder activism, the
current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and
disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot
currently anticipate.
If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our
business, financial condition, and results of operations. The increased costs could impact our results of operations, and may require us to reduce costs in
other areas of our business or increase the prices of our products or services. For example, these rules and regulations make it more difficult and more
expensive for us to obtain director and officer liability insurance. We cannot predict or estimate the amount or timing of additional costs we may incur to
respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on
our Board of Directors, our board committees, or as executive officers.
If we or any contract manufacturers and suppliers we engage 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 and any contract manufacturers and suppliers we engage are subject to numerous federal, state, and local environmental, health, and safety laws,
regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal
of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and employee health
and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also
produce hazardous waste. 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
74
Table of Contents
materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be
held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs
associated with civil or criminal fines and penalties.
Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair
our research and product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials
or wastes. Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific
biological agents coverage and our commercial general liability policy specifically excludes coverage for damages and fines arising from biological agents.
Accordingly, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory
approvals could be suspended, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
In addition, we may incur substantial costs in order to comply with current or future environmental, health, and safety laws, regulations, and permitting
requirements. These current or future laws, regulations, and permitting requirements may impair our research, development, or production efforts. Failure
to comply with these laws, regulations, and permitting requirements also may result in substantial fines, penalties, or other sanctions or business disruption,
which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Any third-party contract manufacturers and suppliers we engage will also be subject to these and other environmental, health, and safety laws and
regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or an interruption in operations, which could have a
material adverse effect on our business, financial condition, results of operations, and prospects.
We have identified material weaknesses in our internal control over financial reporting as of December 31, 2023 as well as of and for the fiscal year
ended December 31, 2022, and the quarters ended September 30, 2022, June 30, 2022, March 31, 2022, September 30, 2023, June 30, 2023, and March
31, 2023, with respect to the design and operating effectiveness of controls over the accounting for collaborative arrangement revenue. If we are unable
to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in
a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our
management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material
weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not
be prevented or detected on a timely basis.
As discussed elsewhere in this Report under “Controls and Procedures” as well as “Restatement of Previously Issued Consolidated Financial Statements,”
our management has concluded that, as of December 31, 2023, we had a material weakness in our internal control over financial reporting with respect to
the design and operating effectiveness of controls over the accounting for collaborative arrangement revenue. This includes controls over the determination
of the transaction price, calculating the progress towards the satisfaction of the performance obligations under the collaborative arrangements, and
determining the value of the non-cash consideration received.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. Any failure to maintain such internal control could
adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not
accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis, we could
be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities. In either case,
there could result a material adverse effect on our business. Failure to timely file will cause us to be ineligible to utilize short form registration statements
on Form S-3, which may impair our ability to obtain capital in a timely fashion to execute our business strategies or issue shares to effect an acquisition.
Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the
trading price of our stock.
We may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a material
misstatement of our combined and consolidated financial statements. Our internal control over financial
75
Table of Contents
reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
We continue to evaluate steps to remediate the identified material weaknesses. The material weakness cannot be considered remediated until the newly
designed controls operate effectively for a sufficient period of time and management has concluded, through testing, that the control is operating
effectively. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended
effects. If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a
misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may
be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange
listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the
measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any
additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal
control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in
the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our
financial statements.
We have restated our prior consolidated financial statements, which may lead to additional risks and uncertainties, including loss of investor
confidence and negative impacts on our stock price.
In this Annual Report on Form 10-K, we restated our consolidated financial statements as of and for the fiscal year ended December 31, 2022, and the
quarters ended September 30, 2022, June 30, 2022, March 31, 2022, September 30, 2023, June 30, 2023, and March 31, 2023 (the “Restated Periods”). The
determination to restate the financial statements for the Restated Periods was made by our Audit Committee of the Board of Directors upon management’s
recommendation following the identification of errors related us not appropriately accounting for the estimated non-cash consideration and expense in one
of our collaboration arrangements. These identified errors resulted in a restatement of the following financial statements line items captions: Collaborative
arrangement revenue, Research and development expenses, Other income (expense), net and Accrued expense and other current liabilities. Our
management, after consultation with our independent registered accountants, concluded that our previously issued financial statements for the Restated
Periods should no longer be relied upon.
The restatement of our previously issued financial statements has been time-consuming and expensive and could expose us to additional risks that could
materially adversely affect our financial position, results of operations and cash flows, including unanticipated costs for accounting and legal fees in
connection with or related to the restatement and the risk of potential stockholder litigation. If lawsuits are filed, we may incur additional substantial
defense costs regardless of the outcome of such litigation. Likewise, such events might cause a diversion of our management’s time and attention. If we do
not prevail in any such litigation, we could be required to pay substantial damages or settlement costs. In addition, the restatement may lead to a loss of
investor confidence and have negative impacts on the trading price of our common stock.
If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements
could be impaired, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline.
Pursuant to Section 404 of Sarbanes-Oxley, our management is required to report upon the effectiveness of our internal control over financial reporting.
The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require
significant documentation, testing, and possible remediation. If we are unable to conclude that our internal control over financial reporting is effective,
investors may lose confidence in our financial reporting and the trading price of our common stock may decline.
We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any
failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of
operations, or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in the
accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or
investigations by Nasdaq, the SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial
76
Table of Contents
reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital
markets.
We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for our product
candidates and may have to limit our commercialization.
The use of our product candidates in clinical trials, and the sale of any of our product candidates for which we obtain regulatory approval, exposes us to the
risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical or biotechnology
companies, or others selling or otherwise coming into contact with our products. For example, we may be sued if any product candidate we develop
allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing, or sale. Any such product liability claims
may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, or a
breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourself against these claims, we
will incur substantial liabilities or be required to limit development or commercialization of our product candidates. Even successful defense would require
significant financial and management resources. Regardless of merit or eventual outcome, liability claims may result in:
•
•
•
•
•
•
loss of revenue from decreased demand for our products and/or product candidates;
impairment of our business reputation or financial stability;
costs of related litigation;
substantial monetary awards to patients or other claimants;
exhaustion of any available insurance and our capital resources;
diversion of management attention;
• withdrawal of clinical trial participants and potential termination of clinical trial sites or entire clinical programs;
•
•
•
•
•
the inability to commercialize our product candidates;
significant negative media attention;
decrease in our stock price;
initiation of investigations and enforcement actions by regulators; or
product recalls, withdrawals, revocation of approvals, or labeling, marketing, or promotional restrictions.
While we currently hold product liability insurance coverage in an amount that we believe is customary for similarly situated companies, the amount of that
coverage may not be adequate. We may need to increase our insurance coverage as we continue to conduct our clinical trials. We will need to further
increase our insurance coverage if we commence commercialization of any of our product candidates for which we obtain marketing approval. Insurance
coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability
that may arise. On occasion, large judgments have been awarded in class action lawsuits based on therapeutics that had unanticipated side effects. Our
insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. A successful product
liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our
cash and adversely affect our business and our prospects.
Our internal computer systems or those of our development collaborators, third-party CDMOs, or other contractors or consultants may fail or suffer
cybersecurity or other security breaches, which could result in a material disruption of our product development programs and cause our business and
operations to suffer. We face risks related to our collection and use of data, which could result in investigations, inquiries, litigation, fines, legislative
and regulatory action, and negative press about our privacy and data protection practices.
Our internal computer systems and those of our CDMOs and other contractors and consultants are vulnerable to cybersecurity breaches and damage from
computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. While we have not experienced any
such material system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in
a material disruption of our business operations and product candidate development and, if any of our product candidates are approved, commercialization
programs. Likewise, we intend to rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their
computer systems could also have a material adverse effect on our business and operations. To the extent that any disruption or cybersecurity or other
security breach were to result in a loss of, or damage to, our data or applications, or
77
Table of Contents
inappropriate disclosure of confidential or proprietary information, we could incur liability, the further development and commercialization of our product
candidates could be delayed, and our reputation could be harmed. In addition, there are known cyberattacks against biotechnology companies engaged in
the development of therapeutic or vaccine products addressing COVID-19. Our inhaled mucosal vaccine platform could attract the attention of
cyberattackers.
Additionally, our business processes personal data, including some data related to health. When conducting clinical trials, we face risks associated with
collecting trial participants' data, especially health data, in a manner consistent with applicable laws and regulations. We also face risks inherent in handling
large volumes of data and in protecting the security of such data. We could be subject to attacks on our systems by outside parties or fraudulent or
inappropriate behavior by our service providers or employees. Third parties may also gain access to our systems using stolen or inferred credentials,
computer malware, viruses, spamming, phishing attacks, or other means, and may use such access to obtain personal data. Data breaches could subject us
to individual or consumer class action litigation and governmental investigations and proceedings by federal, state, and local regulatory entities in the
United States and by international regulatory entities, resulting in exposure to material civil and/or criminal liability. As our operations and business grow,
we may become subject to or be affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory
authorities, including various domestic and international privacy and security regulations. The legislative and regulatory landscape for privacy and data
protection continues to evolve. In the United States, certain states may adopt privacy and security laws and regulations that may be more stringent than
applicable federal law. For example, California enacted the California Consumer Privacy Act ("CCPA"), which took effect on January 1, 2020. The CCPA
creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data.
Furthermore, it is anticipated that the California Privacy Rights Act of 2020 ("CPRA"), effective January 1, 2023, will expand the CCPA's requirements,
including applying to personal information of business representatives and employees and establishing a new regulatory agency to implement and enforce
the law.
We may also in the future be subject to data protection laws and regulations of other jurisdictions, such as the EU's General Data Protection Regulation
("GDPR"), which provides data subjects with certain rights and requires organizations to adopt technical and organizational safeguards to protect personal
data. In the event that we are subject to or affected by privacy and data protection laws, including the CCPA, CPRA, or GDPR and other domestic or
international privacy and data protection laws, we may expend significant resources to comply with such laws, and any liability from failure to comply with
the requirements of these laws could adversely affect our financial condition.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our research, product candidates, and the diseases those product candidates and
investigational medicines are being developed to treat. Social media practices in the biotechnology industry and the FDA's regulation of social media
continues to evolve. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business, resulting in potential
regulatory actions against us. For example, our employees or agents may use social media channels to inadvertently provide inaccurate or misleading
information about our product candidates. If regulators become aware of such disclosures, they may take administrative or enforcement action against us.
There is also a risk that third parties will use social media to disseminate inaccurate or misleading information about us or our product candidates. If this
occurs, we may not be able to adequately defend our business or the public's perception of us or our product candidates, particularly given restrictions on
what we may say about our product candidates prior to FDA approval. If any of these events were to occur or we otherwise fail to comply with applicable
regulations, we could incur liability, face regulatory actions, or incur other harm to our business.
Evolving expectations around corporate responsibility practices, specifically related to environmental, social and governance ("ESG") matters, may
expose us to reputational and other risks.
Investors, stockholders, customers, suppliers and other third parties are increasingly focusing on ESG and corporate social responsibility endeavors and
reporting. Certain institutional investors, investment funds, other influential investors, customers, suppliers and other third parties are also increasingly
focused on ESG practices. Companies that do not adapt to or comply with the evolving investor or stakeholder expectations and standards, or which are
perceived to have not responded appropriately, may suffer from reputational damage and result in the business, financial condition, and/or stock price of a
company being materially and adversely affected. Further, this increased focus on ESG issues may result in new regulations and/or third party requirements
that could adversely impact our business, or certain shareholders reducing or eliminating their holdings of our stock. Additionally, an allegation or
perception that we have not taken sufficient action in these areas could negatively harm our reputation.
78
Table of Contents
We are and expect to continue to be a “smaller reporting company” as defined in the Exchange Act, and have elected and expect to continue to elect to
take advantage of certain of the scaled disclosures available to smaller reporting companies, including reduced disclosure obligations regarding
executive compensation.
We are and expect to continue to be a “smaller reporting company” as defined in the Exchange Act, and have elected and expect to continue to elect to take
advantage of certain of the scaled disclosures available to smaller reporting companies, including reduced disclosure obligations regarding executive
compensation. These exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company also mean our auditors are
not required to audit our internal control over financial reporting for so long as we report less than $100 million in annual revenues for the most recent
fiscal year and may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our
common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a
less active trading market for our common stock and our common stock price may be more volatile. We will remain a smaller reporting company until our
public float exceeds $250 million or our annual revenues exceed $100 million with a public float greater than $700 million.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We understand the importance of assessing, identifying, and managing risks associated with cybersecurity threats. Cybersecurity processes designed to
assess, identify and manage risks from cybersecurity threats have been incorporated into our operations as a part of our overall risk assessment process.
To help us defend against, detect and respond to risks from cybersecurity threats, we engage a third-party cybersecurity firm to assist with aspects of our
cybersecurity program including, but not limited to, network monitoring, cloud system monitoring, and employee cybersecurity awareness training.
Training topics include how to escalate suspicious activities including phishing, viruses, spams, insider threats, suspect human behaviors or safety issues.
Our processes also include assessing cybersecurity risks associated with our use of third-party services providers in the normal course of business use. We
assess cybersecurity considerations in the selection and oversight of our third-party services providers, including due diligence on the third parties that have
access to our systems.
There have not been any risks from cybersecurity threats, including as a result of any cybersecurity incidents, which have materially affected or are
reasonably likely to materially affect our Company, including our business strategy, results of operations, or financial condition. Refer to “Item 1A. Risk
factors” in this annual report on Form 10-K, including “Our internal computer systems or those of our development collaborators, third-party CDMOs, or
other contractors or consultants may fail or suffer cybersecurity or other security breaches, which could result in a material disruption of our product
development programs and cause our business and operations to suffer. We face risks related to our collection and use of data, which could result in
investigations, inquiries, litigation, fines, legislative and regulatory action, and negative press about our privacy and data protection practices”, for
additional discussion about cybersecurity-related risks.
Cybersecurity Governance
Cybersecurity is an important part of our risk management processes. The Company's Associate Vice President of IT & Facilities is responsible for
overseeing the cybersecurity risk management program. He has over 20 years of IT management, cybersecurity, and information governance experience. In
order to monitor and appropriately escalate cybersecurity risks, our Associate Vice President of IT & Facilities receives reports on a monthly basis, and
more frequently as appropriate, from our third-party cybersecurity vendor.
Our Board of Directors' role in risk oversight is consistent with our leadership structure, with management having day-to-day responsibility for assessing
and managing our risk exposure and our Board actively overseeing the management of our risks both at the Board and Committee level. The Board
conducts its risk oversight by receiving reports from each of the Committees and our executive officers regarding our risk identification, risk management,
and risk mitigation strategies with respect to areas of potential material risk, including cybersecurity risk. The Board has delegated to the Audit Committee
of the Board primary responsibility for overseeing risks from cybersecurity threats. The Company's Associate Vice President of IT & Facilities briefs the
Audit Committee on the Company’s cybersecurity risk management program on an approximately quarterly basis, using risk assessment reports from our
third-party cybersecurity vendor. The briefing includes discussion of management’s actions to identify and detect threats, as well as planned actions in the
event of a response or recovery situation.
79
Table of Contents
Item 2. Properties
Our properties are located in Malvern, Pennsylvania, including our corporate headquarters, which consist of approximately 28,488 square feet of leased
office space, and our current GMP facility, which consists of approximately 16,401 square feet. of laboratory and future manufacturing space. Our
corporate headquarters has initial terms of approximately seven years and include options to extend the leases for up to 10 years. Our current GMP facility
has initial terms of seven years and includes an option to extend the lease for up to 5 years, which the Company has elected to account for since it is
reasonably certain that the Company will exercise such option.
Item 3. Legal Proceedings.
For a discussion of legal proceedings, see Note 15 in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form
10-K. This discussion is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
80
Table of Contents
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
PART II
Market Information
Our common stock is traded on the Nasdaq Capital Market under the symbol "OCGN."
Holders
As of April 9, 2024, we had 257.3 million shares of common stock outstanding held by approximately 23 stockholders of record. The actual number of
stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in "street" name
by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
We have not declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings, if any, to fund our
operations and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, we anticipate that only the appreciation of
the price of our common stock, if any, will provide a return to investors for at least the foreseeable future.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
During the quarter ended December 31, 2023, we did not repurchase any shares of our common stock.
81
Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and
analysis, including information with respect to our plans and strategy for our business and related financing, include forward-looking statements that
involve risks, uncertainties, and assumptions. These statements are based on our beliefs and expectations about future outcomes and are subject to risks
and uncertainties that could cause our actual results to differ materially from anticipated results. Except as required by law, we undertake no obligation to
publicly update these forward-looking statements, whether as a result of new information, future events, or otherwise. You should read the "Risk Factors"
and "Special Note Regarding Forward-Looking Statements" sections of this Annual Report on Form 10-K for a discussion of important factors that could
cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion
and analysis.
Overview
This Part II, Item 7 includes restated financial data. See "Explanatory Note."
We are a biotechnology company focused on discovering, developing, and commercializing novel gene and cell therapies and vaccines that improve health
and offer hope for patients across the globe.
Our technology pipeline includes:
• Modifier Gene Therapy Platform — Based on the use of nuclear hormone receptors ("NHRs"), we believe our modifier gene therapy platform
has the potential to address many retinal diseases, including rare diseases such as retinitis pigmentosa ("RP") (OCU400) and Leber congenital
amaurosis ("LCA") (OCU400), with a gene-agnostic approach. We also believe our modifier gene therapy platform has the potential to address
many retinal diseases, including a multifactorial dry age-related macular degeneration ("dAMD") using OCU410, which we believe has the
potential to treat millions of patients, and Stargardt disease (OCU410ST), which is also a rare disease. We received clearance from FDA to initiate
a Phase 3 trial for OCU400 for the treatment of RP and intend to begin dosing patients in 2Q, 2024. We further expect to expand OCU400 Phase 3
development in LCA patients in the second half of 2024 based on Phase 1/2 study results in LCA patients and subject to alignment with the FDA.
Currently both OCU410, for the treatment of geographic atrophy ("GA") patients, and OCU410ST, for the treatment of Stargardt patients,
programs are in Phase 1/2 clinical development.
• Novel Biologic Therapy for Retinal Diseases — OCU200 is a novel fusion protein consisting of two human proteins, tumstatin and transferrin.
OCU200 possesses unique features which potentially enable it to treat vascular complications of diabetic macular edema ("DME"), diabetic
retinopathy ("DR") and wet AMD. Tumstatin is the active component of OCU200 and binds to integrin receptors, which play a crucial role in
disease pathogenesis. Transferrin is expected to facilitate the targeted delivery of tumstatin into the retina and choroid and potentially help increase
the interaction between tumstatin and integrin receptors. We continue to work with the FDA to address comments to lift the clinical hold.
• Regenerative Medicine Cell Therapy Platform — Our Phase 3-ready regenerative medicine cell therapy platform technology, which includes
NeoCart (autologous chondrocyte-derived neocartilage), is being developed for the repair of knee cartilage injuries in adults. We received
concurrence from the FDA on the confirmatory Phase 3 trial design and have completed renovating an existing facility into a current Good
Manufacturing Practice ("GMP") facility to support clinical study and initial commercial launch.
•
Inhaled Mucosal Vaccine Platform — Our next-generation, inhaled mucosal vaccine platform includes OCU500, a COVID-19 vaccine;
OCU510, a seasonal quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine. We are conducting
IND enabling and product development activities for our OCU500 product and planning to submit an IND in 2024. We are currently collaborating
with the National Institute of Allergy and Infectious Diseases ("NIAID") for early clinical studies for the OCU500 program. We expect OCU500
clinical trials to begin mid-2024. We are continuing discussions with relevant government agencies regarding developmental funding for our
OCU510 and OCU520 platforms.
Modifier Gene Therapy Platform
We are developing a modifier gene therapy platform designed to fulfill unmet medical needs related to retinal diseases, including inherited retinal diseases
("IRDs"), such as RP, LCA, Stargardt disease and multifactorial diseases such as dAMD and Geographic Atrophy ("GA"). Our modifier gene therapy
platform is based on the use of NHRs, which have the potential to
82
Table of Contents
restore homeostasis — the basic biological processes in the retina from disease state to normal state. Unlike single-gene replacement therapies, which only
target one genetic mutation, our modifier gene therapy platform, through its use of NHRs, represents a unique approach and has demonstrated potential to
address multiple retinal diseases caused by mutations in multiple genes in our Phase 1/2 clinical study. This has potential of a gene-agnostic therapy
addressing complex diseases that are potentially caused by imbalances in multiple gene networks in the disease condition. OCU400, our first product
candidate in our modifier gene therapy platform, has received Orphan Drug Designation ("ODD") from the United States Food and Drug Administration
("FDA") for RP and LCA, a regenerative medicine advanced therapy ("RMAT") designation to OCU400 for the treatment of RP associated with NR2E3
and rhodopsin ("RHO") mutations from the FDA, and Orphan Medicinal Product Designation ("OMPD") from the European Commission ("EC"), based on
the recommendation of the European Medicines Agency ("EMA"), for RP and LCA. These broad ODD, RMAT, and OMPD designations further support
broad-spectrum (gene agnostic) therapeutic potential of OCU400 to treat multiple IRDs such as RP and LCA associated with mutations in multiple genes.
We completed enrolling, dosing, and recruiting RP and LCA patients in the Phase 1/2 trial for OCU400. The objective of this study was to assess the safety
and efficacy using 3 different treatment doses of unilateral subretinal administration of OCU400 in NR2E3 and rhodopsin ("RHO")-related RP patients and
centrosomal protein 290 ("CEP290")-related LCA patients in the United States.
In February 2024, in continuation of the preliminary analyses update, we announced an update for 18 participants. The trial update was an extension of the
positive preliminary data from September 2023. The positive trial update demonstrated that OCU400 continued to be generally safe and well-tolerated in
subjects across different mutations and dose levels. 89% of participants demonstrated preservation or improvement in OCU400 treated eyes either on
BCVA or LLVA or MLMT scores from baseline. 78% of participants demonstrated stabilization or improvement in OCU400 treated eyes in MLMT scores
from baseline. 80% of RHO mutation subjects experienced either stabilization or increase in MLMT scores from baseline.
In April 2024, the FDA cleared our IND amendment to initiate a Phase 3 trial of OCU400 for RP. OCU400 is the first gene therapy program to enter Phase
3 with a broad RP indication. This Phase 3 trial will enroll 150 subjects, distributed 1:1 into two separate arms (RHO: N=75, and Gene Agnostic: N=75). In
each arm subjects will be further randomized into 2:1 ratio to treated and untreated control groups. Subjects will be followed for a year after dosing for
primary end point analyses. In the Phase 1/2 OCU400 clinical trial a MLMT scale was the primary functional endpoint. For the Phase 3 OCU400 clinical
trial, an updated mobility course will be used, Luminance Dependent Navigation Assessment ("LDNA") that includes a wider range of light intensity (0.04-
500 Lux) and Lux Levels (0-9) with a uniform correlation between Lux level and Lux intensity.
In April 2024, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) reviewed the study design,
endpoints and planned statistical analysis of the pivotal OCU400 Phase 3 liMeliGhT clinical trial for retinitis pigmentosa (RP) and provided acceptability
of the U.S. based trial for submission of a Marketing Authorization Application (MAA). The EMA provided this opinion based on safety, tolerability, and
efficacy of OCU400 demonstrated in the Phase 1/2 study.
We intend to begin dosing patients in Phase 3 trial for OCU400 for the treatment of RP in 2Q, 2024. Subsequently, we expect to expand OCU400 Phase 3
development in LCA patients in the second half of 2024 based on Phase 1/2 study results in LCA patients and subject to alignment with the FDA.
We are also developing OCU410 and OCU410ST, utilizing the nuclear receptor genes RAR-related orphan receptor A ("RORA"), for the treatment of
dAMD and Stargardt disease, respectively. OCU410 is a potential one-time, curative therapy with a single sub-retinal injection. OCU410 targets multiple
pathways associated with AMD pathogenesis, in contrast to currently approved or under development products, and has potential to provide better safety
and efficacy outcomes. OCU410ST has received ODD from the FDA for the treatment of ABCA4-associated retinopathies, including Stargardt disease.
Currently both OCU410 and OCU410ST programs are in Phase 1/2 clinical development, actively enrolling patients. In November 2023, the first patient
was dosed in the Phase 1/2 trial to assess the safety and efficacy of OCU410ST for Stargardt disease. In February 2024, we announced dosing was
completed in the first cohort of Phase 1/2 study. Phase 1 is a multicenter, open-label, dose ranging study. Phase 2 is a randomized, outcome accessor-
blinded, dose-expansion study in which adult and pediatric subjects will be randomized in a 1:1:1 ratio to either one of two OCU410ST dose groups or to
an untreated control group. In April 2024, we announced that the Data Safety and Monitoring Board ("DSMB") approved to proceed dosing with the
medium dose of OCU410ST in the dose-escalation phase of the study. Three patients with Stargardt disease have been dosed in the Phase 1/2 trial to date.
An additional three patients will be dosed with the medium dose in the second cohort and three patients with the high dose in the third cohort in the dose-
escalation phase.
83
Table of Contents
In December 2023, the first patient was dosed in the Phase 1/2 trial to assess the safety and efficacy of OCU410 for geographic atrophy ("GA") secondary
to dAMD. In March 2024, we announced dosing was completed in the first cohort of Phase 1/2 study. Phase 1 is a multicenter, open-label, dose-ranging
study. Phase 2 is a randomized expansion phase in which subjects will be randomized in a 1:1:1 ratio to either one of two OCU410 dose groups or to an
untreated control group. In April 2024, we announced that the Data Safety and Monitoring Board ("DSMB") approved to proceed dosing with the medium
dose of OCU410 in the dose-escalation phase of the study. Three patients with GA have been dosed in the Phase 1/2 trial to date. An additional three
patients will be dosed with the medium dose in the second cohort and three patients with the high dose in the third cohort in the dose-escalation phase.
Novel Biologic Therapy for Retinal Diseases
We are developing OCU200, which is a novel fusion protein containing parts of human transferrin and tumstatin. OCU200 is designed to treat DME, DR,
and Wet AMD. We have completed the technology transfer of manufacturing processes to our contract development and manufacturing organization
("CDMO") and have produced trial materials to initiate a Phase 1 trial. In April 2023, the FDA placed our IND application to initiate a Phase 1 trial
targeting DME on clinical hold, as part of the FDA's request for additional information related to CMC. We have submitted a response to the FDA with
additional information. We continue to work with the FDA to address comments to lift the clinical hold.
Regenerative Medicine Cell Therapy Platform
NeoCart is a Phase 3-ready, regenerative medicine cell therapy technology that combines breakthroughs in bioengineering and cell processing to enhance
the autologous cartilage repair process. NeoCart is a three-dimensional tissue-engineered disc of new cartilage that is manufactured by growing the patient's
own chondrocytes, the cells responsible for maintaining cartilage health. Current surgical and nonsurgical treatment options are limited in their efficacy and
durability. In prior clinical studies, Phase 2 and Phase 3, NeoCart has shown potential to accelerate healing, reduce pain, and provide regenerative native-
like cartilage strength with durable benefits post transplantation. NeoCart was shown to be generally well-tolerated and demonstrated greater clinical
efficacy than microfracture surgery at two years after treatment. Based on this clinical benefit, the FDA granted a RMAT designation to NeoCart for the
repair of full-thickness lesions of knee cartilage injuries in adults. Additionally, we received concurrence from the FDA on the confirmatory Phase 3 trial
design where chondroplasty will be used as a control group. We have completed renovating an existing facility into a current Good Manufacturing Practice
("GMP") facility in accordance with the FDA's regulations in support of NeoCart manufacturing for personalized Phase 3 trial material. We intend to
initiate the Phase 3 trial in the second half of 2024, contingent on adequate availability of funding.
Inhaled Mucosal Vaccine Platform
We are party to an exclusive license agreement (as amended, "WU License Agreement") with The Washington University in St. Louis ("Washington
University"), pursuant to which we licensed the rights to develop, manufacture, and commercialize an inhaled mucosal COVID-19 vaccine for the
prevention of COVID-19 in the United States, Europe, Japan, South Korea, Australia, China, and Hong Kong (the "Mucosal Vaccine Territory"). In
addition, we internally developed technology related to the flu and COVID-19's vaccine design and filed intellectual property. We are developing a next-
generation, inhalation-based mucosal vaccine platform based on a novel ChAd vector, which includes OCU500, a COVID-19 vaccine; OCU510, a seasonal
quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine. Our inhaled mucosal vaccine platform is driven
by our conviction to serve a public health concern, which requires the endorsement and support of government funding in order to develop and ultimately
commercialize our vaccine candidates. As these vaccine candidates are being developed to be administered via inhalation, we believe they have the
potential to generate rapid local immune response in the upper airways and lungs, where viruses enter and infect the body. We believe this novel delivery
route may help reduce or prevent infection and transmission as well as provide protection against new virus variants. In October 2023, OCU500 was
selected by the NIAID Project NextGen for inclusion in clinical trials. OCU500 will be tested via two different mucosal routes, inhalation into the lungs
and as a nasal spray. The clinical trials are expected to begin mid-2024. We are continuing discussions with relevant government agencies regarding
developmental funding for our OCU510 and OCU520 platforms.
Financial Operations Overview
We have not generated revenue from our product candidates to date and have incurred net losses in each year since inception. We expect to continue to
incur net losses until our product candidates, if approved, are successfully commercialized. We incurred net losses of approximately $63.1 million and
$86.8 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $286.2 million
and cash and cash equivalents balance of $39.5 million. Substantially all of our net losses resulted from expenses incurred in connection with our research
and development programs and from general and administrative costs associated with our operations.
84
Table of Contents
Segment Information
As of December 31, 2023, we viewed our operations and managed our business as one operating segment consistent with how our chief operating decision-
maker, our Chief Executive Officer, makes decisions regarding resource allocation and assessing performance. As of December 31, 2023, substantially all
of our assets were located in the United States. Our headquarters are located in Malvern, Pennsylvania.
Research and development expense
Research and development costs are expensed as incurred. These costs consist of internal and external expenses, as well as depreciation expense on assets
used within our research and development activities. Internal expenses include the cost of salaries, benefits, and other related costs, including stock-based
compensation, for personnel serving in our research and development functions, as well as allocated rent and utilities expenses. External expenses include
development, clinical trials, patent costs, and regulatory compliance costs incurred with research organizations, contract manufacturers, and other third-
party vendors. License fees paid to acquire access to proprietary technology are expensed to research and development, unless it is determined that the
technology is expected to have an alternative future use. We record costs for certain development activities, such as preclinical studies and clinical trials,
based on our evaluation of the progress to completion of specific tasks. Payments for these activities are based on the terms of the individual arrangements,
which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued research and
development expense, as applicable. Our recording of costs for certain development activities requires us to use estimates. We believe our estimates and
assumptions are reasonable under the current conditions; however, actual results may differ from these estimates. Our research and development expenses
are not currently tracked on a program-by-program basis for indirect and overhead costs. We use our personnel and infrastructure resources across multiple
research and development programs directed toward identifying, developing, and commercializing product candidates.
Research and development expenses account for a significant portion of our operating expenses. We plan to incur research and development expenses for
the foreseeable future as we expect to continue the development of our product candidates. We anticipate that our research and development expenses will
be lower in fiscal year 2024 as compared to fiscal year 2023 due to a reduced headcount as well as internal cost saving initiatives.
At this time, due to the inherently unpredictable nature of preclinical and clinical developments as well as regulatory approval, we are unable to estimate
with any certainty the costs we will incur and the timelines we will require in our continued development and commercialization efforts. As a result of
these uncertainties, the successful development and completion of clinical trials as well as the regulatory approval process are uncertain and may not result
in approved and commercialized products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to
predict. We will continue to 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 our ability to enter into partnerships with respect to each product candidate and the scientific and clinical success of each
product candidate as well as ongoing assessments as to the commercial potential of each product candidate.
General and administrative expense
General and administrative expense consists primarily of personnel expenses, including salaries, benefits, insurance, and stock-based compensation
expense, for employees in executive, accounting, commercialization, human resources, and other administrative functions. General and administrative
expense also includes expenses related to pre-commercial activities, corporate facility costs, such as allocated rent and utilities, insurance premiums, legal
fees related to corporate matters, and fees for auditing, accounting, and other consulting services.
We anticipate that our general and administrative expenses will decrease in fiscal year 2024 as compared to fiscal year 2023 due to a lower headcount and a
decrease in legal expenses.
85
Table of Contents
Results of Operations
The following table summarizes the results of our operations for the years ended December 31, 2023 and 2022 (in thousands):
Collaborative arrangement revenue
Total Revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Year ended December 31,
2023
(As Restated)
2022
Change
6,036 $
6,036
39,573
31,994
71,567
(65,531)
2,453
(63,078) $
2,488 $
2,488
56,159
35,400
91,559
(89,071)
2,267
(86,804) $
3,548
3,548
(16,586)
(3,406)
(19,992)
23,540
186
23,726
$
$
We believe the following table provides more transparency as to the type of research and development expenses incurred. The following table summarizes
our research and development expenses by product candidate for the years ended December 31, 2023 and 2022 (in thousands):
OCU400
OCU410 and OCU410ST
NeoCart
COVAXIN
Inhaled mucosal vaccine platform
OCU200
Unallocated costs:
Research and development personnel costs
Facilities and other support costs
Other
Total research and development
Collaborative arrangement revenue
Year ended December 31,
2023
(As Restated)
2022
Change
$
$
7,318 $
4,029
1,336
8,824
629
713
13,868
1,507
1,349
39,573 $
10,129 $
4,620
472
18,385
1,015
4,900
13,941
1,265
1,432
56,159 $
(2,811)
(591)
864
(9,561)
(386)
(4,187)
(73)
242
(83)
(16,586)
Collaborative arrangement revenue increased by $3.5 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The
increase was due to the amount of co-development services provided by us to the business partner in the collaboration agreement.
Research and development expense
Research and development expense decreased by $16.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The
decrease was primarily due to $9.6 million related to the termination of the COVAXIN program, $4.2 million related to OCU200, which is driven by a
decrease in preclinical activities, $2.8 million related to OCU400, which is driven by a decrease in co-development services provided by our collaboration
arrangements business partner. These decreases were partially offset by an increase of $0.9 million related to NeoCart, driven by CMC activities.
General and administrative expense
86
Table of Contents
General and administrative expense decreased by $3.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The
decrease was primarily due to $1.9 million in consulting expenses; $1.7 million in pre-commercial expenses; $1.4 million in non-recurring office expenses
incurred in connection with the opening of our corporate headquarters; $0.7 million in insurance expense; and $0.5 million in employee related expenses.
These decreases were partially offset by increases of $2.8 million in legal expenses.
Other income (expense), net
Other income (expense), net increased by $0.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase
was primarily due to $1.1 million in interest earned on our cash and cash equivalents balance which was offset by a decrease of $0.9 million related to a
note receivable that was received during the year ended December 31, 2022.
Liquidity and Capital Resources
As of December 31, 2023, we had $39.5 million in cash and cash equivalents. We have not generated revenue from our product candidates to date, and
have primarily funded our operations to date through the sale of common stock, warrants to purchase common stock, the issuance of convertible notes and
debt, and grant proceeds. Since our inception and through December 31, 2023, we have raised an aggregate of $301.0 million to fund our operations, of
which $287.2 million is from gross proceeds from the sale of our common stock and warrants, $10.3 million is from the issuance of convertible notes, $3.3
million is from the issuance of debt, and $0.2 million is from grant proceeds.
During the year ended December 31, 2023, we issued and sold 30.0 million shares of our common stock at a public offering price of $0.50 per share
pursuant to a May 2023 public offering (the "May 2023 Public Offering"). We received net proceeds of $14.8 million after deducting equity issuance costs.
During the year ended December 31, 2023, we sold 4.5 million shares of our common stock under an At Market Issuance Sales Agreement ("the Sales
Agreement") and received net proceeds of $5.6 million after deducting equity issuance costs of $0.2 million. The Sales Agreement was terminated in
February 2023.
Since our inception, we have devoted substantial resources to research and development and have incurred significant net losses and may continue to incur
net losses in the future. We incurred net losses of approximately $63.1 million and $86.8 million for the years ended December 31, 2023 and 2022,
respectively. As of December 31, 2023, we had an accumulated deficit of $286.2 million. In addition, as of December 31, 2023, we had accounts payable
and accrued expenses and other current liabilities of $16.5 million, lease liability of $4.1 million, and indebtedness of $2.8 million.
The following table shows a summary of our cash flows for the year ended December 31, 2023 and the year ended December 31, 2022 (in thousands):
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Effect of changes in exchange rate on cash, cash equivalents, and restricted cash
Net (decrease) in cash and cash equivalents
Operating activities
Year ended December 31,
2023
(As Restated)
2022
(62,054) $
3,077
20,881
(5)
(38,101) $
(60,079)
(16,967)
59,475
25
(17,546)
$
$
Cash used in operating activities was $62.1 million for the year ended December 31, 2023, and primarily consisted of a net loss of $63.1 million adjusted
for non-cash items including stock-based compensation of $9.2 million, impairment of advance for COVAXIN supply of $4.1 million, depreciation and
amortization of $0.7 million, non-cash lease expense of $0.5 million, other non-cash items of $0.4 million, and a change in net working capital of $13.1
million.
Cash used in operating activities was $60.1 million for the year ended December 31, 2022, and primarily consisted of a net loss of $86.8 million adjusted
for non-cash items including stock-based compensation of $10.5 million, non-cash lease expense of
87
Table of Contents
$0.6 million, depreciation and amortization of $0.5 million, other non-cash items of $5.9 million, and a change in net working capital of $9.2 million.
Investing activities
Cash provided by investing activities was $3.1 million for the year ended December 31, 2023 compared to cash used in investing activities of $17.0 million
for the year ended December 31, 2022. The increase in cash provided by investing activities was primarily driven by gross proceeds of $17.5 million from
the maturities of marketable securities as well as a decrease in purchases of marketable securities of $9.3 million, classified as available-for-sale, during the
year ended December 31, 2023. This increase was partially offset by an increase of $6.0 million in purchases of property and equipment during the year
ended December 31, 2023.
Financing activities
Cash provided by financing activities was $20.9 million for the year ended December 31, 2023 compared to $59.5 million for the year ended December 31,
2022. During the year ended December 31, 2023, cash provided by financing activities primarily consisted of gross proceeds of a combined $20.8 million
received from the May 2023 Public Offering and pursuant to the Sales Agreement. During the year ended December 31, 2022, cash provided financing
activities primarily consisted of gross proceeds of $50.0 million received from our underwritten offering that closed in February 2022.
Contractual Obligations
Licensing and Development Agreements
We have obligations under certain license and development agreements for our product candidates including annual payments, payments upon the
achievement of certain milestones, and royalty payments based on net sales of licensed products. See Note 3 in the notes to the consolidated financial
statements included in elsewhere in this Annual Report on Form 10-K for information regarding our obligations under licensing and development
agreements.
Lease Obligations
We have obligations under our operating leases, which include leased office, laboratory, and future manufacturing space, located in Malvern, Pennsylvania.
As of December 31, 2023, we had future minimum operating lease base rent payment obligations of $5.8 million, with $0.8 million payable within 12
months of December 31, 2023. See Note 7 in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
information regarding our obligations under lease obligations.
Indebtedness
We have outstanding debt related to the funds borrowed from EB5 Life Sciences, L.P. ("EB-5 Life Sciences") pursuant to the U.S. government's Immigrant
Investor Program, commonly known as the EB-5 program. Pursuant to the loan agreement entered into with EB-5 Life Sciences, we have borrowed $2.5
million to date. See Note 9 in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information
regarding our obligations under the EB-5 loan agreement.
Consulting Agreement
As previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the "First Quarter 10-Q"), we determined it was no
longer commercially viable to further the development of COVAXIN, a monovalent COVID-19 vaccine, in our North American territories as the FDA
cancelled all EUAs issued with respect to monovalent COVID-19 vaccine formulations. Accordingly, in June 2023, the Canada Consulting Agreement was
terminated by mutual agreement (see Note 11) .
Funding requirements
We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we continue research and development,
including preclinical and clinical development of our product candidates, prepare to manufacture our product candidates, prepare for the potential
commercialization of our product candidates, add operational, financial, and information systems to execute our business plan, maintain, expand, and
protect our patent portfolio, explore strategic licensing,
88
Table of Contents
acquisition, and collaboration opportunities to expand our product candidate pipeline to support our future growth; expand headcount to support our
development, commercialization, and business efforts, and operate as a public company.
Factors impacting our future funding requirements include, without limitation, the following:
•
•
•
•
•
•
•
•
•
•
•
•
the initiation, progress, timing, costs, and results of trials for our product candidates;
the preparation and submission of Investigational New Drug applications, or INDs, with the FDA for current and future product candidates;
the outcome, timing, and cost of the regulatory approval process for our product candidates;
the costs of manufacturing and commercialization;
the costs related to doing business internationally with respect to the development and commercialization of our product candidates;
the cost of filing, prosecuting, defending, and enforcing our patent claims and other intellectual property rights;
the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
the acquisition of or in-licensing of additional product candidates and technologies;
the costs of expanding infrastructure to support our development, commercialization, and business efforts, including the costs related to the
development of a laboratory and manufacturing facility;
the costs involved in recruiting and retaining skilled personnel;
the extent to which we in-license or acquire other products, product candidates, or technologies and out-license our product candidates; and
the impact of geopolitical turmoil, macroeconomic conditions, social unrest, political instability, terrorism, or other acts of war.
As of December 31, 2023, we had cash and cash equivalents of approximately $39.5 million. This amount will not meet our capital requirements over the
next 12 months. We believe that our cash and cash equivalents will enable us to fund our operations into the fourth quarter of 2024. Due to the inherent
uncertainty involved in making estimates and the risks associated with the research, development, and commercialization of biotechnology products, we
may have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently
unknown to us. We will need to raise significant additional capital in order to fund our operations until we recognize significant revenue from product sales.
Our management is currently evaluating different strategies to obtain the funding required for our future operations. These strategies may include, but are
not limited to: public and private placements of equity and/or debt, payments from potential strategic research and development arrangements, sales of
assets, licensing and/or collaboration arrangements with pharmaceutical companies or other institutions, funding from the government, particularly for the
development of our novel inhaled mucosal vaccine platform, or funding from other third parties. Our ability to secure funding is subject to numerous risks
and uncertainties, including, but not limited to the impact of the geopolitical turmoil, macroeconomic conditions, and the impact of inflation and as a result,
there can be no assurance that these funding efforts will be successful. If we cannot obtain the necessary funding, we will need to delay, scale back, or
eliminate some or all of our research and development programs and commercialization efforts; consider other various strategic alternatives, including a
merger or sale; or cease operations. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient
capital, our business, financial condition, and results of operations could be materially adversely affected.
As a result of these factors, together with the anticipated continued spending that will be necessary to continue to research, develop, and commercialize our
product candidates, there is substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial
statements included in this Annual Report on Form 10-K are issued.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements 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.
89
Table of Contents
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The
preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reported period. We
base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and
conditions.
While our significant accounting policies are described in more detail in the notes to the consolidated financial statements included elsewhere in this
Annual Report on Form 10-K, we believe that the following accounting policies and estimates are those most critical to the preparation of our consolidated
financial statements:
Research and Development and Clinical Trial Accruals
As part of the process of preparing the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we are required to
estimate and record expenses, for which a large portion are research and development expenses. Research and development expenses include, among other
categories, development, clinical trials, patent costs, and regulatory compliance costs incurred with research organizations, contract manufacturers, and
other third-party vendors. The estimation process involves identifying services that have been performed on our behalf by third-parties, estimating and
accruing expenses in our consolidated financial statements based on the evaluation of the progress to completion of specific tasks and the facts and
circumstances known to us at the time of the estimate, and assessing the accuracy of these estimates going forward to determine if adjustments are required.
We periodically collaborate with our third-party vendors to assist in determining our estimates. Payments for these activities performed by our third-party
vendors are based on the terms of the individual arrangements with our third-party vendors, which may differ from the pattern of costs incurred, and are
reflected in the consolidated financial statements as prepaid or accrued research and development expense, as applicable. We believe our estimates and
assumptions are reasonable under the current conditions; however, actual results may differ from these estimates. Any changes to estimates will be
recorded in the period in which a circumstance causing a change in estimate becomes known and the impact of any change in estimate could be material.
Collaborative Arrangements and Revenue Recognition
The Company analyzes its collaborative arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”)
to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed
to significant risks and rewards. This assessment is performed throughout the life of the arrangements based on changes to the arrangements. For
collaborative arrangements within the scope of ASC 808 the Company may analogize to ASC 606 for certain elements.
The Company identifies the goods or services promised within each collaborative arrangement and assesses whether each promised good or service is
distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires
management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual
relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or
together with other resources that are readily available to the customer and (ii) the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract.
The allocation of the transaction price to the performance obligations in proportion to their standalone selling prices is determined at contract inception. If
the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in
exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the
expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the
transaction price. The amount included in the transaction price is the amount for which it is probable that a significant reversal of cumulative revenue
recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the
transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a
cumulative catch-up basis in the period of adjustment.
The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation as each performance
obligation is satisfied over time, with progress toward completion measured based on actual
90
Table of Contents
costs incurred relative to total estimated costs to be incurred over the life of the contract. Significant management judgment is required in determining the
level of effort required under an arrangement and the period over which the Company is expected to complete their performance obligations under the
arrangements. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related
revenue recognition. Adjustments to original estimates will be required as work progresses and additional information becomes known, even though the
scope of the work required under the contract may not change. Any adjustment as a result of a change in estimates is made when facts develop, events
become known, or an adjustment is otherwise warranted.
Stock-based compensation
We account for our stock-based compensation awards in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") Topic 718, Compensation—Stock Compensation ("ASC 718"). We have issued stock-based compensation awards including stock
options and restricted stock units ("RSUs"), and we also account for certain issuances of preferred stock and warrants in accordance with ASC 718. ASC
718 requires all stock-based payments, including grants of stock options and RSUs, to be recognized in the consolidated statements of operations and
comprehensive loss based on their grant date fair values. We use the Black-Scholes option-pricing model to determine the fair value of options granted. The
fair value of the RSUs is determined by the market price of a share of our common stock on the grant date. We recognize forfeitures as they occur.
Expense related to stock-based compensation awards subject to service-based vesting conditions is recognized on a straight-line basis based on the grant
date fair value over the associated service period of the award, which is generally the vesting term. Stock-based awards generally vest over a one to three
year requisite service period. Stock options have a contractual term of 10 years. To the extent a stock-based compensation award is subject to performance-
based vesting conditions, the amount of expense recorded reflects an assessment of the probability of achieving the performance conditions. Expense for
stock-based compensation awards with performance-based vesting conditions is only recognized when the performance-based vesting condition is deemed
probable to occur. Expense related to stock-based compensation awards are recorded to research and development expense or general and administrative
expense based on the underlying function of the individual that was granted the stock-based compensation award. Shares issued upon stock option exercise
and RSU vesting are newly issued common shares.
Estimating the fair value of stock options requires the input of subjective assumptions, including the expected term of the stock option, stock price
volatility, the risk-free interest rate, and expected dividends. The assumptions used in our Black-Scholes option-pricing model represent our best estimates
and involve a number of variables, uncertainties, assumptions, and the application of our judgment, as they are inherently subjective. If any assumptions
change, our stock-based compensation expense could be materially different in the future.
The assumptions used in our Black-Scholes option-pricing model for stock options are as follows:
Expected Term. As we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term, the expected term
of employee options is determined using the "simplified" method, as prescribed in SEC's Staff Accounting Bulletin No. 107, whereby the expected term
equals the arithmetic average of the vesting term and the original contractual term of the option.
Expected Volatility. The expected volatility is based on our historical volatilities and that of similar entities within our industry for periods commensurate
with the assumed expected term.
Risk-Free Interest Rate. The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period
that is commensurate with the assumed expected term.
Expected Dividends. The expected dividend yield is 0% because we have not historically paid, and do not expect for the foreseeable future to pay, a
dividend on our common stock.
Stock-based compensation expense was $9.2 million and $10.5 million for the years ended December 31, 2023 and 2022, respectively. As of December 31,
2023, we had $8.6 million of unrecognized stock-based compensation expense, which is expected to be recognized over a remaining weighted-average
period of 1.5 years.
91
Table of Contents
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 in the notes to the consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements required by this item are set forth beginning on page F-1 of this report and are incorporated herein by reference. The report of our
Independent Registered Public Accounting Firm, Ernst & Young LLP, Public Company Accounting Oversight Board identification number 42, is also
included therein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have 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 Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of December 31, 2023. Based upon that evaluation, our
principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Annual Report on Form 10-K and as of
the end of the prior year, our disclosure controls and procedures are not effective because of a material weakness related to the design and operating
effectiveness of controls over the accounting for collaborative arrangements. Notwithstanding the identified material weakness, the Company’s
management, including our principal executive officer and principal financial officer, has concluded the Company’s consolidated financial statements
included in this Form 10-K present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows at and for the
periods presented in accordance with U.S. generally accepted accounting principles.
In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in
accordance with U.S. GAAP.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting
is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and
principal financial officer and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with GAAP and includes those policies
and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could
have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
92
Table of Contents
A material weakness, as defined in the SEC regulations, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected
on a timely basis.
Under the supervision of and with the participation of our Chief Executive Officer and Chief Accounting Officer, our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2023 based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated Framework of 2013. Based on this assessment, management concluded that our
internal control over financial reporting was not effective as of December 31, 2023 and December 31, 2022 as a result of a material weakness related to the
design and operating effectiveness of controls over the accounting for collaborative arrangements. Specifically, we did not effectively design and operate
controls over the technical accounting analysis, the determination of the transaction price, calculating the progress towards the satisfaction of the
performance obligations under the collaborative arrangements, and determining the value of the non-cash consideration received.
This report does not include an attestation report on internal control over financial reporting by the Company’s independent registered public accounting
firm since the Company is a smaller reporting company under the rules of the SEC.
Remediation
In order to remediate the material weakness, the Company's management plans to improve the design and operation of their controls over the technical
accounting analysis, the determination of the transaction price, calculating the progress towards the satisfaction of the performance obligations under the
collaborative arrangements, and determining the value of the non-cash consideration received under collaborative arrangements. Specifically, the Company
plans to implement the following: dedicating personnel resources with the appropriate level of proficiency to review any new arrangements on a timely
basis; obtaining relevant information from third parties on a timely basis, including actual costs incurred, actual noncash consideration received, and
estimates to complete; and increasing the level of review activities over the accounting for collaborative arrangements during the financial statement close
process. The material weakness cannot be considered remediated until the newly designed controls operate effectively for a sufficient period of time and
management has concluded, through testing, that the control is operating effectively.
Changes in Internal Control Over Financial Reporting
Except for the material weakness described above, for the period ended December 31, 2023, there have been no changes in our internal control over
financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information.
Insider Trading Arrangements
During the Company's three months ended December 31, 2023, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement, and/or
any non-Rule 10b5-1 trading arrangement (as such terms are defined pursuant to Item 408(a) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.
Not applicable.
93
Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item is incorporated by reference from the discussion responsive thereto contained in the Proxy Statement for our 2024
Annual Meeting of Stockholders or in an amendment on Form 10-K/A, which we intend to file with the SEC within 120 days of the end of the fiscal year
to which this Annual Report on Form 10-K relates.
Item 11. Executive Compensation.
The information required by this Item (excluding the information under the heading "Pay Versus Performance") is incorporated by reference from the
discussion responsive thereto contained in the Proxy Statement for our 2024 Annual Meeting of Stockholders or in an amendment on Form 10-K/A, which
we intend to file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference from the discussion responsive thereto contained in the Proxy Statement for our 2024
Annual Meeting of Stockholders or in an amendment on Form 10-K/A, which we intend to file with the SEC within 120 days of the end of the fiscal year
to which this Annual Report on Form 10-K relates.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference from the discussion responsive thereto contained in the Proxy Statement for our 2024
Annual Meeting of Stockholders or in an amendment on Form 10-K/A, which we intend to file with the SEC within 120 days of the end of the fiscal year
to which this Annual Report on Form 10-K relates.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference from the discussion responsive thereto contained in the Proxy Statement for our 2024
Annual Meeting of Stockholders or in an amendment on Form 10-K/A, which we intend to file with the SEC within 120 days of the end of the fiscal year
to which this Annual Report on Form 10-K relates.
94
Table of Contents
Item 15. Exhibit and Financial Statement Schedules.
PART IV
The financial statements, financial statement schedules, and exhibits filed as part of this Annual Report on Form 10-K are as follows:
(a)(1) Financial Statements
See "Index to Consolidated Financial Statements" beginning on page F-1 of this report.
(a)(2) Financial Statement Schedules
Not applicable.
(a)(3) Exhibits
The exhibits required to be filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index attached hereto and are incorporated herein by
reference.
95
Table of Contents
Exhibit
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4.1
4.2
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
EXHIBIT INDEX
Description
Sixth Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K as
filed on December 8, 2014, and incorporated herein by reference)
Amendment to Sixth Amended and Restated Certificate of Incorporation related to the Reverse Stock Split and the Authorized
Share Increase (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K as filed October 1, 2019, and incorporated
herein by reference)
Amendment to Sixth Amended and Restated Certificate of Incorporation related to the Name Change (filed as Exhibit 3.2 to the
Registrant's Current Report on Form 8-K as filed on October 1, 2019, and incorporated herein by reference)
Amendment to Sixth Amended and Restated Certificate of Incorporation related to the Increase in Authorized Shares of Common
Stock (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q as filed on May 7, 2021, and incorporated herein by
reference)
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Histogenics
Corporation (filed as Exhibit 3.3 to the Registrant's Current Report on Form 8-K as filed on September 16, 2016, and incorporated
herein by reference)
Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock of Ocugen, Inc. (filed as
Exhibit 3.5 to the Registrant's Annual Report on Form 10-K filed on March 19, 2021 and incorporated herein by reference)
Second Amended and Restated Bylaws of Ocugen, Inc. (filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q as
filed on August 21, 2023, and incorporated herein by reference)
Amendment to Second Amended and Restated Bylaws of Ocugen, Inc. (filed as Exhibit 3.1 to the Registrant's Current Report of
Form 8-K as filed on March 20, 2024, and incorporated herein by reference)
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (filed as
Exhibit 4.1 to the Registrant's Annual Report on Form 10-K as filed on February 28, 2022, and incorporated herein by reference)
Form of Common Stock Purchase Warrant (filed as Exhibit 4.8 to the Registrant's Annual Report on Form 10-K filed on March 19,
2021 and incorporated herein by reference)
Ocugen, Inc. 2014 Stock Option Plan (filed as Exhibit 10.30 to the Registrant's Registration Statement on Form S-4 (SEC File No.
333-232147), as filed on June 14, 2019, and incorporated herein by reference)
Form of Incentive Stock Option Agreement under Ocugen, Inc. 2014 Stock Option Plan (filed as Exhibit 10.31 to the Registrant's
Registration Statement on Form S-4 (SEC File No. 333-232147), as filed on June 14, 2019, and incorporated herein by reference)
Form of Nonstatutory Stock Option Agreement under Ocugen, Inc. 2014 Stock Option Plan (filed as Exhibit 10.32 to the
Registrant's Registration Statement on Form S-4 (SEC File No. 333-232147), as filed on June 14, 2019, and incorporated herein by
reference)
Ocugen, Inc. 2019 Equity Incentive Plan (filed as Appendix A to the Registrant's Proxy Statement on Schedule 14A as filed on
November 8, 2019, and incorporated herein by reference)
Form of Incentive Stock Option Agreement under Ocugen, Inc. 2019 Equity Incentive Plan
Form of Non-Qualified Stock Option Agreement under Ocugen, Inc. 2019 Equity Incentive Plan
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under Ocugen, Inc. 2019 Equity Incentive Plan
Form of Performance-Vested Stock Option Agreement under Ocugen, Inc. 2019 Equity Incentive Plan (filed as Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q as filed on May 7, 2021, and incorporated herein by reference)
Form of Non-Qualified Stock Option Agreement for Inducement Non-Qualified Stock Option Awards
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for Inducement Restricted Stock Unit Awards
96
Table of Contents
10.11#
Exclusive License Agreement, effective as of March 3, 2014, between The Regents of the University of Colorado and Ocugen
Opco, Inc. (filed as Exhibit 10.33 to the Registrant's Registration Statement on Form S-4 (SEC File No. 333-232147), as filed on
June 14, 2019, and incorporated herein by reference)
97
Table of Contents
Exhibit
10.12#
10.13
10.14#
10.15#
10.16
10.17#
10.18#
10.19#
10.20#
10.21
10.22#*
10.23#
10.24#
10.25#*
10.26
10.27+
10.28+
Description
First Amendment to the Exclusive License Agreement, dated as of January 23, 2017, by and between The Regents of the
University of Colorado and Ocugen Opco, Inc. (filed as Exhibit 10.34 to the Registrant's Registration Statement on Form S-4 (SEC
File No. 333-232147), as filed on June 14, 2019, and incorporated herein by reference)
Letter of Understanding, dated November 8, 2017, between The Regents of the University of Colorado and Ocugen Opco, Inc.
(filed as Exhibit 10.35 to the Registrant's Registration Statement on Form S-4 (SEC File No. 333-232147), as filed on June 14,
2019, and incorporated herein by reference)
Exclusive License Agreement, effective as of December 19, 2017, between The Schepens Eye Research Institute, Inc. and Ocugen
Opco, Inc. (filed as Exhibit 10.37 to the Registrant's Registration Statement on Form S-4 (SEC File No. 333-232147), as filed on
June 14, 2019, and incorporated herein by reference)
Co-Development, Supply and Commercialization Agreement, dated as of January 31, 2021, by and between the Registrant and
Bharat Biotech International Limited (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q as filed on May 7,
2021, and incorporated herein by reference)
First Amendment to Co-Development, Supply and Commercialization Agreement, dated as of May 29, 2021, by and between the
Registrant and Bharat Biotech International Limited (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q as
filed on August 6, 2021, and incorporated herein by reference)
Second Amendment to Co-Development, Supply and Commercialization Agreement, dated as of April 15, 2022, by and between
the Registrant and Bharat Biotech International Limited (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q as
filed on May 6, 2022, and incorporated herein by reference)
Development and Commercial Supply Agreement, dated September 29, 2021, by and between the Registrant and Bharat Biotech
International Limited (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q as filed on November 9, 2021, and
incorporated herein by reference)
Co-Development and Commercialization Agreement, dated as of September 27, 2019, by and among the Registrant and CanSino
Biologics Inc. (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q as filed on November 12, 2019, and
incorporated herein by reference)
First Amendment to the Co-Development and Commercialization Agreement, dated September 30, 2021, by and between the
Registrant and CanSino Biologics, Inc. (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q as filed on
November 9, 2021, and incorporated herein by reference)
Second Amendment to the Co-Development and Commercialization Agreement, dated November 21, 2022, by and between the
Registrant and CanSino Biologics, Inc.
Third Amendment to the Co-Development and Commercialization Agreement, dated April 11, 2023, by and between the
Registrant and CanSino Biologics, Inc.
Exclusive License Agreement by and between the Registrant and The Washington University, dated as of September 23, 2022
(filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q as filed on November 8, 2022, and incorporated herein by
reference)
First Amendment to the Exclusive License Agreement by and between the Registrant and The Washington University, dated as of
January 31, 2023
Second Amendment to the Exclusive License Agreement by and between the Registrant and The Washington University, dated as
of November 28, 2023
Loan and Security Agreement, effective as of September 12, 2016, by and between EB5 Life Sciences, LP and Ocugen Opco, Inc.
(filed as Exhibit 10.42 to the Registrant's Registration Statement on Form S-4/A (SEC File No. 333-232147), as filed on July 23,
2019, and incorporated herein by reference)
Executive Employment Agreement, dated as of September 10, 2019, by and between the Registrant and Sanjay Subramanian (filed
as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q as filed on November 12, 2019, and incorporated herein by
reference)
Amendment to Executive Employment Agreement, dated as of January 1, 2020, by and between the Registrant and Sanjay
Subramanian (filed as Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q as filed on May 8, 2020, and incorporated
herein by reference)
98
Table of Contents
10.29+
Exhibit
10.30+
10.31+
10.32+
10.33+
10.34†
10.35†
21.1*
23.1*
31.1*
31.2*
32.1**
97+*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104
Amended and Restated Employment Agreement, dated as of January 1, 2020, by and between the Registrant and Shankar
Musunuri (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K as filed on January 3, 2020, and incorporated
herein by reference)
Description
First Amendment to Amended and Restated Executive Employment Agreement, dated as of April 27, 2022, by and between the
Registrant and Shankar Musunuri (filed as Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q as filed on May 6, 2022,
and incorporated herein by reference)
Amended and Restated Executive Employment Agreement, dated as of March 18, 2022, by and between the Registrant and Jessica
Crespo (filed as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q as filed on May 6, 2022, and incorporated herein
by reference)
Amended and Restated Executive Employment Agreement, dated as of December 16, 2021, by and between the Registrant and
Arun Upadhyay
First Amendment to Amended and Restated Executive Employment Agreement, dated as of August 26, 2022, by and between the
Registrant and Arun Upadhyay
Agreement dated as of June 22, 2012 between the Registrant and Purpose Co., Ltd. f/k/a Takagi Sangyo Co. Ltd. and f/k/a Takagi
Industrial Co., Ltd. (filed as Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 (SEC File No. 333-199202), as
filed on October 7, 2014, and incorporated herein by reference)
First Amendment to License Agreement, dated May 9, 2016, between the Registrant and Purpose Co., Ltd., f/k/a Takagi Sangyo
Co. Ltd. (filed as Exhibit 10.33 to the Registrant’s Quarterly Report on Form 10-Q as filed on August 11, 2016, and incorporated
herein by reference)
List of Subsidiaries
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm to the Registrant
Certification of the Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002
Certifications of the Chief Executive Officer and Chief Financial Officer as required by 18 U.S.C. 1350
Compensation Recovery Policy
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
The cover page from this Annual Report on Form 10-K, formatted in Inline XBRL
_____________________
* Filed herewith.
** Furnished herewith.
# Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulations S-K.
+ Indicates a management contract or compensatory plan or arrangement.
† Confidential treatment has been granted with respect to certain portions of this exhibit.
Item 16. 10-K Summary
Not applicable.
99
Table of Contents
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
Dated: April 16, 2024
Dated: April 16, 2024
Ocugen, Inc.
/s/ Shankar Musunuri
Shankar Musunuri, Ph.D., MBA
Chairman, Chief Executive Officer & Co-Founder
(Principal Executive Officer)
/s/ Michael Breininger
Michael Breininger, CPA, MBA, LSSBB
Corporate Controller, Interim Chief Accounting Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
Chairman, Chief Executive Officer & Co-Founder
(Principal Executive Officer)
Date
April 16, 2024
/s/ Shankar Musunuri
Shankar Musunuri
/s/ Michael Breininger
Michael Breininger
/s/ Ramesh Kumar
Ramesh Kumar
/s/ Junge Zhang
Junge Zhang
/s/ Uday Kompella
Uday Kompella
/s/ Kirsten Castillo
Kirsten Castillo
/s/ Prabhavathi Fernandes
Prabhavathi Fernandes
/s/ Marna Whittington
Marna Whittington
Corporate Controller, Interim Chief Accounting Officer
April 16, 2024
(Principal Financial Officer)
Director
Director
Director
Director
Director
Director
100
April 16, 2024
April 16, 2024
April 16, 2024
April 16, 2024
April 16, 2024
April 16, 2024
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OCUGEN, INC.
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022
Notes to the Consolidated Financial Statements
Page
F-2
F-4
F-5
F-6
F-7
F-9
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Ocugen, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ocugen, Inc. (the Company) as of December 31, 2023 and 2022, the related
consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December
31, 2023, 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, 2023 and 2022, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has stated that substantial doubt exists
about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding
these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Restatement of 2022 Financial Statements
As discussed in Note 16 to the consolidated financial statements, the 2022 consolidated financial statements have been restated to correct a misstatement.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Table of Contents
Description of the Matter
How We Addressed the Matter
in Our Audit
Accounting for Collaborative Arrangement Revenue
As disclosed in Notes 2 and 3 to the consolidated financial statements, the Company recognizes collaborative
arrangement revenue as the Company’s performance obligations are satisfied over time. Collaborative arrangement
revenue is recognized under an input method using the ratio of costs incurred to date compared to the total estimated
costs required to complete the performance obligations. The transaction price consists of variable consideration that is
based on the estimated market value of all co-development services to be provided by the other party to the
arrangements. The Company recorded collaborative arrangement revenue of $6.0 million for the year ended December
31, 2023.
Auditing the estimated transaction prices and the Company’s progress towards the satisfaction of the performance
obligations under the collaborative arrangements is especially challenging because it involves subjective management
assumptions about the transaction prices, including the need to constrain estimates of variable consideration, and the
research and development costs necessary to satisfy the performance obligations. The measurement and recognition of
collaborative arrangement revenue is subject to these estimates and judgments developed by management.
To test the amount of collaborative arrangement revenue recognized in the current period, we performed audit
procedures that included, among others, reading the collaborative arrangements and testing the accuracy and
completeness of the underlying data used in making the estimates. To assess the reasonableness of the Company’s
significant estimates and judgments, we performed sensitivity analyses of key inputs, compared cost estimates to costs
previously incurred for similar activities, inspected communications between the Company and its vendors regarding
estimated costs for clinical activities, evaluated the remaining level of effort required to complete the performance
obligations, and inspected evidence of actual costs incurred, including confirmations with third parties. We also
discussed the basis for key assumptions with the Company’s research and development personnel, who oversee the
completion of the collaborative arrangements and related clinical trials. Based on these audit procedures, we evaluated
the Company’s application of the constraint on variable consideration and recalculated the revenue recognized for the
period based on the ratio of costs incurred compared to estimated total costs at completion of the research and
development services and the transaction prices.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2018.
Philadelphia, Pennsylvania
April 16, 2024
F-3
Table of Contents
OCUGEN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Assets
Current assets
Cash and cash equivalents
Marketable securities
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Accounts payable
Accrued expenses and other current liabilities
Operating lease obligations
Total current liabilities
Non-current liabilities
Operating lease obligations, less current portion
Long term debt, net
Other non-current liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 15)
Stockholders' equity
Convertible preferred stock; $0.01 par value; 10,000,000 shares authorized at December 31, 2023 and
2022
Series A; zero shares issued and outstanding at December 31, 2023 and 2022, respectively
Series B; 54,745 issued and outstanding at December 31, 2023 and 2022
Common stock; $0.01 par value; 295,000,000 shares authorized; 256,688,304 and 221,721,182 shares
issued, and 256,566,804 and 221,599,682 shares outstanding at December 31, 2023 and 2022, respectively
Treasury stock, at cost, 121,500 shares at December 31, 2023 and 2022
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to consolidated financial statements.
F-4
As of December 31,
2023
(As Restated)
2022
39,462 $
—
3,509
42,971
17,290
4,286
64,547 $
3,172 $
13,343
574
17,089
3,567
2,800
527
6,894
23,983
—
1
2,567
(48)
324,191
20
(286,167)
40,564
64,547 $
77,563
13,371
7,558
98,492
6,053
4,087
108,632
8,062
19,971
498
28,531
3,587
2,289
244
6,120
34,651
—
1
2,217
(48)
294,874
26
(223,089)
73,981
108,632
$
$
$
$
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share amounts)
OCUGEN, INC.
Collaborative arrangement revenue
Total revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Unrealized gain (loss) on marketable securities
Comprehensive loss
Shares used in calculating net loss per common share — basic and diluted
Net loss per share of common stock — basic and diluted
See accompanying notes to consolidated financial statements.
F-5
Year ended December 31,
2023
(As Restated)
2022
6,036 $
6,036
39,573
31,994
71,567
(65,531)
2,453
(63,078) $
(5)
(1)
(63,084) $
2,488
2,488
56,159
35,400
91,559
(89,071)
2,267
(86,804)
25
1
(86,778)
244,327,057
214,600,051
(0.26) $
(0.40)
$
$
$
$
OCUGEN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Series A Convertible
Preferred Stock
Series B Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Shares
Amount
Treasury
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
7 $
—
—
—
(7)
—
—
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,745 $
1
199,502,183 $
1,995 $
(48) $
225,537 $
— $
(136,285) $
91,200
—
—
—
—
—
—
—
—
—
1,579,886
—
16
—
20,635,998
206
—
—
—
3,115
—
—
—
—
—
—
10,541
—
—
—
—
—
1,246
57,550
—
—
—
—
—
—
—
26
—
—
10,541
—
—
—
1,262
57,756
—
—
(86,804)
26
(86,804)
54,745 $
1
221,721,182 $
2,217 $
(48) $
294,874 $
26 $
(223,089) $
73,981
—
—
—
—
—
—
—
—
—
9,217
—
488,166
—
34,478,956
—
—
—
—
5
345
—
—
—
—
—
—
119
19,981
—
—
—
—
—
(6)
—
—
9,217
—
124
—
20,326
—
(63,078)
(6)
(63,078)
54,745 $
1
256,688,304 $
2,567 $
(48) $
324,191 $
20 $
(286,167) $
40,564
Balance at December
31, 2021 (As Restated)
Stock-based
compensation expense
Issuance of common
stock for stock option
exercises and restricted
stock unit vesting, net
Issuance of common
stock for capital raises,
net
Series A convertible
preferred stock
conversion
Other comprehensive
income (loss)
Net loss
Balance at December
31, 2022 (As Restated)
Stock-based
compensation expense
Issuance of common
stock for stock option
exercises and restricted
stock unit vesting, net
Issuance of common
stock for capital raises,
net
Other comprehensive
income (loss)
Net loss
Balance at December
31, 2023
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
OCUGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
Amortization (accretion) on marketable securities
Non-cash interest expense
Non-cash lease expense
Non-cash (income) expense from collaborative arrangements, net
Stock-based compensation expense
Impairment of advance for COVAXIN supply
Loss on disposal of fixed assets related to COVAXIN
Other
Changes in assets and liabilities:
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Lease obligations
Net cash used in operating activities
Cash flows from investing activities
Purchases of marketable securities
Proceeds from maturities of marketable securities
Purchases of property and equipment
Repayment of note receivable
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from issuance of common stock
Payment of equity issuance costs
Proceeds from issuance of debt
Payments of debt issuance costs
Net cash provided by financing activities
Effect of changes in exchange rate on cash and cash equivalents
Net (decrease) in cash and cash equivalents
Cash, cash equivalents, and restricted cash at beginning of period
Cash and cash equivalents at end of period
$
F-7
Year ended December 31,
2023
(As Restated)
2022
$
(63,078) $
(86,804)
704
(182)
116
538
(696)
9,217
4,074
363
46
(296)
(12,343)
(517)
(62,054)
(3,947)
17,500
(10,476)
—
3,077
20,804
(355)
500
(68)
20,881
(5)
(38,101)
77,563
39,462 $
480
(99)
83
593
6,603
10,541
—
—
(671)
91
9,487
(383)
(60,079)
(13,271)
—
(4,457)
761
(16,967)
59,567
(549)
500
(43)
59,475
25
(17,546)
95,109
77,563
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
OCUGEN, INC.
(in thousands)
Supplemental disclosure of non-cash investing and financing transactions:
Purchase of property and equipment
Right-of-use assets related to operating leases
Debt issuance costs
Year ended December 31,
2023
(As Restated)
2022
$
$
$
2,189 $
572 $
— $
911
2,916
37
See accompanying notes to consolidated financial statements.
F-8
Table of Contents
1. Nature of Business
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCUGEN, INC.
Ocugen, Inc., together with its wholly owned subsidiaries ("Ocugen" or the "Company"), is a biotechnology company focused on discovering, developing,
and commercializing novel gene and cell therapies and vaccines that improve health and offer hope for patients across the globe. The Company is
headquartered in Malvern, Pennsylvania, and manages its business as one operating segment.
Our technology pipeline includes:
• Modifier Gene Therapy Platform — Based on the use of nuclear hormone receptors ("NHRs"), the Company believes its modifier gene therapy
platform has the potential to address many retinal diseases, including rare diseases such as retinitis pigmentosa ("RP") (OCU400) and Leber
congenital amaurosis ("LCA") (OCU400), with a gene-agnostic approach. We also believe our modifier gene therapy platform has the potential to
address many retinal diseases, including a multifactorial dry age-related macular degeneration ("dAMD") using OCU410, which the Company
believes has the potential to treat millions of patients, and Stargardt disease (OCU410ST), which is also a rare disease. The Company received
clearance from FDA to initiate a Phase 3 trial for OCU400 for the treatment of RP and intends to begin dosing patients in 2Q, 2024. The Company
expects to expand OCU400 Phase 3 development in LCA patients in the second half of 2024 based on Phase 1/2 study results in LCA patients and
subject to alignment with the FDA. Currently both OCU410, for the treatment of GA patients, and OCU410ST, for the treatment of Stargardt
patients, programs are in Phase 1/2 clinical development.
• Novel Biologic Therapy for Retinal Diseases — OCU200 is a novel fusion protein consisting of two human proteins, tumstatin and transferrin.
OCU200 possesses unique features which potentially enable it to treat vascular complications of diabetic macular edema ("DME"), diabetic
retinopathy ("DR") and wet AMD. Tumstatin is the active component of OCU200 and binds to integrin receptors, which play a crucial role in
disease pathogenesis. Transferrin is expected to facilitate the targeted delivery of tumstatin into the retina and choroid and potentially help increase
the interaction between tumstatin and integrin receptors. The Company continues to work with the FDA to address comments to lift the clinical
hold.
• Regenerative Medicine Cell Therapy Platform — Our Phase 3-ready regenerative medicine cell therapy platform technology, which includes
NeoCart (autologous chondrocyte-derived neocartilage), is being developed for the repair of knee cartilage injuries in adults. The Company
received concurrence from the FDA on the confirmatory Phase 3 trial design and has completed renovating an existing facility into a current Good
Manufacturing Practice ("GMP") facility to support clinical study and initial commercial launch.
•
Inhaled Mucosal Vaccine Platform — The Company's next-generation, inhaled mucosal vaccine platform includes OCU500, a COVID-19
vaccine; OCU510, a seasonal quadrivalent flu vaccine; and OCU520, a combination quadrivalent seasonal flu and COVID-19 vaccine. The
Company is conducting IND enabling and product development activities for our OCU500 product and planning to submit an IND in 2024. The
Company is currently collaborating with the National Institute of Allergy and Infectious Diseases ("NIAID") for early clinical studies for the
OCU500 program. The Company expects OCU500 clinical trials to begin mid-2024. The Company is continuing discussions with relevant
government agencies regarding developmental funding for our OCU510 and OCU520 platforms.
Going Concern
The Company has incurred recurring net losses since inception and has funded its operations to date through the sale of common stock, warrants to
purchase common stock, the issuance of convertible notes and debt, and grant proceeds. The Company incurred net losses of approximately $63.1 million
and $86.8 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had an accumulated deficit of
$286.2 million and cash and cash equivalents totaling $39.5 million. This amount will not meet the Company's capital requirements over the next 12
months after the date that the consolidated financial statements are issued. The Company believes that its cash and cash equivalents will enable it to fund its
operations into the fourth quarter of 2024. Due to the inherent uncertainty involved in making estimates and the risks associated with the research,
development, and commercialization of biotechnology products, the Company may have based this estimate on assumptions that may prove to be wrong,
and the Company's operating plan may change as a result of many factors currently unknown to the Company.
F-9
Table of Contents
The Company is subject to risks, expenses, and uncertainties frequently encountered by companies in its industry. The Company intends to continue its
research, development, and commercialization efforts for its product candidates, which will require significant additional funding. If the Company is unable
to obtain additional funding in the future and/or its research, development, and commercialization efforts require higher than anticipated capital, there may
be a negative impact on the financial viability of the Company. The Company is currently exploring options to fund its operations through public and
private placements of equity and/or debt, payments from potential strategic research and development arrangements, sales of assets, licensing and/or
collaboration arrangements with pharmaceutical companies or other institutions, funding from the government, particularly for the development of the
Company's novel inhaled mucosal vaccine platform, or funding from other third parties. Such financing and funding may not be available at all, or on terms
that are favorable to the Company. While Company management believes that it has a plan to fund operations, its plan may not be successfully
implemented. Failure to generate sufficient cash flows from operations, raise additional capital, or appropriately manage certain discretionary spending,
could have a material adverse effect on the Company's ability to achieve its intended business objectives.
As a result of these factors, together with the anticipated continued spending that will be necessary to continue to research, develop, and commercialize the
Company's product candidates, there is substantial doubt about the Company's ability to continue as a going concern within one year after the date that
these consolidated financial statements are issued. The consolidated financial statements do not contain any adjustments that might result from the
resolution of any of the above uncertainties.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements included herein have been prepared in conformity with accounting principles generally accepted in the
United States ("GAAP") and under the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The consolidated financial
statements include the accounts of Ocugen and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported
amounts of expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods
may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and
assumptions include those used in the accounting for research and development contracts, including clinical trial accruals, determination of the
collaborative arrangements transaction price, calculating the progress towards the satisfaction of the performance obligations under the collaborative
arrangements, and determining the value of the non-cash consideration received under collaborative arrangements.
Segment Information
As of December 31, 2023, the Company viewed its operations and managed its business as one operating segment consistent with how the Company's chief
operating decision-maker, the Company's Chief Executive Officer, makes decisions regarding resource allocation and assesses performance. As of
December 31, 2023, substantially all of the Company's assets were located in the United States.
Cash and Cash Equivalents
The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. Cash equivalents
may include bank demand deposits and money market funds that invest primarily in certificates of deposit, commercial paper, and U.S. government agency
securities and treasuries. The Company records interest income received on its cash and cash equivalents to other income (expense), net in the consolidated
statements of operations and comprehensive loss. The Company recorded $2.5 million and $1.4 million as interest income for the years ended December
31, 2023 and 2022, respectively.
F-10
Table of Contents
Fair Value Measurements
The Company follows the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair
Value Measurements ("ASC 820"), which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The carrying value of certain financial instruments, including cash and cash equivalents, accounts payable, and accrued expenses, approximates their fair
value due to the short-term nature of these instruments.
Marketable Securities
The Company accounts for marketable securities in accordance with FASB ASC Topic 320, Investments — Debt and Equity Securities ("ASC 320"). The
Company determines the appropriate classification of its investments in debt securities at the time of purchase. Marketable securities with maturities of 90
days or less at the time of purchase are classified as cash equivalents on the consolidated balance sheets. Debt securities are classified as trading securities
if the security is bought and held primarily to be sold in the near term. Debt securities are classified as held-to-maturity if management has both the positive
intent and ability to hold until the maturity of the security. Debt securities not classified as trading securities or held-to-maturity securities are classified as
available-for-sale securities. The Company's marketable securities were previously comprised of debt securities and were classified as available-for-sale
securities. The Company's marketable securities matured during the year ended December 31, 2023.
Available-for-sale securities are recorded at fair value based on inputs that are observable, either directly or indirectly, such as quoted prices for identical
securities in active markets (Level 1) or quoted prices for similar securities in active markets or inputs that are observable (Level 2). Unrealized gains and
losses are included in other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss. Amortization of premium or
accretion of discount on debt securities are included in other income (expense), net in the consolidated statements of operations and comprehensive loss.
The Company reviews investments in debt securities for other-than-temporary impairment if the fair value of the investment is less than the amortized cost
basis. The assessment for other-than-temporary impairment is performed at the individual security level. To date, the Company has not recognized any
impairments with respect to its debt securities.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. The FASB subsequently issued amendments to ASU No. 2016-13, which had the same effective date and transition date of January 1, 2023.
The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. The Company's
cash and cash equivalents are held in accounts at financial institutions that may exceed federally insured limits. The Company has not experienced any
credit losses in such accounts and does not believe it is exposed to significant credit risk beyond the standard credit risk associated with commercial
banking relationships.
Property and Equipment, Net
The Company's property and equipment currently includes furniture and fixtures, machinery and equipment, leasehold improvements, and construction in
progress. Property and equipment is recorded at historical cost less accumulated depreciation. Significant additions or improvements are capitalized, and
expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is calculated using the straight-line method and is recognized
over the expected useful life of the underlying asset. Depreciation expense is included as research and development expense or general and administrative
F-11
Table of Contents
expense in the consolidated statements of operations and comprehensive loss based on the underlying nature of the associated asset. Construction in
progress is not depreciated until such time that the asset is completed and placed into service. The Company's construction in progress as of December 31,
2023 related to the renovation of one of the Company's leased properties to develop a laboratory and manufacturing facility. The major assets that will be
utilized in the laboratory and manufacturing facility have not yet been placed into service. Once placed into service, the assets will be depreciated over their
expected useful lives.
Expected useful lives by major asset category are as follows:
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Leases
3 to 7 years
5 to 7 years
Shorter of the expected useful life or remaining lease term
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the
Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an
underlying asset is conveyed to the Company, if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits
from using the underlying asset. The Company's lease agreements include lease and non-lease components, which the Company has elected not to account
for separately for all classes of underlying assets. Lease expense for variable lease components is recognized when the obligation is probable.
The Company currently leases real estate classified as operating leases. Operating leases are included in other assets and operating lease obligations in the
Company's consolidated balance sheets. At lease commencement, the Company records a lease liability based on the present value of the lease payments
over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise and records a corresponding right-
of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease
commencement date. Lease expense is recognized on a straight-line basis over the lease term and recognized as research and development expense or
general and administrative expense based on the underlying nature of the expense. FASB ASC Topic 842, Leases ("ASC 842") requires a lessee to discount
its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. The
implicit interest rates were not readily determinable in the Company's current operating leases. As such, the incremental borrowing rates were used based
on the information available at the commencement dates in determining the present value of lease payments.
The lease term for the Company's leases includes the non-cancellable period of the lease plus any additional periods covered by either an option to extend
(or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the
lessor.
Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on an index or rate, and
amounts probable to be payable under the exercise of an option to purchase the underlying asset if reasonably certain.
Variable payments not dependent on an index or rate associated with the Company's leases are recognized when the event, activity, or circumstance is
probable. Variable payments include the Company's proportionate share of certain utilities and other operating expenses and are presented as operating
expenses in the Company's consolidated statements of operations and comprehensive loss in the same line item as expense arising from fixed lease
payments.
Impairment of Assets
The Company reviews its assets, including property and equipment, for impairment whenever changes in circumstances or events may indicate that the
carrying amounts are not recoverable. These indicators include, but are not limited to, a significant change in the extent or manner in which an asset is used
or its physical condition, a significant decrease in the market price of an asset, or a significant adverse change in the business or the industry that could
affect the value of an asset. An asset is tested for impairment by comparing the net carrying value of the asset to the undiscounted net cash flows to be
generated from the use and eventual disposition of the asset.
F-12
Table of Contents
Stock-Based Compensation
The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation ("ASC
718"). The Company has issued stock-based compensation awards including stock options and restricted stock units ("RSUs"), and also accounts for
certain issuances of preferred stock and warrants in accordance with ASC 718. ASC 718 requires all stock-based payments, including grants of stock
options and RSUs, to be recognized in the consolidated statements of operations and comprehensive loss based on their grant date fair values. The
Company uses the Black-Scholes option-pricing model to determine the fair value of stock options granted. For RSUs, the fair value of the RSU is
determined by the market price of a share of the Company's common stock on the grant date. The Company recognizes forfeitures as they occur.
Expense related to stock-based compensation awards granted with service-based vesting conditions is recognized on a straight-line basis based on the grant
date fair value over the associated service period of the award, which is generally the vesting term. Stock-based compensation awards generally vest over a
one to three year requisite service period. Stock options have a contractual term of 10 years. Expense for stock-based compensation awards with
performance-based vesting conditions is only recognized when the performance-based vesting condition is deemed probable to occur. Expense related to
stock-based compensation awards are recorded to research and development expense or general and administrative expense based on the underlying
function of the individual that was granted the stock-based compensation award. Shares issued upon stock option exercise and RSU vesting are newly-
issued common shares.
Estimating the fair value of stock options requires the input of subjective assumptions, including the expected term of the stock option, stock price
volatility, the risk-free interest rate, and expected dividends. The assumptions used in the Company's Black-Scholes option-pricing model represent
management's best estimates and involve a number of variables, uncertainties, assumptions, and the application of management's judgment, as they are
inherently subjective. If any assumptions change, the Company's stock-based compensation expense could be materially different in the future.
The assumptions used in Ocugen's Black-Scholes option-pricing model for stock options are as follows:
Expected Term. As Ocugen does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term, the
expected term of employee stock options subject to service-based vesting conditions is determined using the "simplified" method, as prescribed in SEC's
Staff Accounting Bulletin No. 107, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the
stock option.
Expected Volatility. The expected volatility is based on historical volatilities of Ocugen and similar entities within Ocugen's industry for periods
commensurate with the assumed expected term.
Risk-Free Interest Rate. The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period
that is commensurate with the assumed expected term.
Expected Dividends. The expected dividend yield is 0% because Ocugen has not historically paid, and does not expect for the foreseeable future to pay, a
dividend on its common stock.
Collaborative Arrangements and Revenue Recognition
The Company analyzes its collaborative arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”)
to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed
to significant risks and rewards. This assessment is performed throughout the life of the arrangements based on changes to the arrangements. For
collaborative arrangements within the scope of ASC 808 the Company may analogize to ASC 606 for certain elements.
The Company identifies the goods or services promised within each collaborative arrangement and assesses whether each promised good or service is
distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires
management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual
relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or
together with other resources that are readily available to the customer and (ii) the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract.
The allocation of the transaction price to the performance obligations in proportion to their standalone selling prices is determined at contract inception. If
the consideration promised in a contract includes a variable amount, the Company estimates
F-13
Table of Contents
the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines
the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained
amount of estimated variable consideration in the transaction price. The amount included in the transaction price is the amount for which it is probable that
a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the
estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction
price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the
Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation
at contract inception is such that the period between payment by the counterparty and the transfer of the promised goods or services to the counterparty will
be one year or less. The Company assessed its collaboration arrangements in order to determine whether a significant financing component exists and
concluded that a significant financing component does not exist in any of its arrangements.
The Company recognizes as collaboration revenue the amount of the transaction price that is allocated to the respective performance obligation as each
performance obligation is satisfied over time, with progress toward completion measured based on actual costs incurred relative to total estimated costs to
be incurred over the life of the arrangement. Significant management judgment is required in determining the level of effort required under an arrangement
and the period over which the Company is expected to complete their performance obligations under the arrangements. The Company evaluates the
measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Adjustments to original
estimates will be required as work progresses and additional information becomes known, even though the scope of the work required under the contract
may not change. Any adjustment as a result of a change in estimates is made when facts develop, events become known, or an adjustment is otherwise
warranted.
Under the Company’s collaborative arrangements, the timing of revenue recognition and receipt of consideration may differ, and result in assets and
liabilities. Assets represent revenues recognized in excess of the consideration received under collaborative arrangement. Liabilities represent the
consideration received in excess of revenues recognized under collaborative arrangement.
Income Taxes
The Company uses the asset and liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences
between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, using statutory tax rates in effect for the
year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations and comprehensive loss in the period that includes the enactment date.
The Company evaluates its deferred tax assets each period to ensure that the estimated future taxable income will be sufficient in character, amount, and
timing, to result in its realizability. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets, unless it is more likely than not
that those assets will be realized. Management utilizes considerable judgment when establishing deferred tax valuation allowances. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences and carryforward
deferred tax assets become deductible or utilized. The Company considers the scheduled reversal of taxable temporary differences, projected future taxable
income, and tax planning strategies in making this assessment. As events and circumstances change, valuation allowances are adjusted within the
consolidated statement of operations and comprehensive loss when applicable.
The Company recognizes net tax benefits under the recognition and measurement criteria of FASB ASC Topic 740, Income Taxes, which prescribes
requirements and other guidance for financial statement recognition and measurement of positions taken or expected to be taken on tax returns. The
Company recognizes a tax benefit for positions taken for tax return purposes when it will be more likely than not that the positions will be sustained upon
tax examination, based solely on the technical merits of the tax positions. Otherwise, no tax benefit is recognized. The tax benefits recognized are measured
based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes potential accrued
interest and penalties related to unrecognized tax benefits as a component of income tax expense in the consolidated statement of operations and
comprehensive loss. Tax examinations are often complex, as tax authorities may disagree with the treatment of items reported by the Company and may
require several years to resolve. As a result, the Company's provision for income taxes is recorded on the basis of available information, but amounts
recorded may be impacted as a result of future examinations.
F-14
Table of Contents
Recently Adopted Accounting Standards
In July 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-03, Presentation of Financial Statements (Topic 205), Income Statement —
Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation — Stock
Compensation (Topic 718). This standard amends various SEC paragraphs pursuant to the SEC Staff Accounting Bulletin ("SAB") No. 120, SEC Staff
Announcement at the March 24, 2022 Emerging Issues Task Force Meeting, and SAB Topic 6.B, Accounting Series Release 280 — General Revision of
Regulation S-X: Income or Loss Applicable to Common Stock. This standard did not provide any new guidance and was effective immediately. The
adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. The FASB subsequently issued amendments to ASU No. 2016-13, which had the same effective date and transition date of January 1, 2023.
ASU No. 2016-13, as amended, requires that credit losses be reported using an expected losses model rather than the incurred losses model that was
previously used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards
now require allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be
recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized
credit losses if fair value increases. The standard was effective for the Company on January 1, 2023. The adoption of this standard did not have a material
impact on the Company's consolidated financial statements.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This guidance is intended to
enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced
income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign
jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard
retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated
financial statements disclosures.
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures”. This guidance expands
public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating
decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items,
and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and
interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied
retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact
it may have on its consolidated financial statements related disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —
Contracts in Entity's Own Equity (Subtopic 815-40). This standard will have an effective and transition date of January 1, 2024. Early adoption is currently
permitted. This standard simplifies an issuer's accounting for convertible instruments by eliminating two of the three models that require separate
accounting for embedded conversion features as well as simplifies the settlement assessment that entities are required to perform to determine whether a
contract qualifies for equity classification. This standard also requires entities to use the if-converted method for all convertible instruments in the diluted
earnings per share calculation and includes the effect of potential share settlement (if the effect is more dilutive) for instruments that may be settled in cash
or shares, except for certain liability-classified share-based payment awards. The standard requires new disclosures about events that occur during the
reporting period that cause conversion contingencies to be met and about the fair value of a public business entity's convertible debt at the instrument level,
among other things. The Company does not currently expect the adoption of this standard to have a material impact on the Company's consolidated
financial statements.
3. License and Development Agreements
Co-Development and Commercialization Agreement with CanSino Biologics, Inc.
The Company entered into a co-development and commercialization agreement with CanSino Biologics, Inc. ("CanSinoBIO") with respect to the
development and commercialization of the Company's modifier gene therapy product candidates, OCU400,
F-15
Table of Contents
OCU410, and OCU410ST. The co-development and commercialization agreement was originally entered into in September 2019 ("the Original
CanSinoBIO Agreement") with regards to OCU400, and was subsequently amended in September 2021 and November 2022 ("the Amendments"), to
include OCU410 and OCU410ST, respectively. The Company concluded that the Original CanSinoBIO Agreement and the Amendments are separate
contracts (collectively referred to as the "CanSinoBio Agreements"). Pursuant to the CanSinoBIO Agreements, the Company and CanSinoBIO are
collaborating on the development of the Company's modifier gene therapy platform. CanSinoBIO is responsible for the chemistry, manufacturing, and
controls development and manufacture of clinical supplies of such products and is responsible for the costs associated with such activities. CanSinoBIO has
an exclusive license to develop, manufacture, and commercialize the Company's modifier gene therapy platform in and for China, Hong Kong, Macau, and
Taiwan (the "CanSinoBIO Territory"), and the Company maintains exclusive development, manufacturing, and commercialization rights with respect to the
Company's modifier gene therapy platform outside the CanSinoBIO Territory (the "Company Territory").
Should any of the product candidates be commercialized in any of the related territories, CanSinoBIO will pay to the Company an annual royalty between
mid- and high-single digits based on Net Sales (as defined in the CanSinoBIO Agreements) of the products included in the Company's modifier gene
therapy platform in the CanSinoBIO Territory. The Company will pay to CanSinoBIO an annual royalty between low- and mid-single digits based on Net
Sales of the products included in the Company's modifier gene therapy platform in the Company Territory.
Accounting analysis and revenue recognition
The Company determined the collaboration arrangements with CanSinoBIO, are within the scope of ASC 808 and has analogized to ASC 606 to account
for CanSinoBIO's access to its IP as well as data generated in connection with the co-development activities to be undertaken by Ocugen. These elements
of the arrangements are not distinct and are accounted for as a single performance obligation.
The non-cash consideration to be received related to the Company's satisfaction of the performance obligations includes but is not limited to services relate
to chemistry, manufacturing, and controls development and manufacture of clinical supplies of such products through completion of pre-clinical, clinical,
regulatory, and other commercialization readiness services. The estimated market value of the co-development services to be performed by CanSinoBIO,
represents variable consideration that is included in the transaction price. The Company recognizes collaborative arrangement revenue over time using an
input method using ratio of costs incurred to date compared to total estimated costs require to satisfy the performance obligations under the CanSinoBIO
Agreements.
The Company constrained the transaction price related to certain future co-development services and future royalties, as it assessed that it is probable that
the inclusion of such variable consideration could result in a significant reversal of cumulative revenue in future periods. The variable consideration is
reevaluated at each reporting period and as changes in circumstances occur.
The services provided by CanSinoBIO are recorded as incurred and the difference between the revenue and expense recognized is recorded on the
Company's balance sheet as a contract liability within Accrued expenses and other current liabilities. The related revenue recognized was recorded in the
consolidated statements of operations and comprehensive loss as collaborative arrangement revenue and was approximately $6.0 million and $2.5 million
for the year ended December 31, 2023 and the year ended December 31, 2022, respectively. The related expense incurred for services provided by
CanSinoBIO was recorded in the consolidated statements of operations and comprehensive loss as research and development expense and was
approximately $5.3 million and $9.1 million for the year ended December 31, 2023 and the year ended December 31, 2022, respectively.
The contract liability was $10.5 million and $11.2 million as of December 31, 2023 and December 31, 2022, respectively. Revenue recognized for the year
ended December 31, 2023, that was included in the contract liabilities balances as of January 1, 2023 was approximately $6.0 million. Revenue recognized
for the year ended December 31, 2022, that was included in the contract liabilities balances as of January 1, 2022, was approximately $2.5 million.
NIAID Project NextGen Clinical trial support
In October 2023, OCU500 was selected by the NIAID Project NextGen for inclusion in clinical trials. Project NextGen is a $5 billion multi-government
agency initiative to develop the next generation of vaccines and therapeutics to combat the spread of COVID-19. NIAID, with funding from Project
NextGen, will cover the full cost of the clinical trials, including operations and related analysis. Ocugen will be responsible for providing clinical trial
materials and upon completion will have full right of
F-16
Table of Contents
reference to the findings, which Ocugen believes will provide clinical evidence to support the further development of the Company’s lead mucosal vaccine
candidate.
Exclusive License Agreement with Washington University
In September 2022, the Company entered into the WU License Agreement with Washington University, pursuant to which the Company was granted an
exclusive, sublicensable, royalty-bearing license to patent rights for an inhaled mucosal COVID-19 vaccine, as well as a license to certain tangible research
property and technical information necessary to exploit the patent rights within the United States, Europe, and Japan. The Company paid Washington
University an initial license issuance fee of $1.0 million, which was recognized as research and development expense in the consolidated statement of
operations and comprehensive loss during the year ended December 31, 2022. In January 2023, the Company amended the WU License Agreement to add
the countries of South Korea, Australia, and China to the Mucosal Vaccine Territory, and in November 2023, the Company further amended the WU
License Agreement to add Hong Kong to the Mucosal Vaccine Territory. The Company is required to pay Washington University an annual license
maintenance fee, payments upon the achievement of certain development and commercial milestones in the aggregate amount of up to $37.0 million, and
low single-digit percentage royalties on Net Sales of licensed products (as defined in the WU License Agreement).
Pursuant to the WU License Agreement, the Company may make, have made, sell, offer for sale, use, market, promote, distribute, export, and import
licensed products in the Mucosal Vaccine Territory. The Company will use commercially reasonable efforts to develop, manufacture, promote, and sell the
licensed products in the Mucosal Vaccine Territory.
Washington University maintains control of patent preparation, filing, prosecution, and maintenance. The Company is responsible for Washington
University's out-of-pocket expenses related to the preparation, filing, prosecution, issuance, and maintenance of the licensed patent rights incurred pursuant
to the WU License Agreement.
The WU License Agreement will expire on a country-by-country basis and a licensed product-by-licensed product basis and end, separately in each such
country and for each such licensed product, upon the latter of (a) the expiration date of the last valid claim, (b) the fifteenth (15th) anniversary of the date of
the first commercial sale of a licensed product, or (c) the expiration of the last form of market exclusivity (as defined in the WU License Agreement),
subject to the earlier termination of the WU License Agreement in accordance with its terms. In addition, the Company may terminate the WU License
Agreement without cause by giving at least 90 days written notice. The WU License Agreement contains customary termination provisions in the event of
an uncured material breach or upon certain corporate actions, including bankruptcy, receivership, or liquidation.
Exclusive License Agreement with The Schepens Eye Research Institute, Inc.
In December 2017, the Company entered into an exclusive license agreement with The Schepens Eye Research Institute, Inc. ("SERI"), which was
amended in January 2021 (as so amended, the "SERI Agreement"). The SERI Agreement gives the Company an exclusive, worldwide, sublicensable
license to patent rights, biological materials, and technical information for NHR genes Nuclear Receptor Subfamily 1 Group D Member 1 ("NR1D1"),
NR2E3 (OCU400), RORA (OCU410 and OCU410ST), Nuclear Protein 1, Transcriptional Regulator ("NUPR1"), and Nuclear Receptor Subfamily 2 Group
C Member 1 ("NR2C1"). The January 2021 amendment to the SERI Agreement additionally granted the Company rights in co-owned intellectual property
pursuant to certain patents and provisional patents at the time of the amendment. Under the SERI Agreement, the Company may make, have made, use,
offer to sell, sell, and import licensed products, and must use commercially reasonable efforts to bring one or more licensed products to market as soon as
reasonably practicable.
SERI maintains control of patent preparation, filing, prosecution, and maintenance. The Company is responsible for SERI's out-of-pocket expenses related
to the filing, prosecution, and maintenance of the licensed patent rights. In the event that SERI decides to discontinue the prosecution or maintenance of the
licensed patent rights, the Company has the right, but not the obligation, to file for, or continue to prosecute, maintain, or enforce such licensed patent
rights. The Company has assumed prosecution of certain licensed patent rights under the SERI Agreement.
Exclusive License Agreement with the University of Colorado
In March 2014, the Company entered into an exclusive license agreement with the University of Colorado ("CU"), which was amended in January 2017
and clarified by a letter of understanding in November 2017 (as so amended and clarified, the "CU Agreement"). The CU Agreement gives the Company
an exclusive, worldwide, sublicensable license to patents for OCU200 to make, have made, use, import, offer to sell, sell, have sold, and practice the
licensed products in all therapeutic applications. Under the CU Agreement, the Company must use commercially reasonable efforts to develop,
manufacture, sublicense, market, and sell the licensed products, and has assumed primary responsibility for preparing, filing, and prosecuting broad patent
claims
F-17
Table of Contents
for OCU200 for CU's benefit. Further, the Company assumed primary responsibility for all patent activities, including all costs associated with the
perfection and maintenance of the patents for OCU200.
License Agreement with Purpose Co. Ltd.
In December 2005, Histogenics Corporation ("Histogenics") entered into an exclusive agreement (the "Purpose Agreement") to sublicense certain
technology from Purpose Co. Ltd. ("Purpose"), which the Company assumed as a result of its reverse merger with Histogenics. Purpose entered into the
original license agreement ("BWH-Purpose Agreement") with Brigham and Women's Hospital, Inc. ("BWH") in August 2001. The BWH-Purpose
Agreement granted Purpose an exclusive, royalty-bearing, worldwide, sublicensable license, under its rights in licensed patents and patent applications co-
owned by BWH and Purpose to make, use, and sell (1) an apparatus for cultivating a cell or tissue, (2) cell or tissue products made using such apparatus,
(3) cell or tissue products made using processes for cultivating a cell or tissue as disclosed in the licensed patents and patent applications, and (4) any
apparatus that cultivates cells or tissues using such processes, in each case, whose manufacture, use, or sale is covered by a valid claim of the licensed
patents and patent applications, only for therapeutic use.
The Purpose Agreement was amended and restated in June 2012, pursuant to which Purpose granted Histogenics outside of Japan: (i) exclusive rights to all
of Purpose's technology (owned or licensed) related to the exogenous tissue processors, which is used in the development of NeoCart, (ii) continued supply
of exogenous tissue processors, and (iii) rights to manufacture the exogenous tissue processors at any location the Company chooses. In exchange for such
consideration, Purpose was granted an exclusive license in Japan for the use of all of the Company's NeoCart technology and was reimbursed for
development costs on a multi-unit exogenous tissue processor. In May 2016, the Purpose Agreement was amended, whereby Histogenics reacquired the
development and commercialization rights to NeoCart in Japan.
The Purpose Agreement, as amended, provides the Company with the ability, worldwide, to (i) use, make, have made, sell, offer for sale, import or
otherwise exploit products or services covered by claims of Purpose's patents and (ii) use, reproduce, modify, create derivative works of and otherwise
exploit Purpose's technology for the design, development, manufacture, testing, support, and commercialization of any product or service that incorporates
or builds upon Purpose's technology, in each case, only in connection with articular cartilage, ligaments, tendons, and meniscus. Purpose retains the right to
sell its single unit exogenous tissue processer machines to research institutes for general but noncommercial use anywhere in the world.
4. Fair Value Measurements
The following table summarizes the fair value and the classification by level of input within the fair value hierarchy of financial assets as of December 31,
2022 that are recurring fair value measurements (in thousands):
Assets:
Cash equivalents
Marketable securities:
U.S. government agency securities and treasuries
Commercial paper
Total assets
Level 1
Level 2
Level 3
Total
As of December 31, 2022
$
$
15,899 $
999 $
—
—
15,899 $
7,433
5,938
14,370 $
— $
—
—
— $
16,898
7,433
5,938
30,269
The valuation of the Company's cash and cash equivalents totaling $39.5 million, which includes $38.2 million in money markets, as of December 31,
2023, utilized Level 1 inputs. The valuation of the Company's marketable securities, which matured during the year ended December 31, 2023, utilized
Level 2 inputs. See Note 2 for additional information. Further, the Company believes the fair value using Level 2 inputs of the borrowings under the EB-5
Loan Agreement (as defined in Note 9) approximate their carrying value. See Note 9 for additional information.
F-18
Table of Contents
5. Marketable Securities
The Company's marketable securities matured during the year ended December 31, 2023. The following table provides the amortized cost basis and fair
value of the Company's available-for-sale investments as of December 31, 2022 by security type as reflected on the consolidated balance sheets (in
thousands):
U.S. government agency securities and treasuries
Commercial paper
Total marketable securities
$
$
7,432 $
5,938
13,370 $
1 $
—
1 $
— $
—
— $
7,433
5,938
13,371
Amortized Cost Basis
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
As of December 31, 2022
6. Property and Equipment
The following table provides a summary of the major components of property and equipment as reflected on the consolidated balance sheets (in
thousands):
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Construction in progress
Total property and equipment
Less: accumulated depreciation
Total property and equipment, net
7. Operating Leases
As of December 31,
2023
2022
$
$
337 $
1,557
2,086
14,540
18,520
(1,230)
17,290 $
337
1,685
1,603
3,049
6,674
(621)
6,053
The Company has commitments under operating leases for office, laboratory, and future manufacturing space in Malvern, Pennsylvania. The Company's
corporate headquarters lease has initial terms of approximately seven years and includes options to extend the lease for up to 10 years. The Company's
current GMP facility lease has initial terms of seven years and includes an option to extend the lease for up to five years.
As of December 2023, the Company determined that it was reasonably certain that the current GMP facility’s option for extension of the lease would be
exercised whereas previously this certainty did not exist. According to ASC 842-10-35-1, a lessee shall reassess the lease term if there is a significant event
that is within the control of the lessee that directly affects whether the lessee is reasonably certain to exercise an option to extend the lease. The Company
determined the significant event to be the completion of the renovations of the existing facility into a current GMP facility. According to ASC 842-20-35-4,
a lessee shall remeasure the lease liability to reflect changes to the lease payments. A lessee shall recognize the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset. As such, the lease liability and the right-of-use asset both increased by $0.6 million. There was no
change to the Statement of Operations as of December 31, 2023, as a result of this remeasurement.
F-19
Table of Contents
As a result of the remeasurement of the lease liability and the right-of-use asset, the leasehold improvements were reassessed, and the remaining lease
terms were adjusted on a prospective basis as described in ASC 842-20-35-12. There is no change to the Statement of Operations as of December 31, 2023
The components of lease expense were as follows (in thousands):
Operating lease cost
Variable lease cost
Total lease cost
Supplemental balance sheet information related to leases was as follows (in thousands):
Right-of-use assets, net
Current lease obligations
Non-current lease obligations
Total lease liabilities
Supplemental information related to leases was as follows:
Weighted-average remaining lease terms (years)
Weighted-average discount rate
Future minimum base rent payments are approximately as follows (in thousands):
For the years ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total
Less: present value adjustment
Present value of minimum lease payments
F-20
Year ended December 31,
2023
2022
784 $
342
1,126 $
As of December 31,
2023
2022
3,944 $
574 $
3,567
4,141 $
774
158
932
3,910
498
3,587
4,085
$
$
$
$
$
Year ended December 31,
2023
2022
7.0
9.3 %
6.3
6.4 %
Amount
787
810
835
858
884
1,658
5,832
(1,691)
4,141
$
$
$
Table of Contents
8. Accrued Expenses and Other Current Liabilities
The following table provides a summary of the major components of accrued expenses and other current liabilities as reflected on the consolidated balance
sheets (in thousands):
Research and development
Clinical
Professional fees
Employee-related
Deferred revenue relating to collaborative arrangements
Other
Total accrued expenses and other current liabilities
9. Debt
As of December 31,
2023
(As Restated)
2022
$
$
212 $
84
580
1,791
10,525
151
13,343 $
1,894
3,310
437
2,752
11,221
357
19,971
In September 2016, in connection with the U.S. government's foreign national investor program, commonly known as the EB-5 Program, the Company
entered into a financing arrangement (the "EB-5 Loan Agreement") which provided for cumulative borrowings of up to $10.0 million from EB5 Life
Sciences, L.P. ("EB-5 Life Sciences") as the lender. Pursuant to the EB-5 Loan Agreement, borrowings were made in $0.5 million increments with a fixed
interest rate of 4.0% per annum (the "Original Offering"). The borrowings pursuant to the Original Offering are secured by substantially all of the
Company's assets, with the exception of any patents, patent applications, pending patents, patent licenses, patent sublicenses, trademarks, and other
intellectual property rights held by the Company.
Under the terms and conditions of the Original Offering, the Company borrowed $1.0 million during 2016, $0.5 million during 2020, $0.5 million in
September 2022, and an additional $0.5 million in May 2023. Issuance costs were recognized as a reduction to the loan balance and are amortized to
interest expense over the term of each borrowing. Pursuant to the Original Offering, each outstanding borrowing, including accrued interest, becomes due
upon the seventh anniversary of its disbursement date, subject to certain extension provisions. In January 2024, the Company entered into an agreement to
extended the current portion of borrowings owed under the EB-5 Loan Agreement to March 2025. Once repaid, amounts cannot be re-drawn.
The March 2022 EB-5 Reform and Integrity Act of 2022 (the "RIA") enacted changes to the EB-5 Program, including but not limited to: raising the
minimum investment amount for a targeted employment area (the "TEA") from its previous level of $0.5 million to its new level of $0.8 million, as well as
modifying the process for the creation of TEAs. Under the previous regime, the state in which the TEA would be located could send a letter in support of
efforts to designate a TEA. Under the current regime, only U.S. Citizenship and Immigration Services can designate TEAs.
In connection with the aforementioned changes to the EB-5 Program, the Original Offering was amended in May 2023 (the "Amended Offering"). Pursuant
to the terms and conditions of the Amended Offering, EB-5 Life Sciences now provides for cumulative borrowings of up to $20.0 million. Future
borrowings can be made in increments of $0.8 million with a fixed interest rate of 4.0% per annum. Each future borrowing pursuant to the Amended
Offering, including accrued interest, will become due upon the seventh anniversary of its disbursement date. The Company has not made any borrowings
pursuant to the Amended Offering as of December 31, 2023.
F-21
Table of Contents
The carrying values of the borrowings pursuant to the Original Offering as of December 31, 2023 and 2022 are summarized below (in thousands):
Principal outstanding
Plus: accrued interest
Less: unamortized debt issuance costs
Carrying value, net
10. Equity
Offerings of Common Stock
Public Offering
As of December 31,
2023
2022
$
$
2,500 $
400
(100)
2,800 $
2,000
307
(18)
2,289
In May 2023, the Company entered into an underwriting agreement with an underwriter, pursuant to which the Company sold 30.0 million shares of its
common stock at a public offering price of $0.50 per share (the "May 2023 Public Offering"). The Company received net proceeds of $14.8 million after
deducting equity issuance costs. The May 2023 Public Offering was made pursuant to the Company's Registration Statement on Form S-3, which was
previously filed with the SEC and became effective on April 21, 2023, as supplemented by a prospectus supplement, dated May 24, 2023.
In February 2022, the Company entered into an underwriting agreement with an underwriter, pursuant to which the Company sold 16.0 million shares of its
common stock at a public offering price of $3.13 per share. The Company received net proceeds of $49.8 million, after deducting equity issuance costs.
At-the-Market Offerings
In June 2022, the Company entered into an At Market Issuance Sales Agreement (the "Sales Agreement") with certain agents, pursuant to which the
Company could, from time to time, offer and sell shares of its common stock having an aggregate gross sales price of up to $160.0 million. During the year
ended December 31, 2023, the Company sold 4.5 million shares of its common stock and received net proceeds of $5.6 million after deducting issuance
costs of $0.2 million. The Sales Agreement was terminated in February 2023.
COVAXIN Preferred Stock Purchase Agreement
On March 1, 2021, the Company entered into a preferred stock purchase agreement (the "Preferred Stock Purchase Agreement") with Bharat Biotech
International Limited ("Bharat Biotech"), pursuant to which the Company agreed to issue and sell 0.1 million shares of the Company's Series B Convertible
Preferred Stock, par value $0.01 per share (the "Series B Convertible Preferred Stock"), at a price per share equal to $109.60, to Bharat Biotech. On March
18, 2021, the Company issued the Series B Convertible Preferred Stock as an advance payment of $6.0 million for the supply of COVAXIN, a monovalent
vaccine, to be provided by Bharat Biotech pursuant to a Development and Commercial Supply Agreement (the "Supply Agreement").
Each share of Series B Convertible Preferred Stock was convertible, at the option of Bharat Biotech, into 10 shares of the Company's common stock (the
"Conversion Ratio") only after (i) the Company received stockholder approval to increase the number of authorized shares of common stock under its Sixth
Amended and Restated Certificate of Incorporation, which the Company received in April 2021, and (ii) the Company's receipt of shipments by Bharat
Biotech of the first 10.0 million doses of COVAXIN manufactured by Bharat Biotech pursuant to the Supply Agreement, and further on the terms and
subject to the conditions set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock. The
conversion rate of the Series B Convertible Preferred Stock was subject to adjustment in the event of a stock dividend, stock split, reclassification, or
similar event with respect to the Company's common stock.
The Company accounted for the issuance of the Series B Convertible Preferred Stock in accordance with ASC 718 and recorded its grant date fair value of
$5.0 million within stockholders' equity during the year ended December 31, 2021, with a corresponding short-term asset for the advanced payment for the
supply of COVAXIN included in prepaid expenses and other current assets in the consolidated balance sheet as of December 31, 2021. The Company
utilized the traded common stock
F-22
Table of Contents
price, adjusted by the Conversion Ratio, to value the Series B Convertible Preferred Stock and the Finnerty model to estimate a 15% discount rate for the
lack of marketability of the instrument. The valuation incorporated Level 3 inputs in the fair value hierarchy, including the estimated time until the
instrument's liquidity and estimated volatility of the Company's common stock as of the grant date. As of December 31, 2022, the remaining balance of the
short-term asset for the advanced payment for the supply of COVAXIN was $4.1 million.
In April 2023, the FDA announced the cancellation of all emergency use authorizations ("EUA") issued with respect to monovalent COVID-19 vaccine
formulations. Consequently, the Company determined it was no longer commercially viable to further the development of COVAXIN in its North
American territories. During the year ended December 31, 2023, the Company wrote off the remaining balance of the short-term asset for the advanced
payment for the supply of COVAXIN of $4.1 million to research and development expense in the consolidated statements of operations and comprehensive
loss.
11. Warrants
Canada Warrants
In July 2021, the Company entered into a consulting agreement with regard to the Company's Canadian operations (the "Canada Consulting Agreement").
Compensation under the Canada Consulting Agreement included the issuance of warrants to purchase up to 0.2 million shares of the Company's common
stock (the "Canada Warrants") and cash payments of up to $3.0 million, both dependent upon the achievement of certain milestones related to COVAXIN.
The Canada Warrants were issued on July 15, 2021, have an exercise price of $6.36 per share, and were accounted for in accordance with ASC 718. In
connection with the Company's decision to terminate the COVAXIN program, the Canada Consulting Agreement and the Canada Warrants were terminated
by mutual agreement in June 2023.
OpCo Warrants
Beginning in 2016, Ocugen OpCo, Inc., the Company's wholly owned subsidiary "OpCo" issued warrants to purchase the Company's common stock (the
"OpCo Warrants"). As of December 31, 2023 and 2022, 0.6 million OpCo Warrants were outstanding. As of December 31, 2023, the outstanding OpCo
Warrants had a weighted-average exercise price of $6.23 per share and expire between 2026 and 2027.
12. Stock-Based Compensation
Stock-based compensation expense for stock options and RSUs is reflected in the consolidated statements of operations and comprehensive loss as follows
(in thousands):
General and administrative
Research and development
Total
Year ended December 31,
2023
2022
$
$
6,876 $
2,341
9,217 $
7,777
2,764
10,541
As of December 31, 2023, the Company had $8.6 million of unrecognized stock-based compensation expense related to stock options and RSUs
outstanding, which is expected to be recognized over a weighted average period of 1.5 years.
Equity Plans
The Company maintains two equity compensation plans, the 2014 Ocugen OpCo, Inc. Stock Option Plan (the "2014 Plan") and the Ocugen, Inc. 2019
Equity Incentive Plan (the "2019 Plan", collectively with the 2014 Plan, the "Plans"). On the first business day of each fiscal year, pursuant to the
"Evergreen" provision of the 2019 Plan, the aggregate number of shares that may be issued under the 2019 Plan will automatically increase by a number
equal to the lesser of 4% of the total number of shares of the Company's common stock outstanding on December 31st of the prior year, or a number of
shares determined by the Board of Directors. As of December 31, 2023, the 2014 Plan and the 2019 Plan authorize for the granting of up to 0.8 million and
28.4 million equity awards in respect to the Company's common stock, respectively. The 2014 Plan and 2019 Plan have 0.4 million and 9.8 million equity
awards remaining available for future grant, respectively, as of December 31, 2023. In addition to stock options and RSUs granted under the Plans, the
Company has granted certain stock options and RSUs as
F-23
Table of Contents
material inducements to employment in accordance with Nasdaq Listing Rule 5635 (c)(4), which were granted outside of the Plans.
Stock Options to Purchase Common Stock
The assumptions utilized in the fair value calculations for stock options as of December 31, 2023 and 2022 were as follows:
Weighted average expected option term (years)
Range of expected stock price volatility
Weighted average expected stock price volatility
Range of risk-free interest rate
Expected dividend rate
The following table summarizes the stock option activity:
Year ended December 31,
2023
5.9
103% – 109%
106%
3.5% – 4.4%
0%
2022
5.9
106% – 110%
107%
1.4% – 4.2%
0%
Options outstanding at December 31, 2022
Granted
Exercised
Forfeited
Options outstanding at December 31, 2023
Options exercisable at December 31, 2023
Number of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining Contractual
Life (Years)
Aggregate Intrinsic Value
(In Thousands)
10,851,287 $
5,042,621
(295,000)
(2,437,680)
13,161,228 $
6,578,928 $
2.95
1.03
0.40
2.37
2.38
2.74
8.30 $
7.86 $
7.12 $
1,385
2
168
9
337
204
The weighted average grant date fair value of stock options granted during the years ended December 31, 2023 and 2022 were $0.85 and $3.12,
respectively. The total fair value of stock options vested during the years ended December 31, 2023 and 2022 were $8.9 million and $6.1 million,
respectively. During the years ended December 31, 2023 and 2022, the Company received $0.1 million and $1.3 million of cash proceeds from the
exercises of stock options, respectively.
RSUs
The following table summarizes the RSU activity:
RSUs outstanding at December 31, 2022
Granted
Vested
Forfeited
RSUs outstanding at December 31, 2023
Number of Shares
Weighted Average Grant-
Date Fair Value
Aggregate Intrinsic Value
(In Thousands)
924,810 $
3,389,933
(281,119)
(1,050,963)
2,982,661 $
4.12 $
1.15
4.31
1.55
1.63 $
1,202
3,910
299
651
1,715
F-24
Table of Contents
13. Income Taxes
The Company's losses before income taxes and provision (benefit) for income taxes is as follows (in thousands):
Loss before income taxes
Provision (benefit) for income taxes
Year ended December 31,
2023
$
(As Restated)
2022
(63,078) $
—
(86,804)
—
A reconciliation of the federal statutory income tax rate to the Company's effective income tax rate is as follows:
Expected provision at statutory rate
State income tax, net of federal benefit
Tax credits
Change in state tax rate
Other, net
Change in valuation allowance
Effective tax rate
The Company's deferred tax assets (liabilities) are comprised of the following (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Capital loss carryforwards
Start-up costs
Accruals and reserves
Intellectual property
Stock-based compensation
Capitalization of research and development expense
Deferred revenue
Tax credits
Lease liabilities
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Lease right-of-use assets
Net deferred tax assets
Year ended December 31,
2023
(As Restated)
2022
21.0 %
6.4 %
3.5 %
(2.8)%
(1.6)%
(26.5)%
— %
21.0 %
7.4 %
3.1 %
(11.1)%
(1.6)%
(18.8)%
— %
As of December 31,
2023
(As Restated)
2022
$
$
$
58,324 $
7,298
9,699
276
4,565
2,873
18,702
1,293
9,324
977
113,331
(112,413)
918 $
(918)
— $
48,812
7,298
9,699
629
5,057
2,150
12,571
2,799
6,655
1,029
96,699
(95,724)
975
(975)
—
The Company's valuation allowance increased during 2023 by approximately $16.7 million primarily due to Section 174 expenditure capitalization. The
Company has evaluated both positive and negative evidence when assessing the realizability of
F-25
Table of Contents
its deferred tax assets. Management has considered the Company's history of cumulative net losses, estimated future taxable income as well as tax planning
strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full
valuation allowance has been established against these net deferred tax assets as of December 31, 2023 and 2022, respectively.
As of December 31, 2023 and 2022, the Company had U.S. federal net operating loss ("NOL") carryforwards of $226.2 million and $188.3 million,
respectively, which may be available to offset future income tax liabilities. The 2017 Tax Cut and Jobs Act generally allows federal losses generated after
2017 to be carried over indefinitely, but also limits the NOL deduction to the lesser of the NOL carryover or 80% of a corporation's taxable income (subject
to Section 382 of the Internal Revenue Code of 1986, as amended ("IRC")). Additionally, there is no carryback for losses generated after 2017. Losses
generated prior to 2018 are deductible using the lesser of a corporation's NOL carryover or 100% of a corporation's taxable income and have a 20 year
carryforward period. The Company has federal NOLs generated after 2017 of $173.5 million, which do not expire. The federal NOLs generated prior to
2018 of $52.7 million will expire at various dates through 2037. In addition, the Company has a capital loss carryforward of $26.7 million, which may be
available to offset future capital gains and expires in 2024.
As of December 31, 2023 and 2022, the Company had U.S. state NOL carryforwards of $224.5 million and $186.6 million, respectively, which may be
available to offset future income tax liabilities and expire at various dates through 2043. As of December 31, 2023 and 2022, the Company had federal tax
credit carryforwards of approximately $9.2 million and $6.5 million, respectively, which are available to offset future federal tax liabilities which expire at
various dates through 2043. As of December 31, 2023 and 2022, the Company had state tax credit carryforwards of approximately $0.1 million and
$0.2 million, respectively, which are available to reduce future tax liabilities and expire at various dates through 2034.
NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and relevant state tax authorities.
Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 and Section 383 of the IRC and
corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes
may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future federal and state tax liabilities.
The Company has not yet conducted a comprehensive study to assess whether any ownership change has occurred since its inception. A limitation may
result in the expiration of a portion of the NOL or tax credit carryforwards before utilization, which would be offset by a change in the Company's
valuation allowance. Until a study is completed by the Company, no NOL carryforward amounts will be offset by an unrecognized tax benefit related to
Section 382.
A full valuation allowance has also been recorded against the Company's tax credits. If an adjustment is required, it would be offset by a corresponding
change in the valuation allowance.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Gross unrecognized tax benefits at beginning of year
Additions for tax positions taken in a prior year
Additions for tax positions taken in the current year
Reductions for tax positions taken in the prior year due to settlement
Reductions for tax positions taken in the prior year due to statutes lapsing
Gross unrecognized tax benefits at end of year
Year ended December 31,
2023
(As Restated)
2022
303 $
—
—
—
—
303 $
303
—
—
—
—
303
$
$
The uncertain tax positions giving rise to the unrecognized tax benefits of $0.3 million at December 31, 2023 and 2022 relate to the timing of certain
income and deductions for federal income tax purposes taken by Histogenics prior to the Company's reverse merger with Histogenics. The reversal of
unrecognized tax benefits would not have any impact on the effective tax rate in the future and is not expected to create cash liability.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In a normal course of business, the Company is subject
to examination by federal and state jurisdictions, where applicable. The Company's tax years are still open from 2019 to present.
F-26
Table of Contents
14. Net Loss per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2023 and 2022 (in thousands,
except share and per share amounts):
Net loss — basic and diluted
Shares used in calculating net loss per common share — basic and diluted
Net loss per common share — basic and diluted
Year ended December 31,
2023
(As Restated)
2022
$
$
(63,078) $
(86,804)
244,327,057
214,600,051
(0.26) $
(0.40)
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares outstanding, as their inclusion
would have been antidilutive:
Options to purchase common stock
RSUs
Warrants
Series A Convertible Preferred Stock (as converted to common stock)
Series B Convertible Preferred Stock (as converted to common stock)
Total
15. Commitments and Contingencies
Commitments
Year ended December 31,
2023
13,161,228
2,982,661
628,834
—
547,450
17,320,173
2022
10,851,287
924,810
798,352
—
547,450
13,121,899
The Company has commitments under certain license and development agreements, lease agreements, commitments related to renovating an existing
facility for GMP, and debt agreements. Commitments under certain license and development agreements include annual payments, payments upon the
achievement of certain milestones, and royalty payments based on net sales of licensed products (see Note 3). Commitments under lease agreements are
future minimum lease payments (see Note 7). Renovation commitments are related to retrofitting an existing facility in order to be GMP compliant (see
Note 1). Commitments under debt agreements are the future payment of principal and accrued interest under the EB-5 Loan Agreement (see Note 9). In
connection with the Company's decision to terminate the COVAXIN program, the Canada Consulting Agreement was terminated by mutual agreement in
June 2023 (see Note 11). Additionally, the Company does not expect to fulfill any commitments under the amended Co-Development, Supply and
Commercialization Agreement (the "Covaxin Agreement") with Bharat Biotech as a result of the termination of the COVAXIN program.
Contingencies
F-27
Table of Contents
In June 2021, a securities class action lawsuit was filed against the Company and certain of its agents in the U.S. District Court for the Eastern District of
Pennsylvania ("Court") (Case No. 2:21-cv-02725) that purported to state a claim for alleged violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, based on statements made by the Company concerning the
announcement of the Company's decision to pursue the submission of a BLA for COVAXIN for adults ages 18 years and older rather than pursuing an
EUA. In July 2021, a second securities class action lawsuit was filed against the Company and certain of its agents in the Court (Case No. 2:21-cv-03182)
that also purported to state a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on
the same statements as the first complaint. The complaints seek unspecified damages, interest, attorneys' fees, and other costs. In March 2022, the Court
consolidated these two related securities class action lawsuits and appointed Andre Galan Bernd Benayon to serve as lead plaintiff. The lead plaintiff's
amended complaint was filed in June 2022. In March 2023, the Court granted the Company's motion to dismiss with prejudice. The lead plaintiff appealed
to the United States Court of Appeals for the Third Circuit ("Third Circuit") regarding the order that was entered in March 2023, which dismissed the
action with prejudice. The lead plaintiff's appellant's brief and joint appendix were filed in July 2023. The Company's appellees' brief was filed in August
2023, and the lead plaintiff's reply brief was filed in September 2023. In March 2024, the Third Circuit affirmed the Court's decision to dismiss with
prejudice the consolidated securities class action lawsuits.
In August 2021, a stockholder derivative lawsuit was filed derivatively on behalf of the Company against certain of its agents and the nominal defendant
Ocugen in the Court (Case No. 2:21-cv-03876) that purported to state a claim for breach of fiduciary duty and contribution for violations of Sections 10(b)
and 21(d) of the Exchange Act, based on facts and circumstances relating to the securities class action lawsuits and seeking contribution and
indemnification in connection with claims asserted in the securities class action lawsuits. In September 2021, a second stockholder derivative lawsuit was
filed derivatively on behalf of the Company against certain of its agents and the nominal defendant Ocugen in the Court (Case No. 2:21-cv-04169) that
purported to state a claim for breach of fiduciary duties, unjust enrichment, abuse of control, waste of corporate assets, and contribution for violations of
Sections 10(b) and 21(d) of the Exchange Act, based on the same allegations as the first complaint. The parties to both stockholder derivative lawsuits
stipulated to the consolidation of the two stockholder derivative lawsuits and submitted to the Court in each action a proposed order requesting a stay of the
litigation pending a decision on any motion to dismiss filed in the securities class action lawsuits, which the Court entered in April 2022. In March 2023,
the Court in the securities class action lawsuits granted the Company's motion to dismiss with prejudice. The parties to the stockholder derivative lawsuits
stipulated to extend the stay of litigation pending resolution of any appeal filed in the securities class action lawsuits, which the Court entered in March
2023.
In April 2024, a securities class action lawsuit was filed against the Company and certain of its agents in the Court (Case No. 2:24-cv-01500) that purported
to state a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, based on statements made
by the Company concerning the Company’s previously-issued audited consolidated financial statements for each fiscal year beginning January 1, 2020 and
its previously-issued unaudited interim condensed consolidated financial statements for each of the first three quarters in such years and the effectiveness of
the Company’s disclosure controls and procedures during each such period. The complaint seeks unspecified damages, interest, attorneys’ fees, and other
costs.
The Company believes that the lawsuits are without merit and intends to vigorously defend against them. At this time, no assessment can be made as to
their likely outcome or whether the outcome will be material to the Company. No information is available to indicate that it is probable that a loss has been
incurred and can be reasonably estimated as of the date of the condensed consolidated financial statements and, as such, no accrual for the loss has been
recorded within the consolidated financial statements.
F-28
Table of Contents
16. Restatement of Previously Issued Consolidated Financial Statements
In connection with the preparation of the Company's Consolidated Financial Statements as of and for the fiscal year ended December 31, 2023, the
Company discovered that in the current fiscal year and prior years it had not appropriately accounted for its collaboration arrangements, including the
determination of the transaction price, calculating the progress towards the satisfaction of the performance obligations under the collaborative
arrangements, and determining the value of the non-cash consideration received and recognized as research and development expense. The Company also
corrected the presentation of the revenue previously recognized within Other income (expense), net to Collaborative arrangement revenue in its
Consolidated Statements of Operations and Comprehensive Loss.
The misstatements were material to the Company's previously issued financial statements and as a result, the Company has restated its Consolidated
Balance Sheets, Consolidated Statements of Operations and Comprehensive Loss, Consolidated Statements of Stockholders' Equity, and Consolidated
Statements of Cash Flows as of and for the fiscal year ended December 31, 2022. The restatement includes adjustments to Collaborative arrangement
revenue, Research and development expenses, Other income (expense), net and Accrued expenses and other current liabilities during the impacted periods.
The Company has also corrected certain other identified immaterial errors that were identified during the impacted periods impacting Research and
development expenses, General and administrative expenses, and Accrued expenses and other current liabilities.
The impact of the correction of the misstatements is summarized below (in thousands):
Corrected Consolidated Balance Sheets
Accrued expenses and other liabilities
Total current liabilities
Total liabilities
Accumulated deficit
Total stockholders' equity
Corrected Consolidated Statements of Operations and Comprehensive Loss
Collaborative arrangement revenue
Total revenue
Research and Development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Comprehensive loss
Net loss per share of common stock - basic and diluted
F-29
As of December 31, 2022
As previously reported Adjustment
$
9,900 $
18,460
24,580
(213,018)
84,052
As Restated
10,071 $
10,071
10,071
(10,071)
(10,071)
19,971
28,531
34,651
(223,089)
73,981
For the Fiscal Year Ended December 31, 2022
As previously reported Adjustment
$
—
—
49,757
35,111
84,868
(84,868)
3,517
(81,351)
(81,325)
(0.38)
$
As Restated
2,488
2,488
56,159
35,400
91,559
(89,071)
2,267
(86,804)
(86,778)
(0.40)
2,488 $
2,488
6,402
289
6,691
(4,203)
(1,250)
(5,453)
(5,453)
(0.02) $
Table of Contents
Corrected Consolidated Statements of Cash Flows
Net loss
Non-cash (income) expense from collaborative arrangements, net
Other
Net cash used in operating activities
For the Fiscal Year Ended December 31, 2022
As previously reported Adjustment
$
(81,351) $
—
479
(60,079)
As Restated
(5,453) $
6,603
(1,150)
—
(86,804)
6,603
(671)
(60,079)
Accumulated Deficit
Total Stockholder Equity
As previously reported Adjustment As Restated
$
(131,667) $
(136,285) $
As previously reported Adjustment As Restated
91,200
10,541
95,818 $
10,541
(4,618) $
—
Corrected Consolidated Statements of
Stockholders' Equity
Balance at December 31, 2021
Stock-based compensation expense
Issuance of common stock for stock option
exercises and restricted stock unit vesting, net
Issuance of common stock for capital raises,
net
Series A convertible preferred stock conversion
Other comprehensive income (loss)
Net Loss
Balance at December 31, 2022
$
—
—
—
—
—
(81,351)
(213,018) $
(4,618) $
—
—
—
—
—
(5,453)
(10,071) $
—
—
—
—
—
(86,804)
(223,089) $
1,262
—
1,262
57,756
—
26
(81,351)
84,052 $
—
—
—
(5,453)
(10,071) $
57,756
—
26
(86,804)
73,981
All referenced amounts for prior periods in these financial statements and the notes herein reflect the balances and amounts on a restated basis.
Restatement of Interim Financial Information (Unaudited)
The Company has restated its unaudited Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive
Loss, Condensed Consolidated Statements of Stockholders' Equity, and Condensed Consolidated Statements of Cash Flows for the quarterly and year to
date periods ended March 31, 2022, June 30, 2022, September 30, 2022, March 31, 2023, June 30, 2023, and September 30, 2023. The restated impact of
the correction of the misstatements is summarized below (in thousands):
F-30
Table of Contents
Corrected Condensed Consolidated Balance Sheets
(Unaudited)
As previously
reported
Adjustment As Restated As previously
reported
Adjustment As Restated
As of March 31, 2023
As of March 31, 2022
Assets
Current assets
Cash and cash equivalents
Marketable securities
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Restricted cash
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Accounts payable
Accrued expenses and other current liabilities
Operating lease obligations
Current portion of long term debt
Total current liabilities
Non-current liabilities
Operating lease obligations, less current portion
Long term debt, net
Other non-current liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity
Convertible preferred stock
Series A
Series B
Common stock
Treasury stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
$
$
$
68,259
8,462
7,680
84,401
7,952
—
3,946
96,299
8,092
5,823
512
1,256
15,683
3,449
1,058
309
4,816
20,499
—
1
2,265
(48)
303,073
25
— $
68,259 $
129,771
— $ 129,771
—
—
—
—
—
—
8,462
7,680
84,401
7,952
—
3,946
—
8,256
138,027
1,921
151
1,628
—
—
—
—
—
—
—
8,256
138,027
1,921
151
1,628
— $
96,299 $
141,727
— $ 141,727
— $
8,092 $
10,899
—
—
10,899
—
—
—
—
10,899
16,722
512
1,256
26,582
3,449
1,058
309
4,816
31,398
—
—
—
—
—
—
—
1
2,265
(48)
303,073
25
3,896
3,537
254
—
7,687
1,180
1,731
—
2,911
10,598
—
1
2,158
(48)
278,704
—
— $
5,614
—
—
5,614
—
—
—
—
5,614
3,896
9,151
254
—
13,301
1,180
1,731
—
2,911
16,212
—
—
—
—
—
—
—
1
2,158
(48)
278,704
—
(229,516)
(10,899)
(240,415)
(149,686)
(5,614)
(155,300)
75,800
(10,899)
64,901
131,129
141,727
(5,614)
125,515
— $ 141,727
Total liabilities and stockholders' equity
$
96,299
— $
96,299 $
F-31
Table of Contents
Corrected Condensed Consolidated
Balance Sheets (Unaudited)
As previously
reported
Adjustment
As Restated
As previously
reported
Adjustment
As Restated
As of June 30, 2023
As of June 30, 2022
$
$
$
Assets
Current assets
Cash and cash equivalents
Marketable securities
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Accounts payable
Accrued expenses and other current
liabilities
Operating lease obligations
Current portion of long term debt
Total current liabilities
Non-current liabilities
Operating lease obligations, less current
portion
Long term debt, net
Other non-current liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity
Convertible preferred stock
Series A
Series B
Common stock
Treasury stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
$
70,578
—
2,874
73,452
11,720
3,804
88,976
3,881
7,787
526
1,266
13,460
3,308
1,472
455
5,235
18,695
—
1
2,566
(48)
320,181
22
(252,441)
70,281
88,976
— $
70,578 $
115,005
— $
115,005
—
7,564
122,569
3,153
4,366
130,088
5,921
4,103
314
—
10,338
3,892
1,750
—
5,642
15,980
—
1
2,163
(48)
281,139
10
(169,157)
114,108
130,088
—
—
—
—
—
2,874
73,452
11,720
—
— $
3,804
88,976 $
— $
3,881 $
11,039
—
—
11,039
—
—
—
—
11,039
18,826
526
1,266
24,499
3,308
1,472
455
5,235
29,734
—
—
—
—
—
—
(11,039)
(11,039)
— $
—
1
2,566
(48)
320,181
22
(263,480)
59,242
88,976 $
F-32
—
—
—
—
—
— $
—
7,564
122,569
3,153
4,366
130,088
— $
5,921
7,625
—
—
7,625
—
—
—
—
7,625
11,728
314
—
17,963
3,892
1,750
—
5,642
23,605
—
—
—
—
—
—
(7,625)
(7,625)
— $
—
1
2,163
(48)
281,139
10
(176,782)
106,483
130,088
Table of Contents
Corrected Condensed Consolidated
Balance Sheets (Unaudited)
As previously
reported
Adjustment
As Restated
As previously
reported
Adjustment
As
Restated
As of September 30, 2023
As of September 30, 2022
$
$
$
Assets
Current assets
Cash and cash equivalents
Marketable securities
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Accounts payable
Accrued expenses and other current
liabilities
Operating lease obligations
Current portion of long term debt
Total current liabilities
Non-current liabilities
Operating lease obligations, less current
portion
Long term debt, net
Other non-current liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity
Convertible preferred stock
Series A
Series B
Common stock
Treasury stock
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity $
53,477
—
3,081
56,558
14,469
3,660
74,687
2,921
6,399
540
1,276
11,136
3,164
1,495
497
5,156
16,292
—
1
2,566
(48)
322,452
27
(266,603)
58,395
74,687
— $
53,477 $
—
—
—
—
—
3,081
56,558
14,469
—
— $
3,660
74,687 $
— $
2,921 $
8,594
—
—
8,594
—
—
—
—
8,594
14,993
540
1,276
19,730
3,164
1,495
497
5,156
24,886
—
—
—
—
—
—
(8,594)
(8,594)
— $
—
1
2,566
(48)
322,452
27
(275,197)
49,801
74,687 $
F-33
101,602
—
5,895
107,497
4,517
4,225
116,239
6,460
8,004
443
—
14,907
3,764
2,265
—
6,029
20,936
—
1
2,168
(48)
284,231
30
(191,079)
95,303
116,239
— $ 101,602
—
—
—
—
—
5,895
107,497
4,517
—
4,225
— $ 116,239
— $
6,460
9,616
—
—
9,616
—
—
—
—
9,616
17,620
443
—
24,523
3,764
2,265
—
6,029
30,552
—
—
—
—
—
—
—
1
2,168
(48)
284,231
30
(9,616)
(200,695)
(9,616)
85,687
— $ 116,239
Table of Contents
Corrected Condensed Consolidated
Statements of Operations and
Comprehensive Loss (Unaudited)
Collaborative arrangement revenue
Total revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Comprehensive loss
Shares used in calculating net loss per
common share — basic and diluted
Net loss per share of common stock — basic
and diluted
$
$
$
March 31, 2023
March 31, 2022
For the Three Months Ended
As previously
reported
$
—
—
Adjustment
As Restated
As previously
reported
Adjustment
443 $
443
614
113
727
(284)
(544)
(828) $
—
(828) $
443 $
443
10,172
8,306
18,478
(18,035)
709
(17,326) $
(1)
(17,327) $
—
—
7,915
10,119
18,034
(18,034)
15
(18,019)
—
(18,019)
As Restated
500
500
500 $
500
1,478
18
1,496
(996)
—
(996) $
9,393
10,137
19,530
(19,030)
15
(19,015)
—
(996) $
—
(19,015)
9,558
8,193
17,751
(17,751)
1,253
(16,498)
(1)
(16,499)
225,523,627
— 225,523,627
205,693,498
— 205,693,498
(0.07)
(0.01) $
(0.08) $
(0.09)
— $
(0.09)
F-34
Table of Contents
Corrected Condensed Consolidated
Statements of Operations and
Comprehensive Loss (Unaudited)
Collaborative arrangement revenue
Total revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Unrealized gain (loss) on marketable
securities
Comprehensive loss
Shares used in calculating net loss per
common share — basic and diluted
Net loss per share of common stock — basic
and diluted
$
$
$
For the Three Months Ended
June 30, 2023
June 30, 2022
As previously
reported
$
—
—
Adjustment
As Restated
As previously
reported
Adjustment
485 $
485
405
(113)
292
193
(333)
(140) $
—
—
(140) $
485 $
485
14,574
9,451
24,025
(23,540)
475
(23,065) $
(2)
(1)
(23,068) $
—
—
9,007
10,558
19,565
(19,565)
94
(19,471)
10
—
(19,461)
As Restated
643
643
643 $
643
2,595
59
2,654
(2,011)
—
(2,011) $
11,602
10,617
22,219
(21,576)
94
(21,482)
—
10
—
(2,011) $
—
(21,472)
14,169
9,564
23,733
(23,733)
808
(22,925)
(2)
(1)
(22,928)
238,311,498
— 238,311,498
215,862,977
— 215,862,977
(0.10)
— $
(0.10) $
(0.09)
(0.01) $
(0.10)
F-35
Table of Contents
Corrected Condensed Consolidated
Statements of Operations and
Comprehensive Loss (Unaudited)
Collaborative arrangement revenue
Total revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Unrealized gain (loss) on marketable
securities
Comprehensive loss
Shares used in calculating net loss per
common share — basic and diluted
Net loss per share of common stock — basic
and diluted
$
$
$
June 30, 2023
June 30, 2022
For the Six Months Ended
As previously
reported
$
—
—
Adjustment
As Restated
As previously
reported
Adjustment
928 $
928
1,019
—
1,019
(91)
(877)
(968) $
—
—
(968) $
928 $
928
24,746
17,757
42,503
(41,575)
1,184
(40,391) $
(3)
(1)
(40,395) $
—
—
16,922
20,677
37,599
(37,599)
109
(37,490)
10
—
(37,480)
As Restated
1,143
1,143
1,143 $
1,143
4,073
77
4,150
(3,007)
—
(3,007) $
20,995
20,754
41,749
(40,606)
109
(40,497)
—
10
—
(3,007) $
—
(40,487)
23,727
17,757
41,484
(41,484)
2,061
(39,423)
(3)
(1)
(39,427)
231,952,888
— 231,952,888
210,806,330
— 210,806,330
(0.17)
— $
(0.17) $
(0.18)
(0.01) $
(0.19)
F-36
Table of Contents
Corrected Condensed Consolidated
Statements of Operations and
Comprehensive Loss (Unaudited)
Collaborative arrangement revenue
Total revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Unrealized gain (loss) on marketable
securities
Comprehensive loss
Shares used in calculating net loss per
common share — basic and diluted
Net loss per share of common stock — basic
and diluted
$
$
$
$
September 30, 2023
September 30, 2022
For the Three Months Ended
As previously
reported
Adjustment
As Restated
As previously
reported
Adjustment
—
—
6,342
9,082
15,424
(15,424)
1,262
(14,162)
3,699 $
3,699
706
—
706
2,993
(548)
2,445 $
3,699 $
3,699
7,048
9,082
16,130
(12,431)
714
(11,717) $
5
—
5
—
(14,157)
—
2,445 $
—
(11,712) $
—
—
15,622
7,497
23,119
(23,119)
1,197
(21,922)
20
—
(21,902)
As Restated
466
466
466 $
466
2,315
142
2,457
(1,991)
—
(1,991) $
17,937
7,639
25,576
(25,110)
1,197
(23,913)
—
20
—
(1,991) $
—
(23,893)
256,492,558
— 256,492,558
216,591,011
— 216,591,011
(0.06)
0.01 $
(0.05) $
(0.10)
(0.01) $
(0.11)
F-37
Table of Contents
Corrected Condensed Consolidated
Statements of Operations and
Comprehensive Loss (Unaudited)
Collaborative arrangement revenue
Total revenue
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss
Other comprehensive income (loss)
Foreign currency translation adjustment
Unrealized gain (loss) on marketable
securities
Comprehensive loss
$
$
$
Shares used in calculating net loss per
common share — basic and diluted
Net loss per share of common stock — basic
and diluted
$
September 30, 2023
September 30, 2022
For the Nine Months Ended
As previously
reported
Adjustment
As Restated
As previously
reported
Adjustment
—
—
30,069
26,839
56,908
(56,908)
3,323
(53,585)
2
(1)
(53,584)
4,627 $
4,627
4,627 $
4,627
1,725
—
1,725
2,902
(1,425)
1,477 $
—
—
1,477 $
31,794
26,839
58,633
(54,006)
1,898
(52,108) $
2
(1)
(52,107) $
—
—
32,544
28,174
60,718
(60,718)
1,306
(59,412)
30
—
(59,382)
As Restated
1,609
1,609
1,609 $
1,609
6,388
219
6,607
(4,998)
—
(4,998) $
38,932
28,393
67,325
(65,716)
1,306
(64,410)
—
30
—
(4,998) $
—
(64,380)
240,222,667
— 240,222,667
212,755,746
— 212,755,746
(0.22)
— $
(0.22) $
(0.28)
(0.02) $
(0.30)
F-38
Table of Contents
Corrected Condensed Consolidated
Statements of Stockholders' equity
(Unaudited)
Balance December 31, 2021 (As
Reported)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock unit
vesting, net
Issuance of common stock for capital
raises, net
Net loss
Balance March 31, 2022 (As
Reported)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock unit
vesting, net
Series A convertible preferred stock
conversion
Other Comprehensive income (loss)
Net loss
Balance June 30, 2022 (As Reported)
Stock-based compensation expense
— $
—
Issuance of common stock for stock
option exercises and restricted stock unit
vesting, net
Other Comprehensive income (loss)
Net loss
Balance September 30, 2022 (As
Reported)
For the Nine Months Ended September 30, 2022
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Common Stock
Shares Amount
Shares
Amount
Shares
Amount
Treasury
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
7 $
—
—
—
—
7 $
—
—
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,745 $
1
199,502,183 $
1,995 $
(48) $
225,537 $
— $
(131,667) $
95,818
—
—
—
—
—
3,299
—
—
—
—
—
—
277,323
15,973,420
—
3
160
—
—
—
—
177
49,691
—
—
—
—
—
—
3,299
—
—
180
49,851
(18,019)
(18,019)
54,745 $
1
215,752,926 $
2,158 $
(48) $
278,704 $
— $
(149,686) $ 131,129
—
—
—
—
—
—
—
—
—
—
—
515,221
3,115
—
—
—
5
—
—
—
—
2,079
—
—
—
—
356
—
—
—
—
—
—
10
—
—
2,079
—
—
—
361
—
10
(19,471)
(19,471)
54,745 $
1
216,271,262 $
2,163 $
(48) $
281,139 $
10 $
(169,157) $ 114,108
—
—
—
—
—
—
—
—
—
538,675
—
—
—
5
—
—
—
2,495
—
—
—
597
—
—
—
—
20
—
—
2,495
—
—
602
20
(21,922)
(21,922)
— $
—
54,745 $
1
216,809,937 $
2,168 $
(48) $
284,231 $
30 $
(191,079) $
95,303
F-39
Table of Contents
Condensed Consolidated Statements of
Stockholders' equity (Unaudited)
Adjustments
Balance December 31, 2021
Net loss
Balance March 31, 2022 (Adjustment)
Net loss
Balance June 30, 2022 (Adjustment)
Net loss
Balance at September 30, 2022
(Adjustment)
For the Nine Months Ended September 30, 2022
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Shares Amount
Treasury
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
(4,618) $
(4,618)
—
(996)
(996)
— $
(5,614) $
(5,614)
—
(2,011)
(2,011)
— $
(7,625) $
(7,625)
—
(1,991)
(1,991)
— $
(9,616) $
(9,616)
Table of Contents
Corrected Condensed Consolidated
Statements of Stockholders' equity
(Unaudited)
Balance December 31, 2021 (As
Restated)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock
unit vesting, net
Issuance of common stock for capital
raises, net
Net loss
Balance March 31, 2022 (As
Restated)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock
unit vesting, net
Series A convertible preferred stock
conversion
Other Comprehensive income (loss)
Net loss
Balance June 30, 2022 (As Restated)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock
unit vesting, net
Other Comprehensive income (loss)
Net loss
Balance September 30, 2022 (As
Restated)
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Common Stock
For the Nine Months Ended September 30, 2022
Shares Amount
Shares
Amount
Shares
Amount
Treasury
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
7 $
—
—
—
—
7 $
—
—
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,745 $
1
199,502,183 $
1,995 $
(48) $
225,537 $
— $
(136,285) $
91,200
—
—
—
—
—
—
—
—
—
—
277,323
15,973,420
—
3
160
—
—
—
—
—
3,299
177
49,691
—
—
—
—
—
—
3,299
—
—
180
49,851
(19,015)
(19,015)
54,745 $
1
215,752,926 $
2,158 $
(48) $
278,704 $
— $
(155,300) $ 125,515
—
—
—
—
5
—
—
—
—
—
—
—
515,221
3,115
—
—
1
216,271,262
2,163
—
—
—
—
—
538,675
—
—
—
5
—
—
—
—
—
—
—
(48)
—
—
—
—
2,079
356
—
—
—
281,139
2,495
597
—
—
—
—
—
10
—
10
—
—
20
—
—
2,079
—
—
—
361
—
10
(21,482)
(21,482)
(176,782)
106,483
—
2,495
—
—
602
20
(23,913)
(23,913)
—
—
—
—
54,745
—
—
—
—
— $
—
54,745 $
1
216,809,937 $
2,168 $
(48) $
284,231 $
30 $
(200,695) $
85,687
F-41
Table of Contents
Corrected Condensed Consolidated
Statements of Stockholders' equity
(Unaudited)
Balance December 31, 2022 (As
Reported)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock unit
vesting, net
Issuance of common stock for capital
raises, net
Other comprehensive income (loss)
Net loss
—
—
—
—
—
Balance March 31, 2023 (As Reported)
— $
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock unit
vesting, net
Issuance of common stock for capital
raises, net
Other comprehensive income (loss)
Net loss
—
—
—
—
—
Balance June 30, 2023 (As Reported)
— $
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock unit
vesting, net
Other comprehensive income (loss)
Net loss
Balance September 30, 2023 (As
Reported)
—
—
—
—
— $
For the Nine Months Ended September 30, 2023
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Common Stock
Shares Amount
Shares Amount
Shares
Amount
Treasury
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
— $
—
54,745 $
1
221,721,182 $
2,217 $
(48) $
294,874 $
26 $
(213,018) $
84,052
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,745 $
—
—
—
—
—
54,745 $
—
—
—
—
—
—
—
348,555
—
4,478,956
—
—
—
3
45
—
—
—
—
—
—
—
2,689
(4)
5,514
—
—
—
—
—
(1)
—
—
—
—
—
2,689
(1)
5,559
(1)
(16,498)
(16,498)
226,548,693 $
2,265 $
(48) $
303,073 $
25 $
(229,516) $
75,800
—
59,859
—
1
—
30,000,000
300
—
—
—
—
—
—
—
—
—
2,632
9
14,467
—
—
—
—
—
(3)
—
—
—
—
—
2,632
10
14,767
(3)
(22,925)
(22,925)
256,608,552 $
2,566 $
(48) $
320,181 $
22 $
(252,441) $
70,281
—
12,935
—
—
—
—
—
—
—
—
—
—
2,174
97
—
—
—
—
5
—
—
—
—
2,174
97
5
(14,162)
(14,162)
—
—
1
—
—
—
—
1
—
—
—
—
54,745 $
1
256,621,487 $
2,566 $
(48) $
322,452 $
27 $
(266,603) $
58,395
F-42
Table of Contents
For the Nine Months Ended September 30, 2023
Condensed Consolidated Statements of
Stockholders' equity (Unaudited)
Adjustments
Balance December 31, 2022 (Adjustment)
Net loss
Balance March 31, 2023 (Adjustment)
Net loss
Balance June 30, 2023 (Adjustment)
Net loss
Balance at September 30, 2023
(Adjustment)
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Common Stock
Shares
Amount
Shares
Amount
Shares Amount
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Treasury
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
(10,071) $
(10,071)
—
(828)
(828)
— $
(10,899) $
(10,899)
—
(140)
(140)
— $
(11,039) $
(11,039)
—
2,445
2,445
— $
(8,594) $
(8,594)
F-43
Table of Contents
Corrected Condensed Consolidated
Statements of Stockholders' equity
(Unaudited)
Balance December 31, 2022 (As
Restated)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock
unit vesting, net
Issuance of common stock for capital
raises, net
Other comprehensive income (loss)
Net loss
Balance March 31, 2023 (As
Restated)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock
unit vesting, net
Issuance of common stock for capital
raises, net
Other comprehensive income (loss)
Net loss
Balance June 30, 2023 (As Restated)
Stock-based compensation expense
Issuance of common stock for stock
option exercises and restricted stock
unit vesting, net
Other comprehensive income (loss)
Net loss
Balance September 30, 2023 (As
Restated)
For the Nine Months Ended September 30, 2023
Series A
Convertible
Preferred Stock
Series B
Convertible
Preferred Stock
Common Stock
Shares Amount
Shares
Amount
Shares
Amount
Treasury
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
— $
—
—
—
—
—
— $
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,745 $
1
221,721,182 $
2,217 $
(48) $
294,874 $
26 $
(223,089) $
73,981
—
—
—
—
—
—
—
—
—
—
—
348,555
4,478,956
—
—
—
3
45
—
—
—
2,689
—
—
—
—
(4)
5,514
—
—
—
—
—
(1)
—
—
2,689
—
—
—
(1)
5,559
(1)
(17,326)
(17,326)
54,745 $
1
226,548,693 $
2,265 $
(48) $
303,073 $
25 $
(240,415) $
64,901
—
—
—
—
—
2,632
—
—
—
—
—
—
—
—
59,859
30,000,000
—
—
1
300
—
—
—
—
—
—
9
14,467
—
—
—
—
—
(3)
—
—
2,632
—
—
—
10
14,767
(3)
(23,065)
(23,065)
54,745 $
1
256,608,552 $
2,566 $
(48) $
320,181 $
22 $
(263,480) $
59,242
—
—
—
—
—
—
—
—
—
12,935
—
—
—
—
—
—
—
2,174
—
—
—
97
—
—
—
—
5
—
—
2,174
—
—
97
5
(11,717)
(11,717)
— $
—
54,745 $
1
256,621,487 $
2,566 $
(48) $
322,452 $
27 $
(275,197) $
49,801
F-44
Table of Contents
Corrected Consolidated Statements of Cash Flows (Unaudited) As previously reported Adjustment
Cash flows from operating activities
As Restated
As previously reported Adjustment
As Restated
Three months ended March 31,
2023
2022
$
(16,498)
(828) $
(17,326) $
(18,019)
(996) $
(19,015)
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense
Amortization (accretion) on marketable securities
Non-cash interest expense
Non-cash lease expense
Non-cash (income) expense from collaborative arrangements,
net
Stock-based compensation expense
Other
Changes in assets and liabilities:
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Lease obligations
Net cash used in operating activities
Cash flows from investing activities
Purchases of marketable securities
Proceeds from maturities of marketable securities
Purchases of property and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from issuance of common stock, net
Payment of equity issuance costs
Payments of debt issuance costs
Net cash provided by financing activities
Effect of changes in exchange rate on cash and cash equivalents
Net (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of
period
Cash, cash equivalents, and restricted cash at end of period
Supplemental disclosure of non-cash investing and financing
transactions:
Purchase of property and equipment
Equity issuance costs
$
$
$
—
—
—
—
—
1,008
—
—
—
(180)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
174
(143)
24
131
1,008
2,689
352
(60)
(4,964)
(125)
(18,240)
(3,947)
9,000
(1,612)
3,441
5,731
(173)
(62)
5,496
(1)
(9,304)
77,563
— $
68,259 $
— $
— $
1,119 $
— $
76
—
19
179
—
3,299
—
(575)
131
(176)
(15,066)
—
—
(223)
(223)
50,177
(75)
—
50,102
—
34,813
95,109
129,922
611
71
174
(143)
24
131
—
2,689
352
(60)
(4,784)
(125)
(18,240)
(3,947)
9,000
(1,612)
3,441
5,731
(173)
(62)
5,496
(1)
(9,304)
77,563
68,259
1,119
—
F-45
—
—
—
—
—
996
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
76
—
19
179
996
3,299
—
(575)
131
(176)
(15,066)
—
—
(223)
(223)
50,177
(75)
—
50,102
—
34,813
95,109
— $
129,922
— $
— $
611
71
Table of Contents
Corrected Consolidated Statements of Cash Flows (Unaudited) As previously reported Adjustment
Cash flows from operating activities
As Restated
As previously reported Adjustment
As Restated
Six months ended June 30,
2023
2022
$
(39,423)
(968) $
(40,391) $
(37,490)
(3,007) $
(40,497)
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense
Amortization (accretion) on marketable securities
Non-cash interest expense
Non-cash lease expense
Non-cash (income) expense from collaborative arrangements, net
Stock-based compensation expense
Impairment of advance for COVAXIN supply
Loss on disposal of fixed assets related to COVAXIN
Other
Changes in assets and liabilities:
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Lease obligations
Net cash used in operating activities
Cash flows from investing activities
Purchases of marketable securities
Proceeds from maturities of marketable securities
Purchases of property and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from issuance of common stock, net
Payment of equity issuance costs
Proceeds from issuance of debt
Payments of debt issuance costs
Net cash provided by financing activities
Effect of changes in exchange rate on cash and cash equivalents
Net (decrease) in cash and cash equivalents
Cash, cash equivalents, and restricted cash at beginning of
period
Cash and cash equivalents at end of period
$
—
—
—
—
1,392
—
—
—
—
—
(424)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
348
(182)
54
265
1,392
5,321
4,074
363
439
572
(9,049)
(252)
(37,046)
(3,947)
17,500
(4,389)
9,164
20,690
(222)
500
(68)
20,900
(3)
(6,985)
77,563
— $
70,578 $
166
—
38
334
—
5,378
—
—
—
132
2,844
(265)
(28,863)
—
—
(1,589)
(1,589)
50,538
(200)
—
—
50,338
10
19,896
95,109
115,005
—
—
—
—
3,007
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
166
—
38
334
3,007
5,378
—
—
—
132
2,844
(265)
(28,863)
—
—
(1,589)
(1,589)
50,538
(200)
—
—
50,338
10
19,896
95,109
— $
115,005
348
(182)
54
265
—
5,321
4,074
363
439
572
(8,625)
(252)
(37,046)
(3,947)
17,500
(4,389)
9,164
20,690
(222)
500
(68)
20,900
(3)
(6,985)
77,563
70,578
F-46
Table of Contents
Corrected Consolidated Statements of Cash Flows (Unaudited) -
Continued
Supplemental disclosure of non-cash investing and financing
transactions:
Equity issuance costs
Purchase of property and equipment
Right-of-use assets related to operating leases
$
$
$
133
2,637
—
— $
— $
— $
133 $
2,637 $
— $
69
491
2,918
— $
— $
— $
69
491
2,918
F-47
Table of Contents
Corrected Consolidated Statements of Cash Flows (Unaudited)
As previously reported Adjustment
As Restated
As previously reported Adjustment
As Restated
Nine months ended September 30,
2023
2022
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
$
Depreciation and amortization expense
Amortization (accretion) on marketable securities
Non-cash interest expense
Non-cash lease expense
Non-cash (income) expense from collaborative arrangements, net
Stock-based compensation expense
Impairment of advance for COVAXIN supply
Loss on disposal of fixed assets related to COVAXIN
Other
Changes in assets and liabilities:
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Lease obligations
Net cash used in operating activities
Cash flows from investing activities
Purchases of marketable securities
Proceeds from maturities of marketable securities
Purchases of property and equipment
Repayment of note receivable
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from issuance of common stock
Payment of equity issuance costs
Proceeds from issuance of debt
Payments of debt issuance costs
Net cash provided by financing activities
Effect of changes in exchange rate on cash and cash equivalents
Net (decrease) in cash and cash equivalents
Cash, cash equivalents, and restricted cash at beginning of period
Cash and cash equivalents at end of period
$
(53,585)
1,477 $
(52,108) $
(59,412)
(4,998) $
(64,410)
—
—
—
—
(1,134)
—
—
—
—
—
(343)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
525
(182)
87
401
(1,134)
7,495
4,074
363
379
132
(10,402)
(382)
(50,752)
(3,947)
17,500
(7,754)
—
5,799
20,788
(355)
500
(68)
20,865
2
(24,086)
77,563
307
—
58
463
—
7,873
—
—
(673)
1,888
6,592
(261)
(43,165)
—
—
(2,433)
761
(1,672)
51,141
(298)
500
(43)
51,300
30
6,493
95,109
—
—
—
—
4,856
—
—
—
—
—
142
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
307
—
58
463
4,856
7,873
—
—
(673)
1,888
6,734
(261)
(43,165)
—
—
(2,433)
761
(1,672)
51,141
(298)
500
(43)
51,300
30
6,493
95,109
— $
53,477 $
101,602
— $
101,602
525
(182)
87
401
—
7,495
4,074
363
379
132
(10,059)
(382)
(50,752)
(3,947)
17,500
(7,754)
—
5,799
20,788
(355)
500
(68)
20,865
2
(24,086)
77,563
53,477
F-48
Table of Contents
Corrected Consolidated Statements of Cash Flows (Unaudited) -
Continued
Supplemental disclosure of non-cash investing and financing
transactions:
Equity issuance costs
Purchase of property and equipment
Right-of-use assets related to operating leases
Debt issuance costs
$
$
$
$
—
1,969
—
—
— $
— $
— $
— $
— $
1,969 $
— $
— $
2
1,231
2,916
19
— $
— $
— $
— $
2
1,231
2,916
19
F-49
Confidential April 11, 2023
[***] Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not material and
the registrant customarily and actually treats as private and confidential.
rd
3 Amendment to Co-Development and Commercialization Agreement
This 3rd Amendment to Co-Development and Commercialization Agreement (“3rd Amendment”) dated April 11,2023, is made by and
between Ocugen, Inc., now with an address at 11 Great Valley Parkway, Malvern, PA 19355 (“Ocugen”), and CanSino Biologics Inc., whose
registered office address is at 185 South Ave, TEDA West District, Tianjin, 300457, China (“CanSino”). Ocugen and CanSino are hereinafter
referred to individually as a “Party” and collectively as the “Parties.” Capitalized terms that are not defined herein shall have the meaning
ascribed to them in the Collaboration Agreement (as defined below).
RECITALS
WHEREAS, the Parties entered into that certain Co-Development and Commercialization Agreement effective as of September 27,
2019 (the “Original Collaboration Agreement”), as amended by that certain 1st Amendment to the Co-Development and Commercialization
Agreement effective as of September 30, 2021 (“First Amendment”), and certain 2nd Amendment to the Original Collaboration Agreement
effective as of November 21,2022 (“Second Amendment”). The First Amendment and Second Amendment, together with the Original
Collaboration Agreement, are called as the “Collaboration Agreement”.
Whereas, CanSinoBIO and Ocugen agree to, pursuant to Collaboration Agreement, purchase the ultracentrifuge (Beckman Optima
XPN-100 ultracentrifuge) for the manufacturing of the Product, and amend the Collaboration Agreement correspondingly as further described
herein.
Therefore the Parties agree as follows:
1.
Definition
CLAUSES
The terms used in this Addendum shall have the same meanings as are attributed to them under the Agreement unless otherwise
defined in this Addendum, in which case the definitions given herein shall replace or prevail over (as the case may be) those given in
the Addendum.
2.
General terms
In order to facilitate the development and manufacturing of the Product, the Parties agree to purchase the ultracentrifuge (Beckman
Optima XPN-100 ultracentrifuge) which values [***] CNY (equals to [***] USD) (“Equipment”) in the name of CanSino, and Ocugen
agrees to reimburse
ACTIVE/127710880.3
Confidential April 11, 2023
CanSino for [***]% value of Equipment and [***]% Value-added tax (Withhold) as the development cost of Product, which equals to
[***] USD within thirty (30) days after receiving the invoice.
3.
Miscellaneous
1.1
This Addendum is made in two (2) originals with each Party holding one. This Addendum shall constitute an integral part of the
Agreement after this Addendum comes into effective.
1.2
This Addendum shall constitute an integral part of the Agreement after this Agreement comes into effective.
1.3
In case of any discrepancy between the Agreement and this Addendum, this Addendum will prevail unless otherwise provided
hereunder, the Parties shall perform pursuant to the terms and conditions of this Addendum.
1.4
No further modification to the Agreement and this Addendum shall be binding upon the Parties unless it is made in writing and signed
by duly authorized representatives of the Parties.
Ocugen, Inc.
/s/Shankar Musunuri
Signature
Shankar Musunuri
Print name
Chief Executive Officer
Title
4.11.2023
Date
CanSino Biologics Inc.
/s/Shoubai Chao
Signature
Shoubai Chao
Print name
Chief Operating Officer
Title
April 17, 2023
Date
ACTIVE/127710880.3
2
[***] Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded
information is not material and the registrant customarily and actually treats as private and confidential.
Second Amendment
to the
EXCLUSIVE LICENSE AGREEMENT
between
The Washington University|
and
Ocugen, Inc.
This second amendment (“Second Amendment”) to the Exclusive License Agreement, WU Contract Number A2023-0203, is
effective as of the date of the last signature below (“Second Amendment Effective Date”), by and between The Washington
University, through its Office of Technology Management having its principal office at 4240 Duncan Avenue, Suite 110, St.
Louis, MO 63110 (hereinafter referred to as “WU”), and Ocugen, Inc., having its principal office at 11 Great Valley Parkway,
Malvern, PA 19355 and its affiliates (hereinafter and collectively referred to as “Licensee”). WU and Licensee are referred to
herein individually as a “Party” and collectively as the “Parties” of this Second Amendment. Capitalized terms that are not
defined herein shall have the meaning ascribed to them in the Agreement (as defined below).
WHEREAS, the Parties made and entered into that certain Exclusive License Agreement, WU Contract Number A2023-0203 as
of September 23, 2022 (as amended by that certain First Amendment to the Exclusive License Agreement by and between the
Parties effective as of January 31, 2023, the “Agreement”);
WHEREAS, the Parties wish to amend the Agreement to (i) modify Territory to include Hong Kong, and (ii) update Patent
Rights under Schedule C;
NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, WU and Licensee hereby agree to
amend the Agreement as follows:
1. Under SUMMARY OF TERMS, the following term shall be amended as follows:
“Territory: US, Europe, Japan, South Korea, Australia, and China”
Shall be deleted in its entirety and replaced with the following:
“Territory: US, Europe, Japan, South Korea, Australia, China, and Hong Kong”
2. Schedule C of the Agreement is hereby amended by deleting Schedule C in its entirety and replacing it with the
following new Schedule C:
SCHEDULE C
• Patent Rights
[***]
• Tangible Research Property
ACTIVE/127698991.3
[***]
• Technical Information
3. Except as expressly provided in this Second Amendment, all other terms, conditions and provisions of the Agreement
shall continue in full force and effect as provided therein.
IN WITNESS WHEREOF the Parties have caused this Second Amendment to Agreement to be executed and delivered
by their duly authorized representatives as of the Second Amendment Effective Date.
THE WASHINGTON UNIVERSITY
/s/ Nichole Mercier November 9, 2023
Signature Date
OCUGEN, INC. (LICENSEE)
/s/ Shankar Musunuri 11/28/2023
Signature Date
Nichole R. Mercier, PhD
Asst. Vice Chancellor & Managing Director Office of
Technology Management
Dr. Shankar Musunuri
Chairman and CEO
ACTIVE/127698991.3
Ocugen, Inc.
List of Subsidiaries
Name of Wholly-Owned Subsidiary
Jurisdiction of Organization
Ocugen Limited
Ocugen OpCo, Inc.
Histogenics Securities Corporation
Vaccigen Ltd.
Ireland
Delaware
Massachusetts
Canada
Exhibit 21.1
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-3 No. 333-234127) of Ocugen, Inc.,
(2) Registration Statement (Form S-8 No. 333-237454) pertaining to the Ocugen, Inc. 2019 Equity Incentive Plan and the Ocugen, Inc. 2014 Stock
Option Plan,
(3) Registration Statement (Form S-8 No. 333-254549) pertaining to the Ocugen, Inc. 2019 Equity Incentive Plan,
(4) Registration Statement (Form S-8 No. 333-263063) pertaining to the Ocugen, Inc. Inducement Stock Option and Restricted Stock Unit Awards
(June 2021 – February 2022),
(5) Registration Statement (Form S-8 No. 333-263064) pertaining to the Ocugen, Inc. 2019 Equity Incentive Plan,
(6) Registration Statement (Form S-8 No. 333-270082) pertaining to the Ocugen, Inc. Inducement Stock Option and Restricted Stock Unit Awards
(March 2022 – September 2022), and
(7) Registration Statement (Form S-8 No. 333-270083) pertaining to the Ocugen, Inc. 2019 Equity Incentive Plan;
of our report dated April 16, 2024, with respect to the consolidated financial statements of Ocugen, Inc. included in this Annual Report (Form 10-K) of
Ocugen, Inc. for the year ended December 31, 2023.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
April 16, 2024
CERTIFICATION
Exhibit 31.1
I, Shankar Musunuri, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ocugen, 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.
b.
c.
d.
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, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
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
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.
b.
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
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: April 16, 2024 /s/ Shankar Musunuri, Ph.D., MBA
Shankar Musunuri, Ph.D., MBA
Chairman, Chief Executive Officer, & Co-Founder
(Principal Executive Officer)
CERTIFICATION
Exhibit 31.2
I, Michael Breininger, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Ocugen, 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.
b.
c.
d.
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, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
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
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.
b.
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
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: April 16, 2024 /s/ Michael Breininger
Michael Breininger, CPA, MBA, LSSBB
Corporate Controller, Interim Chief Accounting Officer
(Principal Financial Officer)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Certification
Exhibit 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of Ocugen, Inc. (the Company), does hereby certify, to the best of such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2023 (the Form 10-K) of the Company fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: April 16, 2024 /s/ Shankar Musunuri, Ph.D., MBA
Shankar Musunuri, Ph.D., MBA
Chairman, Chief Executive Officer, & Co-Founder
(Principal Executive Officer)
Date: April 16, 2024 /s/ Michael Breininger
Michael Breininger, CPA, MBA, LSSBB
Corporate Controller, Interim Chief Accounting Officer
(Principal Financial Officer)
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. This certification "accompanies" the Form 10-K to which it relates, is not deemed
filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained
in such filing.
OCUGEN, INC.
COMPENSATION RECOVERY POLICY
Adopted as of September 15, 2023
Ocugen, Inc., a Delaware corporation (the “Company”), has adopted this amended and restated Compensation Recovery Policy
(this “Policy”) as described below. This Policy amends and restates the Clawback Policy previously adopted by the Board on
December 9, 2021.
1. Overview
This Policy sets forth the circumstances and procedures under which the Company shall recover Erroneously Awarded
Compensation from Covered Persons (as defined below) in accordance with rules issued by the United States Securities and
Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the
Exchange. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in Section 3 below.
2. Compensation Recovery Requirement
In the event the Company is required to prepare a Material Financial Restatement, the Company shall recover reasonably
promptly all Erroneously Awarded Compensation with respect to such Material Financial Restatement.
3. Definitions
a. “Applicable Recovery Period” means, the three completed fiscal years immediately preceding the Restatement Date
for a Material Financial Restatement. In addition, in the event the Company has changed its fiscal year: (i) any
transition period of less than nine months occurring within or immediately following such three completed fiscal years
shall also be part of such Applicable Recovery Period and (ii) any transition period of nine to 12 months will be
deemed to be a completed fiscal year.
b. “Applicable Rules” means any rules or regulations adopted by the Exchange pursuant to Rule 10D-1 under the
Exchange Act and any applicable rules or regulations adopted by the SEC pursuant to Section 10D of the Exchange
Act.
c. “Board” means the Board of Directors of the Company.
d. “Committee” means the Compensation Committee of the Board or, in the absence of such committee, a majority of
independent directors serving on the Board.
e. A “Covered Person” means any Executive Officer. A person’s status as a Covered Person with respect to Erroneously
Awarded Compensation shall be determined as of the time of receipt of such Erroneously Awarded Compensation
regardless of such person’s current role or status with the Company (e.g., if a person began service as an Executive
Officer after the beginning of an Applicable Recovery Period, that person would not be considered a Covered Person
with respect to Erroneously Awarded Compensation received before the person began service as an Executive Officer,
but would be considered a Covered Person with respect to Erroneously Awarded Compensation received after the
person began service as an Executive Officer where
ACTIVE/123500723.1
such person served as an Executive Officer at any time during the performance period for such Erroneously Awarded
Compensation).
f. “Effective Date” means September 15, 2023.
g. “Erroneously Awarded Compensation” means the amount of any Incentive-Based Compensation received by a
Covered Person on or after the Effective Date and during the Applicable Recovery Period that exceeds the amount
that otherwise would have been received by the Covered Person had such compensation been determined based on the
restated amounts in the Material Financial Restatement, computed without regard to any taxes paid. Calculation of
Erroneously Awarded Compensation with respect to Incentive-Based Compensation based on stock price or total
shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical
recalculation directly from the information in a Material Financial Restatement, shall be based on a reasonable
estimate of the effect of the Material Financial Restatement on the stock price or total shareholder return upon which
the Incentive-Based Compensation was received, and the Company shall maintain documentation of the determination
of such reasonable estimate and provide such documentation to the Exchange in accordance with the Applicable
Rules. Incentive-Based Compensation is deemed received, earned or vested when the Financial Reporting Measure is
attained, not when the actual payment, grant or vesting occurs.
h. “Exchange” means the Nasdaq Stock Market LLC.
i. An “Executive Officer” means any person who served the Company in any of the following roles at any time during
the performance period for Incentive-Based Compensation: president, principal financial officer, principal accounting
officer (or if there is no such accounting officer the controller), any vice president in charge of a principal business
unit, division, or function (such as sales, administration or finance), any other officer who performs a policy making
function, or any other person who performs similar policy making functions for the Company. Executive officers of
parents or subsidiaries of the Company may be deemed executive officers of the Company if they perform such policy
making functions for the Company.
j.
“Financial Reporting Measures” mean measures that are determined and presented in accordance with the accounting
principles used in preparing the Company’s financial statements, any measures that are derived wholly or in part from
such measures (including, for example, a non-GAAP financial measure), and stock price and total shareholder return.
k. “Incentive-Based Compensation” means any compensation provided, directly or indirectly, by the Company or any of
its subsidiaries that is granted, earned, or vested based, in whole or in part, upon the attainment of a Financial
Reporting Measure.
l. A “Material Financial Restatement” means an accounting restatement of previously issued financial statements of the
Company due to the material noncompliance of the Company with any financial reporting requirement under the
securities laws, including any required accounting restatement to correct an error in previously-issued financial
statements that is material to the previously-issued financial statements or that would result in a material misstatement
if the error were corrected in the current period or left uncorrected in the current period.
ACTIVE/123500723.1
2
m. “Restatement Date” means, with respect to a Material Financial Restatement, the earlier to occur of: (i) the date the
Board, a committee of the Board or the officer or officers of the Company authorized to take such action if Board
action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare the
Material Financial Restatement or (ii) the date a court, regulator or other legally authorized body directs the Company
to prepare the Material Financial Restatement.
4. Exception to Compensation Recovery Requirement
The Company may elect not to recover Erroneously Awarded Compensation pursuant to this Policy if the Committee determines
that recovery would be impracticable, and one or more of the following conditions, together with any further requirements set
forth in the Applicable Rules, are met: (i) the direct expense paid to a third party to assist in enforcing this Policy would exceed
the amount to be recovered, and the Company has made a reasonable attempt to recover such Erroneously Awarded
Compensation; or (ii) recovery would likely cause an otherwise tax-qualified retirement plan to fail to be so qualified under
applicable regulations.
5. Method of Compensation Recovery
The Committee shall determine, in its sole discretion, the method for recovering Erroneously Awarded Compensation hereunder,
which may include, without limitation, any one or more of the following:
a.
requiring reimbursement of cash Incentive-Based Compensation previously paid;
b. seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer or other disposition of any
equity-based awards;
c. cancelling or rescinding some or all outstanding vested or unvested equity-based awards;
d. adjusting or withholding from unpaid compensation or other set-off;
e. cancelling or offsetting against planned future grants of equity-based awards; and/or
f. any other method permitted by applicable law or contract.
Notwithstanding the foregoing, a Covered Person will be deemed to have satisfied such person’s obligation to return Erroneously
Awarded Compensation to the Company if such Erroneously Awarded Compensation is returned in the exact same form in which
it was received; provided that equity withheld to satisfy tax obligations will be deemed to have been received in cash in an
amount equal to the tax withholding payment made.
6. Policy Interpretation
This Policy shall be interpreted in a manner that is consistent with the Applicable Rules and any other applicable law. The
Committee shall take into consideration any applicable interpretations and guidance of the SEC in interpreting this Policy,
including, for example, in determining whether a financial restatement qualifies as a Material Financial Restatement hereunder.
To the extent the Applicable Rules require recovery of Incentive-Based Compensation in additional
ACTIVE/123500723.1
3
circumstances besides those specified above, nothing in this Policy shall be deemed to limit or restrict the right or obligation of
the Company to recover Incentive-Based Compensation to the fullest extent required by the Applicable Rules.
7. Policy Administration
This Policy shall be administered by the Committee. The Committee shall have such powers and authorities related to the
administration of this Policy as are consistent with the governing documents of the Company and applicable law. The Committee
shall have full power and authority to take, or direct the taking of, all actions and to make all determinations required or provided
for under this Policy and shall have full power and authority to take, or direct the taking of, all such other actions and make all
such other determinations not inconsistent with the specific terms and provisions of this Policy that the Committee deems to be
necessary or appropriate to the administration of this Policy. The interpretation and construction by the Committee of any
provision of this Policy and all determinations made by the Committee under this policy shall be final, binding and conclusive.
8. Compensation Recovery Repayments not Subject to Indemnification
Notwithstanding anything to the contrary set forth in any agreement with, or the organizational documents of, the Company or
any of its subsidiaries, Covered Persons are not entitled to indemnification for Erroneously Awarded Compensation recovered
under this Policy and, to the extent any such agreement or organizational document purports to provide otherwise, Covered
Persons hereby irrevocably agree to forego such indemnification.
ACTIVE/123500723.1
4