Orchard Therapeu(cid:2)cs plc
Annual Report and Financial Statements
for the Year Ended 31 December 2018
UK FINANCIAL DOCUMENTS
INTRODUCTION AND CONTENTS
Orchard Therapeutics plc (“the Company”, or “the Parent Company”) is a public limited company incorporated
under the laws of England and Wales and is listed on the Nasdaq Global Select Market. This section therefore
covers the requirements for being a quoted company under the UK Companies Act 2006, as follows:
• Company Information
• Certain note disclosures relevant to the Company and its subsidiaries (“the Group”)
• Independent auditors’ report to the members of Orchard Therapeutics plc
• Statement of Directors’ Responsibilities in Respect of the Financial Statements
• UK Statutory Strategic Report
• UK Statutory Directors’ Report
• Directors’ Remuneration Report
• Orchard Therapeutics plc UK Statutory Financial Statements
• Annual Report on Form 20-F
Page
2
3
4
13
15
17
20
45
53
The “Annual Report”, as mentioned throughout these UK financial documents, is comprised of the reports listed
above and the Annual Report on Form 20-F (the “Form 20-F”) filed with the United States Securities and Exchange
Commission (the “SEC”) on 22 March 2019. For purposes of the UK Annual Report, the exhibits to the Form 20-F
are not incorporated by reference.
Orchard Therapeutics plc 1
Directors
COMPANY INFORMATION
James Geraghty, Chair of the Board of Directors
Joanne Beck
Marc Dunoyer
Jon Ellis
Bobby Gaspar
Mark Rothera
Charles Rowland
Alicia Secor
Hong Fang Song
Secretary
John Ilett
Registered Office
108 Cannon Street
London EC4N 6EU
United Kingdom
Registered Number
11494381
Independent Auditors
PricewaterhouseCoopers LLP
3 Forbury Place
23 Forbury Road
Reading, Berkshire, RG1 3JH
United Kingdom
2 Orchard Therapeutics plc
CERTAIN NOTE DISCLOSURES RELEVANT TO THE GROUP
Basis of Preparation
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”), as permitted by Statutory Instrument 2015 No. 1675,
“The Accounting Standards (Prescribed Bodies) (United States of America and Japan) Regulations 2015” and in
accordance with the UK Companies Act 2006.
UK Statutory Disclosure Requirements
(i) Monthly average number of people employed
Group 2018 2017
UK 42 14
Offshore 69 19
Total employees 111 33
(ii) Employee costs (in thousands)
2018 2017
Group ($ USD) ($ USD)
Salaries and bonuses $ 23,771 $ 7,897
Share-based compensation expense 6,766 1,013
Benefits 2,347 589
Social insurance and social security costs 2,381 813
Total employee costs 35,265 10,312
(iii) Auditor remuneration
During the year the Group obtained the following services from the Company’s auditors and its associates (in
thousands):
2018 20171
Group ($ USD) ($ USD)
Fees payable to the Company’s auditors and its associates for the audit
of the Parent Company and consolidated financial statements for the year
ended December 31, 2018 $ 475 $38
Fees associated with our initial public offering 2,495 –
Fees associated with our corporate reorganization 47 –
Accounting research tool subscription 3 –
Total fees paid to PricewaterhouseCoopers LLP 3,020 $38
1
The Company’s statutory audit for fiscal year 2017 was performed by Blick Rothenberg Audit, LLP.
PricewaterhouseCoopers LLP (“PwC”) have been the Group’s auditors beginning in fiscal year 2016. PwC operates
procedures to safeguard against the possibility of their objectivity and independence being compromised. This
includes the use of quality review partners, consultation with internal compliance teams and the carrying out of
an annual independence procedure within their firm. PwC reports to the Audit Committee on matters including
independence and non-audit fees on an annual basis. The audit partner changes every five years. The amount
charged by the external auditors for the provision of services during the twelve-month period under review is set
above. The Committee assesses the performance of the auditors and is comfortable that PwC has operated
effectively and a resolution to reappoint the firm as auditors will be put to shareholders at the Company’s Annual
General Meeting (“AGM”).
Orchard Therapeutics plc 3
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
Report on the audit of the group financial statements
Opinion
In our opinion, Orchard Therapeutics plc’s group financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s affairs as at 31 December 2018 and of its loss and cash
flows for the year then ended;
• have been properly prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”); and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Financial Statements (the “Annual
Report”), which comprise: the consolidated balance sheets as at 31 December 2018; the consolidated statement
of operations and comprehensive loss, the consolidated statements of cash flows, and the consolidated statement
of convertible preferred shares and shareholders’ equity for the year then ended; and the notes to the financial
statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
• Overall group materiality: $4,750,000 ($1,882,500), based on 5% of loss before
tax, excluding losses arising from the agreement to purchase gene therapy assets
from GSK.
• Of the group’s four reporting units, we identified three which, in our view, required
an audit of their complete financial information, either due to their size or their risk
characteristics. In addition to the full scope audits, specific audit procedures were
performed on selected consolidation adjustments made in relation to individually
significant balances. This, together with additional procedures performed at the
group level, gave us the evidence we needed.
• No component auditors supported the group audit team which conducted all
necessary audit procedures.
• For our opinion on the group financial statements as a whole, the reporting units
where we performed audit work accounted for 100% of group revenue, 100% of
group profit before tax and 100% of group total assets.
• GSK – acquisition accounting.
• Strimvelis loss contract.
4 Orchard Therapeutics plc
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where the directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions and considering future events that
are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the
audit of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our
audit.
Key audit matter How our audit addressed the key audit matter
GSK – acquisition accounting
On 11 April 2018 Orchard entered into a significant
arrangement to purchase multiple rare disease assets
from GSK. This included the marketed Strimvelis
product, 3 clinical programmes (MLD, WAS and Beta
Thal) and option rights on three additional pre-clinical
programs for consideration of £10m for licenses, £4.9m
cash for inventory, 15.6m Series B-2 convertible
preferred shares valued at £65.8m and transaction costs
of £0.6m. The group allocated a total £94.2m to in-
process research and development expenses relating
to the acquisition.
There are a number of key considerations including: the
assessment of whether the agreement represented an
asset acquisition or a business combination; the
valuation of consideration and the individual assets
acquired as part of the agreement; the accounting for
Priority Review Vouchers (PRVs) that may be obtained
in relation to some of the programmes acquired; the
accounting for royalties payable to GSK as part of the
agreement; and the valuation of the loss contract in
relation to the Strimvelis product acquired.
We reviewed the Sale and Purchase Agreement and
Transitional Services Agreement in respect of the
transaction with GSK and assessed a range of factors
including; the fact that no employees transferred as part
of the agreement; the lack of outputs identified in most
products transferred; and the future
intentions
regarding the Strimvelis product.
We utilised our specialist valuations team in the
assessment of management’s calculations of the fair
values for both consideration and individual assets
acquired. We have reviewed their assessment to the
external issues of share capital and also to the future
projections of the products acquired.
We have considered the probabilities of PRVs and
future royalties arising with reference to available
industry data for similar clinical products.
We have also reviewed management’s forecasts for
revenue and costs in relation to the Strimvelis product
and discussed
forecasts with operational
management to confirm their reasonableness.
the
Based on our procedures performed, we consider the
accounting in respect of the GSK agreement to be
reasonable.
Orchard Therapeutics plc 5
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
Key audit matter How our audit addressed the key audit matter
Strimvelis loss contract
As part of the GSK transaction management recognised
Strimvelis as a loss contract and recorded a liability to
reflect this loss, as the costs to support the product
exceed the expected revenues to be earned up until
OTL-101 supersedes Strimvelis. At the acquisition date
the liability was assessed as £12.9m ($18.4m), reflecting
management’s best estimates at
time. At
31 December 2018 the liability has reduced to £8.1m
($10.3m), representing 63% of the initial $18.4m.
the
The liability is being held at amortised cost, with
amortisation being spread on a rational and systematic
basis. The amortisation policy adopted by management
is to calculate the percentage of the total expected
losses incurred.
We have recalculated management’s re-measurement
of the Strimvelis loss contract as at 31 December 2018
and reviewed management’s latest forecast of required
research and development support and revenue for
Strimvelis,
including discussions with operational
management. We have also assessed these forecast for
an extended period compared to that estimated in April
2018, as a result of the delay in the expected date of
marketing approval in Europe for OTL-101.
Based on our procedures performed, we consider the
accounting in respect of the Strimvelis loss contract to
be reasonable.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the group, the accounting processes and
controls, and the industry in which it operates.
The group is structured such that the significant majority of the business is comprised of two operating businesses,
being Orchard Therapeutics (Europe) Limited and Orchard Therapeutics North America. The group financial
statements are a consolidation of four reporting units, comprising the group’s operating subsidiaries and centralised
group functions. In establishing the overall approach to the group audit, we determined the type of work that
needed to be performed at the reporting units.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual financial statement line items and
disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
$4,750,000 ($1,882,500).
How we determined it
Rationale for benchmark applied
5% of loss before tax, excluding losses arising from the agreement to
purchase gene therapy assets from GSK.
Based on the benchmarks used in the annual report, loss before tax is the
primary measure used by the shareholders in assessing the financial
performance of the group, and is a generally accepted auditing
benchmark. We have adjusted this to remove the impact of the losses
arising from the agreement to purchase gene therapy assets from GSK as
this is one-off in nature and so, if included, would have increased our
materiality unjustifiably in the context of the underlying activities of the
business
6 Orchard Therapeutics plc
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group
materiality. The range of materiality allocated across components was between $1,300,000 and $4,700,000.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit
above $237,500 (2017: $94,000) as well as misstatements below that amount that, in our view, warranted reporting
for qualitative reasons.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the group’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the
group’s ability to continue as a going concern. For example, the terms on which the United Kingdom may withdraw
from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the group’s
trade, customers, suppliers and the wider economy.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements
and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we do not express an audit opinion
or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent
material inconsistency or material misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the UK Statutory Strategic Report and UK Statutory Directors’ Report, we also considered whether
the disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK)
require us also to report certain opinions and matters as described below.
UK Statutory Strategic Report and UK Statutory Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the UK Statutory
Strategic Report and UK Statutory Directors’ Report for the year ended 31 December 2018 is consistent with the
financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and its environment obtained in the course of the audit,
we did not identify any material misstatements in the UK Statutory Strategic Report and UK Statutory Directors’
Report.
Orchard Therapeutics plc 7
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities in Respect of the Financial Statements, the
directors are responsible for the preparation of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as
a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body
in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• certain disclosures of directors’ remuneration specified by law are not made.
We have no exceptions to report arising from this responsibility.
Other matter
We have reported separately on the parent company financial statements of Orchard Therapeutics plc for the
period ended 31 December 2018.
Sam Taylor (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
May 2019
8 Orchard Therapeutics plc
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
Report on the audit of the parent company financial statements
Opinion
In our opinion, Orchard Therapeutics plc’s parent company financial statements (the “financial statements”):
• give a true and fair view of the state of the parent company’s affairs as at 31 December 2018;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable
in the UK and Republic of Ireland”, and applicable law); and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Financial Statements (the “Annual
Report”), which comprise: the parent company balance sheet as at 31 December 2018; the parent company
statement of changes in equity for the period then ended; and the notes to the financial statements, which include
a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
• Overall materiality: $1,300,000, based on 1% of total assets, reduced for an
allocation of component materiality as part of the overall group audit.
• The audit comprised only the audit of the Orchard Therapeutics Plc entity.
• No key audit matters identified.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where the directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions and considering future events that
are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal
controls, including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
Orchard Therapeutics plc 9
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the
audit of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. There were no key audit matters identified in the
audit of the Orchard Therapeutics Plc entity.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the parent company, the accounting processes
and controls, and the industry in which it operates.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual financial statement line items and
disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
$1,300,000
How we determined it
1% of total assets, reduced for an allocation of component materiality as
part of the overall group audit.
Rationale for benchmark applied We believe that total assets is the primary measure used by the
shareholders in assessing the performance and position of the Company
and reflects the Company’s principal activity as a holding Company. We
have adjusted this down to $1,300,000 on the basis of an appropriate
component materiality for the group audit.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit
above $300,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative
reasons.
Conclusions relating to going concern
ISAs (UK) require us to report to you when:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is
not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast
significant doubt about the parent company’s ability to continue to adopt the going concern basis of accounting
for a period of at least twelve months from the date when the financial statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the
parent company’s ability to continue as a going concern. For example, the terms on which the United Kingdom
10 Orchard Therapeutics plc
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications
on the parent company’s trade, customers, suppliers and the wider economy.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements
and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we do not express an audit opinion
or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent
material inconsistency or material misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the UK Statutory Strategic Report and UK Statutory Directors’ Report, we also considered whether
the disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies
Act 2006 and ISAs (UK) require us also to report certain opinions and matters as described below.
UK Statutory Strategic Report and UK Statutory Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the UK Statutory
Strategic Report and UK Statutory Directors’ Report for the year ended 31 December 2018 is consistent with the
financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the parent company and its environment obtained in the course
of the audit, we did not identify any material misstatements in the UK Statutory Strategic Report and UK Statutory
Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities in Respect of the Financial Statements, the
directors are responsible for the preparation of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or
have no realistic alternative but to do so.
Orchard Therapeutics plc 11
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
ORCHARD THERAPEUTICS PLC
continued
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body
in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit
have not been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Other matter
We have reported separately on the group financial statements of Orchard Therapeutics Plc for the year ended
31 December 2018.
Sam Taylor (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
31 May 2019
12 Orchard Therapeutics plc
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN
RESPECT OF THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the directors to prepare financial statements for each financial year. Under that law the
directors have prepared the group financial statements in accordance with accounting principles generally
accepted in the United States of America (US GAAP) and Parent Company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and
applicable law). Under company law the directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the
profit or loss of the Group and Parent Company for that period. In preparing the financial statements, the directors
are required to:
• select suitable accounting policies and then apply them consistently;
• state whether US GAAP have been followed for the Group financial statements and United Kingdom
Accounting Standards, comprising FRS 102 have been followed for the Company financial statements, subject
to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Group and Parent Company will continue in business.
The directors are also responsible for safeguarding the assets of the Group and parent company and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Group and Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position
of the Group and parent company and enable them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity of the Parent Company’s website. Legislation in
the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Orchard Therapeutics plc 13
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN
RESPECT OF THE FINANCIAL STATEMENTS
continued
Directors’ confirmations
Each of the directors, whose names and functions are listed in the Directors’ Report confirm that, to the best of
their knowledge:
• the Parent Company financial statements, which have been prepared in accordance with United Kingdom
Accounting Standards, comprising FRS 102, give a true and fair view of the assets, liabilities, financial position
and loss of the Company;
• the Group financial statements, which have been prepared in accordance with US GAAP, give a true and fair
view of the assets, liabilities, financial position, cash flows and loss of the Group; and
• the UK Statutory Strategic Report includes a fair review of the development and performance of the business
and the position of the Group and Parent Company, together with a description of the principal risks and
uncertainties that it faces.
In the case of each director in office at the date the Directors’ Report is approved:
• so far as the director is aware, there is no relevant audit information of which the Group and Parent Company’s
auditors are unaware; and
• they have taken all the steps that they ought to have taken as a director in order to make themselves aware
of any relevant audit information and to establish that the Group and Parent Company’s auditors are aware of
that information.
14 Orchard Therapeutics plc
UK STATUTORY STRATEGIC REPORT
The directors present their Strategic Report on the Group and the audited financial statements for the year ended
31 December 2018. The information in this document below that is referred to in the following table shall be
deemed to comply with the UK Companies Act 2006 requirements for the UK Statutory Strategic Report:
Required item in the UK Company Response and where information can be found in the Annual Report on Form
Statutory Strategic Report 20-F, if applicable
A fair review of the
company’s business,
including use of KPI’s
Item 5. Operating and Financial Review and Prospects. Specifically, management
addresses revenue, operating expenses, other
income, direct research and
development expenses by program, indirect research and development expenses, and
selling, general, and administrative expenses. Additionally, management addresses
liquidity and capital resources.
The Company monitors the aforementioned key performance indicators on a monthly
basis by analysing actual performance vs. budget. We perform analysis of key cost
drivers to monitor Company growth and cash flows.
A description of the
principal risks and
uncertainties
Information on
environmental matters
Information about the
company’s employees
Item 3.D. Key Information – Risk factors.
Following listing in October 2018, Orchard Therapeutics plc is required to measure and
report its greenhouse gas emissions in accordance with the provisions of the Companies
Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. The greenhouse
gas emissions report period will be aligned to the financial reporting year and as such
the first year will be reported as the baseline year against which future performance will
be measured. Therefore, no report is included in this Annual Report for the short period
between public listing in October 2018 and December 2018.
Item 6.D. Directors, Senior Management and Employees – Employees. Meetings are
held to discuss the operations and progress of the business. Senior Management and
Board Members interact with employees of all Group affiliates and regularly visit the
Group’s facilities, thereby providing opportunities to engage in discussions with
employees at various levels within the organization.
Information about social,
community and human
rights issues
The Group endeavors to impact positively on the community in which it operates
through various charity donations and other charity events. The Group does not, at
present, have a specific policy on human rights. However, we have several policies that
promote the principles of human rights. We will respect the human rights of all our
employees, including:
• Provision of a safe, clean working environment
• Ensuring employees are free from discrimination and coercion
• Not using child or forced labor
• Respecting the rights of privacy and protecting access and use of employee
personal information
We also have an equal opportunities policy and a dignity at work policy, both of which
promote the right of every employee to be treated with dignity and respect and not be
harassed or bullied on any grounds.
For information on compliance associated with anti-fraud and anti-bribery laws, refer to
Item 4.B. Information on the Company – Business overview – Other healthcare laws
and compliance requirements
Orchard Therapeutics plc 15
UK STATUTORY STRATEGIC REPORT
continued
Required item in the UK Company Response and where information can be found in the Annual Report on Form
Statutory Strategic Report 20-F, if applicable
Description of the
company’s strategy
Description of the
company’s business
model
Item 4.B. Information on the Company – Business overview.
Item 4.B. Information on the Company – Business overview.
Diversity Appointments within the Group are made on merit according to the balance of skills
and experience offered by prospective candidates. While acknowledging the benefits
of diversity, individual appointments are made irrespective of personal characteristics
such as race, disability, gender, sexual orientation, religion, or age. A breakdown of
employment statistics as of 31 December 2018 is as follows:
Position Male Female Total
Group Directors** 6 3 9
Executive/Vice President 19 14 33
Other Employees 60 80 140
Total Employees 79 94 173
**Includes our Chief Executive Officer and Chief Scientific Officer
On behalf of the Board of Directors
Mark Rothera
Director
31 May 2019
16 Orchard Therapeutics plc
UK STATUTORY DIRECTORS’ REPORT
The directors present their report on the Group and the audited financial statements for the year ended
31 December 2018. The information in this document below that is referred to in the following table shall be
deemed to comply with the UK Companies Act 2006 requirements for the UK Statutory Directors’ Report:
Required item in the UK Company Response and where information can be found in the Annual Report on Form
Statutory Strategic Report 20-F, if applicable
General Information Item 4. Information on the Company.
Describe the principal
activities of the group
Indication of the likely
future developments of
the group’s business
Details of the
recommended dividend
Indication of the group’s
research and
development activities
Level of political
donations and political
expenditure
Particulars of any
important post balance
sheet events
Item 4.B. Information on the Company – Business overview; Item 3.D. Key Information
– Risk factors.
Item 4.B. Information on the Company – Business overview; Item 3.D. Key Information
– Risk factors.
Not applicable – the Directors do not recommend the payment of a dividend (2017: nil).
Item 4.B. Information on the Company – Business overview.
None – the group has not made any political donations (2017: nil).
Item 18. Financial Statements. Refer to Note 15. Subsequent Events.
For events relevant to the Group that occurred subsequent to the issuance of our Annual
Report on Form 20-F through issuance of this UK Statutory Report, refer to the
information below.
Credit Facility
On 24 May 2019, the Company entered into a senior term facilities agreement (the
“Credit Facility”) agented by MidCap Financial (Ireland) Limited (“MidCap”) and the
additional lenders party thereto from time to time (together with MidCap, the
“Lenders”). The Lenders agreed to make term loans available to the Company up to
$75 million comprised of separate term loans to be issued in three tranches: (1) the first
tranche being a $25 million term loan to be funded on or around 28 May, 2019; (2) the
second tranche being a $25 million term loan available no earlier than 30 September,
2019 and no later than 31 December, 2020 upon submission of certain regulatory filings
and evidence of $100 million in cash and cash equivalent investments; and (3) the third
tranche being a $25 million term loan available no earlier than 1 July, 2020 and no later
than 30 September, 2021 upon certain regulatory approvals being granted and evidence
of $125 million in cash and cash equivalent investments.
Upon entering into the Credit Facility, the Company was required to pay an arrangement
fee of $0.4 million. The term loan matures on 24 May, 2024. Each term loan under the
Credit Facility requires interest-only payments for 24 months following the date of the
Credit Facility, unless the third tranche is drawn, in which case for all payment dates
prior to 36 months following the date of the Credit Facility. The term loans under the
Credit Facility will be amortizing on either the 24-month or 36-month anniversary of the
Credit Facility (as applicable) in equal monthly installments until the loan maturity date.
Each term loan under the Credit Facility bears interest at an annual rate equal to
LIBOR plus 6%.
Orchard Therapeutics plc 17
UK STATUTORY DIRECTORS’ REPORT
continued
Required item in the UK Company Response and where information can be found in the Annual Report on Form
Statutory Strategic Report 20-F, if applicable
Particulars of any
important post balance
sheet events (continued)
Credit Facility (continued)
At the Company’s option, the Company may prepay the outstanding principal balance
of the term loan in whole or in part, subject to a prepayment fee of 3.0% of any amount
prepaid if the prepayment occurs on or prior to the first anniversary of the closing date,
2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the
closing date but on or prior to the second anniversary of the closing date, and 1.0% of
any amount prepaid after the second anniversary of the closing date but on or prior to
the third anniversary of the closing date. In addition, a final payment equal to 4.5% is
due on the loan maturity date. The Credit Facility includes an ongoing minimum cash
financial covenant the requires the Company maintain not less than $20 million following
utilization of the second tranche and not less than $35 million following utilization of the
third tranche.
Fondazione Telethon and Ospedale San Raffaele S.r.l. License Agreement
On 24 May 2019 (the “Effective Date”), the Company entered into a license agreement
(the “Agreement”) with Fondazione Telethon and Ospedale San Raffaele S.r.l. (together,
“TIGET”), under which TIGET granted to the Company an exclusive worldwide license
for the research, development, manufacture and commercialization of an ex vivo
autologous hematopoietic stem cell lentiviral based gene therapy for the treatment of
Mucopolysaccharidosis type I (“MPS-I”). Under the terms of the Agreement, TIGET is
entitled to receive an upfront payment and the Company may be required to make
milestone payments to TIGET if certain development, regulatory and commercial
milestones are achieved. Additionally, the Company will be required to pay TIGET a tiered
mid-single to low-double digit royalty percentage on annual net sales of licensed products.
For events subsequent to 31 December 2018 for the Orchard Therapeutics plc Parent
Company, refer to the Orchard Therapeutics plc UK Statutory Financials Statements,
Note 8 – Subsequent Events.
Names of all directors
and their interests
Item 6.A. Directors, Senior Management, and Employees – Directors and senior
management; Item 7.A. Major Shareholders.
Statement on directors’
third-party indemnity
provision
The Company has granted a qualifying third-party indemnity to each of its Directors
against liability in respect of proceedings brought by third parties, which remains in
force as at the date of approving the UK Statutory Directors’ Report.
The financial risk
management objectives
and policies of the entity,
including the policy for
hedging each major type
of forecasted transaction
for which hedge
accounting is used
The exposure of the
entity to: Credit risk
Not applicable – the Company does not engage in hedging activities (2017: none).
Item 18. Financial Statements. Refer to Note 2. Summary of Significant Accounting
Policies – Concentration of credit risk.
Liquidity risk Item 5.B. Operating and Financial Review and Prospects – Liquidity and capital
resources.
Exchange rate and cash
flow risk
Item 3.D. Key Information – Risk Factors – “Exchange rate fluctuations may materially
affect our results of operations and financial condition”.
Item 11. Quantitative and Qualitative Disclosures About Market Risk – Foreign currency
exchange risk.
18 Orchard Therapeutics plc
UK STATUTORY DIRECTORS’ REPORT
continued
Required item in the UK Company Response and where information can be found in the Annual Report on Form
Statutory Strategic Report 20-F, if applicable
Disclosures on purchases
of own shares during the
year
the year (2017: none).
Not applicable – the Group has not purchased or placed a charge on its own shares in
Branches outside the UK Filed as Exhibit 8.1 – Subsidiaries of the registrant.
Going Concern At 31 December 2018 the Group held cash and restricted cash of $339.7 million and
the Company held cash of $207 million. The directors have prepared a forecast through
2020 which shows sufficient cash to fund planned research and development,
commercial, and operating costs of the Group and the Company. Therefore, the
directors have at the time of approving the financial statements, a reasonable
expectation that the Group and Company has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, the Company continues
to adopt the going concern basis of accounting in preparing the financial statements.
Information on contracts
of significance
Information on corporate
governance practices
Item 10.C. – Additional Information – Material contracts.
Item 16.G – Corporate Governance.
Independent Auditors PricewaterhouseCoopers LLP have expressed their willingness to continue in office as
auditors for another year. In accordance with Section 489 of the Companies Act 2006,
a resolution proposing that PricewaterhouseCoopers LLP be re-appointed as auditors
of the Group and Company will be proposed at the Annual General Meeting.
Annual General Meeting The Annual General Meeting will be held in London on 26 June 2019. Further details
will be provided to shareholders in due course.
On behalf of the Board of Directors
Mark Rothera
Director
31 May 2019
Orchard Therapeutics plc 19
DIRECTORS’ REMUNERATION REPORT
Annual Statement from the Chair of the Compensation Committee
Dear Shareholder,
As the Chair of the Compensation Committee (“the Committee”), I am pleased to present, on behalf of the board
of directors (“the Board”) of Orchard Therapeutics plc (the “Company” or “Orchard”), the Directors’ Remuneration
Report for the year ended 31 December 2018 (the Remuneration Report), which is the Company’s first such report
following its initial public offering (IPO) on 31 October 2018.
The Company’s Annual Report and Financial Statements, along with the Remuneration Report, will be subject to
an advisory vote, and the Directors’ Remuneration Policy (the “Remuneration Policy”) will be subject to a binding
vote, at the forthcoming Annual General Meeting on 26 June 2019 (the “AGM”).
Introduction
2018 was a pivotal year for Orchard, having undertaken an IPO on Nasdaq and fully transitioned into being a
public company. During 2018 we established a broad range of remuneration programs and policies and the
Committee took actions aligned strategically with the Company’s shareholders and designed to appropriately
position the Company as a global biopharmaceutical company.
As we move into 2019 and beyond, the Committee’s role will be to ensure that directors and senior executives
are appropriately compensated and incentivised to deliver growth in a long-term and sustainable manner to
shareholders. The Committee will seek to accomplish this by establishing remuneration programs that are
grounded in market practice, effective at driving proper executive behaviours, clearly links pay and performance
and is cost efficient overall to shareholders. Key considerations guiding our Remuneration Policy are discussed
further on within the Directors’ Remuneration Report.
The global marketplace for talent
Orchard is a global biopharmaceutical company with major operations in the United States and Europe. The
Company intends for both regions to be areas of high growth and great importance both now and in the future.
Given that the market for experienced directors and biopharmaceutical executive talent particularly in the United
States is very competitive, the Committee references the US market as the leading indicator for remuneration
levels and practices. This will help attract and retain directors and motivate the superior executive talent needed
to successfully manage the Company’s complex global operations. Being consistent in this market view of the
United States as the primary benchmark for remuneration practices for our Executive and Non-Executive Directors
is key for the Company as it builds its global operations in a manner designed to deliver sustainable long-term
growth and shareholder value.
It can be difficult for Orchard, as a global company with operations in multiple major global regions to have
remuneration arrangements that satisfy all local jurisdiction requirements and market demands. In taking any
actions, the Committee is mindful of the general UK compensation framework, including investor bodies’ guidance,
and the UK Corporate Governance Code, and has considered these when determining the remuneration programs
and policies where it believes they best serve the long-term interests of shareholders.
Pay for Performance
We believe that a significant portion of remuneration of our Executive Directors should be based on achieving
objectives designed to create inherent value in the Company, and ultimately on achieving value creation for our
shareholders. In line with this belief, the compensation of our Executive Directors includes both short and
long-term incentives based on strategic goals. Similarly, our Non-Executive Directors receive equity incentives
designed to reward long-term value creation for our shareholders.
20 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
2018 remuneration outcome
As outlined above, a core principle in Orchard’s remuneration program is the linkage between pay and
performance. In fiscal year 2018, the annual bonuses paid to Mark Rothera, our Chief Executive Officer (“CEO”)
and Hubert Gaspar, our Chief Scientific Officer (CSO), were based entirely on corporate, strategic objectives.
Based on the achievement of those objectives as determined by the Board, Mark Rothera received a bonus of
135% of his target bonus, which resulted in a total bonus pay out of 54% of salary earned for fiscal year 2018.
Hubert Gaspar received a bonus of 135% of his target bonus, which resulted in a total bonus pay out of 44% of
salary earned in fiscal year 2018. The bonus was paid in January 2019. This outcome was based on achievements
versus goals in the following key areas: Corporate Development, Clinical Development, CMC Platform, Financial
and Organizational Development. Please see the remainder of the Remuneration Report for additional details on
this bonus outcome and the pay for performance linkage.
Conclusion
The Committee believes the proposals put forth in this report will properly motivate our Executive Directors to
deliver sustainable growth and shareholder value over the long term and do so in a responsible and
cost-efficient manner.
I hope that you find the information in this report helpful and I look forward to your support at the
Company’s AGM.
Yours sincerely,
Charles Rowland
Chair of the Compensation Committee
31 May 2019
Orchard Therapeutics plc 21
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration Policy
This part of the Directors’ Remuneration Report sets out the remuneration policy for the Company and has been
prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013.
The following Remuneration Policy (the “Policy”) will be put forward for approval by shareholders in a binding
vote at the forthcoming AGM on 26 June 2019. If approved, it is intended that the Policy will take effect from the
date of approval and apply for a period of three years.
Key considerations when determining the Remuneration Policy
The Committee designed the Policy with a number of specific objectives in mind. The Policy should:
• attract, retain and motivate high calibre senior management and focus them on the delivery of the Company’s
strategic and business objectives;
• encourage a corporate culture that promotes the highest level of integrity, teamwork and ethical standards;
• be competitive against appropriate market benchmarks (being predominantly the US biotech sector) and
have a strong link to performance, providing the ability to earn above-market rewards for strong performance;
• be simple and understandable, both internally and externally;
• encourage increased equity ownership to motivate executives in the overall interests of shareholders, the
Company, employees and customers; and
• take due account of good governance and promote the long-term success of the Company.
In seeking to achieve the above objectives, the Committee is mindful of the views of a broad range of stakeholders
in the business and accordingly takes account of a number of factors when setting remuneration including: market
conditions; pay and benefits in relevant comparator organisations; terms and conditions of employment across
the Company; the Company’s risk appetite; the expectations of institutional shareholders; and any specific
feedback received from shareholders and other stakeholders.
22 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
Remuneration Policy table
The table in the following pages sets out, for each element of pay, a summary of how remuneration is structured
and how it supports the Company’s strategy.
Executive Directors
Purpose and link to strategy Operation Maximum opportunity Performance metrics
Executive Directors’
performance is a factor
considered when
determining any salary
increases.
Base salary
To recruit and retain
Executive Directors of the
highest calibre who are
capable of delivering the
Company’s strategic
objectives, reflecting the
individual’s experience
and role within the
Company.
Base salary is designed to
provide an appropriate
level of fixed income to
avoid any over-reliance on
variable pay elements that
could encourage
excessive risk taking.
Salaries are normally
reviewed annually, and
changes are generally
effective from 1 January
each year.
The annual salary review
for Executive Directors
takes a number of factors
into consideration,
including:
• business performance;
• salary increases
awarded to the overall
employee population;
• skills and experience of
the individual over
time;
• scope of the
individual’s
responsibilities;
• changes in the size and
complexity of the
Company;
• market
competitiveness
assessed by periodic
benchmarking; and
• the underlying rate of
inflation.
Whilst there is no
prescribed formulaic
maximum, any increases
will take into account
prevailing market and
economic conditions and
the approach to employee
pay throughout the
organisation.
Base salary increases are
awarded at the discretion
of the Committee;
however, salary increases
will normally be no greater
than the general increase
awarded to the wider
workforce, in percentage
of salary terms.
In addition, a higher
increase may be made
where an individual had
been appointed to a new
role at below-market salary
while gaining experience.
Subsequent
demonstration of strong
performance may result in
a salary increase that is
higher than that awarded
to the wider workforce.
Orchard Therapeutics plc 23
DIRECTORS’ REMUNERATION REPORT
continued
Executive Directors
Purpose and link to strategy Operation Maximum opportunity Performance metrics
Not performance related.
The value of each benefit
is not predetermined and
is typically based upon the
cost to the Company of
providing said benefit.
Up to 6% of salary per
annum for Executive
Directors.
Not performance related.
Benefits
Reasonable
benefits-in-kind are
provided to support
Executive Directors in
carrying out their duties
and assist with retention
and recruitment.
Pensions
The Company aims to
provide a contribution
towards life in retirement.
The Company aims to
offer benefits that are in
line with market practice.
The main benefits
currently provided include
private health insurance,
long-term disability, critical
illness and death in
service.
Under certain
circumstances the
Company may offer
relocation allowances or
assistance. Expatriate
benefits may be offered
where required.
Travel and any reasonable
business-related expenses
(including tax thereon)
may be reimbursed.
Executive Directors may
become eligible for other
benefits in future where
the Committee deems it
appropriate. Where
additional benefits are
introduced for the wider
workforce, Executive
Directors may participate
on broadly similar terms.
Executive Directors are
eligible to receive
employer contributions to
the Company’s Group
Personal Pension Scheme
or to a 401k plan or a
salary supplement in lieu
of pension benefits, or a
mixture of both.
24 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
Executive Directors
Purpose and link to strategy Operation Maximum opportunity Performance metrics
Annual bonus
The annual bonus scheme
rewards the achievement
of stretching objectives
that support the
Company’s corporate
goals and delivery of the
business strategy.
Bonuses are determined
based on measures and
targets that are agreed by
the Committee at the start
of each financial year.
The maximum target
bonus opportunity for
Executive Directors is 80%
of salary, with a maximum
bonus opportunity of up to
two times the target
opportunity.
For threshold
performance, no more
than 50% of target bonus
may be payable.
For 2019, the target bonus
opportunity for Executive
Directors will be no more
than 50% of salary, with a
maximum bonus
opportunity of up to 150%
of the target opportunity.
Performance measures are
determined by the
Committee each year and
may vary to ensure that
they promote the
Company’s business
strategy and shareholder
value.
The annual bonus will be
based on strategic goals,
which may include
financial, strategic and
personal objectives.
The Committee may alter
the bonus outcome if it
considers that the pay-out
is inconsistent with the
Company’s overall
performance, taking
account of any factors it
considers relevant. This
will help ensure that pay-
outs reflect overall
Company performance
during the period.
Orchard Therapeutics plc 25
DIRECTORS’ REMUNERATION REPORT
continued
Executive Directors
Purpose and link to strategy Operation Maximum opportunity Performance metrics
2018 Share Option and Incentive Plan (“SOIP”)
The SOIP is designed to
incentivise the successful
execution of business
strategy over the longer
term and provide
long-term retention.
The Committee will select
the most appropriate form
of SOIP award(s) each
year.
Facilitates share ownership
to provide further
alignment with
shareholders.
Awards will typically be
granted annually, in the
form of options and
restricted share units
(“RSUs”) although may
also be granted in the form
of share appreciation
rights, restricted shares,
unrestricted shares,
performance share units,
cash or dividend
equivalent rights.
Currently, options
normally vest over a
period of four years on a
monthly basis. Initial
grants generally vest 25%
after one year, and
monthly thereafter for 36
months. RSUs normally
vest in three equal
tranches on the meeting of
agreed milestone events
within a period of three
years. The Committee may
vary the vesting schedule
of future grants of options
and RSUs as it considers
appropriate.
At the discretion of the
Committee, participants
may also be entitled to
receive the value of
dividends paid between
grant and vesting on
vested shares. The
payment may be in cash or
shares and may assume
dividend reinvestment.
26 Orchard Therapeutics plc
There is no defined
maximum opportunity
under the SOIP. However,
the Committee will
generally work within the
benchmarking guidelines
provided by our
compensation consultants.
We seek to establish
equity-based
remuneration competitive
to that offered by a set of
comparable companies
with whom we may
compete for talent.
Performance conditions
may apply to awards. Such
conditions may be
strategic objectives which
may include milestones
events, financial, strategic
and/or personal
objectives.
Share options are granted
with an exercise price no
less than the fair market
value of the shares on the
date of grant. Accordingly,
share options will only
have value to the extent
the Company’s share price
appreciates following the
date of grant.
Any performance
conditions set will be
designed to incentivise
performance in support of
the Company’s strategy
and business objectives.
The Committee has
flexibility to vary the mix of
measures or introduce
new measures for each
subsequent award taking
into account business
priorities at the time of
grant.
The Committee may alter
the vesting outcome if it
considers that the level of
vesting is inconsistent with
the underlying
performance of the
business, taking account
of any factors it considers
relevant. This will help
ensure that vesting reflects
overall Company
performance during the
period.
DIRECTORS’ REMUNERATION REPORT
continued
Executive Directors
Purpose and link to strategy Operation Maximum opportunity Performance metrics
Not performance related.
Employee Stock Purchase Plan (“ESPP”)
Encourages employee
share ownership and
therefore increases
alignment with
shareholders.
The Company operates an
employee share purchase
plan that offers employees
the opportunity to
purchase shares in the
company through payroll
deductions at a price equal
to 85% of the lower of fair
market value of the shares
on the first business day or
the last business day of the
offering period. The ESPP
is available to all
employees who whose
customary employment is
for more than 20 hours per
week and have completed
at least 30 days of
employment.
Employees may contribute
up to 15% of their base
compensation to purchase
shares under the ESPP.
However, the right to
purchase shares under the
ESPP may not accrue at a
rate that exceeds $25,000
worth of ordinary shares,
valued at the start of the
purchase period, under
the ESPP, for each
calendar year in the
purchase period.
Orchard Therapeutics plc 27
DIRECTORS’ REMUNERATION REPORT
continued
Chair and Non-Executive Directors
Purpose and link to strategy Operation Maximum opportunity Performance metrics
Not performance related.
When reviewing fee
levels, account is taken of
market movements in the
fees of Non-Executive
Directors, Board
Committee responsibilities
and ongoing time
commitments, as well as
the underlying rate of
inflation.
Actual fee levels are
disclosed in the Annual
Remuneration Report for
the relevant financial year.
Fees
To attract Non-Executive
Directors who have a
broad range of experience
and skills to provide
independent judgement
on issues of strategy,
performance, resources
and standards of conduct.
Non-Executive Directors
receive an annual retainer
paid in cash, comprising a
base fee plus additional
fees for additional
responsibilities, such as a
Committee
Chairpersonship or
membership and the role
of Chairperson.
The Chair’s fee is
reviewed annually by the
Committee (without the
Chair present). Fee levels
for the Non-Executive
Directors are determined
by the Company Chair and
Executive Directors.
When reviewing fee
levels, account is taken of
market movements in fee
levels, Board committee
responsibilities, ongoing
time commitments and the
general economic
environment.
In exceptional
circumstances, if there is a
temporary yet material
increase in the time
commitments for Non-
Executive Directors, the
Board may pay additional
fees to recognise that
additional workload.
Non-Executive Directors
ordinarily do not
participate in any pension,
bonus or performance-
based share incentive
plans. Travel,
accommodation and other
business-related expenses
incurred in carrying out
the role will be paid by the
Company including, if
relevant, any gross-up for
tax.
28 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
Chair and Non-Executive Directors
Purpose and link to strategy Operation Maximum opportunity Performance metrics
Equity Awards
To facilitate share
ownership and provide
alignment with
shareholders.
Not performance related.
There is no maximum
award level for equity
awards to Non-Executive
Directors.
The size of the equity
awards is determined by
the full Board of Directors,
upon recommendation of
the Compensation
Committee.
When reviewing award
levels, account is taken of
market movements in
equity awards, Board
committee responsibilities,
ongoing time
commitments and the
general economic
conditions.
Non-Executive Directors
may receive an equity
award in the form of
options, share
appreciation rights,
restricted shares,
restricted share units or
such other form permitted
under the SOIP.
New Non-Executive
Directors receive an initial
equity award upon
appointment or election.
In addition, Non-Executive
Directors receive annual
equity awards at the time
of the annual meeting.
Currently any initial equity
awards normally vest one-
third after one year, and
monthly thereafter for
24 months, and any annual
awards normally vest
monthly over three years.
Notes to the policy table
Legacy arrangements
For the duration of this Policy, the Company will honour any commitments made in respect of current or former
Directors before the date on which either: (i) the Policy becomes effective; or (ii) an individual becomes a Director,
even where not consistent with the Policy set out in this report or prevailing at the time such commitment is fulfilled.
For the avoidance of doubt, all outstanding historic awards that were granted in connection with, or prior to, listing
remain eligible to vest based on their original or modified terms.
Performance conditions
The choice of annual bonus performance metrics reflects the Committee’s belief that any incentive remuneration
should be appropriately challenging and tied to the delivery of key strategic objectives intended to ensure that
Executive Directors are incentivised to deliver across a range of objectives for which they are accountable. The
Committee has retained flexibility on the specific measures which will be used to ensure that any measures are
fully aligned with the strategic imperatives prevailing at the time they are set.
The targets for the bonus scheme for the forthcoming year will be set out in general terms, subject to limitations
with regards to commercial sensitivity. The full details of the targets will be disclosed when they are in the public
domain and are no long considered commercially sensitive.
Orchard Therapeutics plc 29
DIRECTORS’ REMUNERATION REPORT
continued
Where used, performance conditions applicable to SOIP awards will be aligned with the Company’s objective of
delivering superior levels of long-term value to shareholders. Prior to each award, the Committee has flexibility to
select measures that are fully aligned with the strategy prevailing at the time awards are granted.
The Committee will review the calibration of targets applicable to the annual bonus, and the SOIP in years where
performance measures apply, annually to ensure they remain appropriate and sufficiently challenging, taking into
account the Company’s strategic objectives and the interests of shareholders.
Differences in remuneration policy between Executive Directors and other
employees
The overall approach to reward for employees across the workforce is a key reference point when setting the
remuneration of the Executive Directors. When reviewing the salaries of the Executive Directors, the Committee
pays close attention to pay and employment conditions across the wider workforce and in normal circumstances
the increase for Executive Directors will be no higher than the average increase for the general workforce.
The key difference between the remuneration of Executive Directors and that of our other employees is that,
overall, at senior levels, remuneration is increasingly long-term, and ‘at risk’ with an emphasis on performance-
related pay linked to business performance and share-based remuneration. This ensures that remuneration at
senior levels will increase or decrease in line with business performance and provides alignment between the
interests of Executive Directors and shareholders. In particular, long-term incentives are provided only to the most
senior executives as they are reserved for those considered to have the greatest potential to influence overall
levels of performance.
Committee discretion in operation of variable pay schemes
The Committee operates under the powers it has been delegated by the Board. In addition, it complies with rules
that are either subject to shareholder approval or by approval from the Board. These rules provide the Committee
with certain discretions which serve to ensure that the implementation of the remuneration policy is fair, both to
the individual Director and to the shareholders. The Committee also has discretions to set components of
remuneration within a range, from time to time. The extent of such discretions is set out in the relevant rules, the
maximum opportunity or the performance metrics section of the policy table above. To ensure the efficient
administration of the variable incentive plans outlined above, the Committee will apply certain operational
discretions.
These include the following:
• selecting the participants in the plans on an annual basis;
• determining the timing of grants of awards and/or payments;
• determining the quantum of awards and/or payments (within the limits set out in the policy table above);
• determining the choice (and adjustment) of performance measures and targets for each incentive plan in
accordance with the policy set out above and the rules of each plan;
• determining the extent of vesting based on the assessment of performance and discretion relating to
measurement of performance in certain events such as a change of control or reconstruction;
• making the appropriate adjustments required in certain circumstances, for instance for changes in capital
structure;
30 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
• determining “good leaver” status, if applicable, for incentive plan purposes and applying the appropriate
treatment; and
• undertaking the annual review of weighting of performance measures and setting targets for the annual bonus
plan and other incentive schemes, where applicable, from year to year.
If an event occurs which results in the annual bonus plan or SOIP performance conditions and/or targets being
deemed no longer appropriate (e.g. material acquisition or divestment), the Committee will have the ability to
make appropriate adjustments to the measures and/or targets and alter weightings, provided that the revised
conditions are not materially less challenging than the original conditions. Any use of the above discretion would,
where relevant, be explained in the Annual Report on Remuneration and may, as appropriate, be the subject of
consultation with the Company’s major shareholders.
Shareholder views
The Board is committed to dialogue with shareholders and intends to engage directly with them and their
representative bodies when considering any significant changes to our remuneration arrangements. The
Compensation Committee will consider shareholder feedback received following the AGM, as well as any
additional feedback and guidance received from time to time. This feedback will be considered by the Committee
as it develops the Company’s remuneration framework and practices going forward. Assisted by its independent
adviser, the Compensation Committee also actively monitors developments in the expectations of institutional
investors and their representative bodies.
Employment conditions
The Committee is regularly updated throughout the year on pay and conditions applying to Company employees.
Where significant changes are proposed to employment conditions elsewhere in the Company these are
highlighted for the attention of the Committee at an early stage.
Whilst the Committee does not currently consult directly with employees regarding its policy for Directors, the
Committee will consider the proposals being introduced as part of the Financial Reporting Council’s updated UK
Corporate Governance Code in 2018 and will determine accordingly the best method of bringing the employee
voice to the boardroom.
Remuneration scenarios for Executive Directors
The charts below show an estimate of the 2019 remuneration package for the Executive Directors under three
assumed performance scenarios and these scenarios are based upon the remuneration policy set out above.
The scenarios in the above graphs are defined as follows:
Below Target (comprising fixed pay only):
• Base salary as at 1 January 2019: $527,440 and £262,500 for the CEO and Chief Scientific Officer (CSO)
respectively. The CSO’s base salary is pro-rated for 4 days a week.
• Benefits: estimated value provided under the Remuneration Policy
• Pension: Up to 6% of salary contribution.
Orchard Therapeutics plc 31
DIRECTORS’ REMUNERATION REPORT
continued
Target:
• Fixed pay as set out above
• Assumes target bonus pay-out of 50% and 35% of salary for the CEO and CSO respectively
Maximum:
• Fixed pay as set out above
• Assumes 100% of maximum bonus pay-out, which is 75% and 52.5% of salary for the CEO and CSO
respectively
No share price growth has been factored in to the chart.
(cid:38)(cid:40)(cid:50)
(cid:7)(cid:28)(cid:24)(cid:23)(cid:15)(cid:25)(cid:21)(cid:23)
(cid:7)(cid:27)(cid:21)(cid:21)(cid:15)(cid:26)(cid:25)(cid:23)
(cid:7)(cid:20)(cid:15)(cid:21)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:20)(cid:15)(cid:19)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:27)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:25)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:23)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:21)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:7)(cid:19)
(cid:7)(cid:24)(cid:24)(cid:28)(cid:15)(cid:19)(cid:23)(cid:23)
(cid:133)(cid:23)(cid:24)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:133)(cid:22)(cid:19)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:133)(cid:21)(cid:26)(cid:27)(cid:15)(cid:21)(cid:24)(cid:19)
(cid:3)
(cid:133)(cid:20)(cid:24)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)
(cid:133)(cid:19)
(cid:38)(cid:54)(cid:50)
(cid:133)(cid:22)(cid:26)(cid:19)(cid:15)(cid:20)(cid:21)(cid:24)
(cid:133)(cid:23)(cid:20)(cid:25)(cid:15)(cid:19)(cid:25)(cid:22)
(cid:48)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)
(cid:55)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)
(cid:48)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)
(cid:48)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)
(cid:55)(cid:68)(cid:85)(cid:74)(cid:72)(cid:87)
(cid:48)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)
(cid:41)(cid:76)(cid:91)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:80)(cid:88)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:57)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:88)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:41)(cid:76)(cid:91)(cid:72)(cid:71)(cid:3)(cid:85)(cid:72)(cid:80)(cid:88)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:57)(cid:68)(cid:85)(cid:76)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:88)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
The variable remuneration in the charts above only include annual bonus opportunity. The Executive Directors
will receive market value options in 2019, the intrinsic value of which is zero at grant, and is therefore not included
in the charts.
32 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
Other remuneration policies
Remuneration for new appointments
Where it is necessary to appoint or replace an Executive Director or to promote an existing Executive Director,
the Committee’s approach when considering the overall remuneration arrangements in the recruitment of a new
Executive Director is to take account of the calibre, expertise and responsibilities of the individual, his or her
remuneration package in their prior role and market rates. Remuneration will be in line with our policy and the
Committee will not pay more than is necessary to facilitate their recruitment.
The remuneration package for a new Executive Director will be set in accordance with the terms of the Company’s
approved remuneration policy in force at the time of appointment. Further details are provided below:
Salary The Committee will set a base salary appropriate to the calibre, experience and
responsibilities of the new appointee. In arriving at a salary, the Committee may take into
account, amongst other things, the market rate for the role and internal relativities.
The Committee has the flexibility to set the salary of a new Executive Director at a lower level
initially, with a series of planned increases implemented over the following few years to bring
the salary to the desired positioning, subject to individual performance.
In exceptional circumstances, the Committee has the ability to set the salary of a new
Executive Director at a rate higher than the market level to reflect the criticality of the role
and the experience and performance of the individual.
Benefits Benefits will be consistent with the principles of the policy set out on page 24. The Company
may award certain additional benefits and other allowances including, but not limited to,
those to assist with relocation support, temporary living and transportation expenses,
educational costs for children and tax equalisation to allow flexibility in employing an overseas
national.
Pension benefits A maximum pension contribution of 6% of salary may be payable for external appointments.
For an internal appointment, his or her existing pension arrangements may continue to operate.
Any new Executive Director based outside the UK will be eligible to participate in pension or
pension allowance, insurance and other benefit programmes in line with local practice.
Annual bonus The maximum bonus opportunity for new appointments is 150% of their target bonus.
Other cash or
equity-based
awards
Executive Directors may receive awards under the SOIP on appointment. The Committee
will assess and determine the award level, award vehicle, performance conditions and vesting
schedule for each individual on a case-by-case basis. In addition, Executive Directors are
eligible to participate in the ESPP subject to the conditions set forth therein.
In addition, the Committee may offer additional cash and/or equity-based elements in order
to “buy-out” remuneration relinquished on leaving a former employer. Any awards made in
this regard may have no performance conditions, or different performance conditions, or a
different vesting schedule compared to the Company’s existing plans, as the Committee
considers appropriate.
Depending on the timing and responsibilities of the appointment, it may be necessary to set different annual bonus
or SOIP performance measures and targets as applicable to other Executive Directors.
Orchard Therapeutics plc 33
DIRECTORS’ REMUNERATION REPORT
continued
The terms of appointment for a Non-Executive Director would be in accordance with the remuneration policy for
Non-Executive Directors as set out in the policy table.
Service contracts and termination policy
Executive Directors have rolling service agreements which may be terminated in accordance with the terms of
these agreements. The period of notice for Executive Directors will not normally exceed 12 months. Executive
Directors’ service agreements are available for inspection at the Company’s registered office during normal
business hours.
Name Position Date of service contract Notice period
Mark Rothera Chief Executive Officer 30 May 2019 60 days either party
Hubert Gaspar Chief Scientific Officer 2 January 2018 6 months either party
The Company’s policy on remuneration for Executive Directors who leave the Company is set out below. The
Committee will exercise its discretion when determining amounts that should be paid to leavers, taking into
account the facts and circumstances of each case. Generally, in the event of termination, the Directors’ service
contracts may provide for payment of basic salary over the notice period. Where applicable, the Company may
elect to make a payment in lieu of notice (PILON) equivalent in value to basic salary for any unexpired portion of
the notice period. PILON payments may be made in monthly instalments or as a lump sum, and the individual is
expected to take reasonable steps to seek alternative income to mitigate the payments. The Company may also
pay for outplacement services for Executive Directors on termination or the Company may elect to make a payment
in lieu of outplacement services. The Company may continue to pay the employer health plan premium for the
Executive Director on termination for a period of up to 12 months (up to 18 months in connection with a change
in control).
Any outstanding incentive awards will be treated in accordance with the plan rules, as follows:
Termination without cause
or for cause by participant
Termination without cause in connection with change
or for cause by participant Termination for cause of control
Salary
No payment
A payment equal to up to
12 months’ salary payable
as a lump sum or on a
monthly basis, less any
amounts payable pursuant
to any restrictive covenant
agreements (if applicable)
(“Restrictive Covenants
Agreement Setoff”) paid
or to be paid in the same
calendar year.
34 Orchard Therapeutics plc
A payment of up to 18
months’ salary payable as
a lump sum or on a
monthly basis for
termination without cause,
less any Restrictive
Covenants Agreement
Setoff (if applicable) paid
or to be paid in the same
calendar year. A payment
of up to 18 months’ salary
payable as a lump sum or
on a monthly basis in
connection with a change
of control, less any
Restrictive Covenants
Agreement Setoff (if
applicable) paid or to be
paid in the same calendar
year.
DIRECTORS’ REMUNERATION REPORT
continued
Termination without cause
or for cause by participant
Termination without cause in connection with change
or for cause by participant Termination for cause of control
Annual bonus
Share Option Incentive
Plan
Unpaid annual cash bonus
in respect of prior year
performance, which
otherwise would have
been earned if participant
had remained employed
through the payment date,
should be paid in full.
A pro-rata amount of the
participant’s target bonus
for the current year should
be paid, subject to the
participant’s actual
performance.
Unvested awards lapse in
full, except where the
participant leaves in
circumstances where they
retain a statutory right to
return to work (in which
case, awards will continue
to vest on normal terms).
Unpaid awards lapse in
full.
Up to 1.5 times the
participant’s target bonus
may be payable less any
Restrictive Covenants
Agreement Setoff (if
applicable) paid or to be
paid in the same calendar
year.
Unvested awards lapse in
full.
On a change of control,
merger, reorganization or
other corporate event, the
Company may seek to
replace awards with new
awards in the successor
company (to the extent
agreed with the successor
company). In the case of a
termination without cause
or for cause by the
participant in connection
with a change of control,
such awards will
accelerate and vest in full.
Where there is no
agreement to replace
awards, on a corporate
event awards with time-
based vesting conditions
shall vest on the date of
that event and awards
with performance-based
vesting conditions shall
vest on the date of that
event to the extent
determined by the
Company (regardless of
the extent to which any
performance conditions
attached to awards have
been satisfied).
Orchard Therapeutics plc 35
DIRECTORS’ REMUNERATION REPORT
continued
The Company is unequivocally against rewards for failure; the circumstances of any departure, including the
individual’s performance, would be taken into account in every case. Statutory redundancy payments may be
made, as appropriate. Service agreements may be terminated summarily without notice (or on shorter notice
periods) and without payment in lieu of notice in certain circumstances, such as gross misconduct or any other
material breach of the obligations under their employment contract. The Company may require the individual to
work during their notice period or may place them on garden leave during which they would be entitled to salary,
benefits and pension only.
Except in the case of gross misconduct or resignation, the Company may at its absolute discretion reimburse for
reasonable professional fees relating to the termination of employment and, where an Executive Director has been
required to re-locate, to pay reasonable repatriation costs, including possible tax exposure costs. This includes
any statutory entitlements or sums to settle or compromise claims in connection with a termination (including, at
the discretion of the Committee, reimbursement for legal advice and provision of outplacement services).
Policy on external appointments
The Board believes that it may be beneficial to the Company for executives to hold Non-Executive Directorships
outside the Company. Any such appointments are subject to approval by the Board and the director may retain
any fees received at the discretion of the Board. Neither Executive Director currently holds any outside
directorships.
Non-Executive Directors’ terms of engagement
Each of the Non-Executive Directors is engaged under a Non-Executive Director appointment letter. In any event,
each appointment is terminable by either party on not less than three months’ written notice. Our board of directors
is classified, meaning that each of our directors is designated to one of three classes and is elected to serve a term
of between one and three years. The Chair and Non-Executive Directors are only entitled to fees accrued to the
date of termination.
The dates of appointment of each of the Non-Executive Directors serving at 31 December 2018 are summarised
in the table below. Dates prior to our incorporation in August 2018 as Orchard Rx Limited (now known as Orchard
Therapeutics plc) are for Non-Executive Directors who served on the board of our predecessor company, Orchard
Therapeutics Limited (now known as Orchard Therapeutics (Europe) Limited).
Non-Executive Directors Date of contract or date of appointment
Joanne Beck 1 July 2018
Marc Dunoyer 6 June 2018
Jon Ellis 17 July 2018
James Geraghty 4 June 2018
Charles Rowland 1 June 2018
Alicia Secor 7 December 2018
Hong Fang Song 6 September 2017
Directors’ letters of appointment are available for inspection at the Company’s registered office during normal
business hours and will be available for inspection at the AGM.
36 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
Annual Report on Remuneration
This part of the report has been prepared in accordance with Part 3 of The Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment) Regulations 2013 and Rule 9.8.6 of the Listing Rules. The
Annual Report on Remuneration and the Annual Statement by the Chair of the Compensation Committee will be
put to a single advisory shareholder vote at the AGM on 26 June 2019.
Compensation Committee (“the Committee”)
The current members of the Committee, who are all independent, are Charles Rowland, Joanne Beck and
Alicia Secor.
Members of management, including the Chair, the CEO, the Chief Financial Officer, and the Senior Vice President
of Human Resources, are invited to attend meetings where appropriate. The Company Secretary is the secretary
to the Committee. Attendees are not involved in any decisions and are not present for any discussions regarding
their own remuneration.
No conflicts of interest have arisen during the period and none of the members of the Committee has any personal
financial interest in the matters discussed, other than as shareholders. The fees of the Non-Executive Directors
are approved by the Board on the joint recommendation of the Committee and the Chief Executive
Officer/Executive Directors.
Meetings attendance (since Listing)
Attendance
Charles Rowland 5 of 5
Joanne Beck 5 of 5
Alicia Secor* 3 of 3
*Alicia Secor joined the Board of Directors on 7 December 2018 and has attended every Compensation Committee meeting since appointment.
Independent advisors
Wholly independent advice on executive remuneration is received from the Executive Compensation practice of
Aon plc. Aon is a member of the Remuneration Consultants Group and is a signatory to its Code of Conduct. Aon
advised on remuneration arrangements in advance of the Listing and continues to advise the Committee on all
aspects of senior executive remuneration. Since Listing, Aon has assisted with the drafting of the Remuneration
Policy and has kept the Committee up to date on remuneration trends and corporate governance best practice.
During the period since listing, fees charged by Aon for advice provided to the Committee for 2018 amounted to
$124,000 (excluding VAT).”
Activity in the period
The Committee’s principal function is to support Orchard’s strategy by ensuring that those individuals responsible
for delivering the strategy are appropriately incentivised and rewarded through the operation of Orchard’s
remuneration policy. In determining the remuneration policy, and in constructing the remuneration arrangements
for executive directors and senior employees, the Board, advised by the Committee, aims to provide remuneration
packages that are competitive and designed to attract, retain and motivate Executive Directors and senior
employees of the highest calibre.
Orchard Therapeutics plc 37
DIRECTORS’ REMUNERATION REPORT
continued
The Committee is responsible for and considered, where applicable, during the period:
• evaluating the efficacy of the Company’s remuneration policy and strategy;
• reviewing and determining remuneration to be paid to the Company’s executive officers and directors,
including setting the executive remuneration policy;
• reviewing and making recommendations to the Board regarding remuneration for non-executive members
of the Board, including the approval of the director remuneration policy;
• agreeing the design of all share incentive plans;
• prepare any report on executive remuneration required by the rules and regulations of the U.S. Securities
and Exchange Commission, The Nasdaq Stock Market LLC and as required under U.K. law;
• reviewing, evaluating, and approving employment agreements, severance agreements, change-of-control
protections, corporate performance goals and objectives, and other compensatory arrangements of the
executive officers and other senior management and adjusting remuneration, as appropriate;
• evaluating and approving remuneration plans and programs and establishing equity remuneration policies;
• reviewing remuneration practices and trends to assess the adequacy and competitiveness of the executive
remuneration programs as compared to industry peers, and determining the appropriate levels and types of
remuneration to be paid;
• approving any loans by the Company to employees;
• reviewing and approving remuneration arrangements for any executive officer involving any subsidiary, special
purpose or similar entity, with consideration of the potential for conflicts of interest;
• reviewing the Company’s practices and policies of employee remuneration as they relate to risk management
and risk-taking incentives.
The Committee is formally constituted and operates on written terms of reference, which are available on Orchard’s
website, https://www.orchard-tx.com/.
38 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
Single total figure of Directors’ remuneration – year ended 31 December 2018 (audited)
The total remuneration of the individual Directors who served from the date of listing on 31 October 2018, is
shown below. Total remuneration is the sum of emoluments plus Company pension contributions.
Base Total
salary remun-
/fees Benefits1 Pension Bonus2 SOIP Other3 eration
$000 $000 $000 $000 $000 $000 $000
Executive Directors
Mark Rothera 2018 100 7 4 50 – 44 205
Hubert Gaspar 2018 55 – – 33 – – 88
Non-Executive Directors
Joanne Beck 2018 7 – – – – – 7
Marc Dunoyer 2018 8 – – – – – 8
Jon Ellis 2018 – – – – – – –
James Geraghty 2018 14 – – – – – 14
Charles Rowland 2018 10 – – – – – 10
Alicia Secor 2018 – – – – – – –
Hong Fang Song 2018 – – – – – – –
Total 2018 194 7 4 83 – 44 332
1. For Executive Directors, included private health insurance, long term disability, critical illness and death in service benefits.
2. Bonus for our Executive Directors has been calculated in this table on an accrual basis for the 2 months after the Company’s listing on the
Nasdaq.
3. Other relates to relocation/taxable housing benefits.
The total remuneration of the individual Directors who served during the financial year, from 1 January 2018 to
31 December 2018, is shown below. It is noted that, prior to incorporation of Orchard Therapeutics plc, the
company operated as Orchard Therapeutics (Europe) Limited (formerly Orchard Therapeutics Limited). Orchard
Therapeutics (Europe) Limited became a subsidiary of Orchard Therapeutics plc upon incorporation of the
Company and reorganization. Total remuneration is the sum of emoluments plus Company pension contributions.
Base Total
salary remun-
/fees Benefits1 Pension Bonus SOIP2 Other3 eration
$000 $000 $000 $000 $000 $000 $000
Executive Directors
Mark Rothera 2018 547 39 12 298 – 191 1,087
Hubert Gaspar 2018 338 – – 149 971 117 1,575
Non-Executive Directors
Joanne Beck 2018 13 – – – – – 13
Marc Dunoyer 2018 16 – – – 522 – 538
Jon Ellis 2018 – – – – – – –
James Geraghty 2018 45 – – – – – 45
Charles Rowland 2018 18 – – – – – 18
Alicia Secor 2018 – – – – – – –
Hong Fang Song 2018 – – – – – – –
Total 2018 977 39 12 447 1,493 308 3,276
1. For Executive Directors, benefits included private health insurance, long term disability, critical illness and death in service benefits.
2. The value of equity-based awards in the table is based on the market value of underlying shares at the date of grant, less the applicable
exercise price. For the CEO and Non-Executive Directors except for Marc Dunoyer, this was nil because the exercise price is equal to the
market value of the underlying shares at the date of grant. For the CSO and Mr. Marc Dunoyer, the awards were given with an exercise price
of £0.00002 per share. Refer to “Share Option Incentive Plan” below for details of grants.
3. For the CEO, other relates to relocation/taxable housing benefits. For the CSO, Other relates to a sign-on bonus agreed to per his employment
contract.
Orchard Therapeutics plc 39
DIRECTORS’ REMUNERATION REPORT
continued
2018 Annual bonus (audited)
In 2018, the CEO and CSO’s annual bonus was based entirely on corporate, strategic objectives. The overall bonus
outcome of 135% of target resulted in a total bonus pay out of 54% of the CEO’s base salary and 44% of the CSO’s
base salary for the fiscal year ended 31 December 2018.
Share Option Incentive Plan
Awards granted in the year since listing on 31 October 2018 (audited)
On 15 November 2018, the CEO received an RSU award of 219,922 shares under the 2018 SOIP. One third of
the award will vest on occurrence of each of the first three of four milestone events, provided that in each case
the milestone is achieved on or before 31 December 2021. These milestone events are linked to the Company’s
key strategic objectives in the next three years. Specific targets are commercially sensitive and therefore are not
disclosed in this report. However, full details of the targets and performance against them will be disclosed when
they are no longer considered commercially sensitive. The market value on the date of grant was $16.84 per share.
None of the milestones were deemed to be probable at the time of grant and at 31 December 2018.
The CSO did not receive any awards under the 2018 SOIP between 31 October and 31 December 2018.
Awards granted from 1 January 2018 to date of listing on 31 October 2018
(audited)
The CEO and CSO received the following share option awards during the fiscal year from 1 January 2018 through
31 October 2018 prior to our listing as a public company, as set forth in the table below:
Face Fair
Value at Value at
Executive Form of Date of Shares Exercise Date Date Expiry
Director Award Grant Covered Price of Grant of Grant Date Vest Terms
Mark Rothera
Fair market value
options
Mark Rothera
Fair market value
options
Hubert Gaspar
Nominal value
options
Hubert Gaspar
Nominal value
options
7 Feb 2018
436,686 $2.44 $1,064,025 $672,496
6 Feb 2028
25% after one year, 36
equal monthly vesting
thereafter
13 Sep 2018
410,289 $9.06 $3,717,218 $2,281,207
12 Sep 2028
Equal monthly vesting
over 48 months
7 Feb 2018
40,015 £0.00002 $97,500 $97,500
6 Feb 2028
13 Sep 2018
96,420 £0.00002 $873,565 $873,565
12 Sep 2028
25% after one year, 36
equal monthly vesting
thereafter
Equal monthly vesting
over 48 months
40 Orchard Therapeutics plc
DIRECTORS’ REMUNERATION REPORT
continued
Non-executive directors also received the following option awards during the year, each vesting based on
continued employment only:
Face Fair
Value at Value at
Executive Form of Date of Shares Exercise Date Date Expiry
Director Award Grant Covered Price of Grant of Grant Date Vest Terms
Joanne Beck
Fair market value
options
21 Jul 2018
80,030 $7.10 $568,213 $353,733 20 Jul 2028 33% after one year, 24
equal monthly vesting
thereafter
Marc Dunoyer
Nominal value
options
12 Jun 2018
80,030 £0.00002 $521,796 $521,796 11 Jun 2028 33% after one year, 24
equal monthly vesting
thereafter
James Geraghty
Fair market value
options
12 Jun 2018
320,120 $4.74 $1,517,369 $1,450,144 11 Jun 2028 33% after one year, 24
equal monthly vesting
thereafter
Charles Rowland
Fair market value
options
12 Jun 2018
80,030 $4.74 $379,342 $362,536 11 Jun 2028 33% after one year, 24
equal monthly vesting
thereafter
Alicia Secor
Fair market value
options
7 Dec 2018
50,000 $15.09 $754,500 $436,500
6 Dec 2028
33% after one year, 24
equal monthly vesting
thereafter
Jon Ellis and Hong Fang Song received no option grants during the year.
Payments to former Directors and for loss of office (audited)
No payments were made to former Directors of the Company or in relation to loss of office during the year.
External directorships
Neither Executive Director currently holds any outside directorships.
Statement of Directors’ shareholding and share interests (audited)
The share interests of each Director as at 31 December 2018 (together with interests held by his or her connected
persons) are set out in the table below.
Orchard Therapeutics plc 41
DIRECTORS’ REMUNERATION REPORT
continued
Shareholdings for Directors who have held office during the period between listing and 31 December 2018 are
set out as a percentage of salary or fees in the table below.
Shares Share Options
Beneficially owned
shares as at
31 December
2018
Unvested
without
performance
conditions
Unvested
with
performance
conditions
Unvested Unvested
without with
performance performance
conditions conditions
Vested but
unexercised
Executive Directors
Mark Rothera
Hubert Gaspar
Non-Executive Directors
Joanne Beck
Marc Dunoyer
Jon Ellis
James Geraghty
Charles Rowland
Alicia Secor
Hong Fang Song
90,304
417,319
9,294
37,179
–
44,391
12,294
–
–
–
–
–
–
–
–
–
–
–
219,922
–
517,740
433,000
1,903,933 –
306,223 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80,030 –
80,030 –
– –
320,120 –
80,030 –
50,000 –
– –
Performance graph and table
The chart below shows the Company’s Total Shareholder Return (TSR) performance compared with that of the
Nasdaq Biotechnology Index over the period from the date of the Company’s admission to 31 December 2018.
The Nasdaq Biotechnology Index has been chosen as an appropriate comparator as it is the index of which the
Company is a constituent. TSR is defined as the return on investment obtained from holding a company’s shares
over a period. It includes dividends paid, the change in the capital value of the shares and any other payments
made to or by shareholders within the period.
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(cid:49)(cid:36)(cid:54)(cid:39)(cid:36)(cid:52)(cid:3)(cid:37)(cid:76)(cid:82)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)
42 Orchard Therapeutics plc
(cid:3)
DIRECTORS’ REMUNERATION REPORT
continued
Aligning pay with performance
The total remuneration figure for the CEO is shown in the table below, along with the value of bonuses paid, and
SOIP vesting, as a percentage of the maximum opportunity.
Chief Executive Officer 2018
Total remuneration ($000) $1,087
Actual bonus (% of the maximum) 84%
SOIP vesting (% of the maximum) N/A
Percentage change in remuneration of the Chief Executive Officer
As this is the first period reported since listing there has been no change in remuneration of the CEO. It is therefore
not possible to provide meaningful comparative data. However, full disclosure of the year on year movement will
be provided in future remuneration reports.
Relative importance of spend on pay
The table below illustrates the Company’s expenditure on pay by the Group in comparison to distributions to
shareholders by way of dividend payments. As this is the first period reported since listing, it is not possible to
provide meaningful comparative data. However, full disclosure of the year on year movement will be provided in
future remuneration reports.
2017 2018 % change
Distributions to shareholders $0 $0 N/A
Total employee pay expenditure ($’000) $10,312 $35,265 342%
Statement of implementation of remuneration policy in 2019
Annual base salary
The percentage salary increases for the CEO and CSO were consistent with salary increases provided to Company
employees on the whole.
Base salary Base salary2
2018 2019
Executive Directors
Mark Rothera $513,000 $527,440
Hubert Gaspar1 £250,000 £262,500
1. Hubert Gaspar’s salary is pro-rated for 4 days a week.
2. Effective from 1 January 2019
Benefits and pension
In 2019, Executive Directors are eligible for the same benefits (such as health insurance and pension) as provided
to all employees in the jurisdiction in which they reside. Pension contributions for Executive Directors are up to
6% of base salary.
Bonus
The CEO and CSO will be entitled to a target bonus of 50% and 35% of base salary in 2019, with final payout up
to 150% of target bonus for both Executive Directors. The bonus will be paid in cash and subject to the achievement
of a number of strategic objectives determined by the Committee.
Orchard Therapeutics plc 43
DIRECTORS’ REMUNERATION REPORT
continued
Specific targets are commercially sensitive and therefore are not disclosed in advance. However, full details of the
targets and performance against them will be disclosed when they are no longer considered commercially
sensitive.
Share Option Incentive Plan
In 2019, the CEO was granted 415,000 share options in the Company at a strike price of $12.54 per share, based
on the Nasdaq closing price on the grant date of 16 January 2019. The share options will expire 10 years from the
date of grant. The share options vest monthly over a 4-year period and contain no performance conditions.
In 2019, the CSO received an RSU award of 18,750 shares under the 2018 SOIP. One third of the award will vest
on occurrence of each of the first three of four milestone events, provided that in each case the milestone is
achieved on or before 31 December 2021. These milestone events are linked to the Company’s key strategic
objectives in the next three years. Specific targets are commercially sensitive and therefore are not disclosed in
this report. However, full details of the targets and performance against them will be disclosed when they are no
longer considered commercially sensitive. The market value on the date of grant was $12.54 per share. None of
the milestones were deemed to be probable at the time of grant. The CSO was also granted 50,000 share options
in the Company at a strike price of $12.54 per share, based on the Nasdaq closing price on the grant date of
16 January 2019. The share options will expire 10 years from the date of grant. The share options vest monthly
over a 4-year period and contain no performance conditions.
Non-Executive Directors’ fees
Non-Executive Directors will receive the following annual fees for 2019, which will be paid in cash, are as follows:
Fee (effective from
1 January 2019)
In $’000
Base fee:
Board Chair $75
Board member $35
Additional fees:
Audit Committee Chair $15
Audit Committee member $7.5
Compensation Committee Chair $10
Compensation Committee member $5
Nomination Committee Chair $8
Nomination Committee member $4
The Company intends to provide an annual equity incentive award to non-executive directors that is to be
determined at the end of 2019.
Non-Executive Directors will not be eligible to participate in any performance-based incentive plans.
Jon Ellis and Hong Fang Song do not receive fees for their services on the board. Alicia Secor did not receive fees
in 2018 as she joined the board in December 2018.
Each Non-Executive Director will also be entitled to reimbursement of reasonable expenses and reimbursement
of fees for tax advice associated with completion of international tax returns due to their role as an Orchard
Therapeutics plc Non-Executive Director.
On behalf of the Board
Charles Rowland
Chair of the Compensation Committee
31 May 2019
44 Orchard Therapeutics plc
ORCHARD THERAPEUTICS PLC
UK STATUTORY FINANCIAL STATEMENTS
31 December 2018
Orchard Therapeutics plc 45
Parent Company Balance Sheet
at 31 December 2018
NOTE 2018
NON-CURRENT ASSETS $000
Investment in subsidiaries 2 809,884
CURRENT ASSETS
Debtors 3 324
Prepaid expenses 1,421
Cash and cash equivalents 207,042
CURRENT LIABILITIES
Creditors 4 (3,314)
NET CURRENT ASSETS 205,473
TOTAL ASSETS LESS CURRENT LIABILITIES 1,015,357
NET ASSETS 1,015,357
CAPITAL AND RESERVES
Share capital 5 10,914
Share premium 203,140
Share compensation reserve 34,943
Retained Earnings 766,360
TOTAL EQUITY 1,015,357
The above parent company balance sheet should be read in conjunction with the accompanying notes.
The company has elected to take the exemption under section 408 of the Companies Act of 2006 from presenting
the company statement of comprehensive income. The company profit for the period ended 31 December 2018
was $285,000 (2017: nil).
The parent company financial statements on pages 46-52 were approved by the Board of Directors on
31 May 2019 and were signed on its behalf by:
Mark Rothera
Director
31 May 2019
Registered number: 11494381
46 Orchard Therapeutics plc
Parent Company Statement of Changes in Equity
for the period ended 31 December 2018
Share
Share Share Compensation Retained
Shares Capital Premium Reserve Earnings Total
$’000 $’000 $’000 $’000 $’000
At 1 August 2018 (incorporation) 1 – – – – –
Issue of shares in consideration
for the transfer of OTL on
19 October 2018 69,761,984 774,941 – – – 774,941
Reduction of capital on
26 October 2018 (766,075) – – 766,075 –
IPO proceeds 16,103,572 2,048 223,403 – – 225,451
Underwriter and issuance costs – – (20,263) – – (20,263)
Share-based compensation – – – 34,943 – 34,943
Profit for the period – – – – 285 285
Balance at 31 December 2018 85,865,557 10,914 203,140 34,943 766,360 1,015,357
The above parent company statement of changes in equity should be read in conjunction with the accompanying
notes.
Orchard Therapeutics plc 47
Notes to the Parent Company Financial Statements
Notes to the Parent Company Financial Statements
1. COMPANY ACCOUNTING POLICIES
BASIS OF PRESENTATION AND ACCOUNTING PRINCIPLES
Orchard Therapeutics plc (the “Parent Company”) and, together with its subsidiaries (the “Company”) is a
commercial-stage fully-integrated biopharmaceutical company dedicated to transforming the lives of patients with
serious and life- threatening rare diseases through ex vivo, autologous, hematopoietic stem cell (“HSC”) based
gene therapies. The Company’s gene therapy approach seeks to transform a patient’s own, or autologous, HSCs
into a gene-modified drug product to treat the patient’s disease through a single administration. The Company
has acquired and developed a portfolio of ex vivo, autologous, HSC based gene therapies focused on three
franchises in which it accumulates expertise, including primary immune deficiencies, neurometabolic disorders
and hemoglobinopathies. The Company’s portfolio of ex vivo, autologous, HSC based gene therapies includes
Strimvelis®, a gammaretroviral vector-based gene therapy and the first such treatment approved by the European
Medicines Agency (“EMA”) for adenosine deaminase severe combined immunodeficiency (“ADA-SCID”), three
clinical programs in advanced registrational studies in metachromatic leukodystrophy (“MLD”), Wiskott–Aldrich
syndrome (“WAS”) and ADA-SCID, other clinical programs in X-linked chronic granulomatous disease (“X-CGD”)
and transfusion-dependent beta-thalassemia (“TDT”), as well as an extensive preclinical pipeline.
The Company is a public limited company incorporated pursuant to the laws of England and Wales. Our registered
office is located at 108 Cannon Street, London EC4N 6EU, United Kingdom. Orchard Therapeutics plc (formerly
Orchard Rx Limited) was originally incorporated under the laws of England and Wales in August 2018 to become
a holding company for Orchard Therapeutics Limited. Orchard Therapeutics Limited was originally incorporated
under the laws of England and Wales in September 2015 as Newincco 1387 Limited and subsequently changed
its name to Orchard Therapeutics Limited in November 2015.
Pursuant to the corporate reorganization, all the interests in Orchard Therapeutics Limited were exchanged for
the same number and class of newly issued shares of Orchard Rx Limited and, as a result, Orchard Therapeutics
Limited became a wholly owned subsidiary of Orchard Rx Limited. On 29 October, 2018, Orchard Rx Limited re-
registered as a public limited company and changed its name to Orchard Therapeutics plc and Orchard
Therapeutics Limited changed its name to Orchard Therapeutics (Europe) Limited.
On 1 November, 2018, our different classes of preferred shares and our ordinary shares were consolidated on a
one-for-0.8003 basis. Following the share consolidation, each share was re-designated as an ordinary share on a
one-for-one basis. Accordingly, all share and per share amounts for all periods presented in the financial statements
and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split.
The financial statements have been prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland” and applicable law) and the Companies Act 2006. The financial
statements are prepared under the historical cost convention.
The company has taken advantage of the following disclosure exemptions in preparing these financial statements,
as permitted by FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland.”
–
–
–
–
–
the requirements of Section 7 Statement of Cash Flows;
the requirements of Section 3 Financial Statement Presentation paragraph 3.17(d);
the requirements of Section 11 Financial Instruments paragraphs 11.41(b), 11.41(c), 11.41(e), 11.41(f), 11.42,
11.44, 11.45, 11.47, 11.48(a)(iii), 11.48(a)(iv), 11.48(b) and 11.48(c);
the requirements of Section 33 Related Party Disclosures paragraph 33.7;
the requirements of Section 26 Share-based Payments paragraphs 26.18(b), 26.19-26.21 and 26.23
The financial statements have been prepared on a going concern basis. The Directors have considered the
appropriateness of the going concern basis in the Directors’ Report. In addition, the Parent Company
acknowledges its responsibility to support its subsidiaries’ cash outflows for the foreseeable future.
The financial statements and related notes have been prepared and presented in U.S. Dollars. Unless otherwise
noted, amounts are presented in USD thousands.
48 Orchard Therapeutics plc
Notes to the Parent Company Financial Statements
INVESTMENTS
The investment in the subsidiary arose on the reorganization of the Group. The investment is recorded at cost
less accumulated impairment losses. The cost is based on the directors’ estimated fair value of Orchard
Therapeutics Limited having regard to the valuations that were available prior to the IPO. Where at the year end
there is evidence of impairment, the carrying value of the investment is written down to its recoverable amount.
GOING CONCERN
At 31 December 2018 the Group held cash and restricted cash of $339.7 million, and the Company held cash of
$207 million. The directors have prepared a forecast through 2020 which shows sufficient cash to fund planned
research and development, commercial, and operating costs of the Group and the Company. Therefore, the
directors have at the time of approving the financial statements, a reasonable expectation that the Group and
Company have adequate resources to continue in operational existence for the foreseeable future and for a period
of at least 12 months from the date of signing these financial statements. Accordingly, the Company continues to
adopt the going concern basis of accounting in preparing these financial statements.
SHARE-BASED PAYMENTS
The financial effect of awards by the Parent Company of options and other equity-based awards over its equity
shares to the employees of subsidiary undertakings are recognized by the Parent Company in its individual financial
statements. In particular, the Parent Company records a capital contribution to the subsidiary with a corresponding
credit to the share compensation reserve. The expense associated with the equity-based awards is recognized in
profit and loss for the subsidiary undertaking, and a corresponding capital contribution from the Parent Company
in the subsidiary’s equity.
The Parent Company recognizes the capital contribution associated with the share-based compensation expense
for awards granted to employees a straight-line basis over the requisite service period. The fair value of each share
option is estimated on the grant date using the Black Scholes option pricing model. Upon our corporate
reorganization, outstanding share options were re-valued using valuation assumptions as of the date of our
reorganization.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The directors do not consider there to be any critical accounting estimates or assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly
liquid investments with original maturities of three months or less.
SHARE CAPITAL
Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of share capital are
shown as a deduction to equity, net of tax.
2. INVESTMENTS
Subsidiary undertakings
($000)
Arising on group reorganisation 774,941
Share-based payments 34,943
As at 31 December 2018 809,884
Orchard Therapeutics plc 49
Notes to the Parent Company Financial Statements
The share-based payment cost of $34.9 million was pushed down from Orchard Therapeutics plc to Orchard
Therapeutics (Europe) Limited, as a capital injection in the Company’s Balance Sheet.
The Company tested the investment assets for impairment as at 31 December 2018 and concluded that the
investments were not impaired. The analysis noted that the investment is a wholly owned subsidiary which is
engaged in research and development activities. These companies have been achieving milestones related to
these activities. Furthermore, the IPO of the Company that took place in November 2018 increased its value further
and further allows enhancement of the research in which the subsidiaries are engaged.
SUBSIDIARY UNDERTAKINGS
Class of Proportion
Name of undertaking shareholding held Nature of business
Orchard Therapeutics (Europe) Limited Ordinary 100%* Research and development
Orchard Therapeutics North America Ordinary 100% Research and development
Orchard Therapeutics (Netherlands) B.V. Ordinary 100% Research and development
*Held directly by Orchard Therapeutics plc
Orchard Therapeutics North America and Orchard Therapeutics (Netherlands) B.V. are subsidiary undertakings
of Orchard Therapeutics (Europe) Limited.
Orchard Therapeutics (Europe) Limited and its subsidiaries became subsidiaries of Orchard Therapeutics plc
(formerly Orchard Rx Limited) upon the exchange of all interests in Orchard Therapeutics (Europe) Limited for
the newly issued shares of Orchard Therapeutics plc on November 1, 2018.
3. DEBTORS
2018
$000
Amounts due from subsidiary undertakings 274
Other receivables 50
324
Amounts due from subsidiary undertakings are unsecured, interest free, have no fixed date of repayment and are
repayable on demand.
4. CREDITORS
– Amounts falling due within one year
2018
$000
Amounts due to subsidiary undertakings 3,186
Trade creditors 57
Accruals 71
3,314
Amounts due to subsidiary undertakings are unsecured, interest free, have no fixed date of repayment and are
repayable on demand.
50 Orchard Therapeutics plc
Notes to the Parent Company Financial Statements
5. SHARE CAPITAL
2018
$000
Ordinary shares, £0.10 par value, authority to allot up to a maximum nominal value of
£13,023,851.50 shares; 85,865,557 shares issued and outstanding 10,914
10,914
As of 31 December, 2018, the Company had authority to allot ordinary shares up to a maximum nominal value of
£13,023,851.50 with a nominal value of £0.10 per share. As of 31 December, 2018, there were 85,865,557 ordinary
shares issued and outstanding. In addition, there were a total of 10,203,432 share options in respect of ordinary
shares and 219,922 restricted share units outstanding in respect of ordinary shares at 31 December, 2018.
Orchard Rx was incorporated with share capital of 1 ordinary share of £0.0001. Prior to the completion of our IPO,
the share capital of Orchard Therapeutics (Europe) Limited was divided into 11,986,245 ordinary shares;
21,000,000 Series A convertible preferred shares; 21,198,154 Series B convertible preferred shares; 15,563,230
Series B-2 convertible preferred shares; and 17,421,600 Series C convertible preferred shares. Prior to the
effectiveness of the Company’s registration statement, the shareholders of Orchard Therapeutics (Europe) Limited
exchanged each of these classes of shares of Orchard Therapeutics (Europe) Limited for the same number and
class of shares in Orchard Rx Limited. As a result, Orchard Rx Limited became the sole shareholder of Orchard
Therapeutics (Europe) Limited. Following the share exchange, holders of options over shares in Orchard
Therapeutics (Europe) Limited will exchange their options for options over shares in Orchard Rx Limited.
On 26 October 2018 the Company approved a reduction of capital by way of solvency statement pursuant to
which £6.91997 was cancelled from each issued ordinary and preference share of £7.00. This reduced the called
up share capital from $774.9 million to $8.9 million and increased retained earnings by $766.1 million.
Following the share exchange described above, Orchard Rx Limited re-registered as a public limited company
and changed its name to Orchard Therapeutics plc. After the re-registration and immediately prior to the
completion of the IPO, all outstanding Convertible Preferred Shares of Orchard Therapeutics plc were converted
into their respective class of preferred shares of Orchard Therapeutics plc on a one-for-0.8003 basis. All ordinary
shares were consolidated on a one-for-0.8003 basis. This reduced the number of shares in issue from 87,169,229
to 69,761,484.
Following completion of these steps, and immediately prior to the completion of the IPO, each share outstanding
was re-designated as an ordinary share on a one-for-one basis. Additionally, as part of the corporate reorganization
associated with our IPO, each ordinary share with a nominal value of £0.00001 was redenominated as an ordinary
share with a nominal value of £0.10.
On 2 November, 2018, the Company closed its IPO of American Depositary Shares (“ADS”). In the IPO, the
Company sold an aggregate of 16,103,572 ADSs representing the same number of ordinary shares at a public
offering price of $14.00 per ADS, including a partial exercise by the underwriters of their option to purchase
additional ADSs. Net proceeds were $205.5 million, after deducting underwriting discounts, and commissions
and offering expenses paid by the Company of $4.2 million.
As of 31 December, 2018, each holder of ordinary shares is entitled to one vote per ordinary share and to receive
dividends when and if such dividends are recommended by the board of directors and declared by the
shareholders. As of 31 December, 2018, the Company has not declared any dividends.
6. RELATED PARTY TRANSACTIONS
These are disclosed as part of note 14 in the financial statements on Form 20-F as filed with the SEC.
Orchard Therapeutics plc 51
Notes to the Parent Company Financial Statements
7. ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY
There is no ultimate parent undertaking or controlling party of the Company as ownership is split between the
Company’s shareholders.
8. SUBSEQUENT EVENTS
Grants of share options and performance-based restricted share units under
the 2018 Plan
On 2 January 2019, the Company granted options to employees for the purchase of an aggregate of 117,280 ordinary
shares, at a weighted average exercise price of $14.98 per share. The aggregate grant-date fair value of these options
was $1.1 million, which will be recognized as share-based compensation expense over the vesting period of
four years.
On 16 January 2019, the Company granted options to senior management and employees for the purchase of an
aggregate of 2,470,423 ordinary shares, at a weighted average exercise price of $12.54 per share. The aggregate
grant-date fair value of these options was $19.8 million, which will be recognized as share-based compensation
expense over the vesting period of approximately four years. The Company also granted performance-based RSUs
to certain of its executives covering a maximum of 219,500 ordinary shares. These performance-based RSUs will
vest, if at all, based upon attainment of certain regulatory and market-based milestones, but must vest by
31 December 2021 or else be forfeited. The maximum aggregate total fair value of these RSUs that could be
recognized over this period is $3.3 million.
On 1 February 2019, the Company granted options to employees for the purchase of an aggregate of 95,800 ordinary
shares, at a weighted averaged exercise price of $12.86 per share. The aggregate grant-date fair value of these
options was $0.8 million, which will be recognized as share-based compensation expense over the vesting period of
four years.
On 1 March 2019, the Company granted options to employees for the purchase of an aggregate of 24,700 ordinary
shares, at a weighted averaged exercise price of $16.89 per share. The aggregate grant-date fair value of these
options was $0.3 million, which will be recognized as share-based compensation expense over the vesting period of
four years.
On 13 March 2019, the Company granted performance-based RSUs to certain members of its senior management
covering 108,000 ordinary shares. These performance-based RSUs will vest, if at all, based upon attainment of certain
regulatory and market-based milestones, but must vest by 31 December, 2021 or else be forfeited. The maximum
aggregate total fair value of these RSUs that could be recognized over this period is estimated to be $1.9 million.
On 25 March 2019, the Company granted options to an employee for the purchase of an aggregate of 275,000
ordinary shares, at a weighted averaged exercise price of $16.60 per share. The aggregate grant-date fair value of
these options was $2.9 million, which will be recognized as share-based compensation expense over the vesting
period of four years.
On 1 April 2019, the Company granted options to employees for the purchase of an aggregate of 40,160 ordinary
shares, at a weighted averaged exercise price of $18.56 per share. The aggregate grant-date fair value of these
options was $0.5 million, which will be recognized as share-based compensation expense over the vesting period of
four years.
On 1 May 2019, the Company granted options to employees for the purchase of an aggregate of 148,180 ordinary
shares, at a weighted averaged exercise price of $18.85 per share. The aggregate grant-date fair value of these
options was $1.8 million, which will be recognized as share-based compensation expense over the vesting period of
four years.
52 Orchard Therapeutics plc
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to .
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-38722
ORCHARD THERAPEUTICS PLC
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation)
108 Cannon Street
London EC4N 6EU
United Kingdom
(Address of principal executive offices)
Mark Rothera, President and Chief Executive Officer
Orchard Therapeutics plc
108 Cannon Street
London EC4N 6EU
United Kingdom
Tel: +44 (0) 203 384 6700
Email: investors@orchard-tx.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered, pursuant to Section 12(b) of the Act
Title of each class
American Depositary Shares, each representing one ordinary share, nominal value of
£0.10 per share
Ordinary shares, nominal value £0.10 per share*
*Not for trading, but only in connection with registration of American Depositary
Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Name of each exchange on which registered
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC*
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:3) No (cid:3)
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. Yes (cid:3) No (cid:3)
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 (cid:3) No (cid:3)
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 (cid:3) No (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
(cid:3)Accelerated filer
(cid:3) Non-accelerated filer
(cid:3) Emerging growth company
(cid:3)
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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(cid:9)† provided pursuant to Section 13(a) of the Exchange Act. (cid:3)
†(cid:9)The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after
April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as issued by the International Accounting
Standards Board
(cid:3)
(cid:3)Other
(cid:3)
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to
follow. Item 17 (cid:3) Item 18 (cid:3)
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3) No (cid:3)
Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of business covered by the annual report. 85,865,557
ordinary shares, nominal value £0.10 per share, as of December 31, 2018
Orchard Therapeutics plc 53
TABLE OF CONTENTS
Page
Presentation of Financial and Other Information
Cautionary Statement Regarding Forward-Looking Statements
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3.
ITEM 4.
KEY INFORMATION
A. Selected financial data
B. Capitalization and indebtedness
C. Reasons for the offer and use of proceeds
D. Risk factors
INFORMATION ON THE COMPANY
A. History and development of the company
B. Business overview
C. Organizational structure
D. Property, plant and equipment
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5.
ITEM 6.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating results
B. Liquidity and capital resources
C. Research and development, patents and licenses, etc.
D. Trend information
E. Off-balance sheet arrangements
F. Tabular disclosure of contractual obligations
G. Other disclosures
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and senior management
B. Compensation
C. Board practices
D. Employees
E. Share ownership
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8.
ITEM 9.
A. Major shareholders
B. Related party transactions
C. Interests of experts and counsel
FINANCIAL INFORMATION
A. Consolidated statements and other financial information
B. Significant Changes
THE OFFER AND LISTING
A. Offer and listing details
B. Plan of distribution
C. Markets
D. Selling shareholders
E. Dilution
F. Expense of the issue
ITEM 10. ADDITIONAL INFORMATION
A. Share capital
B. Memorandum and articles of association
C. Material contracts
1
54 Orchard Therapeutics plc
3
4
6
6
6
6
6
7
7
7
68
68
69
112
112
112
113
113
121
125
125
125
126
127
127
127
130
133
134
134
135
135
136
138
138
138
138
139
139
139
139
139
139
139
139
139
139
140
D. Exchange controls
E. Taxation
F. Dividends and paying agents
G. Statement by experts
H. Documents on display
I. Subsidiary information
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
B. Warrants and Rights
C. Other Securities
D. American Depositary Shares
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16
[Reserved].
A. Audit committee financial expert
B. Code of Ethics
C. Principal Accountant Fees and Services
D. Exemptions from the Listing Standards for Audit Committees
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
F. Changes in Registrant’s Certifying Accountant
G. Corporate Governance
H. Mine Safety Disclosure
PART III
ITEM 17.
FINANCIAL STATEMENTS
ITEM 18.
FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
Page
140
140
147
147
147
148
148
148
148
148
148
149
150
150
150
150
151
151
151
152
152
152
152
153
154
154
154
154
2
Orchard Therapeutics plc 55
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
The consolidated financial statement data at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017,
and 2016 have been derived from our consolidated financial statements, as presented elsewhere in this Annual Report, which
have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, as issued
by the Financial Accounting Standards Board, or FASB. The consolidated financial statement data at December 31, 2016 have
been derived from our consolidated financial statements, which are not presented herein, which have also been prepared in
accordance with U.S. GAAP as issued by the FASB.
All references in this Annual Report to “$” are to U.S. dollars and all references to “£” are to pounds sterling. Solely for the
convenience of the reader, unless otherwise indicated, all pounds sterling amounts as of and for the year ended December 31,
2018 have been translated into U.S. dollars at the rate of £1.2687 to $1.00, which was the noon buying rate of the Federal
Reserve Bank of New York on December 31, 2018, the last business day of the fiscal year ended December 31, 2018. These
translations should not be considered representations that any such amounts have been, could have been or could be converted
into U.S. dollars at that or any other exchange rate as of that or any other date.
General Information
In this Annual Report on Form 20-F, or Annual Report, “Orchard,”, the “company,” “we,” “us,” and “our” refer to Orchard
Therapeutics plc and its consolidated subsidiaries, except where the context otherwise requires.
3
56 Orchard Therapeutics plc
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains express or implied forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve
substantial risks and uncertainties. In some cases, forward-looking statements may be identified by the words “may,” “might,”
“will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue,” “ongoing,” or the negative of these terms, or other comparable terminology intended to identify
statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that
may cause our actual results, levels of activity, performance or achievements to be materially different from the information
expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this
Annual Report are based upon information available to our management as of the date of this Annual Report, 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 potentially
available relevant information. Forward-looking statements contained in this Annual Report include, but are not limited to,
statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the timing, progress and results of clinical trials and preclinical studies for our programs and product candidates,
including statements regarding the timing of initiation and completion of trials or studies and related preparatory work,
the period during which the results of the trials will become available and our research and development programs;
the timing, scope or likelihood of regulatory submissions, filings, and approvals;
our ability to develop and advance product candidates into, and successfully complete, clinical trials;
our expectations regarding the size of the patient populations for our product candidates, if approved for commercial use;
the implementation of our business model and our strategic plans for our business, commercial product, product
candidates and technology;
our commercialization, marketing and manufacturing capabilities and strategy;
the pricing and reimbursement of our commercial product and product candidates, if approved;
the scalability and commercial viability of our manufacturing methods and processes, including our plans to develop our
in-house manufacturing operations;
the rate and degree of market acceptance and clinical utility of our commercial product and product candidates, in
particular, and gene therapy, in general;
our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;
our competitive position;
the scope of protection we and/or our licensors are able to establish and maintain for intellectual property rights covering
our commercial product and product candidates;
developments and projections relating to our competitors and our industry;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
the impact of laws and regulations;
our ability to attract and retain qualified employees and key personnel;
our ability to contract with third party suppliers and manufacturers and their ability to perform adequately;
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and
other risks and uncertainties, including those listed under the caption “Risk factors.”
4
Orchard Therapeutics plc 57
You should refer to the section titled “Risk factors” for a discussion of important factors that may cause our actual results to
differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot be
assured that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-
looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these
forward-looking statements, these statements should not be regarded as a representation or warranty by us or any other person
that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly
update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required
by law.
You should read this Annual Report and the documents that we reference in this Annual Report and have filed as exhibits to
this Annual Report completely and with the understanding that our actual future results may be materially different from what
we expect. We qualify all of our forward-looking statements by these cautionary statements.
5
58 Orchard Therapeutics plc
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
PART I
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A.
Selected financial data.
The following tables present the selected consolidated financial data as of the dates and for the periods indicated for Orchard
Therapeutics plc. We derived the selected consolidated statements of operations and comprehensive loss data for the years
ended December 31, 2018, 2017, and 2016 and the consolidated balance sheet data as of December 31, 2018 and 2017 from
our audited consolidated financial statements included elsewhere in this Annual Report. The consolidated balance sheet data as
of December 31, 2016 is derived from our consolidated financial statements not included in this Annual Report.
Our historical results are not necessarily indicative of our future results. This data should be read together with our
consolidated financial statements and related notes appearing elsewhere in this Annual Report.
Although we are a UK company, the functional currency of our reporting entity is the U.S. Dollar. Where the local currency of
our subsidiaries is not U.S. dollars, our assets and liabilities are translated at the exchange rates at the balance sheet date, our
revenue and expenses are translated at average exchange rates and shareholders’ equity is translated based on historical
exchange rates. Translation adjustments are not included in determining net loss but are included in foreign exchange
translation adjustment within accumulated other comprehensive loss a component of shareholders’ equity.
Foreign currency transactions in currencies different from the functional currency are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences resulting from the settlement
of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recorded in other expense in the statement of operations and comprehensive loss.
As of December 31, 2018, the last business day of the fiscal year ended December 31, 2018, the representative exchange rate
was £1.00 = $1.2687.
te
2018
Year Ended December 31,
2017
(in thousands)
2016
Consolidated Statement of Operations and Comprehensive Loss
Data:
Product Sales, net
Costs and operating expenses:
Cost of product sales
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other income (expense), net
Net loss before income taxes
Income tax expense
Net loss attributable to ordinary shareholders
Other comprehensive (loss) income:
Foreign currency translation adjustment
$
$
Total comprehensive loss
Net loss per share attributable to ordinary shareholders, basic and diluted $
Weighted average number of ordinary shares outstanding, basic and
diluted
6
$
2,076 $
— $
—
422
205,319
31,366
237,107
(235,031)
5,506
(229,525)
(970)
(230,495) $
(964)
(231,459) $
(10.22) $
—
32,527
5,985
38,512
(38,512)
(1,179)
(39,691)
(53)
(39,744) $
4,398
(35,346) $
(4.48) $
—
16,206
2,997
19,203
(19,203)
138
(19,065)
(20)
(19,085)
(271)
(19,356)
(2.69)
22,559,389
8,872,768
7,100,528
Orchard Therapeutics plc 59
As of December 31,
2018
2017
2016
(in thousands)
$
335,844 $
307,612
366,042
—
311,338
89,856 $
83,466
97,294
—
86,405
3,497
163
4,283
16,970
(16,524)
Consolidated Balance Sheet Data:
Cash
Working capital(1)
Total assets
Convertible preferred shares in temporary equity
Total shareholders’ (deficit) equity
(1) We define working capital as current assets less current liabilities.
B.
Capitalization and indebtedness.
Not applicable.
C.
Reasons for the offer and use of proceeds.
Not applicable.
D.
Risk factors.
Our business faces significant risks. This section of the Annual Report highlights some of the risks that may affect our future
operating results. You should carefully consider the risks described below, as well as in our consolidated financial statements
and the related notes included elsewhere in this Annual Report and in our other SEC filings. The occurrence of any of the
events or developments described below could harm our business, financial condition, results of operations and/or growth
prospects. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our results could
materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks
described below and elsewhere in this Annual Report and our other SEC filings. See “Cautionary Statement Regarding
Forward-Looking Statements” above.
Risks related to our financial position and need for additional capital
We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve
or maintain profitability.
Since inception, we have incurred net losses. We incurred net losses of $230.5 million, $39.7 million, and $19.1 million for the
years ended December 31, 2018, 2017, and 2016, respectively. We historically have financed our operations primarily through
private placements of our convertible preferred shares and sale of our ADSs in our initial public offering. We have devoted
substantially all of our efforts to research and development, including clinical and preclinical development and arranging the
manufacturing of our product candidates, establishing a commercial infrastructure to support the commercialization of
Strimvelis in the European Union, building a global commercial infrastructure to support anticipated commercialization of
OTL-101 for adenosine deaminase-severe combined immunodeficiency, or ADA-SCID, OTL-200 for metachromatic
leukodystrophy, or MLD, and OTL-103 for Wiskott-Aldrich syndrome, or WAS, if such product candidates are approved, as
well as expanding our team. To date, Strimvelis is our only commercialized product, and absent the realization of sufficient
revenues from product sales of Strimvelis or our current or future product candidates, if approved, we may never attain
profitability in the future. We expect to continue to incur significant expenses and increasing operating losses for the
foreseeable future. We anticipate that our expenses will increase substantially if, and as, we:
•
•
•
seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
continue to grow a sales, marketing and distribution infrastructure for our commercialization of Strimvelis in the
European Union, and any product candidates for which we may submit for and obtain marketing approval anywhere in
the world;
continue our development of our product candidates, including continuing our ongoing advanced registrational trials and
supporting studies of OTL-101 for ADA-SCID, OTL-200 for MLD and OTL-103 for WAS and our ongoing clinical
trials of OTL-102 for X-CGD and OTL-300 for transfusion-dependent beta-thalassemia, or TDBT, and any other clinical
trials that may be required to obtain marketing approval for our product candidates;
7
60 Orchard Therapeutics plc
•
•
•
•
•
•
•
•
conduct investigational new drug application, or IND- or clinical trial application, or CTA-, enabling studies for our
preclinical programs;
initiate additional clinical trials and preclinical studies for our other product candidates;
seek to identify and develop, acquire or in-license additional product candidates or technologies;
develop the necessary processes, controls and manufacturing data to obtain marketing approval for our product
candidates and to support manufacturing of product to commercial scale;
develop our own in-house manufacturing operations;
hire and retain additional personnel, such as non-clinical, clinical, pharmacovigilance, quality assurance, regulatory
affairs, manufacturing, distribution, legal, compliance, medical affairs, finance, general and administrative, commercial
and scientific personnel;
develop, maintain, expand and protect our intellectual property portfolio; and
comply with our obligations as a public company.
Strimvelis is our only product that has been approved for sale and, to date, it has only been approved in the European Union for
the treatment of ADA-SCID. Since receiving marketing authorization, only a limited number of patients have been treated with
Strimvelis. Our revenue from sales of Strimvelis alone will not be sufficient for us to become profitable. Under the terms of our
asset purchase and license agreement with GSK, or the GSK Agreement, we are required to use our best endeavors to make
Strimvelis commercially available in the European Union until such time as an alternative gene therapy, such as our OTL-101
product candidate, is commercially available for patients, and at all times at the San Raffaele Hospital in Milan, Italy, provided
that a minimum number of patients continue to be treated at this site. To become and remain profitable, we must develop and
eventually commercialize product candidates with greater market potential. This will require us to be successful in a range of
challenging activities, and our expenses will increase substantially as we seek to complete necessary preclinical studies and
clinical trials of our product candidates, and manufacture, market and sell these or any future product candidates for which we
may obtain marketing approval, if any, and satisfy any post-marketing requirements. We may never succeed in any or all of
these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability.
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 and remain profitable would decrease the value of our company and could impair our ability to raise capital,
maintain our research and development efforts, expand our business or continue our operations.
We have only generated revenue from sales of Strimvelis, and we may never be profitable.
Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative
partners, to successfully develop and commercialize products. Although we have begun generating revenue from the sale of
Strimvelis, we do not expect to achieve profitability unless and until we complete the development of, and obtain the
regulatory approvals necessary to commercialize, additional product candidates. For example, in connection with our
transaction with GSK in April 2018, we recorded a liability for Strimvelis representing the fair value of the future expected
costs to maintain the marketing authorization in excess of expected future sales. Our ability to generate future revenues from
product sales depends heavily on our and or our collaborators’ success in:
•
•
•
•
•
•
•
completing research and preclinical development of our product candidates and identifying new gene therapy product
candidates;
conducting and fully enrolling clinical trials in the development of our product candidates;
seeking and obtaining regulatory and marketing approvals for product candidates for which we complete registrational
clinical trials that achieve their primary endpoints;
launching and commercializing product candidates for which we obtain regulatory and marketing approval by expanding
our existing sales force, marketing and distribution infrastructure or, alternatively, collaborating with a
commercialization partner;
maintaining marketing authorization and related regulatory compliance for Strimvelis in the European Union;
qualifying for, and maintaining, adequate coverage and reimbursement by government and payors for Strimvelis and any
product candidate for which we obtain marketing approval;
establishing and maintaining supply and manufacturing processes and relationships with third parties that can provide
adequate, in both amount and quality, products and services to support clinical development of our product candidates
and the market demand for Strimvelis and any of our product candidates for which we obtain marketing approval;
8
Orchard Therapeutics plc 61
•
•
•
•
•
•
obtaining market acceptance of Strimvelis and our product candidates, if approved, as viable treatment options with
acceptable safety profiles;
addressing any competing technological and market developments;
implementing additional internal systems and infrastructure, as needed, including robust quality systems and compliance
systems;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and
performing our obligations under such arrangements;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and
know-how; and
attracting, hiring and retaining qualified personnel.
We anticipate incurring significant costs associated with commercializing any products for which we obtain marketing
approval. Our expenses could increase beyond expectations if we are required by the United States Food and Drug
Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory authorities to perform clinical
and other studies in addition to those that we currently anticipate or if we encounter delays or clinical holds in the development
of our product candidates. Even if we continue to generate revenue from sales of Strimvelis and are able to generate revenues
from the sale of any other approved products, we may not become profitable and may need to obtain additional funding to
continue operations.
We may need additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary
capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the expansion of our
commercial infrastructure in support of Strimvelis and our anticipated commercialization of OTL-101 for ADA-SCID, OTL-
200 for MLD, and OTL-103 for WAS, if such product candidates are approved, continue the research and development of,
initiate further clinical trials of and seek marketing approval for, our product candidates and continue to enhance and optimize
our vector technology and manufacturing processes, including building out our in-house drug product and vector
manufacturing capabilities. In addition, we expect to incur significant expenses related to product sales, medical affairs,
marketing, manufacturing, distribution and quality systems to support Strimvelis and any other products for which we obtain
marketing approval. Furthermore, we expect to incur additional costs associated with operating as a public company.
Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are
unable to raise capital when needed or on reasonable terms, we would be forced to delay, reduce or eliminate certain of our
research and development programs and/or commercialization efforts.
Our future capital requirements will depend on many factors, including:
•
•
•
•
•
•
•
•
the cost and our ability to maintain the commercial infrastructure and manufacturing capabilities required, including
quality systems, regulatory affairs, compliance, product sales, medical affairs, commercial marketing, manufacturing and
distribution, to support Strimvelis in the European Union and any other products for which we obtain marketing
approval;
qualifying for, and maintaining adequate coverage and reimbursement by, government and payors on a timely basis for
Strimvelis and any other products for which we obtain marketing approval;
the costs of preparing and submitting marketing approvals for any of our product candidates that successfully complete
clinical trials, and the costs of maintaining marketing authorization and related regulatory compliance for any products
for which we obtain marketing approval;
the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials for
our product candidates;
our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be
imposed on our development programs;
the costs associated with our manufacturing process development and evaluation of third-party manufacturers and
suppliers;
the costs, timing and outcome of regulatory review of our product candidates;
revenue, if any, received from commercial sales of Strimvelis and any other products for which we may obtain marketing
approval, including amounts reimbursed by government and third-party payors;
9
62 Orchard Therapeutics plc
•
•
•
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property
rights and defending intellectual property-related claims;
the terms of our current and any future license agreements and collaborations; and
the extent to which we acquire or in-license other product candidates, technologies and intellectual property.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive
and uncertain process that takes years to complete. We may never generate the necessary data or results required to obtain
marketing approval and achieve product sales for any products other than Strimvelis. In addition, Strimvelis or any other
products for which we obtain marketing approval may not achieve commercial success. Any product revenues from our
product candidates, if any, will be derived from or based on sales of products that may not be commercially available for many
years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.
Adequate additional financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or cause us to relinquish
valuable rights.
We may seek to raise capital through a combination of public and private equity offerings, debt financings, strategic
partnerships and alliances and licensing arrangements. To the extent that we raise capital through the sale of equity, convertible
debt securities or other equity-based derivative securities, ownership percentages of all our shareholders may be diluted and the
terms may include liquidation or other preferences that adversely affect their rights as shareholders. Any indebtedness we incur
would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business. Furthermore, the issuance of additional securities,
whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our ADSs to decline and
existing shareholders may not agree with our financing plans or the terms of such financings. If we raise funds through
strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to
our technologies, or our product candidates, or grant licenses on terms unfavorable to us. Adequate financing may not be
available to us on acceptable terms, or at all.
Our limited operating history may make it difficult to evaluate the success of our business to date and to assess our future
viability.
We were incorporated in August 2018 to become a holding company for Orchard Therapeutics (Europe) Limited, which was
founded in 2015, and its subsidiaries. Our operations, to date, have been limited to corporate organization, recruiting key
personnel, business planning, raising capital, acquiring certain of our product candidate portfolios and rights to our technology,
identifying potential product candidates, undertaking preclinical studies and planning and supporting clinical trials of our
product candidates, establishing research and development and manufacturing capabilities, establishing a quality management
system, establishing a commercial infrastructure to support the commercialization of Strimvelis in the European Union and
building a global commercial infrastructure to support anticipated commercialization of OTL-101 for ADA-SCID, OTL-200
for MLD and OTL-103 for WAS, if such product candidates are approved. We have not yet demonstrated the ability to
complete clinical trials of our product candidates, obtain marketing approvals, manufacture products on a commercial scale or
conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions about our
future success or viability may not be as accurate as they could be if we had a longer operating history. In addition, as a new
business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors and
setbacks.
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Orchard Therapeutics plc 63
Risks related to the discovery, development and regulatory approval of our product candidates
Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost
of product candidate development and of subsequently obtaining regulatory approval.
We have concentrated our research and development efforts on our autologous ex vivo gene therapy approach, and our future
success depends on our successful development of commercially viable gene therapy products. There can be no assurance that we
will not experience problems or delays in developing new products and that such problems or delays will not cause unanticipated
costs, or that any such development problems can be solved. Although we have established a commercial infrastructure for the
production of Strimvelis in the European Union and we are building a global commercial infrastructure to support
commercialization of OTL-101 for ADA-SCID, OTL-200 for MLD and OTL-103 for WAS, if such product candidates are
approved, we may experience delays in developing a sustainable, reproducible and scalable manufacturing process or implementing
that process in-house and at commercial partners, which may prevent us from commercializing our product candidates for which we
obtain marketing approval on a timely or profitable basis, if at all.
In addition, the clinical trial requirements of the FDA, EMA and other foreign regulatory authorities and the criteria these
regulators use to determine the safety and efficacy of a product candidate can vary substantially, for example, based upon the
type, complexity, novelty and intended use and market of such product candidates. The regulatory approval process for novel
product candidates such as ours can be more expensive and take longer than for other, better known or more extensively
studied product candidates. To date, only a limited number of gene therapies have received marketing authorization from the
FDA or EMA. We have limited experience in preparing, submitting and maintaining regulatory submissions, and have not
previously submitted a BLA or MAA for any product candidate. It is difficult to determine how long it will take or how much
it will cost to obtain regulatory approvals for our product candidates in the United States or the European Union or other
jurisdictions or how long it will take to commercialize any other product candidates for which we obtain marketing approval.
Approvals by the EMA may not be indicative of what the FDA may require for approval, and vice versa.
Regulatory requirements governing gene and cell therapy products have evolved and may continue to change in the future.
Such requirements may lengthen the regulatory review process, require us to perform additional studies, and increase our
development costs or may force us to delay, limit, or terminate certain of our programs.
Regulatory requirements governing gene and cell therapy products have evolved and may continue to change in the future. The
FDA has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or
CBER, to consolidate the review of gene therapy and related products, and has established the Cellular, Tissue and Gene
Therapies Advisory Committee to advise CBER in its review when called upon. Gene therapy clinical trials conducted at
institutions that receive funding for recombinant DNA research from the United States National Institutes of Health, or NIH,
also are potentially subject to review by the NIH Office of Science Policy’s Recombinant DNA Advisory Committee, or the
RAC, in limited circumstances. Although the FDA decides whether individual gene therapy protocols may proceed, the RAC
public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA has reviewed the trial design
and details and authorized its initiation. Conversely, the FDA can put an IND on clinical hold even if the RAC has provided a
favorable review or an exemption from in-depth, public review. If we were to engage an NIH-funded institution, such as our
partnership with The University of California Los Angeles, or UCLA, to conduct a clinical trial, that institution’s institutional
biosafety committee, or IBC, in addition to its institutional review board, or IRB, would need to review the proposed clinical
trial protocol, patient informed consent, as well as other documentation of the safety profile of the drug candidate, to date, to
assess the safety of the trial and may determine that RAC review is needed. In addition, adverse events in clinical trials of gene
therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of
any of our product candidates, which could require additional preclinical studies or clinical trials to support the marketing
approval of our product candidates or which could make our product candidates unable to successfully obtain approval.
Similarly, the European Commission may issue new guidelines concerning the development and marketing authorization for
gene therapies and require that we comply with these new guidelines, which could require additional preclinical studies or
clinical trials to support the marketing approval of our product candidates or which could make our product candidates unable
to successfully obtain approval.
The FDA, NIH and EMA have each expressed interest in further regulating biotechnology, including gene therapy and genetic
testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at
both the federal and state level in the United States, as well as the U.S. congressional committees and other governments or
governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or
prevent commercialization of some or all of our product candidates.
These regulatory review committees and advisory groups and any 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
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positions and interpretations, delay or prevent approval and commercialization of these product candidates or lead to
significant post-approval limitations or restrictions. As we advance our product candidates, we are 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 certain of our product candidates. These additional processes may result in a review and
approval process that is longer than we otherwise would have expected. 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, and our business, financial condition, results of operations and prospects would be materially and
adversely affected.
The FDA recently released a series of draft guidance, which amongst other topics, included various aspects of gene therapy
product development, review, and approval, including aspects relating to clinical and manufacturing issues related to gene
therapy products. We cannot be certain whether future guidance will be issued and be relevant to, or have an impact on, our
gene therapy programs or the duration or expense of any applicable regulatory development and review processes.
Our commercial product and product candidates and the process for administering our commercial product and product
candidates may cause serious or undesirable side effects or adverse events or have other properties that could delay or
prevent regulatory approval, limit commercial potential or result in significant negative consequences for our company.
Following treatment with our gene therapies, patients may experience changes in their health, including illnesses, injuries,
discomforts or a fatal outcome. It is possible that as we test our product candidates in larger, longer and more extensive clinical
programs, or as use of our product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries,
discomforts and other adverse events that were observed in previous clinical trials, as well as conditions that did not occur or
went undetected in previous clinical trials, will be reported by patients. Gene therapies are also subject to the potential risk that
occurrence of adverse events will be delayed following administration of the gene therapy due to persistent biological activity
of the genetic material or other components of the vectors used to carry the genetic material. Many times, additional safety
risks, contraindications, drug interactions, adverse events and side effects are only detectable after investigational products are
tested in larger scale, registrational trials or, in some cases, after they are made available to patients on a commercial scale after
approval. The FDA generally requires long-term follow-up of study subjects. Although the risk profile of a gene therapy
candidate is a factor in determining the adequacy of such long-term follow-up, the FDA currently recommends that sponsors
observe study subjects for potential gene therapy-related adverse events for a 15-year period, including a minimum of five
years of annual examinations followed by ten years of annual queries, either in person or by questionnaire, of study subjects. If
additional experience indicates that any of our product candidates or similar products developed by other companies has side
effects or causes serious or life-threatening side effects, the development of such product candidate may fail or be delayed, or,
if the product has received regulatory approval, such approval may be revoked or limited.
There have been several adverse events and serious adverse events, or SAEs, attributed to gene therapy treatments in the past,
including reported cases of leukemia with the use of gammaretrovirus vector and death seen in other clinical trials. Gene
therapy is still a relatively new approach to disease treatment and additional adverse side effects could develop. Possible
adverse side effects and adverse events that may occur with treatment with gene therapy products include an immunologic
reaction early after administration that could substantially limit the effectiveness of the treatment or represent safety risks for
patients. Another traditional safety concern for gene therapies using viral vectors has been the possibility of insertional
mutagenesis by the vectors, leading to malignant transformation of transduced cells. While our gene therapy approach is
designed to avoid immunogenicity after administration, there can be no assurance that patients would not develop antibodies
that may impair treatment. Our approach involves the use of integrating vectors which have the potential for genomic
disruption and therefore could interfere with other genes with adverse clinical effects. If any of our gene therapy product
candidates demonstrates adverse side effects or adverse events at unacceptable rates or degrees of severity, we may decide or
be required to halt or delay clinical development of such product candidates.
In addition to side effects and adverse events caused by our product candidates, the conditioning, administration process or
related procedures also can cause adverse side effects and adverse events. A gene therapy patient is generally administered
cytotoxic drugs to remove stem cells from the bone marrow to create sufficient space in the bone marrow for the modified stem
cells to engraft and produce new cells. This procedure compromises the patient’s immune system. While certain of our product
candidates are designed to utilize milder conditioning regimens that are intended to require only limited removal of a patient’s
bone marrow cells, the conditioning regimens may not be successful or may nevertheless result in adverse side effects and
adverse events. If in the future we are unable to demonstrate that such adverse events were caused by the conditioning
regimens used, or administration process or related procedure, the FDA, the European Commission, EMA or other regulatory
authorities could order us to cease further development of, or deny approval of, our product candidates for any or all target
indications. Even if we are able to demonstrate that adverse events are not related to the drug product or the administration of
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such drug product, such occurrences could affect patient recruitment, the ability of enrolled patients to complete the clinical
trial, or the commercial viability of any product candidates that obtain regulatory approval.
Additionally, the FDA could require us to adopt a Risk Evaluation and Mitigation Strategy, or REMS, and other non-U.S.
regulatory authorities could impose other specific obligations as a condition of approval to ensure that the benefits of our
product candidates outweigh their risks, which may include, among other things, a medication guide outlining the risks of the
product for distribution to patients, a communication plan to health care practitioners, and restrictions on how or where the
product can be distributed, dispensed or used. Furthermore, if we or others later identify undesirable side effects caused by our
commercial product or product candidates, several potentially significant negative consequences could result, including:
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regulatory authorities may suspend or withdraw approvals of such product or product candidate;
regulatory authorities may require additional warnings or limitations of use in product labeling;
we may be required to change the way a product candidate is distributed, dispensed, or administered or conduct
additional clinical trials;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of Strimvelis and any other products
for which we obtain marketing approval and could significantly harm our business, prospects, financial condition and results of
operations.
To date, most of the clinical trials for our product candidates were conducted as investigator-sponsored clinical trials using
drug product manufactured at the academic sites. Regulatory authorities may closely scrutinize the data collected from
these trials, and may require that we conduct additional clinical trials prior to any marketing approval.
We have limited experience conducting company-sponsored clinical trials and to date most of our product candidates have
been evaluated under investigator-sponsored clinical trials using drug product manufactured at the applicable or relevant
academic site. We did not control the design or administration of these investigator-sponsored trials, nor the submission or
approval of any IND or foreign equivalent required to conduct these clinical trials. Investigator-sponsored clinical trials are
often conducted under less rigorous clinical and manufacturing standards than those used in company-sponsored clinical trials.
For example, the drug product used in our company-sponsored clinical trials is manufactured by third party contract
manufacturing organizations, or CMOs, using current good manufacturing practices, or CGMP, standards. Accordingly,
regulatory authorities may closely scrutinize the data collected from these investigator-sponsored clinical trials, and may
require us to obtain and submit additional clinical data prior to granting any marketing approval, which could delay clinical
development or marketing approval of our product candidates. We will be required to demonstrate comparability between the
manufacturing process used at academic centers with the manufacturing process used at CGMP-compliant CMOs. We may
also be required to demonstrate improved quality and drug product manufacturing state of control in accordance with cGMP
standards. For example, in the compassionate use program conducted by GOSH, one patient experienced an SAE,
staphylococcal infection, possibly resulting from a bacterial growth noted in samples of the fresh drug product during the
transduction procedure at this academic facility. A similar SAE, also staphylococcal infection, was observed in the clinical trial
conducted at UCLA for OTL-101 with the fresh drug product manufactured at the academic facility, also possibly due to
contamination of the drug product. We believe that our commercial manufacturing processes for OTL-101 and our other
product candidates, together with cryopreserved formulation, which allows for safety/microbiological testing to be completed
prior to drug infusion to the patient, could mitigate the risk of such infections, but there can be no assurance that this will be the
case. To the extent that the results of our current company-sponsored trials are inconsistent with, or different from, the results
of any investigator-sponsored trials or raise concerns regarding our product candidates, the regulatory authorities may question
the results from some or all of these trials, and may require us to obtain and submit additional clinical data from drug product
manufactured by CGMP-compliant CMOs prior to granting any marketing approval, which could delay clinical development
or marketing approval of our product candidates.
The interim data and ad hoc analyses summarized in this Annual Report are current as of the dates specified and are
preliminary in nature. Our company-sponsored clinical trials of OTL-101 for ADA-SCID, OTL-200 for MLD and OTL-103
for WAS and the investigator-sponsored clinical trials for OTL-102 for X-CGD and OTL-300 for TDBT are ongoing and
not complete. Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.
From time to time, we may publish interim data and/or ad hoc analyses from investigator-sponsored or company-sponsored
clinical trials of our product candidates. Preliminary data and ad hoc analyses from these clinical trials may change as more
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patient data become available. In general, we seek to conduct interim analyses at times we pre-specify with the applicable
regulators prior to commencement of the trial, at which time we lock and reconcile the database. We may from time to time
elect not to conduct subsequent interim analyses so as not to compromise the statistical analysis plan for the trial. Accordingly,
our interim analyses do not include data subsequent to the cut-off date and may not be available until the next planned interim
analysis. From time to time, preliminary data and ad hoc analyses might be presented, typically by academic investigators at
scientific conferences or in scientific publications.
With respect to clinical trials conducted by our academic or other collaborators, such as UCL, UCLA and GSK, we may not
have access to the most recent clinical data or the clinical data available to us may otherwise be limited or incomplete. Interim
data or ad hoc analyses from these clinical trials are not necessarily predictive of final results. Interim data or ad hoc analyses
are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and/or
more patient data become available to us. Interim, topline and preliminary data and ad hoc analyses also remain subject to audit
and verification procedures that may result in the final data being materially different from the preliminary data available to us
or that we previously published. As a result, preliminary and interim data and ad hoc analyses should be viewed with caution
until the final data are available. Material adverse changes in the final data compared to the preliminary or interim data or ad
hoc analyses could significantly harm our business prospects.
Similarly, the results of preclinical studies and previous clinical trials should not be relied upon as evidence that our ongoing or
future clinical trials will succeed. Trial designs and results from preclinical studies or previous clinical trials are not necessarily
predictive of future clinical trial results or the ability to obtain marketing approval for our product candidates. Our product
candidates may fail to show the desired safety and efficacy in clinical development despite demonstrating positive results in
preclinical studies or having successfully advanced through initial clinical trials or preliminary stages of registrational clinical
trials.
For example, although sustained clinical activity has been observed in clinical trials to date for OTL-101 for ADA-SCID, OTL-
200 for MLD and OTL-103 for WAS, follow-up in each of these clinical trials is ongoing and there can be no assurance that
the results, in each case as of the applicable primary endpoint measurement date, seen in clinical trials of any of our product
candidates ultimately will result in success in clinical trials or marketing approvals. These data, or other positive data, may not
continue or occur for these patients or for any future patients in our ongoing or future clinical trials, and may not be repeated or
observed in ongoing or future trials involving our product candidates. There is limited data concerning long-term safety and
efficacy following treatment with our product candidates. OTL-201 for mucopolysaccharidosis type III A, or MPS-IIIA, and
OTL-202 for mucopolysaccharidosis type III B, or MPS-IIIB, have not yet been tested in humans. These and any of our other
product candidates may fail to adequately demonstrate safety and efficacy in clinical development despite positive results in
preclinical studies. Our product candidates may fail to show the desired safety and efficacy in later stages of clinical
development despite having successfully advanced through initial clinical trials. There can be no assurance that any of these
trials will ultimately be successful or support further clinical advancement or regulatory approval of our product candidates. In
addition, there can be no assurance that we will be able to achieve the same or similar success in our preclinical studies and
clinical trials of our other product candidates.
Favorable results from compassionate use programs may not establish proof of concept, and the FDA or other regulatory
authorities may not accept compassionate use data as sufficient clinical validation in support of our regulatory approval
efforts.
A number of patients have been administered our autologous ex vivo gene therapies through compassionate use programs.
Compassionate use is a term that is used to refer to the use of an investigational drug outside of a clinical trial to treat a patient
with a serious or immediately life-threatening disease or condition who has no comparable or satisfactory alternative treatment
options. Regulators often allow compassionate use on a case-by-case basis for an individual patient or for defined groups of
patients with similar treatment needs. Caution should be given when reviewing and interpreting compassionate use data. While
results from treating patients through compassionate use have in certain cases been encouraging, we cannot be assured that the
results observed in these cases will be observed in our ongoing or future clinical trials or that our ongoing and future clinical
trials will ultimately be successful.
We plan to submit any data available to us from compassionate use cases as part of any regulatory submission for the
applicable product candidate. However, because these patients were not treated as part of a clinical trial in accordance with the
procedures set forth under the applicable clinical trial protocol, regulatory authorities may not accept compassionate use data as
sufficient clinical validation in support of our regulatory approval efforts, or they may find that the data submitted from our
clinical trials are insufficient to support approval. Such decisions could materially and adversely affect our business, financial
condition, results of operations and prospects.
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We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with
clinical trials of our product candidates.
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 our ability to recruit patients to participate as well as the completion of required follow-up
periods. Patients may be unwilling to participate in our gene therapy clinical trials because of negative publicity from adverse
events related to the biotechnology or gene therapy fields, competitive clinical trials for similar patient populations, clinical
trials in product candidates employing our vectors, the existence of current treatments or for other reasons. In addition, the
indications that we are currently targeting and may in the future target are rare diseases, which may limit the pool of patients
that may be enrolled in our ongoing or planned clinical trials. The timeline for recruiting patients, conducting trials and
obtaining regulatory approval of our product candidates may be delayed, which could result in increased costs, delays in
advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical
trials altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with the required or desired
characteristics, to complete our clinical trials in a timely manner. For example, due to the nature of the indications that we are
initially targeting, patients with advanced disease progression may not be suitable candidates for treatment with our product
candidates and may be ineligible for enrollment in our clinical trials. Therefore, early diagnosis in patients with our target
diseases is critical to our success. Patient enrollment and trial completion is affected by factors including the:
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size of the patient population and process for identifying subjects;
design of the trial protocol;
eligibility and exclusion criteria;
safety profile, to date, of the product candidate under study;
perceived risks and benefits of the product candidate under study;
perceived risks and benefits of gene therapy-based approaches to treatment of diseases, including any required
pretreatment conditioning regimens;
availability of competing therapies and clinical trials;
severity of the disease under investigation;
degree of progression of the subject’s disease at the time of enrollment;
availability of genetic testing for potential patients;
proximity and availability of clinical trial sites for prospective subjects;
ability to obtain and maintain subject consent;
risk that enrolled subjects will drop out before completion of the trial;
patient referral practices of physicians; and
ability to monitor subjects adequately during and after treatment.
Our current product candidates are being developed to treat rare conditions. We plan to seek initial marketing approvals in the
United States and the European Union. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient
number of eligible patients to participate in the clinical trials required by the FDA or the EMA. Our ability to successfully
initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in
foreign countries, including:
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difficulty in establishing or managing relationships with academic partners or contract research organizations, or CROs,
and physicians;
different standards for the conduct of clinical trials;
the absence in some countries of established groups with sufficient regulatory expertise for review of gene therapy
protocols;
our inability to locate qualified local consultants, physicians and partners; and
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements,
including the regulation of pharmaceutical and biotechnology products and treatment.
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If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay,
limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business, financial
condition, results of operations and prospects.
We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the
satisfaction of applicable regulatory authorities.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct
extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is
expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as
planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that
may prevent successful or timely completion of clinical development include:
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delays in reaching a consensus with regulatory agencies on study design;
delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
delays in obtaining required IRB approval at each clinical trial site;
delays in recruiting suitable patients to participate in our clinical trials;
imposition of a clinical hold by regulatory agencies;
failure by our academic partners, CROs, other third parties or us to adhere to clinical trial protocol and recordkeeping
requirements;
failure to perform in accordance with the FDA’s good clinical practices, or GCP, or applicable regulatory guidelines in
other countries;
delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites;
delays in having patients complete participation in a study or return for post-treatment follow-up;
clinical trial sites or patients dropping out of a study;
the occurrence of SAEs associated with the product candidate that are viewed to outweigh its potential benefits; or
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our
ability to generate revenues. In addition, if we make changes to our product candidates, we may need to conduct additional
studies to bridge our modified product candidates to earlier versions, which could delay our clinical development plan or
marketing approval for our product candidates. Clinical trial delays could also shorten any periods during which we may have
the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do,
which could impair our ability to successfully commercialize our product candidates and may harm our business and results of
operations.
If the results of our clinical trials are inconclusive or if there are safety concerns or adverse events associated with our product
candidates, we may:
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be delayed in obtaining marketing approval for our product candidates, if at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with, or later become subject to, labeling or a REMS that includes significant use or distribution
restrictions or safety warnings, precautions, contraindications, drug interactions, or adverse events;
be subject to changes with the way the product is administered;
be required to perform additional clinical trials to support comparability or approval or be subject to additional post-
marketing testing requirements;
have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of
a REMS;
be sued by competitors, patent holders, patients, or third-parties; or
experience damage to our reputation.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair
our ability to commercialize our products.
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We may elect to initiate a rolling BLA for our product candidates, in which case the FDA will not complete, and may delay
initiating, its review of the BLA until we submit all of the required information.
A rolling BLA is an application process that allows us to submit the information required by the BLA in sections. The FDA
will not complete, and may delay initiating, its review of our BLA until we submit all of the required information for a full
BLA. If we are delayed or unable to provide this required information it could delay or prevent our ability to obtain regulatory
approvals, as a result of which our business, prospects, financial condition and results of operations may suffer.
The results from our clinical trials for OTL-101 for ADA-SCID, OTL-200 for MLD, OTL-103 for WAS and for any of our
other product candidates may not be sufficiently robust to support the submission of marketing approval for our product
candidates. Before we submit our product candidates for marketing approval, the FDA and/or the EMA may require us to
conduct additional clinical trials, or evaluate patients for an additional follow-up period.
The results from our clinical trials for OTL-101 for ADA-SCID, OTL-200 for MLD and OTL-103 for WAS may not be
sufficiently robust to support the submission of marketing approval for our product candidates. The FDA normally requires two
registrational trials to approve a drug or biologic product, and thus the FDA may require that we conduct additional clinical
trials of our product candidates prior to a BLA submission. The FDA typically does not consider a single clinical trial to be
adequate to serve as a registrational trial unless it is, among other things, well-controlled and demonstrates a clinically
meaningful effect on mortality, irreversible morbidity, or prevention of a disease with potentially serious outcome, and a
confirmatory study would be practically or ethically impossible. Additionally, while the FDA recognizes the potential for
natural history models to augment the need for placebo arms in trials for drugs that target very rare disease, where trial
recruitment can be especially challenging, the FDA has found the use of natural history data as a historical comparator to be
unsuitable for adequate and well-controlled trials in many circumstances. The FDA generally finds trials using historical
controls to be credible only when the observed effect is large in comparison to variability in disease course.
Due to the nature of the indications our product candidates are designed to treat, and the limited number of patients with these
conditions, a placebo-controlled and blinded study is not practicable for ethical and other reasons. It is possible the FDA will
not consider our comparisons to natural history data and, where available, historical transplant data, to provide clinically
meaningful results. Additionally, even though OTL-101 for ADA-SCID, OTL-200 for MLD and OTL-103 for WAS have
achieved the primary endpoints in their respective ongoing clinical trials, neither the FDA nor EMA have approved the primary
endpoints and data in these trials and, therefore, it is still possible that the FDA or EMA may require us to conduct a second
registrational trial, possibly involving a larger sample size or a different clinical trial design, particularly if the FDA or EMA
does not find the results from these trials to be sufficiently persuasive to support a BLA or MAA submission, as applicable.
The FDA or EMA may also require that we conduct a longer follow-up period of patients treated with our product candidates
prior to accepting our BLA or MAA submission, as applicable.
In addition, data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit
or prevent regulatory approval. There can be no assurance that the FDA, EMA or other foreign regulatory bodies will find the
efficacy endpoints in our registrational trials or any efficacy endpoint we propose in future registrational trials to be sufficiently
validated and clinically meaningful, or that our product candidates will achieve the pre-specified endpoints in current or future
registrational trials to a degree of statistical significance, and with acceptable safety profiles. We also may experience
regulatory delays or rejections as a result of many factors, including SAEs involving our product candidates, changes in
regulatory policy or changes in requirements during the period of our product candidate development. Any such delays could
materially and adversely affect our business, financial condition, results of operations and prospects.
We expect that the FDA and EMA will assess the totality of the safety and efficacy data from our product candidates in
reviewing any future BLA or MAA submissions. Based on this assessment, the FDA or EMA may require that we conduct
additional preclinical studies or clinical trials prior to submitting or approving a BLA or MAA for our target indications.
It is possible that the FDA or the EMA may not consider the results of our clinical trials to be sufficient for approval of our
product candidates. If the FDA or the EMA requires additional trials, we would incur increased costs and delays in the
marketing approval process, which may require us to expend more resources than we have available. In addition, it is possible
that the FDA and the EMA may have divergent opinions on the elements necessary for a successful BLA and MAA,
respectively, which may cause us to alter our development, regulatory and/or commercialization strategies.
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70 Orchard Therapeutics plc
Most of the clinical trials for our product candidates conducted to date were conducted at sites outside the United States,
and the FDA may not accept data from trials conducted in such locations.
To date, most of the clinical trials conducted on our product candidates were conducted outside the United States. For example,
we do not yet have an IND open in the United States for OTL-200 for MLD, OTL-103 for WAS or OTL-300 for TDBT.
Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject
to conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by
qualified investigators in accordance with ethical principles. 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, FDA acceptance of the
data will depend on its determination that the trials also complied with all applicable U.S. laws and regulations. If the FDA
does not accept the data from any 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 would delay or permanently halt our development of the
applicable product candidates.
In addition, in order to commence a clinical trial in the United States, we are required to seek FDA acceptance of an IND for
each of our product candidates. We cannot be sure any IND we submit to the FDA, or any similar CTA we submit in other
countries, will be accepted. We may also be required to conduct additional preclinical testing prior to submitting an IND for
any of our product candidates, and the results of any such testing may not be positive. Consequently, we may be unable to
successfully and efficiently execute and complete necessary clinical trials in a way that leads to a BLA submission and
approval of our product candidates. We may require more time and incur greater costs than our competitors and may not
succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays
in, our planned clinical trials, could prevent us from or delay us in commercializing our product candidates.
We may be unable to demonstrate comparability between drug product manufactured using hematopoietic stem cells, or
HSCs, derived from the patient’s mobilized peripheral blood and drug product manufactured using HSCs derived from the
patient’s bone marrow and/or comparability between drug product that has been cryopreserved and fresh drug product
and/or demonstrate comparability between the manufacturing process used at academic centers with the manufacturing
process used at CMOs. Failure to demonstrate such comparability could adversely affect our ability to secure regulatory
approval for our product candidates, or could adversely affect the commercial viability of our product candidates if
approved for use using only HSCs derived using bone marrow and/or fresh drug product.
To date, most of the patients who have been treated in clinical trials involving our product candidates received fresh drug
product manufactured using HSCs derived from the patient’s bone marrow at academic centers. We are currently evaluating
our product candidates and plan to seek marketing approval using drug product that is manufactured at CMOs using HSCs
derived from either the patient‘s bone marrow or mobilized peripheral blood and using a procedure by which the gene-
modified HSCs are cryopreserved in order to maintain the cellular material in suitable condition until it is thawed prior to being
infused into the patient.
In those cases where clinical trials were conducted using vector and/or drug product manufactured at academic research
centers, we will need to demonstrate comparability between vector and drug product manufactured by our CMOs with vector
and/or drug product manufactured at such academic centers. Similarly, in those cases where clinical trials were conducted
using fresh drug product, we will need to demonstrate comparability between drug product that has been cryopreserved and
fresh drug product. In some cases, clinical trials were conducted using drug product using bone marrow or mobilized peripheral
blood, or both, as the cellular source. In some cases, we may seek to demonstrate comparability between drug product
manufactured using one cellular source and another and in some cases we may elect to initially seek approval of our product
candidate using one cellular source only, and subsequently seek approval for the use of the other cellular source. We cannot be
assured that the FDA, EMA or other regulatory authority will not require us to conduct additional analytical comparability
analyses, preclinical studies and/or clinical trials before approving our product candidates using these production methods and
processes. Moreover, we cannot be assured that our analytical comparability analyses or clinical trials will be sufficiently
robust to support approval or our product candidates using these production methods and processes. For example, both the
FDA and the EMA has advised us that it will require clinical data using drug product that has been cryopreserved as part of our
planned BLA and MAA submissions for OTL-103 for WAS. In addition, we are conducting a clinical trial at UCLA using a
cryopreserved formulation of OTL-101 (with bone marrow as the cellular source). In this trial, one of the 10 patients treated
with this formulation failed to engraft, although we do not believe engraftment failure was due to use of a cryopreserved
formulation.
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If the FDA, EMA or other regulatory authority does not accept our comparability data, our regulatory approval for such
product candidate, if any, will be limited or delayed. For example, if one or more of these regulatory authorities does not accept
that our cryopreservation process produces a product candidate that is comparable to our fresh drug product, our regulatory
approval, if any, would be limited to our fresh product candidate until we are able to provide the regulator with satisfactory
comparability data, which may include data from additional clinical trials. Similarly, if one or more of these regulatory
authorities does not accept that our drug product manufactured with HSCs derived from the patient’s mobilized peripheral
blood is comparable to drug product manufactured with HSCs derived from the patient’s bone marrow, our regulatory
approval, if any, would be limited to drug product manufactured with HSCs derived from the patient’s bone marrow until we
are able to provide the regulator with satisfactory comparability data, which may include data from additional clinical trials.
Failure to demonstrate such comparability, or if we are required to conduct additional testing or additional clinical trials,
potentially at additional sites, would adversely affect the commercial viability of our product candidates and may adversely
affect our ability to generate revenue, as a result of which our business, prospects, financial condition and results of operations
may suffer.
Even if we complete the necessary preclinical studies and clinical trials, we cannot predict when or if we will obtain
regulatory approval to commercialize a product candidate and the approval may be for a more narrow indication than we
seek.
We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product
candidate. Even if our product candidates demonstrate safety and efficacy in clinical trials, the regulatory agencies may not
complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Many companies in
the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after
achieving promising results in preclinical testing and earlier-stage clinical trials. Additional delays may result if an FDA
Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may
experience delays or rejections based upon additional government regulation from future legislation or administrative action, or
changes in regulatory agency policy during the period of product development, clinical trials and the review process.
In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful
commercialization of our product candidates. For example, regulatory agencies may approve a product candidate for fewer or
more limited indications than requested or may grant approval subject to the performance of post-marketing studies. Regulators
may approve a product candidate for a smaller patient population (such as pre-symptomatic MLD patients as opposed to
symptomatic patients), drug formulation (such as drug product using HSCs derived from bone marrow as opposed to mobilized
peripheral blood or vice versa) or manufacturing processes (such as fresh drug product as opposed to cryopreserved), than we
are seeking. If we are unable to obtain necessary regulatory approvals, or more limited regulatory approvals than we expect,
our business, prospects, financial condition and results of operations may suffer.
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-
consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our
product candidates. If we or any future collaborators are not able to obtain, or if there are delays in obtaining, required
regulatory approvals, we or they will not be able to commercialize our product candidates, and our ability to generate
revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design,
testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution,
export and import, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and
by the EMA and comparable regulatory authorities in other countries. Failure to obtain marketing approval for a product
candidate will prevent us from commercializing such product candidate. We have not received approval to market any of our
product candidates from regulatory authorities in any jurisdiction. We have only limited experience in submitting and
supporting the applications necessary to gain marketing approvals and expect to rely on third-party CROs to assist us in this
process.
Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to
the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy.
Securing regulatory approval also requires the submission of extensive information about the product manufacturing process
and controls up to and including inspection of manufacturing facilities by, the relevant regulatory authority. Our product
candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects,
toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.
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The process of obtaining marketing approvals, both in the United States and abroad, is expensive (the submission fee in the
United States is more than $2.0 million and may be higher in the future), may take many years if additional clinical trials are
required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type,
complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development
period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted
product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in
other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that
our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying
interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a
drug candidate. Any marketing approval of our product candidates that we, or any future collaborators, ultimately obtain may
be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Accordingly, if we or any future collaborators experience delays in obtaining approval or if we or they fail to obtain approval
of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate
revenues will be materially impaired.
While we intend to seek designations for our product candidates with the FDA and comparable other regulatory authorities
that are intended to confer benefits such as a faster development process or an accelerated regulatory pathway, there can be
no assurance that we will successfully obtain such designations. In addition, even if one or more of our product candidates
are granted such designations, we may not be able to realize the intended benefits of such designations.
The FDA and comparable other regulatory authorities offer certain designations for product candidates that are designed to
encourage the research and development of product candidates that are intended to address conditions with significant unmet
medical need. These designations may confer benefits such as additional interaction with regulatory authorities, a potentially
accelerated regulatory pathway and priority review. OTL-101 for ADA-SCID has received a Breakthrough Therapy
Designation from the FDA, but there can be no assurance that we will successfully obtain such designation for any of our other
product candidates. In addition, while such designations could expedite the development or approval process, they generally do
not change the standards for approval. Even if we obtain such designations for one or more of our product candidates, there can
be no assurance that we will realize their intended benefits.
For example, we may seek a Breakthrough Therapy Designation for some of our other product candidates. A breakthrough
therapy is defined as a therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or
life-threatening disease or condition, and preliminary clinical evidence indicates that the therapy may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects
observed early in clinical development. For therapies that have been designated as breakthrough therapies, interaction and
communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical
development while minimizing the number of patients placed in ineffective control regimens. Therapies designated as
breakthrough therapies by the FDA are also eligible for accelerated approval. Designation as a breakthrough therapy is within
the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a
breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a
Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval
compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by
the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later
decide that such product candidates no longer meet the conditions for qualification.
In addition, the FDA has granted Rare Pediatric Disease designation to Strimvelis, OTL-101 for ADA-SCID, OTL-200 for
MLD, OTL-103 for WAS and OTL-201 for MPS-IIIA, and we may seek Rare Pediatric Disease designation for some of our
other product candidates. The FDA defines a “rare pediatric disease” as a serious or life-threatening disease in which the
serious of life-threatening manifestations primarily affect individuals aged from birth to 18 years and the disease affects fewer
than 200,000 individuals in the U.S. or affects more than 200,000 in the U.S. and for which there is no reasonable expectation
that the cost of developing and making in the U.S. a drug for such disease or condition will be received from sales in the U.S.
of such drug. Under the FDA’s Rare Pediatric Disease Priority Review Voucher, or PRV, program, upon the approval of a
BLA for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a Rare Pediatric Disease
PRV that can be used to obtain priority review for a subsequent new drug application or BLA. The PRV may be sold or
transferred an unlimited number of times. Congress has extended the PRV program until September 30, 2020, with potential
for PRVs to be granted until 2022. This program has been subject to criticism, including by the FDA, and it is possible that
even if we obtain approval for OTL-101 for ADA-SCID, OTL-200 for MLD, OTL-103 for WAS and OTL-201 for MPS-IIIA
and qualify for such a PRV, the program may no longer be in effect at the time or the value of any such PRV may decrease
such that we are may not be able to realize the benefits of such PRV.
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In addition, we may seek Fast Track Designation for some of our product candidates. If a therapy is intended for the treatment of a
serious or life-threatening condition and the therapy demonstrates the potential to address unmet medical needs for this condition,
the therapy sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation,
so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would
decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or
approval compared to conventional FDA procedures, and receiving a Fast Track Designation does not provide assurance of ultimate
FDA approval. In addition, the FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported
by data from our clinical development program.
In addition, we may seek a regenerative medicine advanced therapy, or RMAT, designation for some of our product
candidates. An RMAT is defined as cell therapies, therapeutic tissue engineering products, human cell and tissue products, and
combination products using any such therapies or products. Gene therapies, including genetically modified cells that lead to a
durable modification of cells or tissues may meet the definition of a regenerative medicine therapy. The RMAT program is
intended to facilitate efficient development and expedite review of RMATs, which are intended to treat, modify, reverse, or
cure a serious or life-threatening disease or condition and for which preliminary clinical evidence indicates that the drug has the
potential to address unmet medical needs for such disease or condition. A BLA for an RMAT may be eligible for priority
review or accelerated approval. An RMAT may be eligible for priority review if it treats a serious condition, and, if approved
would provide a significant improvement in the safety or effectiveness of the treatment of the condition. An RMAT may be
eligible for accelerated approval through (1) surrogate or intermediate endpoints reasonably likely to predict long-term clinical
benefit or (2) reliance upon data obtained from a meaningful number of sites. Benefits of such designation also include early
interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A
regenerative medicine therapy that is granted accelerated approval and is subject to post-approval requirements may fulfill such
requirements through the submission of clinical evidence, clinical trials, patient registries, or other sources of real world
evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all
patients treated with such therapy prior to its approval. RMAT designation is within the discretion of the FDA. Accordingly,
even if we believe one of our product candidates meets the criteria for designation as a RMAT, the FDA may disagree and
instead determine not to make such designation. In any event, the receipt of RMAT designation for a product candidate may
not result in a faster development process, review or approval compared to drugs considered for approval under conventional
FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates
qualify as for RMAT designation, the FDA may later decide that the biological products no longer meet the conditions for
qualification.
We may seek priority review designation for one or more of our product candidates, but we might not receive such
designation, and even if we do, such designation may not lead to a faster regulatory review or approval process.
If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would
provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A
priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review
period of ten months. We may request priority review for our product candidates. The FDA has broad discretion with respect to
whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible
for such designation or status, in particular if such product candidate has received a Breakthrough Therapy designation or RMAT
designation, the FDA may decide not to grant it. Moreover, a priority review designation does not result in expedited development
and does not necessarily result in expedited regulatory review or approval process or necessarily confer any advantage with respect
to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval
within the six-month review cycle or at all.
Under the terms of the GSK Agreement, we are required to use commercially reasonable efforts to obtain a PRV from the FDA
for each of OTL-200 for MLD, OTL-103 for WAS and OTL-300 for TDBT and to transfer the first such PRV to GSK. GSK
also has an option to acquire at a defined price any PRV granted to us thereafter for OTL-200 for MLD, OTL-103 for WAS
and OTL-300 for TDBT. In the event that GSK does not exercise this option with respect to any PRV, we may sell the PRV to
a third party and must share any proceeds in excess of a specified sale price equally with GSK.
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We have sought and received orphan drug designation for OTL-101 for ADA-SCID, OTL-200 for MLD, OTL-103 for WAS
and OTL-201 for MPS-IIIA from the FDA and EMA and for OTL-102 for X-CGD and OTL-300 for TDBT from the EMA,
but we may be unable to obtain orphan drug designation for our other product candidates and, even if we obtain such
designation, we may not be able to realize the benefits of such designation, including potential marketing exclusivity of our
product candidates, if approved.
Regulatory authorities in some jurisdictions, including the United States and other major markets, may designate drugs
intended to treat conditions or diseases affecting relatively small patient populations as orphan drugs. Under the Orphan Drug
Act of 1983, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition,
which is generally defined as having a patient population of fewer than 200,000 individuals in the United States, or a patient
population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the
drug will be recovered from sales in the United States. In the European Union, EMA’s Committee for Orphan Medicinal
Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention
or treatment of a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the
European Union. Additionally, orphan designation is granted for products intended for the diagnosis, prevention or treatment
of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that
sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or
biologic product.
We have sought and received orphan drug designation for OTL-101 for ADA-SCID, OTL-200 for MLD, OTL-103 for WAS
and OTL-201 for MPS-IIIA from the FDA and EMA and for OTL-102 for X-CGD and OTL-300 for TDBT from the EMA. If
we request orphan drug designation for any of our other product candidates, there can be no assurances that the FDA or EMA
will grant any of our product candidates such designation. Additionally, the designation of any of our product candidates as an
orphan product does not mean that any regulatory agency will accelerate regulatory review of, or ultimately approve, that
product candidate, nor does it limit the ability of any regulatory agency to grant orphan drug designation to product candidates
of other companies that treat the same indications as our product candidates prior to our product candidates receiving exclusive
marketing approval.
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for
which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or EMA
from approving another marketing application for a product that constitutes the same drug treating the same indication for that
marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before we do
(regardless of our orphan drug designation), we will be precluded from receiving marketing approval for our product for the
applicable exclusivity period. The applicable period is seven years in the United States and 10 years in the European Union.
The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan
drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug
exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if
the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or
condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product
candidate from competition because different drugs can be approved for the same condition. In the United States, even after an
orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that
the latter drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or makes a major
contribution to patient care. In the European Union, marketing authorization may be granted to a similar medicinal product for
the same orphan indication if:
•
•
•
the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal
product already authorized, is safer, more effective or otherwise clinically superior;
the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan
medicinal product application; or
the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of
orphan medicinal product.
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Even if we obtain and maintain approval for our product candidates in one jurisdiction, we may never obtain approval for
our product candidates in other jurisdictions, which would limit our market opportunities and adversely affect our business.
Approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by the
EMA or other regulatory authorities in other countries or jurisdictions, and approval by the EMA or another regulatory
authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of our product
candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and
marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of
foreign countries also must approve the manufacturing and marketing of the product candidates in those countries. Approval
procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more
onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the
United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In
some cases, the price that we intend to charge for our products, if approved, is also subject to approval. We intend to submit an
MAA to the EMA for approval of our product candidates in the European Union but obtaining such approval from the
European Commission following the opinion of EMA is a lengthy and expensive process. Even if a product candidate is
approved, the FDA or the European Commission may limit the indications for which the product may be marketed, require
extensive warnings on the product labeling or require expensive and time-consuming additional clinical trials or reporting as
conditions of approval. Regulatory authorities in countries outside of the United States and the European Union also have
requirements for approval of product candidates with which we must comply prior to marketing in those countries. Obtaining
foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties
and costs for us and could delay or prevent the introduction of our product candidates in certain countries.
Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also,
regulatory approval for any of our product candidates may be withdrawn. If we fail to comply with the regulatory
requirements, our target market will be reduced and our ability to realize the full market potential of our product candidates
will be harmed and our business, financial condition, results of operations and prospects will be harmed.
Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly
referred to as Brexit. On March 29, 2017, the country formally notified the European Union of its intention to withdraw
pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of the regulatory framework in the United Kingdom
is derived from European Union directives and regulations, the referendum could materially impact the regulatory regime with
respect to the approval of our product candidates in the United Kingdom or the European Union. Any delay in obtaining, or an
inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our
product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve
and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory
approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially
harm our business.
We may seek a conditional marketing authorization in Europe for some or all of our current product candidates, but we
may not be able to obtain or maintain such designation.
As part of its marketing authorization process, the EMA may grant marketing authorizations for certain categories of medicinal
products on the basis of less complete data than is normally required, when doing so may meet unmet medical needs of patients
and serve the interest of public health. In such cases, it is possible for the Committee for Medicinal Products for Human Use, or
CHMP, to recommend the granting of a marketing authorization, subject to certain specific obligations to be reviewed
annually, which is referred to as a conditional marketing authorization. This may apply to medicinal products for human use
that fall under the jurisdiction of the EMA, including those that aim at the treatment, the prevention, or the medical diagnosis of
seriously debilitating or life-threatening diseases and those designated as orphan medicinal products.
A conditional marketing authorization may be granted when the CHMP finds that, although comprehensive clinical data
referring to the safety and efficacy of the medicinal product have not been supplied, all the following requirements are met:
•
•
•
•
the risk-benefit balance of the medicinal product is positive;
it is likely that the applicant will be in a position to provide the comprehensive clinical data;
unmet medical needs will be fulfilled; and
the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the
risk inherent in the fact that additional data is still required.
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The granting of a conditional marketing authorization is restricted to situations in which only the clinical part of the application
is not yet fully complete. Incomplete preclinical or quality data may only be accepted if duly justified and only in the case of a
product intended to be used in emergency situations in response to public health threats. Conditional marketing authorizations
are valid for one year, on a renewable basis. The holder will be required to complete ongoing trials or to conduct new trials
with a view to confirming that the benefit-risk balance is positive. In addition, specific obligations may be imposed in relation
to the collection of pharmacovigilance data.
Granting a conditional marketing authorization allows medicines to reach patients with unmet medical needs earlier than might
otherwise be the case and will ensure that additional data on a product is generated, submitted, assessed and acted upon.
Although we may seek a conditional marketing authorization for one or more of our product candidates by the EMA, the
CHMP may ultimately not agree that the requirements for such conditional marketing authorization have been satisfied and
hence delay the commercialization of our product candidates.
Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory oversight.
Strimvelis and any of our product candidates for which we obtain regulatory approval will be subject to ongoing regulatory
requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and
submission of safety and other post-market information. Any regulatory approvals that we receive for our product candidates
also may be subject to a REMS, limitations on the approved indicated uses for which the product may be marketed or to the
conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials,
and surveillance to monitor the quality, safety and efficacy of the product. For example, in the United States, the holder of an
approved BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the
BLA. FDA guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential
adverse events for as long as 15 years. The holder of an approved BLA also must submit new or supplemental applications and
obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and
promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable
federal and state laws.
In the European Union, the advertising and promotion of our products are subject to European Union laws governing
promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial
practices. In addition, other legislation adopted by individual European Union Member States may apply to the advertising and
promotion of medicinal products. These laws require that promotional materials and advertising for medicinal products are
consistent with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. The
SmPC is the document that provides information to physicians concerning the safe and effective use of the medicinal product.
It forms an intrinsic and integral part of the marketing authorization granted for the medicinal product. Promotion of a
medicinal product that does not comply with the SmPC is considered to constitute off-label promotion. The off-label promotion
of medicinal products is prohibited in the European Union. The applicable laws at European Union level and in the individual
European Union Member States also prohibit the direct-to-consumer advertising of prescription-only medicinal products.
Violations of the rules governing the promotion of medicinal products in the European Union could be penalized by
administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of our
products to the general public and may also impose limitations on our promotional activities with health care professionals.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic
inspections by the FDA and other regulatory authorities for compliance CGMP requirements and adherence to commitments
made in the BLA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems
with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is
manufactured or disagrees with the promotion, marketing or labeling of that product, a regulatory authority may impose
restrictions relative to that product, the manufacturing facility or us, including requiring recall or withdrawal of the product
from the market or suspension of manufacturing.
If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory
authority may:
•
•
•
issue a warning letter asserting that we are in violation of the law;
seek an injunction or impose administrative, civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
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Orchard Therapeutics plc 77
•
•
•
•
•
•
suspend any ongoing clinical trials;
refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by
us or our strategic partners;
restrict the marketing or manufacturing of the product;
seize or detain the product or otherwise require the withdrawal of the product from the market;
refuse to permit the import or export of products; or
refuse to allow us to enter into supply contracts, including government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in
response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability
to commercialize our product candidates and adversely affect our business, financial condition, results of operations and
prospects.
In addition, the FDA’s policies, and those of the EMA and other regulatory authorities, may change and additional government
regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict
the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either
in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new
requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we
may have obtained and we may not achieve or sustain profitability, which would materially and adversely affect our business,
financial condition, results of operations and prospects.
Both marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory
oversight by the EMA and the competent authorities of the individual European Union Member States both before and after
grant of the manufacturing and marketing authorizations. This includes control of compliance with CGMP rules, which govern
quality control of the manufacturing process and require documentation policies and procedures. We and our third-party
manufacturers would be required to ensure that all of our processes, quality systems, methods, and equipment are compliant
with CGMP. Failure by us or by any of our third-party partners, including suppliers, manufacturers, and distributors to comply
with European Union laws and the related national laws of individual European Union Member States governing the conduct
of clinical trials, manufacturing approval, marketing authorization of medicinal products, both before and after grant of
marketing authorization, and marketing of such products following grant of authorization may result in administrative, civil, or
criminal penalties. These penalties could include delays in or refusal to authorize the conduct of clinical trials or to grant
marketing authorization, product withdrawals and recalls, product seizures, suspension, or variation of the marketing
authorization, total or partial suspension of production, distribution, manufacturing, or clinical trials, operating restrictions,
injunctions, suspension of licenses, fines, and criminal penalties.
In addition, European Union legislation related to pharmacovigilance, or the assessment and monitoring of the safety of
medicinal products, provides that EMA and the competent authorities of the European Union Member States have the authority
to require companies to conduct additional post-approval clinical efficacy and safety studies. The legislation also governs the
obligations of marketing authorization holders with respect to additional monitoring, adverse event management and reporting.
Under the pharmacovigilance legislation and its related regulations and guidelines, we may be required to conduct a
burdensome collection of data regarding the risks and benefits of marketed products and may be required to engage in ongoing
assessments of those risks and benefits, including the possible requirement to conduct additional clinical trials, which may be
time-consuming and expensive and could impact our profitability. Non-compliance with such obligations can lead to the
variation, suspension or withdrawal of marketing authorization or imposition of financial penalties or other enforcement
measures.
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We face significant competition in our industry and there can be no assurance that our product candidates, if approved, will
achieve acceptance in the market over existing established therapies. In addition, our competitors may develop therapies
that are more advanced or effective than ours, which may adversely affect our ability to successfully market or
commercialize any of our product candidates.
We operate in a highly competitive segment of the biopharmaceutical market. We face competition from many different
sources, including larger pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as from academic
institutions, government agencies and private and public research institutions. Our product candidates, if successfully
developed and approved, will compete with established therapies, some of which are being marketed by large and international
companies. In addition, we expect to compete with new treatments that are under development or may be advanced into the
clinic by our competitors. There are a variety of product candidates, including gene therapies, in development for the
indications that we are targeting.
We rely primarily on know-how and trade secret protection for aspects of our proprietary technologies, our commercial product
Strimvelis and our product candidates. We do not have any issued patents covering our commercial product Strimvelis or our
product candidates, and only one patent family with patent applications pending in the United States and Europe with patent
claims directed to our OTL-101 product candidate and its use in the treatment of ADA-SCID. This means that barriers to entry
that typically apply in the case of pharmaceutical and biopharmaceutical companies with issued patents covering aspects of
their proprietary technologies, products and product candidates, such as composition of matter claims, will generally not apply
to our commercial product or our product candidates, and this may expose us to intense competition from other
biopharmaceutical companies, particularly those companies that possess greater financial resources and more mature product
candidate development, manufacturing, marketing and distribution resources than we do. Although our product candidates, if
approved, may be eligible for marketing and/or data exclusivities in, for example, the United States and Europe, these
exclusivities would not prevent another biopharmaceutical company from conducting its own clinical trials to develop and seek
regulatory approval of a competitive product. We are not the only company that is developing and commercializing products
using a lentiviral-based autologous ex vivo gene approach, and these competitive approaches may be comparable or superior to
our approach. One or more of these companies may seek to develop products that compete directly with our commercial
product or one or more of our product candidates, the result of which could have a material adverse effect on our business.
bluebird bio is developing Lentiglobin, a lentiviral-based autologous ex vivo gene therapy for TDBT. In October 2018, bluebird
bio announced that the EMA had accepted its MAA for Lentiglobin for the treatment of adolescents and adults with TDBT and
a non-ß0/ß0 genotype. bluebird bio has publicly announced its intention to file a BLA in the United States for Lentiglobin in
the future. This product candidate has been granted orphan drug status by both the FDA and EMA for the treatment of beta-
thalassemia, Fast Track Designation by the FDA for the treatment of beta-thalassemia major, Breakthrough Therapy
Designation by the FDA for the treatment of transfusion-dependent patients with beta-thalassemia major and Priority
Medicines (PRIME) scheme by the EMA for the treatment of TDBT. If bluebird bio’s product candidate receives marketing
approval in the European Union or the United States, these designations may delay or prevent our ability to commercialize
OTL-300 for TDBT for the applicable periods.
In addition, many universities and private and public research institutes are active in our target disease areas.
Many of our competitors have significantly greater financial, product candidate development, manufacturing and marketing
resources than we do. Large pharmaceutical and biotechnology companies have extensive experience in clinical testing and
obtaining regulatory approval for their products, and mergers and acquisitions within these industries may result in even more
resources being concentrated among a smaller number of larger competitors. Established pharmaceutical companies may also
invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could
make the product candidates that we develop obsolete. Competition may increase further as a result of advances in the
commercial applicability of technologies and greater availability of capital for investment in these industries. Our business
would be materially and adversely affected if competitors develop and commercialize products that are safer, more effective,
have fewer or less severe side effects, have broader market acceptance, are more convenient or are less expensive than any
product candidate that we may develop.
Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could
limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business
plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from
existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or
choose to reserve our product candidates for use in limited circumstances.
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Our focus on developing our current product candidates may not yield any commercially viable products, and our failure to
successfully identify and develop additional product candidates could impair our ability to grow.
As part of our growth strategy, we intend to identify, develop and market additional product candidates beyond our existing
product candidates for ADA-SCID, MLD, WAS, X-CGD and TDBT. We may spend several years completing our
development of any particular current or future product candidates, and failure can occur at any stage. The product candidates
to which we allocate our resources may not end up being successful. Because we have limited resources, we may forego or
delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater
commercial potential than OTL-101 for ADA-SCID, OTL-200 for MLD, OTL-103 for WAS or our other product candidates.
Our spending on current and future research and development programs may not yield any commercially viable product
candidates. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish
valuable rights to that product candidate through strategic collaborations, licensing or other arrangements in cases in which it
would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
If any of these events occur, we may be forced to abandon our development efforts with respect to a particular product
candidate or fail to develop a potentially successful product candidate.
Because our internal research capabilities are limited, we may be dependent upon biotechnology companies, academic
scientists and other researchers to sell or license product candidates, approved products or the underlying technology to us. The
success of this strategy depends partly upon our ability to identify, select, discover and acquire promising product candidates
and products.
In addition, certain of our current or future product candidates may not demonstrate in patients any or all of the
pharmacological benefits we believe they may possess or compare favorably to existing, approved therapies, such as ERT. We
have not yet succeeded and may never succeed in demonstrating efficacy and safety of our product candidates or any future
product candidates in clinical trials or in obtaining marketing approval thereafter. For example, although we acquired
Strimvelis, we have not yet obtained regulatory approval to sell any of our other product candidates based on our therapeutic
approaches. Accordingly, our focus on treating rare diseases may not result in the discovery and development of commercially
viable products.
If we are unsuccessful in our development efforts, we may not be able to advance the development of our product candidates,
commercialize products other than Strimvelis, raise capital, expand our business or continue our operations.
Risks related to manufacturing and supply
Gene therapies are novel, complex and difficult to manufacture. We have limited manufacturing experience. We could
experience manufacturing problems that result in delays in the development or commercialization of our commercial
product or our product candidates or otherwise harm our business.
Biological products are inherently difficult to manufacture, and gene therapy products are complex biological products, the
development and manufacture of which necessitates substantial expertise and capital investment. Strimvelis and our product
candidates are individually manufactured for each patient using complex processes in specialized facilities. Our production
process requires a variety of raw materials, some of which are highly specialized, including the viral vector that encodes for the
functional copy of the missing or faulty gene to treat a specific disease. Some of these raw materials have limited and, in some
cases, sole suppliers. Even though we plan to have back-up supplies of raw materials whenever possible, we cannot be certain
such supplies will be sufficient if our primary sources are unavailable. A shortage of a critical raw material or a technical issue
during manufacturing may lead to delays in clinical development or commercialization of our product candidates. Additionally,
production difficulties caused by unforeseen events may delay the availability of one or more of the necessary raw materials or
delay the manufacture of our product candidates for use in clinical trials or for commercial supply.
We have contracted with third party CMOs for the manufacture of our viral vectors and drug product. We expect these CMOs
will be capable of providing sufficient quantities of our viral vectors and gene therapy products to meet the anticipated scales
for our clinical trials and current and initial commercial demands, if approved. However, to meet our projected needs for
further commercial manufacturing and clinical trials of new product candidates, third parties with whom we currently work
might need to increase their scale and frequency of production or we will need to secure alternate suppliers or have in-house
capabilities. We believe that there are alternate sources of supply that can satisfy our clinical and commercial requirements,
although we cannot be certain that identifying and establishing relationships with such sources, if necessary, would not result in
significant delay or material additional costs.
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80 Orchard Therapeutics plc
We have limited experience manufacturing our product candidates. On December 13, 2018, we entered into a long-term lease
agreement for our own gene therapy manufacturing facility in Fremont, California. We are in the process of building out this
manufacturing facility to develop CGMP manufacturing capacity for both lentiviral vector and cryopreserved cell therapy
products. We may be unable to produce clinical or commercial viral vectors or Strimvelis or our product candidates or meet
demand to support a clinical trial or a commercial launch for our product candidates. Any such failure could delay or prevent
the development of our product candidates and would have a negative impact on our business, financial condition and results of
operations.
Additionally, the manufacturers of pharmaceutical products must comply with strictly enforced CGMP requirements, state and
federal regulations, as well as foreign requirements when applicable. Any failure of us or our CMOs to adhere to or document
compliance to such regulatory requirements could lead to a delay or interruption in the availability of our program materials for
clinical trials. If we or our manufacturers were to fail to comply with the FDA, EMA, or other regulatory authority, it could
result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or
withdrawal of approvals, license revocation, seizures or recalls of raw materials, product candidates or products, operating
restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.
Our potential future dependence upon others for the manufacture of our gene therapies may also adversely affect our future
profit margins and our ability to commercialize any product candidates that receive regulatory approval on a timely and
competitive basis.
Delays in obtaining regulatory approval of our or our CMOs’ manufacturing process and facility or disruptions in our
manufacturing process may delay or disrupt our commercialization efforts. Until recently, no CGMP gene therapy
manufacturing facility in the United States had received approval from the FDA for the manufacture of an approved gene
therapy product.
Before we can begin to commercially manufacture our viral vector or product candidates in our own facility, or the facility of a
CMO, we must obtain regulatory approval from the FDA for our manufacturing processes and for the facility in which
manufacturing is performed. A manufacturing authorization must also be obtained from the appropriate European Union
regulatory authorities. Until recently, no CGMP gene therapy manufacturing facility in the United States had received approval
from the FDA for the manufacture of an approved gene therapy product and, therefore, the timeframe required for us to obtain
such approval is uncertain. In addition, we must pass a pre-approval inspection of our or our CMOs manufacturing facility by
the FDA and other relevant regulatory authorities before any of our gene therapy product candidates can obtain marketing
approval. In order to obtain approval, we will need to ensure that all of our processes, quality systems, methods, equipment
policies and procedures are compliant with CGMP, and perform extensive audits of vendors, contract laboratories, CMOs and
suppliers. If we or any of our vendors, contract laboratories, CMOs or suppliers is found to be out of compliance with CGMP,
we may experience delays or disruptions in manufacturing while we work with these third parties to remedy the violation or
while we work to identify suitable replacement vendors. The CGMP requirements govern quality control of the manufacturing
process and documentation policies and procedures. In complying with CGMP, we will be obligated to expend time, money
and effort in production, record keeping and quality control to assure that the product meets applicable specifications and other
requirements. If we fail to comply with these requirements, we would be subject to possible regulatory action and may not be
permitted to sell any products that we may develop.
We are in the process of building out our Fremont, California manufacturing facility for the manufacture of our viral
vectors and product candidates, which will be costly, time-consuming, and which may not be successful.
We have entered into a lease for a 152,995 square foot facility located in Fremont, California to serve as an alternative or an
addition to our reliance on CMOs, for the manufacture of our viral vectors and product candidates. We plan to renovate and
customize this facility for the manufacture of lentiviral vectors and product candidates. We expect that development of our own
manufacturing facility will provide us with enhanced control of material supply for both clinical trials and commercialization,
enable the more rapid implementation of process changes, and allow for better long-term margins. However, we have no experience
as a company in developing a manufacturing facility and may never be successful in developing our own manufacturing facility or
capability. Furthermore, we will need to hire additional personnel to manage our operations and facilities and develop the necessary
infrastructure to continue the development, and eventual commercialization, if approved, of our product candidates. We, as a
company, have no previous experience in setting up, building or eventually managing a manufacturing facility. If we failed to select
the correct location, or if we fail to complete the planned renovation and customization of our Fremont, California facility in an
efficient manner, or fail to recruit the required personnel and generally manage our growth effectively, the development and
production of our viral vectors and product candidates could be curtailed or delayed. We may establish multiple manufacturing
facilities as we expand our commercial footprint to multiple geographies, which may lead to regulatory delays or prove costly. Even
if we are successful, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor
shortages, natural disasters, power failures and numerous other factors that could prevent us from realizing the intended benefits of
our manufacturing strategy and have a material adverse effect on our business.
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In addition, the FDA, the EMA and other foreign regulatory authorities may require us to submit samples of any lot of any
approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances,
the FDA, the EMA or other foreign regulatory authorities may require that we not distribute a product lot until the relevant
agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and
stability, may result in unacceptable changes in a viral vector or a gene therapy product that could result in lot failures or
product recalls. Lot failures or product recalls could cause us to delay product launches or clinical trials, which could be costly
to us and otherwise harm our business, financial condition, results of operations and prospects. Problems in our manufacturing
processes could restrict our ability to meet market demand for our products.
We also may encounter problems hiring and retaining the experienced technical, quality control, quality assurance and
manufacturing personnel needed to operate our manufacturing processes and facilities, which could result in delays in
production or difficulties in maintaining compliance with applicable regulatory requirements.
Any problems in our manufacturing process or facilities could make us a less attractive collaborator for potential partners,
including larger pharmaceutical companies and academic research institutions, which could limit our access to additional
attractive development programs.
We do not have experience as a company managing a manufacturing facility and complex supply chain.
Operating our own manufacturing facility in Fremont, California requires significant resources, and we do not have experience
as a company in managing a manufacturing facility and complex supply chain. In part because of this lack of experience, we
cannot be certain that our manufacturing plans will be completed on time, if at all, or if manufacturing of product candidates
from our own manufacturing facility for our planned clinical trials will begin or be completed on time, if at all. In part because
of our inexperience, we may have unacceptable or inconsistent product quality success rates and yields, and we may be unable
to maintain adequate quality control, quality assurance, manufacturing, technical or other qualified personnel. In addition, if we
switch from our current CMOs to our own manufacturing facility for one or more of our product candidates in the future, we
may need to conduct additional preclinical, analytical or clinical trials to bridge our modified product candidates to earlier
versions. Failure to successfully renovate and operate our planned manufacturing facility could adversely affect the commercial
viability of our product candidates.
Patients’ cellular source material must be transported from the clinical collection site to the manufacturing facility and the
cryopreserved drug product must be returned to the clinical site for administration into the patient using controlled
temperature shipping containers.
Once collected from the patient, the cellular source material must be transported to the manufacturing facility using a shipping
container that maintains the material at a cool temperature and be delivered typically within three days of collection. While we
intend to use reputable couriers and agents for the transport of such materials, if the shipping container is opened or damaged
such that the cool temperature is not maintained, the cellular source material may be adversely impacted and it may not be
feasible to manufacture a drug product for the patient. Similarly, if a shipment is delayed due to adverse weather, misrouting,
other events or held up at a customs point, the cellular source material may not be delivered within a time window that will
allow for its use for the successful manufacture of a drug product.
Similarly, the patient’s autologous drug product must be returned to the clinical site for administration into the patient using a
specialized shipping container that maintains the material at a very low temperature for a period of typically up to ten days.
While we intend to use reputable couriers and agents for the transport of our drug products, if the shipping container is opened
or damaged such that the very low temperature is not maintained, the drug product may be adversely impacted and it may not
be feasible to administer it to the patient or, if administered, it could cause harm to the patient. Similarly, if a shipment is
delayed due to adverse weather, misrouting, held up at a customs point or other events, and is not delivered to the clinical site
within the time period that the very low temperature is maintained, the drug product may be adversely affected and be unable
to be administered or, if administered, could cause harm to the patient.
Any of the above events, should they happen, could adversely affect our development timelines and our business, financial
condition, results of operations and prospects.
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Our gene therapies are for autologous use only. Therefore, if a drug product is administered to the wrong patient, the
patient could suffer harm.
Our gene therapies are autologous, so they must be administered back only to the patient from which the cellular source
material was collected. While we implement specific identifiers, lot numbers and labels with cross checks for our products and
operations from collection of cellular source material, through manufacture of drug product, transport of product to the clinical
site up to thawing and administration of the product, it is possible that a product may be administered into the wrong patient. If
an autologous gene therapies were to be administered into the wrong patient, the patient could suffer harm, including
experiencing a severe adverse immune reaction and this event, should it happen, could adversely affect our business, financial
condition, results of operations and prospects.
Any microbial contamination in the manufacturing process for our viral vectors or drug product, shortages of raw materials
or failure of any of our key suppliers to deliver necessary components could result in delays in our clinical development or
marketing schedules.
Given the nature of biologics manufacturing, there is a risk of microbial contamination. Any microbial contamination could
adversely affect our ability to produce, release or administer our gene therapies on schedule and could, therefore, harm our results of
operations and cause reputational damage. Additionally, although our gene therapies are tested for microbial contamination prior to
release, if a contaminated product was administered to a patient, it could result in harm to the patient.
Some of the raw materials required in our manufacturing processes are derived from biologic sources. Such raw materials are
difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on
the use of biologically derived substances in the manufacture of our vectors or drug product could adversely impact or disrupt
the commercial manufacturing or the production of clinical material, which could adversely affect our development timelines
and our business, financial condition, results of operations and prospects.
Interruptions in the supply of viral vectors and/or drug products or inventory loss may harm our operating results and
financial condition.
Our viral vectors and drug products are manufactured using technically complex processes in specialized facilities, sometimes
using specialized equipment with highly specific raw materials and other production constraints. The complexity of these
processes, as well as strict government standards for the manufacture and storage of our gene therapies, subjects us to
manufacturing risks. While viral vectors and drug product released for use in clinical trials or for commercialization undergo
sample testing, some defects may only be identified following their release. In addition, process deviations or unanticipated
effects of approved process changes may result in viral vector and/or drug product not complying with stability requirements or
specifications. Our viral vectors and drug product must be stored and transported at temperatures within a certain range. If
these environmental conditions deviate, our viral vectors and drug products’ remaining shelf-lives could be impaired or their
efficacy and safety could be negatively impacted, making them no longer suitable for use. For example, patients’ cellular
material must be received by the manufacturing facility typically within three days after collection, and our gene therapy must
be received by the clinical site typically within ten days after shipping from the manufacturing facility. The occurrence, or
suspected occurrence, of manufacturing and distribution difficulties can lead to lost inventories and, in some cases, product
recalls, with consequential reputational damage and the risk of product liability. The investigation and remediation of any
identified problems can cause production delays, substantial expense, lost sales and delays of new product launches. Any
interruption in the supply of finished products or the loss thereof could hinder our ability to timely distribute our products and
satisfy customer demand. Any unforeseen failure in the storage of the viral vectors or drug products or loss in supply could
delay our clinical trials and result in a loss of our market share for our commercial product or our product candidates, if
approved, and negatively affect our business, financial condition, results of operations and prospects.
Our cryopreserved product candidates require specific storage, handling and administration at the clinical sites.
Our cryopreserved product candidates must be stored at very low temperatures in specialized freezers or specialized shipping
containers until immediately prior to use. For administration, the cryopreserved drug product container must be carefully
removed from storage, and rapidly thawed using a thawing device or water bath in an area proximal to the patient’s bedside
and administered into the patient. The handling, thawing and administration of the cryopreserved gene therapy product must be
performed according to specific instructions, typically using specific disposables and in some steps within specific time
periods. Failure to correctly handle the product, follow the instructions for thawing and administration and or failure to
administer the product within the specified period post-thaw could negatively impact the efficacy and or safety of the product.
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Risks related to our reliance on third parties
We have in the past, and in the future may, enter into collaborations with third parties to develop or commercialize product
candidates. If these collaborations are not successful, our business could be adversely affected.
We have entered into licensing and collaboration agreements with third parties, including the GSK Agreement, pursuant to
which GSK transferred to us Strimvelis, OTL-200 for MLD, OTL-103 for WAS and OTL-300 for TDBT. In addition GSK
novated to us their R&D and collaboration and license agreement, or the R&D Agreement, with Telethon-OSR. These
agreements impose, and we expect that future license agreements will impose, various due diligence, milestone payment,
royalty, insurance and other obligations on us. The termination of these agreements could result in our loss of rights to practice
the intellectual property licensed to us under these agreements and could compromise our development and commercialization
efforts for our current or any future product candidates.
We may also enter into additional collaborations in the future. We have limited control over the amount and timing of
resources that our current and future collaborators dedicate to the development or commercialization of our product candidates.
Our ability to generate revenues from these arrangements will depend on our and our collaborators’ abilities to successfully
perform the functions assigned to each of us in these arrangements. Moreover, an unsuccessful outcome in any clinical trial for
which our collaborator is responsible could be harmful to the public perception and prospects of our gene therapy platform.
We may potentially enter into additional collaborations with third parties in the future. Any future collaborations we enter into
in the future may pose several risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these
collaborations;
collaborators may not perform their obligations as expected;
we may not achieve any milestones, or receive any milestone payments, under our collaborations, including milestones
and/or payments that we expect to achieve or receive;
the clinical trials conducted as part of these collaborations may not be successful;
collaborators may not pursue development and commercialization of any product candidates that achieve regulatory
approval or may elect not to continue or renew development or commercialization programs based on clinical trial
results, changes in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that
divert resources or create competing priorities;
collaborators may delay clinical trials, provide insufficient funding for clinical trials, 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;
we may not have access to, or may be restricted from disclosing, certain information regarding product candidates being
developed or commercialized under a collaboration and, consequently, may have limited ability to inform our
shareholders about the status of such product candidates;
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 developed 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 any such product candidate;
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84 Orchard Therapeutics plc
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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred
course of development of any product candidates, may cause delays or termination of the research, development or
commercialization of such product candidates, may lead to additional responsibilities for us with respect to such product
candidates or may 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;
disputes may arise with respect to the ownership of intellectual property developed pursuant to our collaborations;
collaborators may infringe the intellectual property rights of third parties, 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.
If our collaborations do not result in the successful development and commercialization of products, or if one of our
collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty
payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of
product candidates could be delayed and we may need additional resources to develop our product candidates. In addition, if
one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and the
perception of us in the business and financial communities could be adversely affected. All of the risks relating to product
development, regulatory approval and commercialization described in this Annual Report apply to the activities of our
collaborators.
We may in the future decide to collaborate with other pharmaceutical and biotechnology companies for the development and
potential commercialization of our product candidates. These relationships, or those like them, may require us to incur non-
recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing shareholders
or disrupt our management and business. In addition, we could face significant competition in seeking appropriate
collaborators and the negotiation process is time-consuming and complex. Our ability to reach a definitive collaboration
agreement 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 several factors. If we license rights to
product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate
them with our existing operations and company culture.
We utilize, and expect to continue to utilize, third parties to conduct some or all aspects of our vector production and
product manufacturing for the foreseeable future, and these third parties may not perform satisfactorily.
Until such time as we complete the build out of our Fremont, California manufacturing facility and establish that it has been
properly commissioned to comply with CGMP requirements, we will not be able to independently manufacture material for our
planned clinical programs or our commercial supply, Strimvelis or any other product for which we obtain marketing approval.
We currently rely on our CMOs and in some cases academic partners for the production of our viral vectors and product
candidates for our ongoing registrational and clinical trials and preclinical studies. For future clinical trials and for products for
which we obtain marketing approval, we intend to utilize materials manufactured by CGMP-compliant CMOs. If our academic
partners or these CMOs do not successfully carry out their contractual duties, meet expected deadlines or manufacture our viral
vector and product candidates in accordance with regulatory requirements or if there are disagreements between us and our
academic partners or these CMOs, we will not be able to complete, or may be delayed in completing, the preclinical studies
and clinical trials required to support approval of our product candidates or the FDA, EMA or other regulatory agencies may
refuse to accept our clinical or preclinical data. In such instances, we may need to enter into an appropriate replacement third-
party relationship, which may not be readily available or available on acceptable terms, which would cause additional delay or
increased expense prior to the approval of our product candidates and would thereby have a negative impact on our business,
financial condition, results of operations and prospects.
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We have partnered with commercial CGMP-compliant CMOs, and intend to utilize viral vectors and gene therapy products
manufactured by such CMOs for our future clinical trials and products for which we obtain marketing approval. In some cases,
we may need to perform clinical or analytical or other animal or cell-based testing to demonstrate that materials produced by
these CMOs, or any other third-party manufacturer that we engage, is comparable to the material produced by our academic
partners and utilized in our registrational and clinical trials of our product candidates. There is no assurance that these CMOs,
or any other future third-party manufacturer that we engage, will be successful in producing any or all of our viral vector or
product candidates, that any such product will, if required, pass the required comparability testing, or that any materials
produced by these CMOs or any other third-party manufacturer that we engage will have the same effect in patients that we
have observed to date with respect to materials produced by our academic partners. We believe that our manufacturing network
will have sufficient capacity to meet demand for our clinical and existing and expected initial commercial needs, but there is a
risk that if supplies are interrupted or result in poor yield or quality, it would materially harm our business. Additionally, if the
gene therapy industry were to grow, we may encounter increasing competition for the raw materials and consumables
necessary for the production of our product candidates. Furthermore, demand for CMO CGMP manufacturing capabilities may
grow at a faster rate than existing manufacturing capacity, which could disrupt our ability to find and retain third-party
manufacturers capable of producing sufficient quantities of our viral vectors or product candidates for future clinical trials or to
meet expected initial commercial demand.
Under certain circumstances, our current CMOs are entitled to terminate their engagements with us. If we need to enter into
alternative arrangements, it could delay our development activities. Our reliance on our CMOs for certain manufacturing
activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all
required regulations.
In addition to our current CMOs, we may rely on additional third parties to manufacture ingredients of our viral vectors and or
drug product in the future and to perform quality testing, and reliance on these third parties entails risks to which we would not
be subject if we manufactured the product candidates ourselves, including:
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reduced control for certain aspects of manufacturing activities;
termination or nonrenewal of manufacturing and service agreements with third parties in a manner or at a time that is
costly or damaging to us; and
disruptions to the operations of our third-party manufacturers and service providers caused by conditions unrelated to our
business or operations, including the bankruptcy of the manufacturer or service provider.
Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to
successfully commercialize any of our product candidates. Some of these events could be the basis for FDA, EMA or other
regulatory authority action, including injunction, recall, seizure or total or partial suspension of product manufacture.
We rely on third parties, including independent clinical investigators and CROs, to conduct and sponsor some of the clinical
trials of our product candidates. Any failure by a third party to meet its obligations with respect to the clinical development
of our product candidates may delay or impair our ability to obtain regulatory approval for our product candidates.
We have relied upon and plan to continue to rely upon third parties, including independent clinical investigators and third-party
CROs, to conduct our preclinical studies and clinical trials, including in some instances sponsoring such clinical trials, and to
monitor and manage data for our ongoing preclinical and clinical programs. For example, OTL-300 for TDBT is currently
being investigated in an ongoing academic-sponsored clinical trial at the San Raffaele Hospital in Milan, Italy, and OTL-102
for X-CGD is currently being investigated in ongoing academic-sponsored clinical trials at Boston Children’s Hospital, the
NIH and UCLA in the United States, and GOSH in Europe. Additionally, our registrational trial of OTL-101 for ADA-SCID
was sponsored by UCLA. While we will have agreements governing the activities of our academic partners and CROs, we will
control only certain aspects of their activities and have limited influence over their actual performance.
Nevertheless, we are 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 these third parties does not
relieve us of our regulatory responsibilities. We and our third-party contractors and CROs are required to comply with GCP
requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of
the European Economic Area, or EEA, and comparable foreign regulatory authorities for all of our products in clinical
development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal
investigators and trial sites. If we fail to exercise adequate oversight over any of our academic partners or CROs or if we or any
of our academic partners or CROs do not successfully carry out their contractual duties or obligations, fail to meet expected
deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our
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clinical protocols or regulatory requirements, or for any other reasons, the clinical data generated in our clinical trials may be
deemed unreliable and the FDA, the EMA or comparable foreign regulatory authorities may require us to perform additional
clinical trials before approving our marketing applications. We cannot assure that upon a regulatory inspection of us, our
academic partners or our CROs or other third parties performing services in connection with our clinical trials, such regulatory
authority will determine that any of our clinical trials complies with GCP regulations. In addition, our clinical trials must be
conducted with product produced under applicable CGMP regulations. Our failure to comply with these regulations may
require us to repeat clinical trials, which would delay the regulatory approval process. As a result, our financial results and the
commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate
revenues could be delayed.
We do not control the design or conduct of the academic-sponsored trials, and it is possible that the FDA or EMA will not view
these academic-sponsored trials as providing adequate support for future clinical trials or market approval, whether controlled
by us or third parties, for any one or more reasons, including elements of the design or execution of the trials or safety concerns
or other trial results. Such arrangements provide us certain information rights with respect to the academic-sponsored trials,
including access to and the ability to use and reference the data, including for our own regulatory submissions, resulting from
the academic-sponsored trials. However, we do not have control over the timing and reporting of the data from academic-
sponsored trials, nor do we own the data from the academic-sponsored trials. If we are unable to confirm or replicate the results
from the academic-sponsored trials or if negative results are obtained, we would likely be further delayed or prevented from
advancing further clinical development of OTL-300 for TDBT or OTL-102 for X-CGD. Further, if investigators or institutions
breach their obligations with respect to the clinical development of our product candidates, or if the data proves to be
inadequate compared to the firsthand knowledge we might have gained had the academic-sponsored trials been sponsored and
conducted by us, then our ability to design and conduct any future clinical trials ourselves may be adversely affected.
Additionally, the FDA or EMA may disagree with the sufficiency of our right of reference to the preclinical, manufacturing or
clinical data generated by these academic-sponsored trials, or our interpretation of preclinical, manufacturing or clinical data
from these academic-sponsored trials. If so, the FDA or EMA may require us to obtain and submit additional preclinical,
manufacturing, or clinical data.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our viral vectors
and drug products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and
have limited capacity.
We currently have relationships with a limited number of suppliers for the manufacturing of our viral vectors and drug product.
Each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the
public domain and we may be unable to transfer or sublicense the intellectual property rights we may have with respect to such
activities.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing CMOs for
our viral vectors and drug product, are subject to extensive regulation. Components of a finished therapeutic product approved
for commercial sale or used in clinical trials, including in some cases critical raw materials used in the manufacture thereof,
must be manufactured in accordance with CGMP. 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 our viral vectors or product
candidates that may not be detectable in final product testing. We or our CMOs must supply all necessary documentation in
support of a BLA or MAA on a timely basis and must adhere to the FDA’s and EMA’s good laboratory practices, or GLP,
GMP and other applicable regulations enforced, in the case of the FDA, through its facilities inspection program. Some of our
CMOs have not produced a commercially-approved product and have never been inspected by the FDA or other regulatory
body. Our facilities and quality systems and the facilities and quality systems of some or all of our CMOs must pass a pre-
approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product
candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a
manufacturing facility involved with the preparation of our viral vector or drug product or our other potential products or the
associated quality systems for compliance with the regulations applicable to the activities being conducted.
If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product
specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory
authority may 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 such remedial measures imposed upon us or third parties with whom we contract could materially
harm our business.
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If we or any of our CMOs fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among
other things, refusal to approve a pending application for a new product or biologic product, or revocation of a pre-existing
approval. As a result, our business, financial condition and results of operations may be materially harmed.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals of our product candidates or
commercialization of our commercial product or product candidates, if approved, cause us to incur higher costs and prevent us
from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we
are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our preclinical
studies and clinical trials may be delayed.
We are dependent on a limited number of suppliers and, in some instances, a sole supplier, for some of our components and
materials used in our product candidates.
We currently depend on a limited number of suppliers and, in some instances, a sole supplier, for some of the components and
equipment necessary for the production of our viral vectors and drug product. We cannot be sure that these suppliers will
remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in
continuing to produce these materials for our intended purpose. Our use of a sole or a limited number of suppliers of raw
materials, components and finished goods exposes us to several risks, including disruptions in supply, price increases, late
deliveries and an inability to meet customer demand. There are, in general, relatively few alternative sources of supply for
these components, and in some cases, no alternatives. These vendors may be unable or unwilling to meet our future demands
for our clinical trials or commercial sale. Establishing additional or replacement suppliers for these components could take a
substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any
disruption in supply from any supplier or manufacturing location could lead to supply delays or interruptions which would
damage our business, financial condition, results of operations and prospects.
If we are required to switch to a replacement supplier, the manufacture and delivery of our viral vectors and product candidates
could be interrupted for an extended period, adversely affecting our business. Establishing additional or replacement suppliers
may not be accomplished quickly. If we are able to find a replacement supplier, the replacement supplier would need to be
qualified and may require additional regulatory authority approval, which could result in further delay. For example, the FDA
or EMA could require additional supplemental data, manufacturing data and comparability data up to and including clinical
trial data if we rely upon a new supplier. While we seek to maintain adequate inventory of the components and materials used
in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain
components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to conduct our
clinical trials and, if our product candidates are approved, to meet the demand of our customers and cause them to cancel
orders.
In addition, as part of the FDA’s approval of our product candidates, the FDA must review and approve the individual
components of our production process, which includes raw materials, the manufacturing processes and facilities of our
suppliers. Some of our current suppliers have not undergone this process nor have they had any components included in any
product approved by the FDA.
Our reliance on these suppliers subjects us to a number of risks that could harm our reputation, business, and financial
condition, including, among other things:
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the interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a
component;
a lack of long-term supply arrangements for key components with our suppliers;
the inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable
terms;
difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner;
production delays related to the evaluation and testing of products from alternative suppliers, and corresponding
regulatory qualifications;
a delay in delivery due to our suppliers prioritizing other customer orders over ours;
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damage to our reputation caused by defective components produced by our suppliers;
increased cost of our warranty program due to product repair or replacement based upon defects in components produced
by our suppliers; and
fluctuation in delivery by our suppliers due to changes in demand from us or their other customers.
If any of these risks materialize, costs could significantly increase and our ability to conduct our clinical trials and, if our
product candidates are approved, to meet demand for our products could be impacted.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will
discover them or that our trade secrets will be misappropriated or disclosed.
Because we currently rely on third parties to manufacture our vectors and our commercial product and product candidates, and
because we collaborate with various organizations and academic institutions on the advancement of our gene therapy approach,
we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into
confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting
agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research
or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our
confidential information, such as trade secrets.
Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other
confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently
incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary
position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other
unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish
data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we
are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising
from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share
these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets,
either through breach of these agreements, independent development or publication of information including our trade secrets
in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of
our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks related to commercialization of our product candidates
We currently have limited sales and marketing capabilities. If we are unable to establish effective sales and marketing
capabilities or enter into agreements with third parties to market and sell our product candidates that may be approved, we
may not be successful in commercializing our product candidates if and when approved, and we may be unable to generate
any product revenue.
If our product candidates are approved for commercialization, we currently intend to seek to commercialize them in the United
States and Europe directly with specialized teams, given the relative rarity of the indications we are targeting. We currently
have a limited marketing and sales team for the marketing, sales and distribution of our commercial product and our product
candidates, if approved. In order to commercialize Strimvelis and OTL-101 for ADA-SCID, OTL-200 for MLD and OTL-103
for WAS, if approved, or any of our other product candidates that may be approved, we must build, on a territory-by-territory
basis, marketing, sales, distribution, managerial and other capabilities or make arrangements with third parties to perform these
services, and we may not be successful in doing so.
There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with
third parties to perform these services. For example, recruiting and training a commercial organization is expensive and time
consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales
force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or
unnecessarily incurred these commercialization expenses. This may be costly and our investment would be lost if we cannot
retain or reposition our sales and marketing personnel.
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Factors that may inhibit our efforts to commercialize our product candidates on our own include:
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the inability to recruit, train 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
any future product that we may develop;
the lack of complementary treatments 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.
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or
the profitability to us from these revenue streams is likely to be lower than if we were to market and sell any product
candidates that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to
sell and market our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little
control over such third parties and any of them may fail to devote the necessary resources and attention to sell and market our
product candidates effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in
collaboration with third parties, we may not be successful in commercializing our product candidates.
If we are unable to expand our market development capabilities or enter into agreements with third parties to market and
sell any of our product candidates for which we obtain marketing approval, we will be unable to generate any product
revenue.
To successfully commercialize any products that may result from our development programs, we need to continue to expand
our market development capabilities, either on our own or with others. The development of our own market development effort
is, and will continue to be, expensive and time-consuming and could delay any product launch. Moreover, we cannot be certain
that we will be able to successfully develop this capability. We may enter into collaborations regarding any approved product
candidates with other entities to utilize their established marketing and distribution capabilities, but we may be unable to enter
into such agreements on favorable terms, if at all. If any future collaborators do not commit sufficient resources to
commercialize our product candidates, or we are unable to develop the necessary capabilities on our own, we will be unable to
generate sufficient product revenue to sustain our business. We compete with many companies that currently have extensive,
experienced and well-funded sales, distribution and marketing operations to recruit, hire, train and retain marketing and sales
personnel. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our
product candidates, if approved. Without an internal team or the support of a third-party to perform marketing and sales
functions, we may be unable to compete successfully against these more established companies.
If the market opportunities for our product candidates are smaller than we believe they are, our product revenues may be
adversely affected and our business may suffer.
We focus our research and product development on treatments for primary immune deficiencies, inherited metabolic and
neurodegenerative genetic disorders and rare inherited blood disorders. Our understanding of both the number of people who
have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with
our product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may reduce the
estimated incidence or prevalence of these diseases. Patient identification efforts also influence the ability to address a patient
population. If efforts in patient identification are unsuccessful or less impactful than anticipated, we may not address the
entirety of the opportunity we are seeking. As a result, the number of patients in the United States, the European Union and
elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with our products or patients
may become increasingly difficult to identify and access, all of which would adversely affect our business, financial condition,
results of operations and prospects.
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The commercial success of any current or future product candidate will depend upon the degree of market acceptance by
physicians, patients, payors and others in the medical community.
Even if we obtain any regulatory approval for our product candidates, the commercial success of our product candidates will
depend in part on the medical community, patients, and payors accepting gene therapy products in general, and our product
candidates in particular, as effective, safe and cost-effective. Any product that we bring to the market may not gain market
acceptance by physicians, patients, payors and others in the medical community. The degree of market acceptance of these
product candidates, if approved for commercial sale, will depend on a number of factors, including:
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the potential efficacy and potential advantages over alternative treatments;
the frequency and severity of any side effects, including any limitations or warnings contained in a product’s approved
labeling;
the frequency and severity of any side effects resulting from the conditioning regimen or follow-up requirements for the
administration of our product candidates;
the relative convenience and ease of administration;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support and timing of market introduction of competitive products;
publicity concerning our products or competing products and treatments; and
sufficient third-party insurance coverage or reimbursement.
Even if a product candidate displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market
acceptance of the product, if approved for commercial sale, will not be known until after it is launched. Our efforts to educate
the medical community and payors on the benefits of our product candidates may require significant resources and may never
be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional
technologies marketed by our competitors. If these products do not achieve an adequate level of acceptance, we may not
generate significant product revenue and may not become profitable.
The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain
adequate coverage and reimbursement for any of our product candidates, if approved, could limit our ability to market those
products and decrease our ability to generate revenue.
We expect the cost of a single administration of gene therapy products, such as those we are developing, to be substantial,
when and if they achieve market approval. The availability and extent of reimbursement by governmental and private payors is
essential for most patients to be able to afford expensive treatments, such as stem cell transplants. Sales of our product
candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates
will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or
reimbursed by government health administration authorities, private health coverage insurers and other payors. We may not be
able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement is not
available, or is available only at limited levels, we may not be able to successfully commercialize our product candidates, if
approved. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish
or maintain pricing sufficient to realize a sufficient return on our investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United
States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare &
Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, as the CMS decides
whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors tend to follow the
CMS to a substantial degree. It is difficult to predict what the CMS will decide with respect to reimbursement for
fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products.
Outside the United States, certain countries, including a number of member states of the European Union, set prices and
reimbursement for pharmaceutical products, or medicinal products, as they are commonly referred to in the European Union,
with limited participation from the marketing authorization holders. We cannot be sure that such prices and reimbursement will
be acceptable to us or our collaborators. If the regulatory authorities in these jurisdictions set prices or reimbursement levels
that are not commercially attractive for us or our collaborators, our revenues from sales by us or our collaborators, and the
potential profitability of our drug products, in those countries would be negatively affected. An increasing number of countries
are taking initiatives to attempt to reduce large budget deficits by focusing cost-cutting efforts on pharmaceuticals for their
state-run health care systems. These international price control efforts have impacted all regions of the world, but have been
most drastic in the European Union. Additionally, some countries require approval of the sale price of a product before it can
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be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. As a
result, we might obtain marketing approval for a product in a particular country, but then may experience delays in the
reimbursement approval of our product or be subject to price regulations that would delay our commercial launch of the
product, possibly for lengthy time periods, which could negatively impact the revenues we are able to generate from the sale of
the product in that particular country.
Moreover, efforts by governmental and payors, in the United States and abroad, to cap or reduce healthcare costs may cause
such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not
cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with
the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health
maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general,
particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly
high barriers are being erected to the entry of new products.
Due to the novel nature of our technology and the potential for our product candidates to offer therapeutic benefit in a
single administration, we face uncertainty related to pricing and reimbursement for these product candidates.
We are targeting rare diseases for which the patient populations are relatively small. In addition, treatment with any of our
product candidates involves only a single administration. As a result, the pricing and reimbursement of our product candidates,
if approved, must be adequate to support commercial infrastructure. It is possible that commercially available products may
serve as a reference price that, for various reasons, may be lower than the price we need to obtain for our product candidates. If
we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates
will be adversely affected. The manner and level at which reimbursement is provided for services related to our product
candidates (e.g., for administration of our product to patients) is also important. Inadequate reimbursement for such services
may lead to physician resistance and adversely affect our ability to market or sell our product candidates, if approved.
Healthcare legislative reform measures and constraints on national budget social security systems may have a material
adverse effect on our business and results of operations.
Payors, whether domestic or foreign, or governmental or private, are developing increasingly sophisticated methods of
controlling healthcare costs and those methods are not always specifically adapted for new technologies such as gene therapy
and therapies addressing rare diseases such as those we are developing. In both the United States and certain foreign
jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our
ability to sell our products profitably. In particular, in 2010, the Patient Protection and Affordable Care Act or the PPACA, as
amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, was enacted, which, among
other things, subjected biologic products to potential competition by lower-cost biosimilars; addressed a new methodology by
which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled,
infused, instilled, implanted or injected; increased the minimum Medicaid rebates owed by most manufacturers under the
Medicaid Drug Rebate Program; extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals
enrolled in Medicaid managed care organizations; subjected manufacturers to new annual fees and taxes for certain branded
prescription drugs; and provided incentives to programs that increase the federal government’s comparative effectiveness
research. Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to
judicial and Congressional challenges. Further, since January 2017, President Trump signed two Executive Orders designed to
delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health
insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the
ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a
fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or
manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that
reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the
subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on
June 14, 2018, the U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay
more than $12 billion in ACA risk corridor payments to third-party payers who argued were owed to them. The effects of this
gap in reimbursement on third-party payers, the viability of the ACA marketplace, providers, and potentially our business, are
not yet known. In addition, the CMS has recently proposed regulations that would give states greater flexibility in setting
benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential
health benefits required under the ACA for plans sold through such marketplaces. Congress may consider other legislation to
replace elements of the ACA.
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The Tax Cuts and Jobs Act of 2017, or TCJA includes a provision repealing, effective January 1, 2019, the tax-based shared
responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or
part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in
the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable
feature of the ACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, or TCJA, the
remaining provisions of the Affordable Care Act are invalid as well. While the Trump Administration and CMS have both
stated that the ruling will have no immediate effect, and on December 30, 2018 the Texas District Court Judge issued an order
staying the judgment pending appeal, it is unclear how this decision, subsequent appeals and other efforts to repeal and replace
the ACA will impact the ACA and our business.
Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that
delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost
employer-sponsored insurance plans, the annual fee imposed on certain high cost employer-sponsored insurance plans, the
annual fee imposed on certain health insurance providers based on market share, and the medical device exercise tax on non-
exempt medical devices. Further, the BBA, among other things, amends the ACA, effective January 1, 2019, to increase from
50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare
Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress also
could consider subsequent legislation to replace elements of the ACA that are repealed. Thus, the full impact of the ACA, any
law replacing elements of it, and the political uncertainty surrounding any repeal or replacement legislation on our business
remains unclear. In addition, other legislative changes have been proposed and adopted in the United States since the ACA was
enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by
Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least
$1.5 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic
reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per
fiscal year, which went into effect in April 2013, and will remain in effect through 2027 unless additional Congressional action
is taken. In January 2013, the American Taxpayer Relief Act of 2012, was signed into law, which, among other things, further
reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels
directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the
initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care
organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may
adversely affect:
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the demand for our product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
Any denial in coverage or reduction in reimbursement from Medicare or other government programs may result in a similar
denial or reduction in payments from private payors, which may adversely affect our future profitability.
Risks related to our business operations
Our future results will suffer if we do not effectively manage our expanded operations as a result of our recent acquisition
of Strimvelis, OTL-200 for MLD, OTL-103 for WAS and OTL-300 for TDBT.
We acquired worldwide rights to Strimvelis, OTL-200 for MLD, OTL-103 for WAS and OTL-300 for TDBT in April 2018
pursuant to the GSK Agreement. The GSK Agreement significantly changed the composition of our operations, markets and
product candidate mix. Our future success depends, in part, on our ability to address these changes, and, where necessary, to
attract and retain new personnel that possess the requisite skills called for by these changes.
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Our failure to adequately address the financial, operational or legal risks of our acquisition of Strimvelis, OTL-200 for MLD,
OTL-103 for WAS and OTL-300 for TDBT, or any future acquisitions, license arrangements, other strategic transactions could
harm our business. Financial aspects of these transactions that could alter our financial position, or operating results include:
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use of cash resources;
higher than anticipated acquisition costs and expenses;
potentially dilutive issuances of equity securities;
the incurrence of debt and contingent liabilities, impairment losses or restructuring charges;
large write-offs and difficulties in assessing the relative percentages of in-process research and development expense that
can be immediately written off as compared to the amount that must be amortized over the appropriate life of the asset;
and
amortization expenses related to other intangible assets.
Operational risks that could harm our existing operations or prevent realization of anticipated benefits from these transactions
include:
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challenges associated with managing an increasingly diversified business;
disruption of our ongoing business;
difficulty and expense in assimilating the operations, products, technology, information systems or personnel of the
acquired company;
entry into a geographic or business market in which we have little or no prior experience;
inability to maintain uniform standards, controls, procedures and policies;
the assumption of known and unknown liabilities of the acquired business or asset, including intellectual property claims;
and
subsequent loss of key personnel.
Our future success depends, in part, upon our ability to manage our expansion opportunities. Integrating new operations into
our existing business in an efficient and timely manner, successfully monitoring our operations, costs, regulatory compliance
and customer relationships, and maintaining other necessary internal controls pose substantial challenges for us. As a result, we
cannot assure that our expansion or acquisition opportunities will be successful, or that we will realize our expected operating
efficiencies, cost savings, revenue enhancements, synergies or other benefits.
Our gene therapy approach utilizes vectors derived from viruses, which may be perceived as unsafe or may result in
unforeseen adverse events. Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research
may damage public perception of our product candidates or adversely affect our ability to conduct our business or obtain
regulatory approvals for our product candidates.
Gene therapy remains a novel technology, with only a limited number of gene therapy products approved to date. Public
perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public
or the medical community. In particular, our success will depend upon physicians specializing in the treatment of those
diseases that our product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in
addition to, existing treatments they are already familiar with and for which greater clinical data may be available. More
restrictive government regulations or negative public opinion would have a negative effect on our business or financial
condition and may delay or impair the development and commercialization of our product candidates or demand for any
products we may develop. For example, earlier gene therapy trials led to several well-publicized adverse events, including
cases of leukemia and death seen in other trials using other vectors. Adverse events in our clinical trials, even if not ultimately
attributable to our product candidates (such as the many adverse events that typically arise from the conditioning process), or
adverse events in other lentiviral gene therapy trials, and the resulting publicity could result in increased governmental
regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product
candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such
product candidates.
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Increasing demand for compassionate use of our unapproved therapies could result in losses.
We are developing our autologous ex vivo gene therapies to address rare diseases for which there are currently limited or no
available therapeutic options. Recent media attention to individual patients’ expanded access requests has resulted in the
introduction and/or passage of legislation at the local and national level referred to as “Right to Try” laws which are intended
to help enable patients access to unapproved therapies. Such legislation includes the Trickett Wendler, Frank Mongiello,
Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, which was signed into law on May 30, 2018. New and
emerging legislation regarding expanded access to unapproved drugs for life-threatening illnesses could negatively impact our
business in the future.
A possible consequence of both activism and legislation in this area is the need for us to initiate an unanticipated expanded access
program or to make our product candidates more widely available sooner than anticipated. We have limited resources and
unanticipated trials or access programs could result in diversion of resources from our primary goals.
In addition, patients who receive access to unapproved drugs through compassionate use or expanded access programs have
life-threatening illnesses and have exhausted all other available therapies. The risk for SAEs in this patient population is high
which could have a negative impact on the safety profile of our product candidates, which could cause significant delays or an
inability to successfully commercialize our product candidates, which could materially harm our business.
Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and
motivate qualified personnel.
We are highly dependent on principal members of our executive team and key employees, including our Chief Executive
Officer and Chief Scientific Officer the loss of whose services may adversely impact the achievement of our objectives. While
we have entered into employment agreements with each of our executive officers, any of them could leave our employment at
any time. We do not maintain “key person” insurance policies on the lives of these individuals or the lives of any of our other
employees. The loss of the services of one or more of our current employees might impede the achievement of our research,
development and commercialization objectives. Recruiting and retaining other qualified employees, consultants and advisors
for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage
of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel, including in
gene therapy research and vector manufacturing, is intense and the turnover rate can be high. We may not be able to attract and
retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for
individuals with similar skill sets. In addition, failure to succeed in preclinical or clinical trials may make it more challenging to
recruit and retain qualified personnel. The inability to recruit or the loss of the services of any executive, key employee,
consultant or advisor may impede the progress of our research, development and commercialization objectives.
If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.
If we are successful in executing our business strategy, we will need to expand our managerial, operational, financial and other
systems and resources to manage our operations, continue our research and development activities and continue to build a
commercial infrastructure to support commercialization of Strimvelis and any of our product candidates that are approved for
sale. Future growth would impose significant added responsibilities on members of management. It is likely that our
management, finance, development personnel, systems and facilities currently in place may not be adequate to support this
future growth. Our need to effectively manage our operations, growth and product candidates requires that we continue to
develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain
sufficient numbers of talented employees. We may be unable to successfully implement these tasks on a larger scale and,
accordingly, may not achieve our research, development and growth goals.
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Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper
activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial
partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA, EMA or of
other foreign regulatory authorities, provide accurate information to the FDA, EMA and other foreign regulatory authorities,
comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or
data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the
healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing
and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also
involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and
cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but it is not
always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may
not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or
other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted
against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business, including the imposition of significant fines or other sanctions.
We are subject to the U.K. Bribery Act 2010, or the Bribery Act, the U.S. Foreign Corrupt Practices Act of 1977, as
amended, or the FCPA, and other anti-corruption laws, as well as export control laws, import and customs laws, trade and
economic sanctions laws and other laws governing our operations.
Our operations are subject to anti-corruption laws, including the Bribery Act, the FCPA, the U.S. domestic bribery statute
contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business.
The Bribery Act, the FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing,
promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to
government officials or other persons to obtain or retain business or gain some other business advantage. Under the Bribery
Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense. We and our
commercial partners operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and
we participate in collaborations and relationships with third parties whose corrupt or illegal activities could potentially subject
us to liability under the Bribery Act, FCPA or local anti-corruption laws, even if we do not explicitly authorize or have actual
knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to
which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We are also subject to other laws and regulations governing our international operations, including regulations administered by
the governments of the United Kingdom and the United States, and authorities in the European Union, including applicable
export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws,
import and customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws,
including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. 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. Likewise, any investigation of any potential violations
of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by United Kingdom, United States or other
authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.
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We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws health
information privacy and security laws, and other health care laws and regulations. If we are unable to comply, or have not
fully complied, with such laws, we could face substantial penalties.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States,
our operations will be directly, or indirectly through our prescribers, customers and purchasers, subject to various federal and
state fraud and abuse laws and regulations, including, without limitation, the federal Health Care Program Anti-Kickback
Statute, the federal civil and criminal False Claims Act and Physician Payments Sunshine Act and regulations. These laws will
impact, among other things, our proposed sales, marketing and educational programs. In addition, we may be subject to patient
privacy laws by both the federal government and the states in which we conduct our business. The laws that will affect our
operations include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully
soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly,
overtly or covertly, in cash or in kind, to induce, or in return for, the purchase, lease, order, arrangement, or
recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a
federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have
actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. In
addition, the government may assert that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil
money penalties;
the federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal False Claims Act,
which impose criminal and civil penalties and authorize civil whistleblower or qui tam actions, against individuals or
entities for, among other things: knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false or fraudulent; knowingly making, using or causing to be made or used, a false statement of record
material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government;
the anti-inducement law, which prohibits, among other things, the offering or giving of remuneration, which includes,
without limitation, any transfer of items or services for free or for less than fair market value (with limited exceptions), to
a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s
selection of a particular supplier of items or services reimbursable by a federal or state governmental program;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal
statutes that prohibit a person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any
healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the
money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor
(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a
material fact or making any materially false, fictitious, or fraudulent statements or representations in connection with the
delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; similar to the federal
Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their
respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans,
and healthcare clearinghouses as well as their respective business associates that perform services for them that involve
the use, or disclosure of, individually identifiable health information relating to the privacy, security and transmission of
individually identifiable health information;
The U.S. federal transparency requirements under the ACA, including the provision commonly referred to as the
Physician Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologics and medical
supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report
annually to the U.S. Department of Health and Human Services, CMS, information related to payments or other transfers
of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and
teaching hospitals, as well as ownership and investment interests held by the physicians described above and their
immediate family members;
federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate
and timely manner to government programs; and
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities
that potentially harm consumers.
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Additionally, we are subject to state and foreign equivalents of each of the healthcare laws and regulations described above,
among others, some of which may be broader in scope and may apply regardless of the payer. Many U.S. states have adopted
laws similar to the federal Anti-Kickback Statute and False Claims Act, and may apply to our business practices, including, but
not limited to, research, distribution, sales or marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental payors, including private insurers. In addition, some states have passed laws that require
pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for
Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with
Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make
marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements
and if we fail to comply with an applicable state law requirement we could be subject to penalties. Finally, there are state and
foreign laws governing the privacy and security of health information, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible
that some of our business activities could be subject to challenge under one or more of such laws. Law enforcement authorities
are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged
under these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business
generally, will comply with applicable healthcare laws and regulations will involve substantial costs. If our operations,
including our arrangements with physicians and other healthcare providers, some of whom receive stock options as
compensation for services provided, are found to be in violation of any of such laws or any other governmental regulations that
apply to us, we may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages,
fines, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, the curtailment or
restructuring of our operations, exclusion from participation in federal and state healthcare programs (such as Medicare and
Medicaid), and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.
We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and
costs. If the use of Strimvelis or our product candidates harms patients, or is perceived to harm patients even when such
harm is unrelated to our product candidates, our regulatory approvals could be revoked or otherwise negatively impacted
and we could be subject to costly and damaging product liability claims.
The use of our product candidates in clinical trials and the sale of Strimvelis or any products for which we obtain marketing
approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers,
healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. There is
a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims,
we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may
result in:
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the impairment of our business reputation;
the withdrawal of clinical trial participants;
costs due to related litigation;
the distraction of management’s attention from our primary business;
substantial monetary awards to patients or other claimants;
the inability to commercialize our product candidates; and
decreased demand for our product candidates, if approved for commercial sale.
We believe our product liability insurance coverage is sufficient in light of our current commercial and clinical programs;
however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. We intend to expand our insurance coverage each time we commercialize an additional product;
however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On
occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had
unanticipated adverse effects. A successful product liability claim or series of claims brought against us could adversely affect
our results of operations and business.
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Patients with the diseases targeted by certain of our product candidates are often already in severe and advanced stages of
disease and have both known and unknown significant pre-existing and potentially life- threatening health risks. During the
course of treatment, patients may suffer adverse events, including death, for reasons that may be related to our product
candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients,
delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us
to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event
is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations
may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of
regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if
successfully defended, could have a material adverse effect on our business, financial condition or results of operations.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or
penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory
procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve
the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce
hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot
eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our
use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We
also could incur significant costs associated with civil or criminal fines and penalties. Furthermore, environmental laws and
regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such
changes and cannot be certain of our future compliance. In addition, we may incur substantial costs in order to comply with
current or future environmental, health and safety laws and regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in
substantial fines, penalties or other sanctions.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide
adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or
future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our
research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial
fines, penalties or other sanctions or liabilities, which could materially adversely affect our business, financial condition, results
of operations and prospects.
As a company based outside of the United States, our business is subject to economic, political, regulatory and other risks
associated with international operations.
As a company based in the United Kingdom, our business is subject to risks associated with conducting business outside of the
United States. Many of our suppliers and clinical trial relationships are located outside the United States. Accordingly, our
future results could be harmed by a variety of factors, including:
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economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;
differing and changing regulatory requirements for product approvals;
differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such
jurisdictions;
potentially reduced protection for intellectual property rights;
difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple
jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;
changes in non-U.S. regulations and customs, tariffs and trade barriers;
changes in non-U.S. currency exchange rates of the pound sterling, U.S. dollar, euro and currency controls;
changes in a specific country’s or region’s political or economic environment, including the implications of the recent
decision of the eligible members of the U.K. electorate for the United Kingdom to withdraw from the European Union;
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trade protection measures, import or export licensing requirements or other restrictive actions by governments;
differing reimbursement regimes and price controls in certain non-U.S. markets;
negative consequences from changes in tax laws;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad, including, for
example, the variable tax treatment in different jurisdictions of options granted under our share option schemes or equity
incentive plans;
workforce uncertainty in countries where labor unrest is more common than in the United States;
litigation or administrative actions resulting from claims against us by current or former employees or consultants
individually or as part of class actions, including claims of wrongful terminations, discrimination, misclassification or
other violations of labor law or other alleged conduct;
difficulties associated with staffing and managing international operations, including differing labor relations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including
earthquakes, typhoons, floods and fires.
The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions,
financial markets and our business, which could reduce the price of our ADSs.
In June 2016, a majority of the eligible members of the electorate in the United Kingdom voted to withdraw from the European
Union in a national referendum, commonly referred to as Brexit. The withdrawal of the United Kingdom from the European
Union will take effect either on the effective date of the withdrawal agreement or, in the absence of agreement, two years after
the United Kingdom provides a notice of withdrawal pursuant to Article 50 of the EU Treaty, unless the European Council, in
agreement with the United Kingdom, unanimously decides to extend this period. On March 29, 2017, the U.K. Prime Minister
formally delivered the notice of withdrawal. The United Kingdom is, therefore, scheduled to leave the European Union at
11:00p.m. GMT on March 29, 2019. If the United Kingdom and the European Union are unable to negotiate acceptable
withdrawal terms, barrier-free access between the United Kingdom and other European Member States or among the European
Economic Area, or EEA, overall could be diminished or eliminated.
The uncertainty concerning the United Kingdom’s legal, political and economic relationship with the European Union after
Brexit may be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise
adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal,
regulatory or otherwise) beyond the date of Brexit.
These developments, or the perception that any of them could occur, have had, and may continue to have, a significant adverse
effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market
liquidity and restrict the ability of key market participants to operate in certain financial markets. In particular, it could also
lead to a period of considerable uncertainty in relation to the U.K. financial and banking markets, as well as on the regulatory
process in Europe. As a result of this uncertainty, global financial markets could experience significant volatility, which could
adversely affect the market price of our ADSs. Asset valuations, currency exchange rates and credit ratings may also be subject
to increased market volatility. Lack of clarity about future U.K. laws and regulations as the United Kingdom determines which
European Union rules and regulations to replace or replicate in the event of a withdrawal, including financial laws and
regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety
laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the United
Kingdom, increase costs, depress economic activity and restrict our access to capital
If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms, or if other EU Member
States pursue withdrawal, barrier-free access between the United Kingdom and other EU Member States or among the EEA
overall could be diminished or eliminated. The long-term effects of Brexit will depend on any agreements (or lack thereof)
between the United Kingdom and the European Union and, in particular, any arrangements for the United Kingdom to retain
access to European Union markets either during a transitional period or more permanently.
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Such a withdrawal from the European Union is unprecedented, and it is unclear how the United Kingdom’s access to the
European single market for goods, capital, services and labor within the European Union, or single market, and the wider
commercial, legal and regulatory environment, will impact our United Kingdom operations. and customers. Our United
Kingdom operations could be disrupted by Brexit, particularly if there is a change in the United Kingdom’s relationship to the
single market.
We may also face new regulatory costs and challenges that could have an adverse effect on our operations. Depending on the
terms of the United Kingdom’s withdrawal from the European Union, the United Kingdom could lose the benefits of global
trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers that
could make our doing business in the European Union and the EEA more difficult. Furthermore, there are likely to be changes
to the way in which marketing approvals are granted in the United Kingdom, which could add time and expense to the process
by which our product candidates receive and maintain regulatory approval in the United Kingdom and across the EEA in the
future. Even prior to any change to the United Kingdom’s relationship with the European Union, the announcement of Brexit
has created economic uncertainty surrounding the terms of Brexit and its consequences which could adversely affect our
business, revenue, financial condition, results of operations and could adversely affect the market price of our ADSs.
We may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery
plans may not adequately protect us from a serious disaster.
Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business,
results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that
prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the
manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or,
in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business
continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or
similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business
continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse
effect on our business, financial condition, results of operations and prospects.
Exchange rate fluctuations may materially affect our results of operations and financial condition.
Owing to the international scope of our operations, fluctuations in exchange rates, particularly between the pound sterling and
the U.S. dollar, may adversely affect us. Although we are based in the United Kingdom, we source research and development,
manufacturing, consulting and other services from the United States and the European Union. Further, potential future revenue
may be derived from abroad, particularly from the United States. As a result, our business and the price of our ADSs may be
affected by fluctuations in foreign exchange rates not only between the pound sterling and the U.S. dollar, but also the euro,
which may have a significant impact on our results of operations and cash flows from period to period. Currently, we do not
have any exchange rate hedging arrangements in place.
Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our product development programs.
Despite our security measures, our internal computer systems and those of our current and any future collaborators and other
contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism,
war and telecommunication and electrical failures. If any cyberattack or data breach were to occur in the future and cause
interruptions in our or our collaborators’, contractors’ or consultants’ operations, it could result in a material disruption of our
development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information
or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in
delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that
any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further
development and commercialization of our product candidates could be delayed.
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Risks related to our intellectual property
We may become subject to claims that we are infringing certain third party patents, for example, patents relating to
lentiviral vectors, or other third party intellectual property rights, any of which may prevent or delay our development and
commercialization efforts and have a material adverse effect on our business.
Our commercial success depends in part on avoiding infringing, misappropriating and otherwise violating the patents and other
intellectual property and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside
the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries,
including patent infringement lawsuits, and administrative proceedings such as interferences, inter partes review and post grant
review proceedings before the U.S. Patent and Trademark Office, or USPTO, and opposition proceedings before foreign patent
offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned or controlled by third
parties, including our competitors, exist in the fields in which we are pursuing products and product candidates. As the
biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our products and
product candidates may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we or our licensors are employing their proprietary technology without authorization. There may
be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for
treatment relating to our products and product candidates and, because patent applications can take many years to issue, there
may be currently pending third party patent applications which may later result in issued patents, in each case that our products
and product candidates, their manufacture or use may infringe or be alleged to infringe.
Parties making patent infringement claims against us may obtain injunctive or other equitable relief, which could effectively
block our ability to further develop and commercialize one or more of our products or product candidates. Defense of these
claims, including demonstrating non-infringement, invalidity or unenforceability of the respective patent rights in question,
regardless of their merit, is time-consuming, would involve substantial litigation expense and would be a substantial diversion
of employee resources from our business. For example, in order to successfully challenge the validity of any U.S. patent in
federal court, we would need to overcome a presumption of validity. This is a high burden requiring us to present clear and
convincing evidence as to the invalidity of any such U.S. patent claim, and we can provide no assurance that a court of
competent jurisdiction would invalidate the claims of any such U.S. patent. We may not have sufficient resources to bring these
actions to a successful conclusion. There could also be public announcements of the results of hearings, motions or other
interim proceedings or developments.
In the event that a holder of any such patents seeks to enforce its patent rights against us with respect to one or more of our
products or product candidates, and our defenses against the infringement of such patent rights are unsuccessful, we may be
precluded from commercializing such products and product candidates, even if approved, without first obtaining a license to
some or all of these patents, which may not be available on commercially reasonable terms or at all. Moreover, we may be
required to pay significant fees and royalties to secure a license to the applicable patents. Such a license may only be non-
exclusive, in which case our ability to stop others from using or commercializing technology and products similar or identical
to ours may be limited. Furthermore, we could be liable for damages to the holders of these patents, which may be significant
and could include treble damages if we are found to have willfully infringed such patents. In the event that a challenge to these
patents were to be unsuccessful or we were to become subject to litigation or unable to obtain a license on commercially
reasonable terms with respect to these patents, it could harm our business, financial condition, results of operations and
prospects.
We are aware of third-party issued U.S. patents relating to the lentiviral vectors used in the manufacture or use of our product
candidates. If these patent rights were enforced against us, we believe that we have defenses against any such action, including
that these patents would not be infringed by our product candidates and/or that these patents are not valid. However, if these
patents were enforced against us and defenses to such enforcement were unsuccessful, unless we obtain a license to these
patents, which may not be available on commercially reasonable terms, or at all, we could be liable for damages and precluded
from commercializing any products and product candidates that were ultimately held to infringe these patents, which could
have a material adverse effect on our business, financial condition, results of operations and prospects.
Even in the absence of a finding of infringement, we may need to obtain licenses from third parties to advance our research or
allow commercialization of our products and product candidates. We may fail to obtain any of these licenses at a reasonable
cost or on reasonable terms, or at all. In that event, we would be unable to further develop and commercialize our products and
product candidates. Claims that we have misappropriated the confidential information or trade secrets of third parties could
have a similar negative impact on our business. Any of the foregoing could materially adversely affect our business, results of
operations and financial condition.
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We are highly dependent on intellectual property and data licensed from third parties to develop and commercialize our
products and product candidates and our development and commercialization abilities are subject, in part, to the terms and
conditions of licenses granted to us by such third parties.
We are highly dependent on the intellectual property and data licensed to us by third parties that are important or necessary to
the development of our technology and products and product candidates, including technology related to the manufacture and
use of our products and product candidates. In particular, we do not own any patents or patent applications and have not in-
licensed any issued patents related to any of our products or product candidates. We have in-licensed one U.S. patent
application and a counterpart European patent application, know-how and data from UCLA and UCL Business plc, or UCLB,
relating to OTL-101 for ADA-SCID. In addition, we have in-licensed certain know-how and data from GSK and Telethon-
OSR, relating to Strimvelis, OTL-103 for WAS, OTL-200 for MLD, and OTL-300 for TDBT. Any termination of these license
rights could result in the loss of significant rights and could harm or prevent our ability to commercialize our products and
product candidates.
Although our license rights from The Regents of the University of California, University College London GSK, and Telethon-
OSR, are exclusive, they are limited to particular fields, such as ADA-SCID, MLD, WAS or TDBT, and are subject to certain
retained rights. Absent an amendment or additional agreement, we may not have the right to use the in-licensed intellectual
property, data, or know-how for one of our programs in another program. Furthermore, the licenses (including sublicenses) that
we have or may enter into in the future may not provide rights to use such intellectual property and technology in all relevant
fields of use and in all territories in which we may wish to develop or commercialize our technology, products and product
candidates. As a result, we may not be free to commercialize certain of our products or product candidates in fields or
territories of interest to us. Furthermore, if the licenses are not exclusive in territories of interest to us, we may be unable to
prevent competitors from developing and commercializing competitive products in territories included in our licenses. Licenses
(including sublicenses) to additional third-party technology that may be required for our development programs may not be
available in the future or may not be available on commercially reasonable terms, or at all, which could have a material adverse
effect on our business.
In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to
maintain the patents, covering technology that we license from third parties. Therefore, we cannot be certain that these patents
and applications will be prosecuted, maintained and enforced in a manner consistent with the best interests of our business. If
our licensors fail to maintain such patents, or lose rights to those patents or patent applications, the rights we have licensed may
be reduced or eliminated and our right to develop and commercialize any of our products and product candidates that are the
subject of such licensed rights could be adversely affected.
Our current license agreements impose, and we expect that future license agreements that we may enter into will impose,
various obligations, including diligence and certain payment obligations. If we fail to satisfy our obligations, the licensor may
have the right to terminate the agreement. Disputes may arise between us and any of our licensors regarding intellectual
property subject to such agreements and other issues. Such disputes over intellectual property that we have licensed or the
terms of our license agreements may prevent or impair our ability to maintain our current arrangements on acceptable terms, or
at all, or may impair the value of the arrangement to us. Any such dispute could have a material adverse effect on our business.
If we cannot maintain a necessary license agreement or if the agreement is terminated, we may be unable to successfully
develop and commercialize the affected products and product candidates. Termination of our license agreements or reduction
or elimination of our rights under them may result in our having to negotiate a new or reinstated agreement, which may not be
available to us on equally favorable terms, or at all, which may mean we are unable to develop or commercialize the affected
product or product candidate or cause us to lose our rights under the agreement. Any of the foregoing could have a material
adverse effect on our business
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If we are unable to obtain and maintain patent and other intellectual property protection for our products and product
candidates, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our
competitors could develop and commercialize products similar or identical to ours, and our ability to successfully
commercialize our products and product candidates may be adversely affected.
Our ability to compete effectively will depend, in part, on our ability to maintain the proprietary nature of our technology and
manufacturing processes. We rely on manufacturing and other know-how, patents, trade secrets, license agreements and
contractual provisions to establish our intellectual property rights and protect our products and product candidates. These legal
means, however, afford only limited protection and may not adequately protect our rights. We currently do not own any patents
or patent applications and have not in-licensed any issued patents related to any of our products or product candidates. In
addition, the U.S. patent application and its counterpart European patent application we have in-licensed from The Regents of
the University of California and University College London relating to OTL-101 are at a very early stage. Many of our
products and product candidates are in-licensed from third parties. Accordingly, in some cases, the availability and scope of
potential patent protection is limited based on prior decisions by our licensors or the inventors, such as decisions on when to
file patent applications or whether to file patent applications at all. Our or our licensors’ failure to obtain, maintain, enforce or
defend such intellectual property rights, for any reason, could allow third parties, in particular, other established and better
financed gene therapy companies having established development, manufacturing and distribution capabilities, to make
competing products or impact our ability to develop, manufacture and market our products and product candidates, even if
approved, on a commercially viable basis, if at all, which could have a material adverse effect on our business.
In particular, we rely primarily on trade secrets, know-how and other unpatented technology, which are difficult to protect.
Although we seek such protection in part by entering into confidentiality agreements with our vendors, employees, consultants
and others who may have access to proprietary information, we cannot be certain that these agreements will not be breached,
adequate remedies for any breach would be available, or our trade secrets, know-how and other unpatented proprietary
technology will not otherwise become known to or be independently developed by our competitors. If we are unsuccessful in
protecting our intellectual property rights, sales of our products may suffer and our ability to generate revenue could be
severely impacted.
We currently do not own any issued patents related to our products and product candidates. Certain intellectual property related
to Strimvelis and all of our product candidates are in-licensed from third parties but we have not in-licensed any issued patents
related to Strimvelis or any of our product candidates. In certain situations and as considered appropriate, we and our licensors
have sought, and we intend to continue to seek to protect our proprietary position by filing patent applications in the United
States and, in at least some cases, one or more countries outside the United States relating to current and future products and
product candidates that are important to our business. However, we cannot predict whether the patent applications currently
being pursued will issue as patents, whether the claims of any resulting patents will provide us with a competitive advantage or
prevent competitors from designing around our claims to develop competing technologies in a non-infringing manner, or
whether we will be able to successfully pursue patent applications in the future relating to our current or future products and
product candidates. Moreover, the patent application and approval process is expensive and time-consuming. We may not be
able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Furthermore,
we, or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course
of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, we may
miss potential opportunities to seek additional patent protection.
It is possible that defects of form in the preparation or filing of patent applications may exist, or may arise in the future, for
example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If we fail to
establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If
there are material defects in the form, preparation, prosecution or enforcement of our patents or patent applications, such
patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these
outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our
business.
Other parties, many of whom have substantially greater resources and have made significant investments in competing
technologies, have developed or may develop technologies that may be related or competitive with our approach, and may have
filed or may file patent applications and may have been issued or may be issued patents with claims that overlap or conflict
with our patent applications, either by claiming the same compositions, formulations or methods or by claiming subject matter
that could dominate our patent position. In addition, the laws of foreign countries may not protect our rights to the same extent
as the laws of the United States. As a result, any patents we may obtain in the future may not provide us with adequate and
continuing patent protection sufficient to exclude others from commercializing products similar to our products and product
candidates.
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We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, maintaining, defending and enforcing patents on products and product candidates in all countries
throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the
United States could be less extensive than those in the United States. Although our license agreement with UCLA and UCLB
pertaining to OTL-101 grants us worldwide rights, and our currently in-licensed patent family relating to OTL-101 has a
European patent application, there can be no assurance that we will obtain or maintain patent rights in or outside the United
States under any future license agreements. In addition, the laws of some foreign countries do not protect intellectual property
rights to the same extent as federal and state laws in the United States even in jurisdictions where we and our licensors pursue
patent protection. Consequently, we and our licensors may not be able to prevent third parties from practicing our inventions in
all countries outside the United States, even in jurisdictions where we and our licensors pursue patent protection, 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 and our licensors have not pursued and obtained patent protection to develop
their own products and, further, may export otherwise infringing products to territories where we have patent protection, but
enforcement is not as strong as that in the United States. These products may compete with our products and product
candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign
jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of
patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which
could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our
proprietary rights generally. Proceedings to enforce our patent rights, even if obtained, in foreign jurisdictions could result in
substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being
invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert
claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may
not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Issued patents covering our products and product candidates could be found invalid or unenforceable if challenged in court
or in administrative proceedings. We may not be able to protect our trade secrets in court.
If one of our licensing partners or we initiate legal proceedings against a third-party to enforce a patent covering one of our
products or product candidates, should such a patent issue, the defendant could counterclaim that the patent covering our
product or product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims
alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet
any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds
for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld
information material to patentability from the USPTO, or made a misleading statement, during prosecution. Third parties also
may raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation.
Such mechanisms include re-examination, post grant review, inter partes review and equivalent proceedings in foreign
jurisdictions. An adverse determination in any of the foregoing proceedings could result in the revocation or cancellation of, or
amendment to, our patents in such a way that they no longer cover our products or product candidates. The outcome following
legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we
cannot be certain that there is no invalidating prior art, of which the patent examiner and we or our licensing partners were
unaware during prosecution. If a defendant or third party were to prevail on a legal assertion of invalidity or unenforceability,
we could lose at least part, and perhaps all, of the patent protection on one or more of our products and product candidates.
Such a loss of patent protection could have a material adverse impact on our business.
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In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect
proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce
and any other elements of our product candidate discovery and development processes that involve proprietary know-how,
information or technology that is not covered by patents. However, trade secrets can be difficult to protect and some courts
inside and outside the United States are less willing or unwilling to protect trade secrets. We seek to protect our proprietary
technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific
advisors, and contractors. We cannot guarantee that we have entered into such agreements with each party that may have or
have had access to our trade secrets or proprietary technology and processes. We also seek to preserve the integrity and
confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic
security of our information technology systems. While we have confidence in these individuals, organizations and systems,
agreements or security measures may be breached, and we may not have adequate remedies for any breach.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors. Competitors and
other third parties could purchase our products and product candidates and attempt to replicate some or all of the competitive
advantages we derive from our development efforts, willfully infringe, misappropriate or otherwise violate our intellectual
property rights, design around our protected technology or develop their own competitive technologies that fall outside of our
intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor
or other third party, 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 our trade secrets are not adequately protected or sufficient to provide an
advantage over our competitors, our competitive position could be adversely affected, as could our business. Additionally, if
the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for
misappropriating our trade secrets.
We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged
trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual
property.
Certain of our employees, consultants or advisors are currently, or were previously, employed at universities or other
biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that
our employees, consultants and advisors 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 individual’s current or former employer. Litigation may be necessary to defend
against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in
substantial costs and be a distraction to management. Our licensors may face similar risks, which could have an adverse impact
on intellectual property that is licensed to us.
We may be subject to claims challenging the inventorship or ownership of the patents and other intellectual property that
we own or license.
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an ownership
interest in the patents and intellectual property that we own or license or that we may own or license in the future. 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 or such assignments may not be self-executing
or may be breached. Our licensors may face similar obstacles. We could be subject to ownership disputes arising, for example,
from conflicting obligations of employees, consultants or others who are involved in developing our products or product
candidates. Litigation may be necessary to defend against any claims challenging inventorship or ownership. If we or our
licensors fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property
rights, such as exclusive ownership of, or right to use, intellectual property, which could adversely impact our business, results
of operations and financial condition.
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Some intellectual property which we have in-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, and limit our ability to contract with non-
U.S. manufacturers.
Some of the intellectual property rights we have licensed, including rights licensed to us by UCLA relating to our OTL-101
product candidate for ADA-SCID, may have been generated through the use of U.S. government and California state funding
and may therefore be subject to certain federal and state laws and regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or future products and product candidates pursuant to the Bayh-
Dole Act of 1980. These U.S. government rights in certain inventions developed under a government-funded program include a
non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the
U.S. government has the right to require us to grant 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”). The U.S. government also has the
right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to
file an application to register the intellectual property within specified time limits. Intellectual property generated under a
government funded program is also subject to certain reporting requirements, compliance with which may require us or the
applicable licensor to expend substantial resources. In addition, the U.S. government requires that products embodying the
subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The
manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but
unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to
manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially
feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for
products covered by such intellectual property. With respect to state funding, specifically funding via the California Institute of
Regenerative Medicine, or CIRM, the grantee has certain obligations and the state or CIRM has certain rights. For example, the
grantee has an obligation to share intellectual property, including research results, generated by CIRM-funded research, for
research use in California.
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 may infringe, misappropriate or otherwise violate patents, trademarks, copyrights or other intellectual property
that we own or in-license. To counter infringement, misappropriation or other unauthorized use, we may be required to file
claims, which can be expensive and time consuming and divert the time and attention of our management and scientific
personnel. Any claims we assert against perceived violators could provoke these parties to assert counterclaims against us
alleging that we infringe, misappropriate or otherwise violate their intellectual property, in addition to counterclaims asserting
that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will
decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other
party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will
construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at
issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding
involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or
preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences
could adversely affect our competitive business position, business prospects and financial condition.
Even if we establish infringement, misappropriation or another violation of our intellectual property rights, the court may
decide not to grant an injunction against the offender and instead award only monetary damages, which may or may not be an
adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual
property litigation, there is a risk that some of our confidential information could be compromised by disclosure during
litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or
developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on
the price of shares of our ADSs. Moreover, there can be no assurance that we will have sufficient financial or other resources to
file and pursue such claims, which typically last for years before they are concluded. Even if we ultimately prevail in such
claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could
outweigh any benefit we receive as a result of the proceedings. Any of the foregoing may have a material adverse effect on our
business, financial condition, results of operations and prospects.
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Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby
impairing our ability to protect our products and product candidates.
Changes in either the patent laws or the interpretation of the patent laws in the United States or other jurisdictions could
increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued
patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. When
implemented, the Leahy-Smith Act included several significant changes to U.S. patent law that impacted how patent rights
could be prosecuted, enforced and defended. In particular, the Leahy-Smith Act also included provisions that switched the
United States from a “first-to-invent” system to a “first-to-file” system, allowed third-party submission of prior art to the
USPTO during patent prosecution and set forth additional procedures to attack the validity of a patent by the USPTO
administered post grant proceedings. Under a first-to-file system, assuming the other requirements for patentability are met, the
first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another
inventor had made the invention earlier. The USPTO developed new regulations and procedures governing the 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, only became effective on March 16, 2013. It remains unclear what, if any, impact the
Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could
increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of
our issued patents, all of which could have a material adverse effect on our business.
The patent positions of companies engaged in the development and commercialization of biologics are particularly uncertain.
Two cases involving diagnostic method claims and “gene patents” have been decided by the Supreme Court of the United
States, or Supreme Court. The Supreme Court issued a decision in Mayo Collaborative Services v. Prometheus Laboratories,
Inc., or Prometheus, a case involving patent claims directed to a process of measuring a metabolic product in a patient to
optimize a drug dosage for the patient. According to the Supreme Court, the addition of well-understood, routine or
conventional activity such as “administering” or “determining” steps was not enough to transform an otherwise patent-
ineligible natural phenomenon into patent-eligible subject matter. Thereafter, the USPTO issued a guidance memo to patent
examiners indicating that process claims directed to a law of nature, a natural phenomenon or a naturally occurring relation or
correlation that do not include additional elements or steps that integrate the natural principle into the claimed invention such
that the natural principle is practically applied and the claim amounts to significantly more than the natural principle itself
should be rejected as directed to not patent-eligible subject matter. Subsequently, the Supreme Court issued its decision in
Association for Molecular Pathology v. Myriad Genetics, Inc., or Myriad, a case involving patent claims held by Myriad
Genetics, Inc. relating to the breast cancer susceptibility genes BRCA1 and BRCA2. Myriad held that an isolated segment of
naturally occurring DNA, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent-eligible subject matter,
but that complementary DNA, which is an artificial construct that may be created from RNA transcripts of genes, may be
patent-eligible. Thereafter, the USPTO issued a guidance memorandum instructing USPTO examiners on the ramifications of
the Prometheus and Myriad rulings and apply the Myriad ruling to natural products and principles including all naturally
occurring nucleic acids.
Certain claims of our in-licensed patent applications contain, and any future patents we may obtain may contain, claims that
relate to specific recombinant DNA sequences that are naturally occurring at least in part and, therefore, could be the subject of
future challenges made by third parties.
We cannot assure that our efforts to seek patent protection for one or more of our products and product candidates will not be
negatively impacted by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the
USPTO. We cannot fully predict what impact the Supreme Court’s decisions in Prometheus and Myriad may have on the
ability of life science companies to obtain or enforce patents relating to their products in the future. These decisions, the
guidance issued by the USPTO and rulings in other cases or changes in USPTO guidance or procedures could have a material
adverse effect on our existing patent rights and our ability to protect and enforce our intellectual property in the future.
Moreover, although the Supreme Court has held in Myriad that isolated segments of naturally occurring DNA are not patent-
eligible subject matter, certain third parties could allege that activities that we may undertake infringe other gene-related patent
claims, and we may deem it necessary to defend ourselves against these claims by asserting non-infringement and/or invalidity
positions, or paying to obtain a license to these claims. In any of the foregoing or in other situations involving third-party
intellectual property rights, if we are unsuccessful in defending against claims of patent infringement, we could be forced to
pay damages or be subjected to an injunction that would prevent us from utilizing the patented subject matter, the result of
which could have a material adverse effect on our business.
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If we do not obtain patent term extension and data exclusivity for our products and product candidates, our business may be
materially harmed.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is
generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a
patent, and the protection it affords, is limited. Even if patents covering our products and product candidates are obtained, once
the patent life has expired for a product or product candidate, we may be open to competition from competitive products. Given
the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting
such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed
patent portfolio may not provide us with sufficient rights to exclude others from commercializing products and product
candidates similar or identical to ours.
In the future, if we obtain an issued patent covering one of our present or future product candidates, depending upon the timing,
duration and specifics of any FDA marketing approval of such product candidates, such patent may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for 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, only one patent may be extended and only those claims covering
the approved drug, a method for using it or a method for manufacturing it may be extended. A patent may only be extended
once and only based on a single approved product. However, we may not be granted an extension because of, for example,
failure to obtain a granted patent before approval of a product candidate, failure to exercise due diligence during the testing
phase or regulatory review process, failure to apply within applicable deadlines, failure to apply prior to expiration of relevant
patents or otherwise our failure to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent
protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such
extension is less than we request, our competitors may obtain approval of competing products following our patent expiration,
and our revenue could be reduced, possibly materially. In addition, we do not control the efforts of our licensors to obtain a
patent term extension, and there can be no assurance that they will pursue or obtain such extensions to patents that we may
license from them.
Intellectual property rights and regulatory exclusivity rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
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the patents of others may have an adverse effect on our business;
others, including one or more of our competitors, may reverse engineer or independently develop the know-how or data,
including clinical data, that we rely on for a competitive advantage;
others may be able to make gene therapy products that are similar to our products or product candidates but that are not
covered by the claims of the patents that we license or may own or license in the future or by our other intellectual
property rights;
we, our license partners or current or future collaborators, might not have been the first to make the inventions covered
by the issued patents or pending patent applications that we license or may own or license in the future;
we, our license partners or current or future collaborators, might not have been the first to file patent applications
covering certain of our or their inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies without
infringing, misappropriating or otherwise violating our owned or licensed intellectual property rights;
it is possible that our pending licensed patent applications or those that we may own or license in the future will not lead
to issued patents;
issued patents that we hold rights to or may hold rights to in the future may be held invalid or unenforceable, including as
a result of legal challenges by our competitors;
one or more of our products or product candidates may never be protected by patents;
our competitors might conduct research and development activities in countries where we do not have patent rights and
then use the information learned from such activities to develop competitive products for sale in our major commercial
markets;
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we may not develop additional proprietary technologies that are patentable; and
we or our licensors or collaborators may choose not to file a patent application for certain trade secrets or know-how, and
a third party may subsequently file a patent application or obtain a patent covering such intellectual property.
Should any of these events occur, they could significantly harm our business, financial condition, results of operations and
prospects.
Risks related to ownership of our securities
The market price of our ADSs may be highly volatile, and may fluctuate due to factors beyond our control. An active public
trading market for our ADSs may not be sustained.
We completed our initial public offering in November 2018. Prior to that time, there was no public trading market for our
ADSs or ordinary shares. Although we have completed our initial public offering and our ADSs are listed and trading on the
Nasdaq Global Select Market, an active trading market for our ADSs may not be sustained. If an active market for our ADSs is
not sustained, it may be difficult for existing shareholders to sell our ADSs without depressing the market price for our
securities or at all. An inactive trading market may also impair our ability to raise capital to continue to fund operations by
selling ADSs and may impair our ability to acquire other companies or assets by using our ADSs as consideration.
In addition, the trading price of our ADSs has fluctuated, and is likely to continue to fluctuate significantly. The market price
of our ADSs depends on a number of factors, some of which are beyond our control. In addition to the factors discussed in this
“Item 3.D.—Risk factors” and elsewhere in this Annual Report, these factors include:
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adverse results or delays in preclinical studies or clinical trials;
reports of adverse events in other gene therapy products or clinical trials of such products;
an inability to obtain additional funding;
failure by us to successfully develop and commercialize our product candidates;
failure by us to maintain our existing strategic collaborations or enter into new collaborations;
failure by us or our licensors and strategic partners to prosecute, maintain or enforce our intellectual property rights;
changes in laws or regulations applicable to future products;
an inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices;
adverse regulatory decisions;
the introduction of new products, services or technologies by our competitors;
failure by us to meet or exceed financial projections we may provide to the public;
failure by us to meet or exceed the financial projections of the investment community;
the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our
strategic partner or our competitors;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain
patent protection for our technologies;
additions or departures of key scientific or management personnel;
significant lawsuits, including patent or shareholder litigation;
changes in the market valuations of similar companies;
sales of our ADSs by us or our shareholders in the future; and
the trading volume of our ADSs.
In addition, companies trading in the stock market in general, and Nasdaq in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad
market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating
performance.
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We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of
its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant securities
price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about
our business, our ADS price and trading volume could decline.
The trading market for our ADSs depends in part on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. In the event one or more analysts downgrade our ADSs or
change their opinion of our ADSs, our ADS price would likely decline. In addition, if one or more analysts cease coverage of
our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our
ADS price or trading volume to decline.
Concentration of ownership of our ordinary shares (including ordinary shares in the form of ADSs) among our existing
executive officers, directors and principal shareholders may prevent new investors from influencing significant corporate
decisions.
Based upon our ordinary shares outstanding as of December 31, 2018, our executive officers, directors, greater than five
percent shareholders and their affiliates beneficially own approximately 66.4% of our ordinary shares and ADSs. Depending on
the level of attendance at our general meetings of shareholders, these shareholders either alone or voting together as a group
may be in a position to determine or significantly influence the outcome of decisions taken at any such general meeting. Any
shareholder or group of shareholders controlling more than 50% of the share capital present and voting at our general meetings
of shareholders may control any shareholder resolution requiring a simple majority, including the appointment of board
members, certain decisions relating to our capital structure, the approval of certain significant corporate transactions and
amendments to our Articles of Association. Among other consequences, this concentration of ownership may prevent or
discourage unsolicited acquisition proposals that our shareholders may believe are in their best interest as shareholders. Some
of these persons or entities may have interests that are different than those of our other shareholders. For example, because
many of these shareholders purchased their ordinary shares at prices substantially below the price at which ADSs were sold in
our initial public offering have held their ordinary shares for a longer period, they may be more interested in selling our
company to an acquirer than other investors or they may want us to pursue strategies that deviate from the interests of other
shareholders.
Future sales, or the possibility of future sales, of a substantial number of our securities could adversely affect the price of
the shares and dilute shareholders.
Additional sales of our ADSs, or the perception that these sales could occur, could cause the market price of our ADSs to
decline. If any of our large shareholders or members of our management team sell substantial amounts of ADSs in the public
market, or the market perceives that such sales may occur, the market price of our ADSs and our ability to raise capital through
an issue of equity securities in the future could be adversely affected.
Holders of ADSs are not treated as holders of our ordinary shares.
Holders of our publicly-traded securities are holders of ADSs with underlying ordinary shares in a company incorporated under
English law. Holders of ADSs are not treated as holders of our ordinary shares, unless they withdraw the ordinary shares
underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary is the
holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of our
ordinary shares, other than the rights that they have pursuant to the deposit agreement.
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Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary
shares.
ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to
time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer
or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the
depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any
provision of the deposit agreement, or for any other reason, subject to the right of ADS holders to cancel their ADSs and
withdraw the underlying ordinary shares. Temporary delays in the cancellation of the holder’s ADSs and withdrawal of the
underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books,
the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our
ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares
when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply
with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited
securities.
We are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such
agreement, or to terminate the deposit agreement, without the prior consent of the ADS holders.
We are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such
agreement, without the prior consent of the ADS holders. We and the depositary may agree to amend the deposit agreement in
any way we decide is necessary or advantageous to us or to the depositary. Amendments may reflect, among other things,
operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business
relationship with the depositary. In the event that the terms of an amendment are materially disadvantageous to ADS holders,
ADS holders will only receive 30 days’ advance notice of the amendment, and no prior consent of the ADS holders is required
under the deposit agreement. Furthermore, we may decide to direct the depositary to terminate the ADS facility at any time for
any reason. For example, terminations may occur when we decide to list our ordinary shares on a non-U.S. securities exchange
and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private
transaction. If the ADS facility will terminate, ADS holders will receive at least 30 days’ prior notice, but no prior consent is
required from them. Under the circumstances that we decide to make an amendment to the deposit agreement that is
disadvantageous to ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or
surrender their ADSs and become direct holders of the underlying ordinary shares, but will have no right to any compensation
whatsoever.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could
result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by
law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim they may have against us or
the depositary arising out of or relating to the ADSs or the deposit agreement.
If this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit
agreement with a jury trial. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine
whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state
and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims
arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we
believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State
of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-
exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-
dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily
waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs.
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If any holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under
the deposit agreement or the ADSs, including claims under federal securities laws, such holder or beneficial owner may not be
entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us
and / or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard
only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and
may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the
plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such
claims, and the venue of the hearing.
No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner
of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the
rules and regulations promulgated thereunder.
Holders of our ADSs do not have the same voting rights as the holders of our ordinary shares and may not receive voting
materials in time to be able to exercise the holder’s right to vote.
Except as described in this Annual Report and the deposit agreement, holders of the ADSs will not be able to exercise voting
rights attaching to the ordinary shares represented by the ADSs. Under the terms of the deposit agreement, holders of the ADSs
may instruct the depositary to vote the ordinary shares underlying their ADSs. Otherwise, holders of ADSs will not be able to
exercise their right to vote unless they withdraw the ordinary shares underlying their ADSs to vote them in person or by proxy
in accordance with applicable laws and regulations and our Articles of Association. Even so, ADS holders may not know about
a meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of the ADSs, the
depositary, upon timely notice from us, will notify ADS holders of the upcoming vote and arrange to deliver our voting
materials to them. Upon our request, the depositary will mail to holders a shareholder meeting notice that contains, among
other things, a statement as to the manner in which voting instructions may be given. We cannot guarantee that ADS holders
will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying
their ADSs. A shareholder is only entitled to participate in, and vote at, the meeting of shareholders, provided that it holds our
ordinary shares as of the record date set for such meeting and otherwise complies with our Articles of Association. In addition,
the depositary’s liability to ADS holders for failing to execute voting instructions or for the manner of executing voting
instructions is limited by the deposit agreement. As a result, holders of ADSs may not be able to exercise their right to give
voting instructions or to vote in person or by proxy and they may not have any recourse against the depositary or us if their
ordinary shares are not voted as they have requested or if their shares cannot be voted.
Holders of our ADSs may not receive distributions on our ordinary shares represented by the ADSs or any value for them if
it is illegal or impractical to make them available to holders of ADSs.
The depositary for the ADSs has agreed to pay to the holders of our ADSs the cash dividends or other distributions it or the
custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. Holders of our
ADSs will receive these distributions in proportion to the number of our ordinary shares such holder’s ADSs represent.
However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a
distribution available to holders of ADSs. We have no obligation to take any other action to permit distribution on the ADSs,
ordinary shares, rights or anything else to holders of the ADSs. This means that holders of our ADSs may not receive the
distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available.
These restrictions may have an adverse effect on the value of our ADSs.
Because we do not anticipate paying any cash dividends on our ADSs in the foreseeable future, capital appreciation, if any,
will be the sole source of gains to the holders of our ADSs and such holders may never receive a return on their investment.
Under current English law, a company’s accumulated realized profits must exceed its accumulated realized losses (on a non-
consolidated basis) before dividends can be declared and paid. Therefore, we must have distributable profits before declaring
and paying a dividend. We have not paid dividends in the past on our ordinary shares. We intend to retain earnings, if any, for
use in our business and do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation,
if any, on our ADSs will be the sole source of gains to the holders of our ADSs for the foreseeable future, and such holders
may suffer a loss on their investment if they are unable to sell their ADSs at or above the price at which such holders purchased
the ADSs.
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A significant portion of our total outstanding ordinary shares are restricted from immediate resale but may be sold into the
market in the near future, which could cause the market price of our ADSs to drop significantly.
Sales of a substantial number of our ADSs in the public market could occur at any time, subject to certain restrictions described
below. These sales, or the perception in the market that holders of a large number of ADSs intend to sell, could reduce the
market price of our ADSs. As of December 31, 2018, we have outstanding 85,865,557 ordinary shares. Of these shares,
69,761,485 shares currently are restricted as a result of securities laws or lock-up agreements but will be able to be sold in the
future. Moreover, holders of an aggregate of approximately 60,168,900 ordinary shares have rights, subject to certain
conditions, to require us to file registration statements covering their ordinary shares or to include their ordinary shares in
registration statements that we may file for ourselves or other shareholders. In addition, 10,203,432 ordinary shares reserved
for issuance upon the exercise of existing options outstanding as of December 31, 2018 under our current equity incentive
plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.
In addition, J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC and Cowen and Company, LLC may, in their sole
discretion, release all or some portion of the ordinary shares sold in our completed initial public offering and subject to lock-up
agreements at any time and for any reason. Sales of a substantial number of such ordinary shares upon expiration of the lock-up
agreements, the perception that such sales may occur, or early release of these agreements, could cause our market price to fall
or make it more difficult for holders of our ADSs to sell such ADSs at a time and price that they deem appropriate.
Claims of U.S. civil liabilities may not be enforceable against us.
We are incorporated under English law. Certain members of our board of directors and senior management are non-residents of
the United States, and all or a substantial portion of our assets and the assets of such persons are located outside the United
States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments
obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. As a
result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce
judgments obtained in U.S. courts against them or us, including judgments predicated upon the civil liability provisions of the
U.S. federal securities laws.
The United States and the United Kingdom do not currently have a treaty providing for recognition and enforcement of
judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final judgment for payment given
by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be
recognized or enforceable in the United Kingdom. In addition, uncertainty exists as to whether U.K. courts would entertain
original actions brought in the United Kingdom against us or our directors or senior management predicated upon the securities
laws of the United States or any state in the United States. Any final and conclusive monetary judgment for a definite sum
obtained against us in U.S. courts would be treated by the courts of the United Kingdom as a cause of action in itself and sued
upon as a debt at common law so that no retrial of the issues would be necessary, provided that certain requirements are met.
Whether these requirements are met in respect of a judgment based upon the civil liability provisions of the U.S. securities
laws, including whether the award of monetary damages under such laws would constitute a penalty, is an issue for the court
making such decision. If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment
will be enforceable by methods generally available for this purpose. These methods generally permit the English court
discretion to prescribe the manner of enforcement.
As a result, U.S. investors may not be able to enforce against us or our senior management, board of directors or certain experts
named herein who are residents of the United Kingdom or countries other than the United States any judgments obtained in
U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file
less information with the SEC than U.S. public companies.
We are a “foreign private issuer,” as defined in the SEC rules and regulations and, consequently, we are not subject to all of the
disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain
rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of
proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and
directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and
related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports
and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less
publicly available information concerning our company than there is for U.S. public companies.
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As a foreign private issuer, we file an Annual Report on Form 20-F within four months of the close of each fiscal year ended
December 31 and reports on Form 6-K relating to certain material events promptly after we publicly announce these events.
However, because of the above exemptions for foreign private issuers, our shareholders are not afforded the same protections
or information generally available to investors holding shares in public companies organized in the United States.
While we are a foreign private issuer, we are not subject to certain Nasdaq corporate governance rules applicable to U.S.
listed companies.
We are entitled to rely on a provision in Nasdaq’s corporate governance rules that allows us to follow English corporate law
and the Companies Act with regard to certain aspects of corporate governance. This allows us to follow certain corporate
governance practices that differ in significant respects from the corporate governance requirements applicable to U.S.
companies listed on Nasdaq.
For example, we are exempt from Nasdaq regulations that require a listed U.S. company to (i) have a majority of the board of
directors consist of independent directors, (ii) require non-management directors to meet on a regular basis without
management present and (iii) promptly disclose any waivers of the code for directors or executive officers that should address
certain specified items.
In accordance with our Nasdaq listing, our audit committee is required to comply with the provisions of Section 301 of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and Rule 10A-3 of the Exchange Act, both of which are also
applicable to Nasdaq -listed U.S. companies. Because we are a foreign private issuer, however, our audit committee is not
subject to additional Nasdaq requirements applicable to listed U.S. companies, including an affirmative determination that all
members of the audit committee are “independent,” using more stringent criteria than those applicable to us as a foreign private
issuer. Furthermore, Nasdaq’s corporate governance rules require listed U.S. companies to, among other things, seek
shareholder approval for the implementation of certain equity compensation plans and issuances of ordinary shares, which we
are not required to follow as a foreign private issuer.
We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic
reporting regime and cause us to incur significant legal, accounting and other expenses.
As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements
of the Exchange Act applicable to U.S. domestic issuers. We may no longer be a foreign private issuer as early as June 30,
2019 (the end of our second fiscal quarter in the fiscal year after completing our initial public offering), which would require us
to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S.
domestic issuers as early as January 1, 2020. In order to maintain our current status as a foreign private issuer, either (a) a
majority of our securities must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a
majority of our executive officers or directors cannot be U.S. citizens or residents, (ii) more than 50% of our assets must be
located outside the United States and (iii) our business must be administered principally outside the United States. If we lose
our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements
applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers.
We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq
rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting
requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private
issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs
and is likely to make some activities highly time consuming and costly. We also expect that if we were required to comply with
the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain
director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs
to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members
of our board of directors.
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We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies
may make our ADSs less attractive to investors.
We are an “emerging growth company,” or EGC, as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS
Act. We will remain an EGC until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues
of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of our
initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous
three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the
first day of the year following the first year in which the market value of our ADSs that are held by non-affiliates exceeds
$700 million as of June 30. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain
disclosure requirements that are applicable to other public companies that are not emerging growth companies. These
exemptions include:
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or
Section 404;
not being required to comply with any requirement that has or may be adopted by the Public Company Accounting
Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional
information about the audit and the financial statements;
being permitted to provide only two years of audited financial statements in this initial registration statement, in addition
to any required unaudited interim financial statements, with correspondingly reduced “Management’s discussion and
analysis of financial condition and results of operations” disclosure;
reduced disclosure obligations regarding executive compensation; and
an exemption from the requirement to seek nonbinding advisory votes on executive compensation or golden parachute
arrangements.
We may choose to take advantage of some, but not all, of the available exemptions in our public filings with the SEC. We have
taken advantage of reduced reporting burdens in this Annual Report. We cannot predict whether investors will find our ADSs
less attractive if we rely on certain or all of these exemptions. If some investors find our ADSs less attractive as a result, there
may be a less active trading market for our ADSs and our ADS price may be more volatile.
In addition, the JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new
or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised
accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public
companies that are not emerging growth companies.
We will continue to incur increased costs as a result of operating as a company whose ADSs are publicly traded in the
United States, and our management is required to devote substantial time to new compliance initiatives.
As a U.S. public company, and particularly after we are no longer an EGC, we have incurred and will continue to incur
significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley
Act and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies,
including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our
management and other personnel are required to devote a substantial amount of time to these compliance initiatives. Moreover,
these rules and regulations have increased and will continue to increase our legal and financial compliance costs and make
some activities more time-consuming and costly.
Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting,
including an attestation report on internal control over financial reporting issued by our independent registered public
accounting firm. However, while we remain an EGC, we are not required to include an attestation report on internal control
over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404
within the prescribed period, we have engaged in a process to document and evaluate our internal control over financial
reporting, which is both costly and challenging. In this regard, we continue to dedicate internal resources, have engaged outside
consultants and adopted a detailed work plan to assess and document the adequacy of internal control over financial reporting,
taken steps to improve control processes as appropriate, validated through testing that controls are functioning as documented
and have implemented a continuous reporting and improvement process for internal control over financial reporting. Despite
our efforts, there is a risk we will not be able to conclude within the prescribed timeframe that our internal control over
financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due
to a loss of confidence in the reliability of our financial statements.
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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other
public reporting, which would harm our business and the trading price of our ADSs.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or
improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.
In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent
registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be
material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas
for further attention or improvement. Inferior 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 ADSs.
Our management is required to assess the effectiveness of these controls annually. However, for as long as we are an EGC, our
independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over
financial reporting pursuant to Section 404. We could be an EGC for up to five years following our completed initial public
offering. An independent assessment of the effectiveness of our internal controls over financial reporting could detect problems
that our management’s assessment might not. Undetected material weaknesses in our internal controls over financial reporting
could lead to financial statement restatements and require us to incur the expense of remediation.
We previously identified material weaknesses in our internal control over financial reporting. We may identify future
material weaknesses in our internal control over financial reporting. If we are unable to remedy these material weaknesses,
or if we fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial
statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely
impact our investors’ confidence and our ADS price.
Prior to the completion of our initial public offering in November 2018, we were a private limited company, and as such, had
not been subject to the reporting requirements of Section 404 or an audit performed in accordance with auditing standards
issued by the PCAOB. However, in connection with the preparation of our consolidated financial statements for the years
ended December 31, 2016 and 2017, we identified material weaknesses in our internal control over financial reporting
attributable a lack of sufficient processes, controls, and other review procedures performed by personnel familiar with U.S.
GAAP during these periods. Specifically, the findings related to our internal control infrastructure as of December 31, 2016
and 2017 and June 30, 2018 where we did not design or implement sufficient processes, controls and other review procedures
to evaluate (i) the recognition and accrual of research and development related expenses and reimbursements for periods ended
December 31, 2016 and 2017 and (ii) the recognition of assets and liabilities contingent on future events for the six-month
period ending June 30, 2018. As a result, there were adjustments required in connection with closing our books and records and
preparing our 2016 and 2017 financial statements, and a restatement of our condensed consolidated financial statements as of
and for the six months ended June 30, 2018.
In response to the material weaknesses, we hired a full-time Chief Financial Officer in January 2018, and we have hired
additional finance and accounting personnel with appropriate expertise to perform specific functions, and design and
implement improved processes and internal controls, build our financial management and reporting infrastructure and further
develop and document our accounting policies and financial reporting procedures, including ongoing senior management
review and audit committee oversight. We believe the finance and accounting personnel we hired have the required skills and
capabilities. We have also enhanced our processes and accounting methodology related to the recognition and accrual of
research and development expenses and reimbursements. We have also developed and enhanced our procedures with respect to
our analysis of complex, non-routine transactions.
We have made significant progress to enhance our in-house accounting and finance function and developed more formalized
procedures and processes to ensure the completeness and accuracy of our recognition of and accrual of research and
development related expenses and reimbursements. This material weakness was identified during the preparation of the
financials for the IPO, and due to the limited amount of time since then, we concluded that the material weakness associated
with recognition and accrual of research and development related expenses and reimbursements had not yet been fully
remediated as of December 31, 2018. We believe we have remediated the previously identified material weakness associated
with the recognition of assets and liabilities contingent on future events.
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More generally, if we are unable to meet the demands that have been placed upon us as a public company, including the
requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results in future periods, or report
them within the timeframes required by law or stock exchange regulations. Failure to comply with the Sarbanes-Oxley Act,
when and as applicable, could also potentially subject us to sanctions or investigations by the SEC or other regulatory
authorities. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their
implementation, could result in additional material weaknesses or significant deficiencies, cause us to fail to meet our reporting
obligations or result in material misstatements in our financial statements. Furthermore, if we cannot provide reliable financial
reports or prevent fraud, our business and results of operations could be harmed, and investors could lose confidence in our
reported financial information. We also could become subject to investigations by Nasdaq, the SEC or other regulatory
authorities.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to certain reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to
reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is
accumulated and communicated to management, recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or
fraud may occur and not be detected.
Comprehensive tax reform legislation could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law the TCJA, which makes significant changes to the Internal Revenue
Code of 1986, as amended, or the Code. The TCJA, among other things, contains significant changes to corporate taxation and
other changes that may impact our operations, in particular the operations of our wholly-owned U.S. subsidiary, Orchard
Therapeutics North America. We continue to examine the impact the TCJA may have on our business.
If we are a controlled foreign corporation, there could be adverse U.S. federal income tax consequences to certain U.S.
holders
Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign
corporation,” or a CFC, for U.S. federal income tax purposes generally is required to include in income for U.S. federal tax
purposes such Ten Percent Shareholder’s pro rata share of the CFC’s “Subpart F income” and investment of earnings in U.S.
property, even if the CFC has made no distributions to its shareholders. Subpart F income generally includes dividends,
interest, rents, royalties, “global intangible low-taxed income,” gains from the sale of securities and income from certain
transactions with related parties. In addition, a Ten Percent Shareholder that realizes gain from the sale or exchange of shares in
a CFC may be required to classify a portion of such gain as dividend income rather than capital gain. A non-U.S. corporation
generally will be classified as a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly or
indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote
or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the
Code) who owns or is considered to own 10% or more of the total combined voting power of all classes of stock entitled to
vote of such corporation. The determination of CFC status is complex and includes attribution rules, the application of which is
not entirely certain.
We believe that we were not a CFC in the 2018 taxable year, however, and we may become a CFC in a subsequent taxable
year. If we are classified as both a CFC and a passive foreign investment company, or PFIC (as discussed below), we generally
will not be treated as a PFIC with respect to those U.S. holders that meet the definition of a Ten Percent Shareholder during the
period in which we are a CFC.
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If we are a PFIC there could be adverse U.S. federal income tax consequences to U.S. holders.
Under the Code, we will be a PFIC, for any taxable year in which (1) 75% or more of our gross income consists of passive
income or (2) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the
production of, passive income. For purposes of these tests, passive income includes dividends, interest, gains from the sale or
exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, a non-U.S.
corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as holding and
receiving directly its proportionate share of assets and income of such corporation. If we are a PFIC for any taxable year during
which a U.S. holder holds our shares, the U.S. holder may be subject to adverse tax consequences regardless of whether we
continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed
dividends, interest charges on certain taxes treated as deferred and additional reporting requirements.
We do not believe that we were a PFIC in the 2018 taxable year. The determination of whether we are a PFIC is a fact-
intensive determination made on an annual basis applying principles and methodologies that in some circumstances are unclear
and subject to varying interpretation. The value of our assets would also be determined differently for the purposes of this
determination if we were treated as a CFC, as discussed above. As a result, there can be no assurance regarding if we currently
are treated as a PFIC, or may be treated as a PFIC in the future. In addition, for our current and future taxable years, the total
value of our assets for PFIC testing purposes may be determined in part by reference to the market price of our ordinary shares
or ADSs from time to time, which may fluctuate considerably. Under the income test, our status as a PFIC depends on the
composition of our income which will depend on the transactions we enter into in the future and our corporate structure. The
composition of our income and assets is also affected by the spending of the cash we raise in any offering.
In certain circumstances, a U.S. holder of shares in a PFIC may alleviate some of the adverse tax consequences described
above by making either a “qualified electing fund,” or QEF, election or a mark-to-market election (if our ordinary shares or
ADSs constitute “marketable” securities under the Code), which each require the inclusion of a pro rata share of our income on
a current basis. However, a U.S. holder may make a QEF election with respect to our ordinary shares or ADSs only if we agree
to furnish such U.S. holder annually with required information, and we have not determined if we intend to prepare or provide
the information that would enable U.S. holders to make a QEF election. However, a U.S. holder would be able to make a mark-
to-market election with respect to our ordinary shares or ADSs as long as those shares or ADSs constitute marketable securities
under the Code.
We may be unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax
payments or benefit from favorable U.K. tax legislation.
As a U.K. incorporated and tax resident entity, we are subject to U.K. corporate taxation on tax-adjusted trading profits. Due to
the nature of our business, we have generated losses since inception and therefore have not paid any U.K. corporation tax. As
of December 31, 2018, we had cumulative carryforward tax losses of $155.2 million. Subject to numerous utilization criteria
and restrictions (including those that limit the percentage of profits that can be reduced by carried forward losses and those that
can restrict the use of carried forward losses where there is a change of ownership of more than half the ordinary shares of the
company and a major change in the nature, conduct or scale of the trade), we expect these to be eligible for carry forward and
utilization against future operating profits. The use of loss carryforwards in relation to U.K. profits incurred on or after April 1,
2017 will be limited each year to £5.0 million plus an incremental 50% of U.K. taxable profits. In addition, if we were to have
a major change in the nature of the conduct of our trade, loss carryforwards may be restricted or extinguished.
As a company that carries out extensive research and development activities, we seek to benefit from one of two U.K. research
and development tax relief programs, the Small and Medium-sized Enterprises R&D Tax Credit Program, or SME Program,
and the Research and Development Expenditure program, or RDEC Program. Where available, we may be able to surrender
the trading losses that arise from our qualifying research and development activities for cash or carried forward for potential
offset against future profits (subject to relevant restrictions). The majority of our pipeline research, clinical trials management
and manufacturing development activities are eligible for inclusion within these tax credit cash rebate claims. Our eligibility to
claim payable research and development tax credits may be limited or eliminated because we may no longer qualify as a small
or medium-sized company. We may benefit in the future from the United Kingdom’s “patent box” regime, which allows
certain profits attributable to revenues from patented products (and other qualifying income) to be taxed at an effective rate of
10%. We are the exclusive licensee or owner of several patent applications which, if issued, would cover our product
candidates, and accordingly, future upfront fees, milestone fees, product revenues and royalties could be taxed at this tax rate.
When taken in combination with the enhanced relief available on our research and development expenditures, we expect a
long-term lower rate of corporation tax to apply to us. If, however, there are unexpected adverse changes to the U.K. research
and development tax credit regime or the “patent box” regime, or for any reason we are unable to qualify for such
advantageous tax legislation, or we are unable to use net operating loss and tax credit carryforwards and certain built-in losses
to reduce future tax payments then our business, results of operations and financial condition may be adversely affected.
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Shareholder protections found in provisions under the U.K. City Code on Takeovers and Mergers, or the Takeover Code,
will not apply if our place of management and control is considered to change to outside the United Kingdom.
Our place of central management and control is currently in the United Kingdom. Accordingly, we are currently subject to the
Takeover Code and, as a result, our shareholders are entitled to the benefit of certain takeover offer protections provided under
the Takeover Code. The Takeover Code provides a framework within which takeovers of companies are regulated and
conducted. If, at the time of a takeover offer, the Panel on Takeovers and Mergers determines that we do not have our place of
central management and control in the United Kingdom, then the Takeover Code would not apply to us and our shareholders
would not be entitled to the benefit of the various protections that the Takeover Code affords. In particular, we would not be
subject to the rules regarding mandatory takeover bids. The following is a brief summary of some of the most important rules
of the Takeover Code:
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When a person or group (a) acquires interests in shares carrying 30% or more of the voting rights of a company (which
percentage is treated by the Takeover Code as the level at which effective control is obtained) or (b) increases the
aggregate percentage interest they have when they are already interested in not less than 30% and not more than 50%,
they must make a cash offer to all other shareholders at the highest price paid by them in the 12 months before the offer
was announced.
When interests in shares carrying 10% or more of the voting rights of a class have been acquired by an offeror (i.e., a
bidder) in the offer period (i.e. before the shares subject to the offer have been acquired) and the previous 12 months, the
offer must include a cash alternative for all shareholders of that class at the highest price paid by the offeror in that
period. Further, if an offeror acquires for cash any interest in shares during the offer period, a cash alternative must be
made available at a price at least equal to the price paid for such shares.
If the offeror acquires an interest in shares in an offeree company (i.e., a target) at a price higher than the value of the
offer, the offer must be increased accordingly.
The offeree company must appoint a competent independent adviser whose advice on the financial terms of the offer
must be made known to all the shareholders, together with the opinion of the board of directors of the offeree company.
Favorable deals for selected shareholders are not permitted, except in certain circumstances where independent
shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial
adviser to the offeree.
All shareholders must be given the same information.
Those issuing takeover circulars must include statements taking responsibility for the contents thereof.
Profit forecasts, quantified financial benefits statements and asset valuations must be made to specified standards and
must be reported on by professional advisers.
Misleading, inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected
immediately.
Actions during the course of an offer by the offeree company, which might frustrate the offer are generally prohibited
unless shareholders approve these plans. Frustrating actions would include, for example, lengthening the notice period
for directors under their service contract or agreeing to sell off material parts of the target group.
Stringent requirements are laid down for the disclosure of dealings in relevant securities during an offer, including the
prompt disclosure of positions and dealing in relevant securities by the parties to an offer and any person who is
interested (directly or indirectly) in 1% or more of any class of relevant securities.
Employees of both the offeror and the offeree company and the trustees of the offeree company’s pension scheme must
be informed about an offer. In addition, the offeree company’s employee representatives and pension scheme trustees
have the right to have a separate opinion on the effects of the offer on employment appended to the offeree board of
directors’ circular or published on a website.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.
We are incorporated under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders
of ADSs, are governed by English law, including the provisions of the U.K. Companies Act 2006, or the Companies Act, and
by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S.
corporations.
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The principal differences include the following:
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Under English law and our Articles of Association, each shareholder present at a meeting has only one vote unless
demand is made for a vote on a poll, in which case each holder gets one vote per share owned. Under U.S. law, each
shareholder typically is entitled to one vote per share at all meetings.
Under English law, it is only on a poll that the number of shares determines the number of votes a holder may cast. The
voting rights of ADSs are also governed by the provisions of a deposit agreement with our depositary bank.
Under English law, subject to certain exceptions and disapplications, each shareholder generally has preemptive rights to
subscribe on a proportionate basis to any issuance of ordinary shares or rights to subscribe for, or to convert securities
into, ordinary shares for cash. Under U.S. law, shareholders generally do not have preemptive rights unless specifically
granted in the certificate of incorporation or otherwise.
Under English law and our Articles of Association, certain matters require the approval of 75% of the shareholders who
vote (in person or by proxy) on the relevant resolution (or on a poll of shareholders representing 75% of the ordinary
shares voting (in person or by proxy)), including amendments to the Articles of Association. This may make it more
difficult for us to complete corporate transactions deemed advisable by our board of directors. Under U.S. law, generally
only majority shareholder approval is required to amend the certificate of incorporation or to approve other significant
transactions.
In the United Kingdom, takeovers may be structured as takeover offers or as schemes of arrangement. Under English
law, for so long as we continue to be subject to the UK Takeover Code, a bidder seeking to acquire us by means of a
takeover offer would need to make an offer for all of our outstanding ordinary shares/ADSs. If acceptances are not
received for 90% or more of the ordinary shares/ADSs under the offer, under English law, the bidder cannot complete a
“squeeze out” to obtain 100% control of us. Accordingly, acceptances of 90% of our outstanding ordinary shares/ADSs
will likely be a condition in any takeover offer to acquire us, not 50% as is more common in tender offers for
corporations organized under Delaware law. By contrast, a scheme of arrangement, the successful completion of which
would result in a bidder obtaining 100% control of us, requires the approval of a majority of shareholders voting at the
meeting and representing 75% of the ordinary shares voting for approval.
Under English law and our Articles of Association, shareholders and other persons whom we know or have reasonable
cause to believe are, or have been, interested in our shares may be required to disclose information regarding their
interests in our shares upon our request, and the failure to provide the required information could result in the loss or
restriction of rights attaching to the shares, including prohibitions on certain transfers of the shares, withholding of
dividends and loss of voting rights. Comparable provisions generally do not exist under U.S. law.
The quorum requirement for a shareholders’ meeting is a minimum of two shareholders entitled to vote at the meeting
and present in person or by proxy or, in the case of a shareholder which is a corporation, represented by a duly authorized
officer. Under U.S. law, a majority of the shares eligible to vote must generally be present (in person or by proxy) at a
shareholders’ meeting in order to constitute a quorum. The minimum number of shares required for a quorum can be
reduced pursuant to a provision in a company’s certificate of incorporation or bylaws, but typically not below one-third
of the shares entitled to vote at the meeting.
Item 4. Information on the Company
A. History and development of the company.
Orchard Therapeutics plc (formerly Orchard Rx Limited) was originally incorporated under the laws of England and Wales in
August 2018 to become a holding company for Orchard Therapeutics Limited. Orchard Therapeutics Limited was originally
incorporated under the laws of England and Wales in September 2015 as Newincco 1387 Limited and subsequently changed its
name to Orchard Therapeutics Limited in November 2015. Pursuant to a corporate reorganization in connection with our initial
public offering, all of the interests in Orchard Therapeutics Limited were exchanged for the same number and class of newly
issued shares of Orchard Rx Limited and, as a result, Orchard Therapeutics Limited became a wholly owned subsidiary of
Orchard Rx Limited. On October 29, 2018, Orchard Rx Limited re-registered as a public limited company and changed its
name to Orchard Therapeutics plc and Orchard Therapeutics Limited changed its name to Orchard Therapeutics (Europe)
Limited. On November 1, 2018, our different classes of preferred shares and our ordinary shares were consolidated on a one-
for-0.8003 basis. Accordingly, all share, per share, and share option amounts for all periods presented in this Annual Report
and the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable,
to reflect the reverse share split.
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Following the share consolidation, each share was re-designated as an ordinary share on a one-for-one basis, and we completed
our initial public offering of American Depositary Shares, or ADSs, on the Nasdaq Global Select Market. Our ADSs are traded
under the symbol ORTX. Our ordinary shares are not listed.
Our registered office is located at 108 Cannon Street, London EC4N 6EU, United Kingdom and our telephone number is +44
(0) 203 384 6700. Our website address is www.orchard-tx.com. We do not incorporate the information on or accessible
through our website into this Annual Report, and investors should not consider any information on, or that can be accessed
through, our website as part of this Annual Report.
Our agent for service of process in the United States is Cogency Global, 10 East 40th Street, 10th Floor, New York, NY 10016.
Our actual capital expenditures for the years ended December 31, 2018, 2017 and 2016 amounted to $4.0 million, $1.6 million
and $0.2 million, respectively. These capital expenditures primarily consisted of lab equipment and computer and office
equipment. We expect our capital expenditures to increase in absolute terms in the near term as we continue to advance our
research and development programs and grow our operations, including the build-out of our manufacturing facility. We
anticipate our capital expenditures in 2019 to be financed from the proceeds from our existing cash and cash equivalents,
including the net proceeds from our completed initial public offering.
B.
Business overview
We are a commercial-stage, fully-integrated biopharmaceutical company dedicated to transforming the lives of patients with
serious and life-threatening rare diseases through autologous ex vivo gene therapies. Our gene therapy approach seeks to
transform a patient’s own, or autologous, HSCs into a gene-modified drug product to treat the patient’s disease through a single
administration. We achieve this outcome by utilizing a lentiviral vector to introduce a functional copy of a missing or faulty
gene into the patient’s autologous HSCs through an ex vivo process, resulting in a drug product that can then be re-introduced
into the patient at the bedside.
We believe our commercial product and clinical-stage product candidates, in combination with our deep expertise in the
development, manufacturing and commercialization of gene and cell therapies, position us to provide potentially
transformative therapies to patients suffering from a broad range of rare diseases.
We are initially focusing our autologous ex vivo gene therapy approach on three therapeutic rare disease franchise areas:
primary immune deficiencies, neurometabolic disorders and hemoglobinopathies. Our portfolio currently includes Strimvelis,
our commercial-stage gammaretroviral-based product for the treatment of ADA-SCID five lentiviral product candidates in
clinical-stage development and several other product candidates in preclinical development. We anticipate making near-term
regulatory submissions for approval of three of our most advanced clinical-stage product candidates. These include OTL-101
for the treatment of ADA-SCID, OTL-200 for the treatment of MLD and OTL-103 for the treatment of WAS. For each of these
lead product candidates, we are in ongoing discussions with the applicable regulatory authorities with respect to the clinical
and other data required for regulatory submission.
We intend to bring potentially transformative therapies to the broadest number of patients suffering from rare diseases. The
indications we are initially targeting in our primary immune deficiencies and neurometabolic franchises (ADA-SCID, MLD,
WAS, X-CGD, and MPS-IIIA) alone have a combined annual incidence rate of between 1,000 and 2,000 patients in markets
around the world where treatments for rare diseases are often reimbursed. Based on this, we believe the total addressable
market potential in the diseases areas underlying our five lead programs could be greater than $2 billion annually. In addition,
certain indications such as X-CGD and WAS have large existing populations with pre-existing disease that could be eligible for
our treatments upon receiving marketing approval, which could increase the size of our market opportunity further.
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We believe our approach of using lentiviral vectors to genetically modify HSCs has wide-ranging applicability to a large
number of indications. The ability of HSCs to differentiate into multiple cell types allows us to deliver gene-modified cells to
multiple physiological systems, including the central nervous system, immune system and red blood cell lineage, thereby
potentially enabling the correction of a wide range of diseases. By leveraging the innate self-renewing capability of HSCs as
well as the ability of lentiviral vectors to achieve stable integration of a modified gene into the chromosomes of HSCs, our
gene therapies have the potential to provide a durable effect following a single administration.
We have a broad and advanced portfolio of wholly-owned commercial and development stage products and product
candidates. In April 2018, we strengthened our portfolio with our acquisition of Strimvelis, OTL-200 for MLD, OTL-103 for
WAS and OTL-300 for TDBT from Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development LTD, or,
together, GSK.
Due to the nature of our gene therapy product candidates and the indications our product candidates are intended to treat, which
are often fatal without treatment and which are rare or ultra-rare indications, we believe our clinical programs will generally be
eligible to proceed to registration without having to conduct one or more Phase 1 safety studies in healthy volunteers or Phase
3 randomized, double-blind and placebo-controlled clinical trials. For purposes of this Annual Report, we refer to an
exploratory study, which is sometimes referred to as a Phase 1 or Phase 1/2 clinical trial, as a proof of concept trial, and a
confirmatory efficacy and safety study to support submission of a potential marketing application with the applicable
regulatory authorities, which is sometimes referred to as a Phase 2/3 or Phase 3 clinical trial or a pivotal trial, as a registrational
trial.
The diseases we are targeting affect patients around the world, requiring an infrastructure to deliver gene therapies globally.
We are therefore building a commercial-scale manufacturing infrastructure and leveraging technologies that will allow us to
deliver our gene therapies globally in a fully-integrated manner. In order to meet anticipated demand for our growing pipeline
of product candidates and planned product offerings, we are initially utilizing our existing network of CMOs to manufacture
vectors and drug product. In addition, we currently operate two development laboratory facilities in California and have leased
a facility in Fremont, California to accommodate our expanding technical operations and implement in-house drug product and
vector manufacturing capabilities.
Cryopreservation of our gene-modified HSCs is a key component of our strategy to deliver potentially transformative gene
therapies to patients worldwide, facilitating both local treatment and local product reimbursement. In anticipation of
commercialization, we have developed cryopreserved formulations of our three most advanced product candidates and are
working to demonstrate comparability to the fresh cell formulations used in our registrational trials. We are also establishing
cryopreserved product formulations for all of our earlier stage product candidates.
We have global commercial rights to Strimvelis and all our clinical product candidates and plan to commercialize our gene
therapies in key markets worldwide, including the United States and Europe, subject to obtaining necessary marketing
approvals in those jurisdictions. We plan to deploy a focused commercial infrastructure to deliver our product candidates to
patients, and are focused on working closely with all relevant stakeholders, including patients, caregivers, specialist physicians
and payors, to ensure the widest possible post-approval access for our product candidates.
As we continue to develop and expand our portfolio, we believe that the deep experience of our management team and our
extensive academic relationships are key strategic strengths. Our management team has over 100 years of collective experience
in rare diseases and in the manufacturing, preclinical and clinical development and commercialization of gene and cell
therapies. In addition, we partner with leading academic institutions, which are pioneers in autologous ex vivo gene therapy.
We plan to leverage our internal expertise combined with our relationships with leading academic institutions to transition our
lead clinical-stage product candidates to commercialization and continue to expand our portfolio of autologous ex vivo gene
therapy products for rare diseases.
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Our autologous ex vivo gene therapy approach
Our ex vivo gene therapy approach seeks to transform a patient’s autologous HSCs into a gene-modified drug product to treat
the patient’s disease. HSCs are self-renewing cells that are capable of differentiating into all types of blood cells, including
white blood cells, red blood cells and platelets. HSCs can be obtained directly from the bone marrow, which requires
administration of a general anesthetic, or from the patient’s peripheral blood with the use of a mobilizing agent that can move
HSCs from the bone marrow into the peripheral blood. By delivering gene-modified HSCs back to patients, we seek to take
advantage of the self-renewing capability of HSCs to enable a durable effect following a single administration, as has been
seen in our development programs. In addition, the ability of HSCs to differentiate into multiple different cell types has the
potential to enable the delivery of gene-modified cells to different physiological systems and allow the correction of a range of
different diseases.
Clinical validation already exists for HSCT, an approach of treating a patient with HSCs contributed by a donor other than the
patient that contain the properly functioning copy of the gene whose mutation has caused the underlying disease. However, this
approach has significant limitations, including difficulties in finding appropriate genetically-matched donors and the risk of
transplant-related rejection and mortality, and is therefore typically only offered on a limited basis. Our approach is intended to
address the significant limitations of HSCT.
One example of the potential of our autologous ex vivo gene therapy approach to deliver genes to different physiological
systems is demonstrated below. In a preclinical study conducted by one of our scientific advisors and published in Proceedings
of the National Academy of Sciences of the United States of America, or PNAS, a subpopulation of gene-modified HSCs have
evidenced the potential to cross the blood-brain barrier, engraft in the brain as microglia and express genes and proteins within
the central nervous system. As published in PNAS, the image below shows a cross-section of the brain of a mouse that received
green fluorescent protein, or GFP, gene-modified HSCs intravenously. The GFP expression observed throughout the brain
denotes the potential of gene-modified HSCs to cross the blood-brain barrier and express the functional protein throughout the
brain, thereby potentially addressing a range of indications that affect the central nervous system. Our OTL-200 program for
MLD leverages this same mechanism of action to deliver gene-modified HSCs through the blood-brain barrier and deliver a
therapeutic gene that can prevent neuronal degeneration.
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Transgene distribution in brain of mouse model following administration of HSCs transduced with GFP encoding
vector
With respect to each of our product candidates, our ex vivo gene therapy approach utilizes a non-replicating lentiviral vector to
introduce a functional copy of the missing or faulty gene into the patient’s autologous HSCs through an ex vivo process called
transduction, resulting in drug product that can then be re-introduced into the patient. Unlike other viral vectors, such as adeno-
associated viral, or AAV, vectors, lentiviral vectors integrate into the chromosomes of patients’ HSCs. We believe this allows
us to achieve stable integration of the modified gene into the HSCs and to achieve durable expression of the target protein by
the gene-modified HSCs after a single administration of gene therapy. Strimvelis, our commercial-stage product, utilizes an
older generation gammaretroviral vector.
The image below illustrates the steps in our approach to transform a patient’s autologous HSCs ex vivo into therapeutic
product.
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Initial clinical trials conducted using our product candidates utilized a fresh product formulation, resulting in a limited drug
product shelf life. We plan to market our current and future product candidates, if approved, in a cryopreserved product
formulation to enable the shipment of the drug product to specialized treatment centers throughout the world, allowing patients
to receive treatment closer to their home. The cryopreservation also allows us to conduct a number of quality control tests on
the modified HSCs prior to introducing them into the patient.
In addition, certain of our clinical-stage product candidates have been evaluated in registrational trials using drug product
derived from HSCs extracted from the patients’ bone marrow. To optimize our potential product label and commercial
presence, as part of any BLA or MAA submission for such product candidates, we plan to demonstrate comparability between
drug product manufactured using HSCs derived from the patients’ peripheral blood and drug product manufactured using
HSCs derived from the patients’ bone marrow in these cases where clinical trials were conducted using vector and/or drug
product manufactured at academic centers, we plan to demonstrate comparability between vector and/or drug product
manufactured by our selected third party CMOs with vector and drug product manufactured at such academic centers.
Initially, we are employing our autologous ex vivo gene therapy approach to three target franchise areas: primary immune
deficiencies, neurometabolic disorders and hemoglobinopathies. Data from clinical trials suggests that autologous ex vivo gene
therapy has the potential to provide well-tolerated and sustainable results over existing standards of care for diseases in these
target franchise areas. We believe that we can apply our approach beyond our initial target indications to treat a broad range of
rare diseases.
Our strategy
Our mission is to transform the lives of patients with rare genetic diseases using our autologous ex vivo gene therapy approach.
We are building a leading, global, fully-integrated gene therapy company focused on serious and life-threatening rare diseases.
To achieve this, we are pursuing the following strategies:
•
•
•
•
•
Advance our five clinical-stage product candidates towards marketing approvals
Leverage the power of our therapeutic approach to expand our product pipeline across multiple indications
Establish an efficient and scalable manufacturing infrastructure
Establish a patient-centered, global commercial infrastructure
Execute a disciplined business development strategy to strengthen our portfolio of product candidates
Our pipeline
Our advanced portfolio of autologous ex vivo gene therapies targets serious and life-threatening rare diseases, initially focusing
on primary immune deficiencies, neurometabolic disorders and hemoglobinopathies. Our primary immune deficiencies
franchise consists of our commercial program, Strimvelis for ADA-SCID, two advanced registrational clinical programs, OTL-
101 for ADA-SCID and OTL-103 for WAS, and one clinical-stage program, OTL-102 for X-CGD. Our neurometabolic
disorders franchise consists of one advanced registrational clinical program, OTL-200 for MLD, and two preclinical programs,
OTL-201 for MPS-IIIA and OTL-202 for MPS-IIIB. Our hemoglobinopathies franchise consists of one clinical-stage program,
OTL-300 for TDBT.
Due to the nature of our gene therapy product candidates and the indications our product candidates are intended to treat, which
are often fatal without treatment and which are rare or ultra-rare indications, we believe our clinical programs will generally be
eligible to proceed to registration without having to conduct one or more Phase 1 safety studies in healthy volunteers or Phase
3 randomized, double-blind and placebo-controlled clinical trials. For purposes of this Annual Report, we refer to an
exploratory study, which is sometimes referred to as a Phase 1 or Phase 1/2 clinical trial, as a proof of concept trial, and a
confirmatory efficacy and safety study to support submission of a potential marketing application with the applicable
regulatory authorities, which is sometimes referred to as a Phase 2/3 or Phase 3 clinical trial or a pivotal trial, as a registrational
trial. See “—Our Regulatory strategy.”
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Gene therapy treatment of ADA-SCID
Disease overview
Severe combined immunodeficiency, or SCID, is a rare, life-threatening inherited disease of the immune system. ADA-SCID,
commonly known as “bubble-baby disease”, is a specific form of SCID caused by mutations in the ADA gene, resulting in a
lack of, or minimal, immune system development, which leaves the patient vulnerable to severe and recurrent bacterial, viral
and fungal infections. The first symptoms of ADA-SCID typically manifest during infancy with recurrent severe bacterial, viral
and fungal infections and overall failure to thrive, and without treatment the condition can be fatal within the first two years of
life. The lack of a functional ADA gene in ADA-SCID patients can also lead to neurological deficits involving motor function,
deafness, hepatic dysfunction and eventual failure, and cognitive and behavioral dysfunction.
The incidence of ADA-SCID in the United States is currently estimated to be between one in 200,000 and one in 1 million live
births. Higher incidence rates are reported in geographies of higher consanguinity, such as Turkey and the Middle-East.
Patients with ADA-SCID are most commonly diagnosed during the first six months of life based on recurrent bacterial, fungal,
and viral infections, persistent lymphopenia, and ADA activity below 1%. Newborn screening for T-cell deficiencies, including
ADA-SCID, has now been adopted in 49 states in the United States, as well as in Ontario, Israel, Taiwan and Norway.
Limitations of current therapies
The primary treatment options for ADA-SCID are HSCT and ERT. Although HSCT is a potentially curative treatment for
ADA-SCID patients, this procedure is associated with a high risk of complications and mortality, with one-year survival rates
of 43%, 67% and 86% for transplants from haploidentical donors, HLA-matched unrelated donors and HLA-matched sibling
donors, respectively. HSCT also does not treat the cognitive and behavioral manifestations of ADA-SCID.
Chronic ERT is a palliative treatment for ADA-SCID patients and involves weekly or bi-weekly muscular infusions. ERT with
pegylated adenosine deaminase has been approved by the FDA and is commercialized only in the United States. It is only
available on an ad-hoc basis under compassionate use in Europe. Although ERT can temporarily restore immune function by
maintaining high ADA levels in the plasma, many patients receiving chronic ERT therapy continue to have abnormally low
levels of lymphocytes in the blood after the first year of treatment, and 50% of patients therefore require supplementary
immunoglobulin replacement therapy. Chronic ERT is associated with a 78% survival rate at 20 years; however, significant
morbidity or mortality may occur as early as one to three years after the first treatment. Patients on ERT may experience
refractory hemolytic anemia, chronic pulmonary insufficiency, and lymphoproliferative disorders.
Our solutions, OTL-101 and Strimvelis for treatment of ADA-SCID
We are developing OTL-101 as an autologous ex vivo lentiviral gene therapy to sustainably treat patients with ADA-SCID
through a single administration. OTL-101 is manufactured from HSCs isolated from the patient’s own bone marrow or
mobilized peripheral blood, and is modified to add a functional ADA gene using a lentiviral vector. The gene-modified cells
are infused back into the patient in a single intravenous infusion following treatment with a mild conditioning regimen.
OTL-101 has been investigated in multiple clinical trials in the United States and Europe. As of February 2019, 62 patients
have been treated with OTL-101 drug product, with a maximum follow-up of up to approximately 6 years post treatment.
Based on our ongoing discussions with the FDA, we expect our BLA submission will include data from our UCLA
registrational trial of 20 patients treated with a fresh product formulation, supportive data derived from a clinical trial of 10
patients treated with a cryopreserved formulation at UCLA and additional data derived from a clinical trial of 10 patients
treated with a fresh product formulation at GOSH, as well as any other patients with adequate follow-up at the time of
submission. See “—Regulatory Pathway for OTL-101.” The remaining 22 patients treated as of February 2019 represent
compassionate use patients or patients for whom we do not have adequate follow-up as of the date of this Annual Report but
for which safety data is presented in the summary below. Among the 62 patients treated so far, three patients, including one
patient in the supportive UCLA trial, one patient in the additional GOSH trial and one in the compassionate use program, did
not engraft and had to resume enzyme replacement therapy and/or receive rescue bone marrow transplant.
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In the European Union, our commercial program Strimvelis is available as the only approved gene therapy option for patients
with ADA-SCID. The EMA approved Strimvelis in May 2016 for treatment of children with ADA-SCID with no suitable
HLA-matched stem cell donor. Strimvelis consists of HSCs transduced with a gammaretroviral vector, an earlier generation of
vector for autologous ex vivo gene therapy, encoding the human adenosine deaminase cDNA sequence. Strimvelis is available
in fresh product formulation at San Raffaele Hospital in Milan, Italy, and has a shelf-life of up to six hours. We plan to
continue to make Strimvelis available to eligible patients as we advance OTL-101 as an autologous ex vivo lentiviral gene
therapy for ADA-SCID.
We obtained worldwide rights to the OTL-101 program through our license agreement with UCLB and UCLA and we obtained
worldwide rights to the Strimvelis program through the GSK Agreement.
OTL-101 has received orphan drug designation from the FDA and the EMA for the treatment of ADA-SCID and Breakthrough
Therapy Designation from the FDA. OTL-101 has also received a Rare Pediatric Disease Designation from the FDA. We
expect to submit a BLA for OTL-101 with the FDA in 2020, followed by an MAA submission with the EMA.
Ongoing registrational, supportive and additional clinical trials
OTL-101 has been evaluated in a registrational trial conducted by UCLA in the United States using a fresh product formulation
and is being evaluated in an ongoing supportive clinical trial at UCLA using a cryopreserved formulation. These trials were
initially conducted under an investigator-sponsored IND, which was subsequently transferred to us. A fresh product
formulation is being evaluated in a concurrent additional investigator-sponsored clinical trial conducted by GOSH in Europe.
Each of these clinical trials enrolled ADA-SCID patients between one month and 18 years of age who were ineligible for
HSCT due to the absence of an HLA-matched sibling or family member to serve as an allogenic bone marrow donor.
Registrational trial at UCLA
Our anticipated rolling BLA submission for OTL-101 will include data from 20 enrolled and treated patients in a registrational
trial at UCLA for which follow-up has recently completed. Production of the fresh OTL-101 drug product formulation (with
bone marrow as the cellular source) used in this clinical trial was performed onsite at UCLA. In this clinical trial, all patients
were treated with ERT prior to enrollment and continued ERT until 30 days following their initial treatment with OTL-101.
The primary goals of this clinical trial were to assess the safety and efficacy of OTL-101 in ADA-SCID patients, as measured
by overall survival and event-free survival at 12 months post-treatment. Secondary goals in this clinical trial included immune
reconstitution, as measured by lymphocyte and immunoglobulin levels, and reduction in severe infection rates.
Overall survival and event-free survival of 100% was observed at 12 months post-treatment, the primary endpoint of the trial.
None of the enrolled patients required rescue medication, HSCT, or resumption of ERT. Importantly, patients in this trial
showed immune cell reconstitution following treatment with OTL-101, which can lead to restoration of both cellular and
humoral immune responses. This is reflected by the patients’ ability to recover from infections beginning in the first six months
following treatment. As of April 2017, the number of infections in evaluable patients decreased from 17 in the first year
following treatment with OTL-101 to seven in the second year following treatment, and the number of serious infections in
evaluable patients decreased from seven to one during the same period.
As summarized in the charts below, these patients’ data were compared with a historical cohort of ADA-SCID patients, 0 to
18 years of age, who received treatment with allogeneic bone marrow transplant between 2000 and 2016 (n=26). These data
were gathered retrospectively from Great Ormond Street Hospital and Duke University Hospital. Comparator populations from
this group were ADA-SCID patients without a medically eligible HLA-matched sibling/family donor (HSCTWOUT), patients
with an HLA-matched related donor (HSCTWITH) and the complete group (HSCTALL).
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As summarized in the chart below, when comparing the overall survival for the OTL-101 treated patients with the historical
control group, OTL-101 treated patients achieved higher overall survival rates at 12 months and 24 months (both at 100%)
versus the combined group that received allogeneic bone marrow transplant 92.31% (95% CI: 75%-99%) at 12 months and
88% (95% CI: 69-97%) at 24 months. A confidence interval, or CI, is a range of values in which, statistically, there is a
specified level of confidence that the true rate falls within this range. Small sample sizes will yield wider confidence intervals.
In this trial, the results indicate that there is a 95% level of confidence that overall survival rates at 12 months were between
75% and 99%, which we represent as (95% CI: 75%-99%), and a 95% level of confidence that overall survival rates at 24
months were between 69% and 97%, which we represent as (95% CI: 69-97%).
As summarized in the chart below, event-free survival is defined as survival without resumption of PEG-ADA enzyme
replacement therapy or need for rescue allogeneic HSCT. Event-free survival in the OTL-101 treatment group was 100% at 12
months and at 24 months. In comparison, event-free survival in the combined allogeneic HSCT group was 80.77% (95% CI:
60.7-93.5%) at 12 months and 56% (95% CI: 34.9-75.6%) at 24 months. For the primary comparator group, who received
allogeneic HSCT without a matched related donor, event-free survival rates were 35.71% lower (95% CI: 11.21-64.86%) and
50% lower (95% CI: 20.70-76.96%) than the OTL-101 treated group at 12 months and 24 months, respectively. Because the
95% confidence intervals for these estimates of the difference from the OTL-101 treated group do not include zero, these are
statistically meaningful differences between the OTL-101 treated group and the HSCT without a matched related donor
comparator group. Similarly, event-free survival in the comparator HSCT group that received a matched related donor (the
current standard of care) was 36.36% lower (95% CI: 7.31-69.21%) than the OTL-101 treated group at 24 months. Because the
95% confidence intervals for this estimate does not include zero, this also represents a statistically meaningful difference
between the OTL-101 treated group and the comparator HSCT with a matched related donor.
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Ongoing supportive clinical trial with UCLA (with cryopreserved formulation)
A cryopreserved formulation of OTL-101 (with bone marrow as cellular source) is currently being evaluated in an ongoing
supportive clinical trial at UCLA. Enrollment for this trial is complete; 10 patients have been treated, of which 9 have reached
12 months of follow-up; and 6 have reached 18 months of follow-up, as of January 2019. One patient treated in this trial
withdrew since they did not engraft and had to resume enzyme replacement therapy and/or receive rescue bone marrow
transplant. The aim of this clinical trial is to assess the success of treatment at the patient level, based on predictive criteria at
six months for overall survival and event free survival.
In this trial, ADA activity, vector copy number, or VCN, and CD3+ T-cell counts at six months post-treatment are measured as
key biological correlates of efficacy and compared with the results obtained from our registrational trial with fresh product
formulation. We expect to use these data to support the analytical comparability analysis between fresh and cryopreserved
formulations that we plan to submit to the FDA and EMA as part of our BLA and MAA submissions, respectively. Data from
the first five patients that successfully engrafted and achieved the six month post-treatment follow-up date shows similarity in
these biological correlates of efficacy measured in patients from the UCLA fresh trial (n=10) at 6 months. We believe this
consistency between the UCLA fresh and cryopreserved studies is supportive of ongoing analytical comparability data between
the fresh and cryopreserved formulations of OTL-101. We are continuing to evaluate the data from this ongoing trial and will
include the data available at the time of submission to support our BLA and MAA submissions.
RBC = red blood cells; ADA = adenosine deaminase; VCN = vector copy number. The figure shows data for UCLA Fresh trial
patients (“Fresh”, n = 20) and UCLA Cryo trial with 5 evaluable patients (“Cryo”, n = 5) at 6 months of follow-up The boxes
indicate the median and inter-quartile range, the ‘whiskers’ are the minimum and maximum values for each group.
Additional clinical data from GOSH
In a parallel investigator-sponsored trial being conducted by GOSH, 10 enrolled patients have been treated with fresh product
formulation (with bone marrow and mobilized peripheral blood as the cellular source). The drug product used in this clinical
trial is produced using the same vector as at UCLA but with a manufacturing process with minor differences to that for OTL-
101. Production of the fresh formulation of the drug product used in this clinical trial was performed onsite at GOSH. In this
clinical trial, all patients were being treated with ERT prior to enrollment and all but one patient continued ERT until 30 days
following initial treatment with autologous ex vivo HSC gene therapy.
The primary goals of this clinical trial are to assess the safety and efficacy of the investigational drug product in ADA-SCID
patients, as measured by overall survival and event-free survival at 12 months post-treatment. Secondary goals in this clinical
trial include immune reconstitution, as measured by lymphocyte and immunoglobulin levels, and reduction in severe infection
rates.
As of September 2017, overall survival of 100% has been observed at 12 months post treatment in the 10 patients enrolled, and
nine patients have achieved event-free survival, with only one patient resuming ERT after 12.2 months due to a failure to
engraft. We believe this failure to engraft may in part be attributable to the patient’s early discontinuation of ERT prior to
treatment in contravention of the trial protocol, but may also relate to other clinical factors.
Importantly, patients in this trial showed immune reconstitution following treatment with the drug product, which can lead to
restoration of both cellular and humoral immune responses. This is reflected by the patients’ ability to recover from infections
beginning in the first six months following treatment. As of March 2017, the number of infections in evaluable patients
decreased from 16 in the first year following treatment to two in each of the second and third years following treatment, and
the number of serious infections in evaluable patients decreased from two in the first year following treatment to zero and one
in the second and third years, respectively.
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There is a second investigator-sponsored trial being conducted by GOSH, aiming to enroll 10 patients treated with
cryopreserved product formulation with mobilized peripheral blood as the cellular source. The drug product used in this
clinical trial is produced using the same vector and same manufacturing process as the drug product being evaluated at UCLA.
Production of the cryopreserved formulation of the drug product used in this clinical trial is performed onsite at GOSH. In this
clinical trial, all patients are being treated with ERT prior to enrollment and continue ERT until 30 days following initial
treatment with autologous ex vivo HSC gene therapy.
The primary goals of this clinical trial are to assess the safety and efficacy of the investigational drug product in ADA-SCID
patients, as measured by overall survival and event-free survival at 12 months post-treatment. Secondary goals in this clinical
trial include immune reconstitution, as measured by lymphocyte and immunoglobulin levels, and reduction in severe infection
rates. As of February 2019, six patients have been treated and are alive and off of ERT.
OTL-101 Program Safety
As of February 2019, safety data from the 20 patients treated in the registrational trial in the United States indicate that OTL-
101 was generally well-tolerated, with no instances of insertional mutagenesis in follow-ups ranging from 19.2 months to 33
months. After completion of the database lock and review of data quality and consistency with industry practices, there were
27 SAEs reported, of which 1 was assessed by the investigator as being possibly related to protocol treatment or procedures.
This SAE was a staphylococcal infection from the patient’s transduced bone marrow cells. The patient was treated with
antibiotics and recovered. The most common SAEs were infections and gastrointestinal disorders. There were no adverse
events, or AEs, or SAEs leading to the withdrawal of patients from the trial. All SAEs resolved with standard of care treatment.
As of the date of this Annual Report, we have not been notified by the investigator in this clinical trial of any SUSAR.
As of February 2019, safety data from the 10 patients treated in the supportive clinical trial with UCLA in the United States
and from two compassionate use patients, one of which received a fresh formulation and the other received a cryopreserved
formulation, indicate OTL-101 was generally well-tolerated, with no instances of insertional mutagenesis. After ongoing
quality review of the data, there were 8 SAEs reported in the supportive clinical trial with UCLA. In the compassionate use
program, 5 SAEs were reported and were not deemed to be related to OTL-101. The most common SAEs across the UCLA
supportive clinical and United States compassionate use program were pyrexia and infections. All SAEs resolved with standard
of care treatment. Because follow-up is ongoing, safety data are preliminary and subject to change. As of the date of this
Annual Report, we have not been notified by the investigator of any SUSAR.
In Europe, as of February 2019, safety data from the 10 patients treated in the additional clinical trial with GOSH and from the
10 compassionate use patients, indicate that the investigational drug product was generally well-tolerated, with no instances of
insertional mutagenesis up to six years post treatment. There were 25 SAEs reported in the additional clinical trial with GOSH,
none of which were assessed by the investigator as being possibly related to the protocol treatment, and six SAEs reported in
the compassionate use program, one of which, a product contamination, was deemed by the investigator as being possibly
related to protocol treatment. This SAE was a staphylococcal infection, possibly resulting from a bacterial growth noted in
samples of the fresh drug product taken during the transduction procedure at this academic facility. The most common SAEs
across this additional clinical trial and compassionate use program were pyrexia, infections and immune system disorders.
There were no AEs or SAEs leading to the withdrawal of patients from the additional clinical trial and compassionate use
program. All SAEs resolved with standard of care treatment. Because follow-up is ongoing, safety data are preliminary and
subject to change. As of the date of this Annual Report, we have not been notified by the investigator of any SUSAR. In an
ongoing cryopreserved study in the United Kingdom, where six of ten patients have been treated, there were eight SAEs
reported, none of which were deemed to be related to the drug product. In three patients treated under compassionate use with
cryopreserved formulation, fifteen SAEs have been reported, none of which were deemed to be related to the product.
Regulatory Pathway for OTL-101
We are currently in discussions with the FDA to finalize the requirements for our planned BLA submission for OTL-101 in
2020. Based on these discussions, we currently expect that our BLA submission will include clinical data from a registrational
trial of 20 patients treated with a fresh product formulation at UCLA, supportive data derived from at least five patients treated
with a cryopreserved formulation at UCLA, additional data from a clinical trial of 10 patients treated with a fresh product
formulation at GOSH, and any other patients with adequate follow-up at the time of submission. Prior to completion of our
BLA submission for OTL-101, we will be required to prepare a final clinical report for our registrational trial, and our
supportive clinical trial to support the analytical comparability data between fresh and cryopreserved drug product
formulations. We expect to have further discussion with FDA regarding our CMC data package. Ultimately, the FDA will
determine whether or the extent to which those data may be included in an application for marketing approval or even if
included, the extent such data is considered for assessment of quality, safety, efficacy of the drug product candidate. During
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our pre-BLA and subsequent dedicated CMC type B meetings in late 2018, we confirmed with FDA requisite data necessary to
support the BLA. This data includes analytical comparability between academic and commercial manufacturing processes,
vector and drug product process characterization as well as vector and drug product manufacturing state of control and/or
process validation. We will initially seek approval of OTL-101 using patient bone marrow as cellular source material and
subsequently seek approval for the use of mobilized peripheral blood, as alternative cellular source material. Although we
currently expect to submit our BLA by 2020, our discussions with the FDA are ongoing and the definitive feedback from the
FDA on the adequacy of the data to support an approval will continue to be a reviewed. See “Risk factors – The results from
our clinical trials for OTL-101 for ADA-SCID, OTL-200 for MLD, OTL-103 for WAS and for any of our other product
candidates may not be sufficiently robust to support the submission of marketing approval for our product candidates,” “Risk
factors – We may be unable to demonstrate comparability between drug product manufactured using hematopoietic stem cells,
or HSCs, derived from the patient’s mobilized peripheral blood and drug product manufactured using HSCs derived from the
patient’s bone marrow and/or comparability between drug product that has been cryopreserved and fresh drug product” and
“Risk factors – To date, most of the clinical trials for our product candidates were conducted as investigator sponsored clinical
trials using drug product manufactured at the academic sites.”
Gene therapy for treatment of MLD
Disease overview
MLD is a rare and rapidly progressive neurometabolic disorder. MLD is caused by a mutation in the ARSA gene, leading to a
deficiency in the ARSA enzyme and the accumulation of sulfatides and the progressive destruction in myelin-forming neurons
in central and peripheral nervous systems and in visceral organs. Prognosis is severe, with continuous neurodegeneration and
rapid deterioration of motor functions and cognitive impairment. In late-infantile MLD, the most common and severe form of
the disease representing approximately 40-60% of all MLD patients, symptoms are generally first observed before three years
of age, and the rate of mortality by five years of age is estimated at 50%. In juvenile MLD, representing approximately 20-35%
of all MLD patients, symptoms are generally first observed between three and 16 years of age, and the rate of mortality at ten
years of age is estimated at 44%. In adult MLD, representing approximately 10-25% of all MLD patients, the onset of
symptoms generally occurs after 16 years of age. Prognosis is severe, with continuous neurodegeneration and rapid progression
of motor and cognitive impairment. Symptoms often manifest in late-infantile and early-juvenile MLD patients as incorrect
gait and missed development milestones. Adult-onset MLD is often diagnosed through cognitive, behavioral and psychiatric
pathologies, such as alcohol or drug use, or difficulty managing emotions resulting in psychiatric evaluation. MLD patients
may also demonstrate bewilderment, inappropriate response to their surroundings, paranoia, dementia or auditory
hallucinations.
The incidence of MLD is currently estimated at between 1.4 in 100,000 and 1.8 in 100,000 live births per year.
Limitations of current therapies
Currently, there are no effective treatments or approved therapies for MLD. Palliative care options involve medications for
seizures and pain, antibiotics and sedatives, on a case-by-case basis, as well as physiotherapy, hydrotherapy and tube feeding or
gastrostomy when patients can no longer eat without assistance. Palliative care addresses the symptoms of MLD but does not
slow or reverse the progression of the underlying disease. HSCT has limited and variable efficacy in arresting disease
progression and, as a result, HSCT is not considered to be a standard of care for this disease. The severity of symptoms and
lack of an effective treatment option to manage these symptoms is a significant burden to MLD patients, their caregivers and
families and healthcare systems.
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Our solution, OTL-200 for treatment of MLD
We are developing OTL-200 as an autologous ex vivo lentiviral gene therapy to sustainably treat patients with MLD through a
single administration. OTL-200 is manufactured from HSCs isolated from the patient’s own mobilized peripheral blood or
bone marrow, modified to add a functional ARSA gene using a lentiviral vector. The gene-modified cells are infused back into
the patient in a single intravenous infusion following treatment with a myeloablative conditioning regimen. The gene-modified
HSCs have the capacity to migrate to the brain, differentiate into microglia in the brain tissue and secrete the ARSA enzyme to
treat the disease within the central nervous system.
To date, we have treated only late infantile and early juvenile patients in our clinical trials of OTL-200. As of February 2019, a
total of 33 patients have been treated with OTL-200 drug product, with a maximum follow-up of approximately eight and a
half years post treatment, comprised of 20 patients in our registrational trial with a fresh product formulation, four patients in
our supportive study with a cryopreserved formulation and nine patients treated under a compassionate use program with a
fresh product formulation. Based on our clinical data to date, we believe OTL-200 has shown the potential to maintain motor
function and intelligence quotient, or IQ, in patients.
We obtained worldwide rights to this program through the GSK Agreement. The clinical trials for this program have been
conducted under a GSK-sponsored CTA, which was transferred to us during the third quarter of 2018.
OTL-200 has received orphan drug designation from the FDA and the EMA for the treatment of MLD. OTL-200 has also
received Rare Pediatric Disease Designation from the FDA. We plan to submit an MAA for OTL-200 with the EMA in 2020,
followed by a BLA with the FDA.
Registrational trial
Our anticipated MAA and BLA submissions for OTL-200 will be supported by data from 20 patients with pre-symptomatic
late infantile MLD, or pre- to early-symptomatic early juvenile MLD, currently enrolled and treated in a registrational trial at
San Raffaele Hospital in Milan, Italy, for which follow-up is ongoing. In this registrational trial, both the late-infantile and
early-juvenile patient groups have achieved the primary endpoint at 24 months follow-up. In addition to the 20 patients treated
with OTL-200 in this clinical trial, nine patients were treated under compassionate use programs at San Raffaele Hospital,
which followed the same protocol as that used in the clinical trial. Manufacture of the fresh OTL-200 drug product formulation
(with bone marrow and mobilized peripheral blood as cellular source) was performed by a third-party commercial CMO.
The primary goals of this clinical trial were to assess the efficacy and safety of OTL-200 in MLD patients, as measured by
gross motor function and ARSA activity levels in the patients’ blood cells 24 months post-treatment, as well as overall
survival. Secondary goals for this clinical trial included assessment of cognitive function through IQ. The trial also provides for
a follow-up period through 36 months’ post-treatment.
Interim data from an ad hoc analysis of the first nine patients in this registrational trial was published in Lancet Neurology in
2016 and is set forth below. For purposes of this analysis, these interim data were presented in contrast to data from a historical
cohort of 21 patients with late-infantile MLD and nine patients with early-juvenile MLD who had not received treatment, and
to data from a cohort of 34 healthy children. Of the nine patients treated with OTL-200, six had late-infantile disease, two had
early-juvenile disease and one had early-onset disease that could not be definitively classified.
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In this interim analysis, eight patients treated with OTL-200, seven of whom received treatment when pre-symptomatic, had
prevention of disease onset or halted disease progression, as compared with patients in the natural history group, most of whom
experienced rapid disease progression. In addition, the gross motor function measure score, or GMFM score, for six patients up
to the last follow-up showed that gross motor performance was similar to that of normally developing children. Neurocognitive
development as measured by IQ score was within the normal range for eight patients, as compared to the natural course of the
disease in untreated patients with early-onset MLD (data not shown in the publication). Also, IQ values of untreated patients all
fell below the minimum value of 40 since first available testing (data not shown in the publication).
Presented below are efficacy data from a more recent interim analysis of all 20 patients treated in this clinical trial as of
December 2017, the date of the most recent interim efficacy data report available to us. Motor function was measured in this
trial with a GMFM score, which measures a child’s ability to perform standard motor tasks including lying and rolling, sitting,
crawling and kneeling, standing, and walking, and running and jumping. A GMFM score of approximately 100% is
representative of an individual with normal motor function. Following treatment with OTL-200, preliminary data indicate
GMFM scores comparable to healthy individuals in seven out of nine late infantile patients, with a follow-up of up to three
years. This primary endpoint was deemed to be achieved if there was a 10 percentage point improvement in GMFM scores
compared to the untreated MLD natural history population at 24 months. Improvement in motor function has been observed in
patients treated with OTL-200 compared to natural history patient data. At 24 months post-treatment, an average GMFM score
of 71.8% was observed in late infantile patients (n=9) treated in this clinical trial compared to 5.8% in the untreated natural
history population. For early juvenile patients treated in this clinical trial (n=11), an average GMFM score of 76.4% was
observed at 24 months post-treatment, compared to 31.5% in the natural history population.
GMFM Total Score in late infantile MLD at 24 months post
OTL-200 vs. natural history
GMFM Total Score in early juvenile MLD at 24 months
post OTL-200 vs. natural history
OTL-200 (MLD): GMFM Total Score
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In addition, OTL-200 evidenced increases in ARSA levels in most patients to within the normal range, as measured at three
months post-treatment, achieving levels that fluctuated within or above the normal range throughout the duration of the follow-
up. This co-primary endpoint was deemed to be achieved if ARSA values exceeded two standard deviations from baseline.
Sustained ARSA levels well above two standard deviations post-treatment were observed in all patients in this trial.
Cognitive function in patients treated with OTL-200 has been measured using the IQ score. The stability or deterioration of a
patient’s cognitive abilities were monitored using the neuropsychological tests administered according to the chronological age
of the patient. Each neuropsychological instrument includes multiple core tests and supplemental subtests that comprise
composite scores in specified cognitive areas. Following treatment with OTL-200, seven of the nine (78%) late infantile
patients remained within normal ranges and seven of the eleven (64%) early juvenile patients had an IQ either within, close to
or above the normal range.
As of March 2018, the date of the most recent safety report available to us, overall survival has been observed in 18 of 20
patients enrolled in the study, with a maximum follow-up of up to approximately 7.5 years and a median follow-up of
approximately 4 years. Two patients with early juvenile MLD that were symptomatic at the time of treatment died from rapid
disease progression that was deemed to be unrelated to the treatment. From the 20 patients treated in the clinical trial indicate
OTL-200 was generally well-tolerated, with no instances of insertional mutagenesis up to eight years post-treatment. 37 SAEs
were reported in the patients in the clinical trial, none of which were assessed by the investigator to be related to OTL-200. In
addition, as of February 2019, nine patients were treated under compassionate use and ten SAEs have been reported, none of
which were assessed by the investigator to be related to the drug product. Across the program, the most common SAEs were
motor dysfunction, dysphagia, vomiting and infections. There were no OTL-200 related SAEs. One patient treated under
compassionate use died 12 months after treatment due to an unrelated cerebral stroke. Because follow-up is ongoing, safety
data are preliminary and subject to change. As of the date of this Annual Report, we have not been notified by the investigator
in the clinical trial of any SUSAR.
Ongoing cryopreservation supportive clinical trial
A cryopreserved formulation of OTL-200 (with bone marrow as cellular source) is currently being evaluated in an ongoing
clinical trial of pediatric patients with pre-symptomatic early onset MLD in Milan, Italy. Enrollment for this trial is ongoing,
with four patients treated as of February 2019 and up to 10 patients expected to be enrolled.
The primary goal of this clinical trial is to assess the safety and efficacy of a cryopreserved formulation of OTL-200 in MLD
patients, as measured by improvement in gross motor function and ARSA activity levels in the patients’ blood cells as well as
overall survival. Secondary goals for this clinical trial include assessment of cognitive function through IQ.
Four patients have been treated in this trial as of February 2019. All patients tolerated the administration well and for those
with enough follow-up post-treatment, evidence of engraftment and supraphysiological production of ARSA activity has been
shown. To date, four SAEs have been reported in this study, none of which were considered related to the gene therapy.
We expect to use these clinical data to support the analytical comparability analyses between fresh and cryopreserved
formulations that we plan to submit to the FDA and EMA as part of our BLA and MAA submissions, respectively.
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Regulatory Pathway for OTL-200
We are currently in discussions with the EMA to finalize the requirements for our planned MAA submission for OTL-200 in
2020. Based on these discussions, we currently expect that our MAA submission will include clinical data from a registrational
trial of 20 late infantile and early juvenile MLD patients treated with a fresh product formulation at San Raffaele Hospital in
Milan, Italy, and supportive data derived from patients treated with a cryopreserved formulation at San Raffaele Hospital in
Milan, Italy, as well as any other patients with adequate follow-up at the time of submission, treated with a fresh product
formulation under compassionate use. Prior to completion of our MAA for OTL-200, we will be required to prepare a clinical
trial report for our registrational trial, as well as our supportive clinical trial with cryopreserved formulation to support
analytical comparability between fresh and cryopreserved drug product formulations. We expect to have a pre-MAA meeting
with the EMA, Rapporteur/Co-Rapporteur to discuss the targeted label, last elements of comparability between fresh and
cryopreserved formulations manufacturing processes as well as between drug product manufactured using HSCs derived from
the patient’s mobilized peripheral blood and drug product manufactured using HSCs derived from the patient’s bone marrow.
A pediatric investigational plan compliance check will also need to be completed. Although we currently expect to complete
our MAA submission in 2020, our discussions with EMA are ongoing and we do not yet have definitive feedback from the
EMA on the scope or adequacy of the requisite data necessary to justify an approval. See “Risk factors—The results from our
clinical trials for OTL-101 for ADA-SCID, OTL-200 for MLD, OTL-103 for WAS and for any of our other product candidates
may not be sufficiently robust to support the submission of marketing approval for our product candidates,” and “Risk
factors—We may be unable to demonstrate comparability between drug product manufactured using HSCs derived from the
patient’s mobilized peripheral blood and drug product manufactured using HSCs derived from the patient’s bone marrow
and/or comparability between drug product that has been cryopreserved and fresh drug product.”
Gene therapy for treatment of WAS
Disease overview
WAS is a rare, life-threatening inherited disease affecting the patient’s immune system and platelets leading to recurrent,
severe infections and uncontrollable bleeds, which are the leading causes of death in the disease. WAS is referred to as an “X-
linked-recessive” disease as it is associated with a genetic defect on the X chromosome. Because it is an X-linked disease, it
affects mainly males. Patients with WAS are born with a defect in the gene that produces the WAS protein, or WASP. As a
result, they suffer from life-threatening thrombocytopenia and are at risk of severe bleeds, infections, autoimmunity,
malignancies and severe eczema. These symptoms require increasingly frequent hospitalizations. The median survival for a
patient with WAS is approximately 15 years with patients with early onset WAS generally having a shorter life expectancy.
The incidence of WAS is currently estimated at approximately four in 1 million live male births.
Limitations of current therapies
Treatment options for WAS include conservative care with prophylactic anti-infective medicines, which are not always
effective in preventing severe infections requiring antibiotics, antivirals, antifungals and intravenous immunoglobulin, as well
as chronic platelet transfusions to prevent severe bleeding. WAS patients often are prescribed chronic oral medications or
topical steroids and may require admission to hospital for intravenous antibiotic treatment. HSCT is an alternative treatment
option for some patients for whom a sufficiently well-matched donor is identified. Although HSCT is potentially curative in
patients with WAS, this approach can be associated with significant risks, especially when perfectly-matched cell donors are
not available. Approximately 75% of WAS patients treated with HSCT experience serious complications, such as severe
infections requiring hospitalization, autoimmune manifestations, and GvHD, within the first year of receiving the treatment.
Our solution, OTL-103 for treatment of WAS
We are developing OTL-103 as an autologous ex vivo lentiviral gene therapy to treat patients with WAS through a single
administration. OTL-103 is manufactured from HSCs isolated from the patient’s peripheral blood or bone marrow that are
modified to add a functional WASP gene using a lentiviral vector. The gene-modified cells are infused back into the patient in
a single intravenous infusion following treatment with a milder conditioning regimen compared to HSCT.
As of September 2018, eight patients have been treated with OTL-103 in an ongoing registrational trial and eight patients in a
compassionate use program, with a maximum follow-up of up to approximately eight years post-treatment.
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We obtained worldwide rights to this program through the GSK Agreement. The clinical trials for this program have been
conducted under a GSK-sponsored CTA, which was transferred to us in August 2018.
OTL-103 has received orphan drug designation from the FDA and the EMA for the treatment of WAS. OTL-103 has also
received a Rare Pediatric Disease Designation from the FDA. We plan to submit an MAA with the EMA and a BLA with the
FDA for our OTL-103 for the treatment of WAS in 2021.
Registrational trial
Our anticipated MAA and BLA submissions for OTL-103 will include data from eight currently enrolled patients treated with a
fresh product formulation in a registrational trial at San Raffaele Hospital for which follow-up is ongoing. The primary analysis
for this registrational trial is prospectively defined to be when all patients have completed three years’ follow-up. The eighth
and final patient in this trial reached three years’ follow-up by the end of September 2018. Manufacture of the fresh OTL-103
drug product formulation (with bone marrow or mobilized peripheral blood as the cellular source) was performed by a third-
party commercial CMO. Data from the registrational trial will be supported by eight patients dosed in a compassionate use
program. Based on discussions with the EMA, we intend to submit data to the EMA from additional patients treated with a
cryopreserved formulation.
Patients treated in the registrational trial and compassionate use program were below the age of 12 years with a diagnosis of
severe, classical WAS and were ineligible for HSCT treatment due to the absence of an HLA-matched sibling or family
member to serve as an allogenic bone marrow donor.
The primary goals of this clinical trial are to assess the efficacy and safety of OTL-103 in WAS patients, as measured by, for
example, improved T-cell function, improved platelet count and overall survival at 36 months. Secondary goals of this clinical
trial include reduced bleeding episodes and reduced frequency of infections.
As of April 2016, the date of the most recent interim data report available to us, WASP expression in lymphocytes and platelets
was substantially improved compared to baseline by six months and remain constant thereafter. At one year post-treatment
with OTL-103, T-cell counts increased in all seven evaluable patients, as compared to counts prior to treatment, reaching
normal values. Because of the increase in T-cells, a reduction in infections was observed in patients post-treatment compared to
one year prior to treatment with OTL-103.
OTL-103 (WAS): reduced frequency of severe infections
Severe infections per person/year
Mean platelet counts before treatment were low, with a range of 6–25 x 109 per liter observed in all eight patients. Platelet
counts progressively improved in all patients. One year post-treatment platelet counts increased in all patients to a range of 21–
74 x 109 per liter, and further increases in platelet count were observed in six patients to a range of 27–169 x 109 per liter at
three years post-treatment. In addition to the increase in platelet count, increased and sustained platelet volume in seven
patients was also observed at three years post-treatment. These increases in platelet count and volume resulted in reduced
frequency and severity of bleeding events as compared to those experienced by these patients prior to treatment with OTL-103
as shown in the graph below.
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OTL-103 (WAS): reduced frequency and severity of bleedings
Bleedings per person/year
As of February 2019, the date of the most recent safety report available to us, 100% overall survival has been observed in the
eight patients treated in the clinical trial, with a maximum follow-up of up to 8.6 years and a median follow-up of 6.5years.
Safety data from the eight patients treated in this registrational clinical trial indicate OTL-103 was well-tolerated, with no
instances of insertional mutagenesis. There were 29 SAEs reported within the trial, none of which were assessed by the
investigator as being related to OTL-103. 13 SAEs were reported in seven patients treated under compassionate use, none of
which were assessed by the investigator as being related to OTL-103. One compassionate use patient died as a consequence of
a deterioration in a pre-existing neurological condition. That event was deemed to be unrelated to the product. The remaining
six compassionate use patients are alive. Across the program, the most common SAEs were pyrexia and infections. There were
no OTL-103 related SAEs leading to the withdrawal of patients from the trial. Because follow-up is ongoing, safety data are
preliminary and subject to change. As of the date of this Annual Report, we have not been notified by the investigator of any
SUSAR.
Regulatory Pathway for OTL-103
We are currently in discussions with EMA and FDA to finalize the requirements for our planned MAA and BLA submissions,
respectively, for OTL-103 in 2021. We currently expect that our MAA and BLA submissions will include clinical data from a
registrational trial of 8 patients treated with a fresh product formulation at San Raffaele Hospital in Milan, Italy, and supportive
data derived from patients treated with a cryopreserved formulation at San Raffaele Hospital in Milan, Italy, as well as
additional patients with adequate follow-up at the time of submission, treated with a fresh product formulation under
compassionate use. In addition, prior to completion of our MAA and BLA for OTL-103, we will need to collect clinical data
with a cryopreserved formulation. We will also be required to prepare a clinical trial report for our registrational trial, as well as
our supportive clinical trial with cryopreserved formulation to support analytical comparability between fresh and
cryopreserved drug product formulations. We expect to have meetings with EMA and FDA, including a pre-MAA and a pre-
BLA meeting, to obtain their concurrence on the appropriate data to support our marketing authorization application. Although
we currently expect to complete our MAA and BLA submission by 2021, our discussions with EMA and FDA are ongoing and
we do not yet have definitive feedback from the EMA and FDA on the scope or adequacy of the requisite data necessary to
justify an approval. See “Risk factors – The results from our clinical trials for OTL-101 for ADA-SCID, OTL-200 for MLD,
OTL-103 for WAS and for any of our other product candidates may not be sufficiently robust to support the submission of
marketing approval for our product candidates,” and “Risk factors – We may be unable to demonstrate comparability between
drug product manufactured using HSCs derived from the patient’s mobilized peripheral blood and drug product manufactured
using HSCs derived from the patient’s bone marrow and/or comparability between drug product that has been cryopreserved
and fresh drug product.”
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Gene therapy for X-CGD
Disease overview
X-CGD is a rare, life-threatening inherited disease of the immune system. X-CGD is an X-linked-recessive disease and
therefore affects males. Because of the underlying genetic defect in the cytochrome B-245 beta chain, or CYBB, gene in
patients with X-CGD, the patient’s white blood cells, specifically neutrophils/granulocytes, are unable to kill bacteria and
fungi, leading to repeated chronic infections. The main clinical manifestations of X-CGD are pyoderma; pneumonia; colitis;
lymphadenitis; brain, lung and liver abscesses; and osteomyelitis. Granuloma formation can also occur as a result of persistent
inflammatory response to the pathogens and can result in recurrent obstructions of the gastro-intestinal and urinary tract.
Patients with X-CGD typically start to develop infections in the first decade of life. Mortality in X-CGD has been estimated at
approximately 40% by the age of 35 years.
The incidence of X-CGD is currently estimated to be between 2.6 in 1 million and 10 in 1 million male live births.
Limitations of current therapies
Current treatment options for X-CGD include prophylactic antibiotics, antifungal medications and interferon-gamma, which
are not always effective in preventing severe infections. Although HSCT is potentially curative in patients with X-CGD, this
approach can be associated with significant risks, especially when well-matched cell donors are not available.
Our solution, OTL-102 for treatment of X-CGD
We are developing OTL-102 as an autologous ex vivo lentiviral gene therapy to treat patients with X-CGD through a single
administration. OTL-102 is manufactured from HSCs isolated from the patient’s own mobilized peripheral blood or bone
marrow, then modified to add a functional CYBB gene using a lentiviral vector. The gene-modified cells are infused back into
the patient in a single intravenous infusion following treatment with a myeloablative conditioning regimen.
OTL-102 is currently being investigated in ongoing investigator-sponsored clinical trials in the United States and in Europe
and has evidenced sustained CYBB expression for over one year in four patients to date, with a follow-up for over two years
post-treatment in the first successfully treated patient.
We obtained worldwide rights to the OTL-102 program through an option and license agreement with Généthon, pursuant to
which we have exercised an option to certain intellectual property and clinical data associated with clinical trials sponsored by
Généthon at sites in the United States and the United Kingdom and we continue to have the right to exercise an exclusive
option with respect to an ongoing clinical trial conducted in France, which option expires in June 2019.
OTL-102 has received orphan drug designation from the EMA for the treatment of X-CGD.
Ongoing clinical trials
OTL-102 is currently being investigated in two ongoing investigator-sponsored proof of concept clinical trials in the United
States and in Europe, with target enrollment of 10 patients in a clinical trial conducted by UCLA in the United States and target
enrollment of five patients in a clinical trial conducted by GOSH in Europe. The clinical trial sites include Boston Children’s
Hospital, the NIH, and UCLA in the United States, and GOSH and The Royal Free Hospital in London. Manufacture of the
drug product occurred at each of these sites using the same vector. As of January 2018, five patients have been treated in the
clinical trial in the United States four of which were treated with a fresh product formulation and one of which was treated with
a cryopreseved formulation, and three patients have been treated in the clinical trial in Europe, one of which was treated with a
fresh product formulation and two of which were treated with a cryopreserved product formulation. Two patients have been
treated in a compassionate use program in Europe, one with a fresh product formulation and the other with a cryopreserved
product formulation. In the future, we expect to treat additional patients in this trial with a cryopreserved formulation of OTL-
102. Patients enrolled in these trials have advanced and severe stages of X-CGD.
The primary goals of these clinical trials are to assess safety and efficacy, as measured by biochemical and functional
reconstitution through increased nicotinamide adenine dinucleotide phosphate-oxidase, or NADPH, activity in progeny of
engrafted cells and stability at 12 months post-treatment.
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In these clinical trials, the production of NADPH activity in neutrophils, a biomarker that demonstrates restored granulocyte
function, has been measured in patients for up to 24 months post-treatment. As of July 2018, preliminary combined data from
the U.S. and U.K. studies, including the compassionate use patients, showed NADPH activity, as measured by
dihydrorhodamine, or DHR, assay, above 10% in six patients with at least six months follow-up. Based on the investigator’s
review of the scientific literature, they determined that 10% was a clinically meaningful percentage for fighting infections
successfully. The graphic below illustrates sustained NADPH levels, as measured for up to 24 months post-treatment.
OTL-102 (X-CGD): oxidase activity(1)
(percentage of DHR-positive peripheral mononuclear cells, or PMN)
(1)
Excludes data from one patient treated with drug product deemed by the investigator to be a different form of OTL-102
drug product.
†
Patient deceased from advanced disease.
As of February 2019, the date of the most recent safety data available to us, safety data from the U.S. patients treated in this
clinical trial indicate OTL-102 was generally well-tolerated, with no instances of insertional mutagenesis up to twelve months
post-treatment. There were nine SAEs reported, none of which were assessed by the investigator as being possibly related to
drug product. There were no AEs or SAEs leading to the withdrawal of patients from the trial. All AEs and SAEs resolved with
standard of care treatment.
Because follow-up in this clinical trial is ongoing, safety data are preliminary and subject to change. As of the date of this
Annual Report, we have not been notified by the investigator in this clinical trial of any SUSAR. In the U.K. study, eight SAEs
were also reported, one of which was deemed as possibly related to the product. This event is still under investigation by the
data safety monitoring board.
Two of the nine patients treated with OTL-102 in these clinical trials died during the three months period following treatment
as a result of pre-existing disease-related complications present at the time of treatment with OTL-102. One patient from the
U.K. trial died of acute respiratory distress syndrome. This subject had a pre-existing lung condition. One patient from the U.S.
trial developed platelet antibodies due to sensitization after several granulocytes infusions the patient received prior to gene
therapy. As a result, following gene therapy he was unable to respond to platelet transfusion and died from hemorrhage.
Following this event, in September 2017, the investigators put this trial on hold, and after discussions with the FDA and the
data safety monitoring board, the trial was re-initiated in February 2018. The learnings from this patient resulted in a protocol
amendment to prevent patients with existing platelet antibodies from enrolling in the trial. Neither of these two fatalities was
deemed by the investigator to be related to the therapy. A third fatality was reported involving a patient treated under the
compassionate use program at GOSH. Because of this patient’s advanced disease stage at the time of enrollment, the patient
required a surgical procedure following treatment and died as a result of complications from this procedure. This fatality was
deemed by the investigator not to be related to the product. This patient was treated with drug product manufactured under a
different manufacturing process than that used for OTL-102, which was deemed by the investigator to be a different drug
product than OTL-102, and therefore, this patient’s data have been excluded from the data set in these clinical trials.
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Gene therapy for treatment of TDBT
Disease overview
Beta-thalassemia is an inherited blood disorder caused by one of over 200 mutations in the hemoglobin beta, or HBB, gene.
Patients with beta-thalassemia have low levels of hemoglobin, a protein in red blood cells that carries oxygen to cells
throughout the body. TDBT is the most severe form of beta-thalassemia, and requires patients to receive eight or more blood
transfusions per year, with the number of transfusions dependent upon the severity of the patient’s disease. Symptoms in TDBT
patients appear within the first two years of life and include failure to thrive, persistent infections and life-threatening anaemia.
Patients with TDBT also suffer from other symptoms such as liver and spleen enlargement, bone deformities and osteopenia,
and hypermetabolic state, resulting in chronic malnourishment. Patients often need a multidisciplinary team of cardiologist,
hepatologist, endocrinologist, orthopedic, and psychologist support. In the absence of regular blood transfusions, TDBT is
usually fatal in infancy.
TDBT is one of the most common genetic diseases, with a global incidence estimated at approximately 25,000 symptomatic
individuals born each year.
Limitations of current therapies
The symptoms experienced by most patients with TDBT are severe and often require frequent, life-long blood transfusions to
replenish the patient’s hemoglobin level. Because iron cannot be excreted by the body, these frequent blood transfusions can
cause iron to accumulate in various organs, leading to risk of heart or liver failure. Therefore, patients who receive ongoing
blood transfusions must also receive iron chelation therapy to remove the excess iron. These medicines also have side effects
and can negatively impact a patient’s quality of life. Although HSCT is potentially curative in patients with TDBT, this
approach can be associated with significant risks, especially when perfectly-matched cell donors are not available.
Our solution, OTL-300 for treatment of TDBT
We are developing OTL-300 as an autologous ex vivo gene therapy to sustainably treat patients with TDBT through a single
administration. OTL-300 is manufactured from HSCs isolated from the patient’s own mobilized peripheral blood, then
modified to add a functional HBB gene using a lentiviral vector. The gene-modified cells are infused back into the patient in a
single intra-osseous administration following treatment with a myeloablative conditioning regimen. We plan to investigate
treatment through an intravenous administration of OTL-300 as part of the clinical development of this product candidate.
OTL-300 is designed to significantly reduce or eliminate the need for blood transfusions in patients with TDBT.
As February 2019, OTL-300 has been evaluated in a total of nine patients, the majority of which have a severe genotype of
TDBT, including ß0/ß0, in an ongoing clinical trial at San Raffaele Hospital in Milan, Italy, with follow-up of up to
approximately three years. The clinical trials for this program are being conducted under an investigator-sponsored CTA.
We obtained worldwide rights to this program through the GSK Agreement. OTL-300 has received orphan drug designation
from the EMA for the treatment of beta-thalassemia major and intermediate. In addition, the EMA has granted Priority
Medicines (PRIME) designation to OTL-300.
Ongoing clinical trials (cryopreserved formulation)
OTL-300 is currently being investigated in an ongoing academic-sponsored clinical trial at the San Raffaele Hospital in Milan,
Italy to establish proof of concept. The target enrollment in this trial is nine patients with TDBT, and all nine patients have
received a single dose of a cryopreserved formulation of OTL-300 . The patients evaluated in this trial include six pediatric
patients aged three to 17 years, and three adult patients aged 18 years and over. Following conclusion of this trial at two-years
post-treatment, patients will continue to be evaluated in a long-term follow-up clinical trial for an additional six year period.
The primary goals of these clinical trials are to assess the safety and efficacy of a cryopreserved formulation of OTL-300 in
TDBT patients, as measured by, for example reduction in required blood transfusions to manage the patients’ TDBT and
overall survival at 24 months post-treatment.
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Of the seven patients with at least 12 months of follow-up as of April 2018, significant reductions in transfusion frequency and
volume requirements were observed in five patients, with three of the four pediatric patients being transfusion-free since
approximately one month post-treatment. Following treatment, substantial reductions in transfusion volume requirements were
observed in two out of three adult patients, with one patient transfusion-free over a period of nine months. The third adult
patient at the most recent follow-up showed minimal reduction in transfusion frequency and volume requirements compared to
the period before treatment with OTL-300.
The graphs below illustrate the reduction in required blood transfusions for up to 16 and 22 months post-treatment in pediatric
and adult patients, respectively.
OTL-300 (TDBT): Blood transfusion requirements before and after treatment
As of December 2018, the date of the most recent safety report available to us, 100% overall survival has been observed, with a
follow-up of up to approximately three years. Safety data from the nine patients treated in this clinical trial indicate OTL-300
was generally well-tolerated, with no instances of insertional mutagenesis up to approximately three years post-treatment.
There were five SAEs reported, none of which were assessed by the investigator as being related to OTL-300. The SAEs
included central line and mycobacterium infection, febrile neutropenia, gastroenteritis, and obstructive pancreatitis due to gall
stones. There were no AEs or SAEs leading to the withdrawal of patients from the trial. All SAEs resolved with standard of
care treatment. Because follow-up in this clinical trial is ongoing, safety data are preliminary and subject to change. As of the
date of this Annual Report, we have not been notified by the investigator in this clinical trial of any SUSAR.
Preclinical data for our gene therapy programs
Each of our aforementioned lead programs has been evaluated in preclinical studies of murine models of the target indications.
Preclinical development plans have been discussed with or reviewed by the FDA and EMA or E.U. Member State Authorities
over the course of drug development interactions or approval of clinical trials.
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Our preclinical gene therapy programs for the treatment of MPS-IIIA and MPS-IIIB
Disease overview
MPS-IIIA and MPS-IIIB are life-threatening metabolic diseases that cause accumulation of glycosaminoglycan in cells, tissues
and organs, particularly in the brain. Within one to two years after birth, MPS-IIIA and MPS-IIIB patients experience
progressive neurological decline, including speech delay and eventual loss of language, behavioral disturbances, and
potentially severe dementia. Ultimately, most patients with MPS-IIIA progress to a vegetative state. Life expectancy for
patients with MPS-IIIA and MPS-IIIB is between 10 to 25 years and 15 to 30 years, respectively.
The incidence of MPS-IIIA and MPS-IIIB are currently estimated to be one in 100,000 and one in 200,000 live births per year,
respectively.
Limitations of current therapies
Currently, there are no effective treatments or approved therapies for MPS-IIIA and MPS-IIIB. Palliative care options involve
medications for seizures and pain, antibiotics and sedatives, on a case-by-case basis, as well as physiotherapy, hydrotherapy
and tube feeding or gastrostomy when patients can no longer eat without assistance. Palliative care addresses the symptoms of
MPS-IIIA and MPS-IIIB but does not slow or reverse the progression of the underlying disease. HSCT is not considered to be
effective treatment options for these diseases. The severity of symptoms and lack of an effective treatment option to manage
these symptoms is a significant burden to MPS-IIIA and MPS-IIIB patients, their caregivers and families and healthcare
systems.
Our Solution, OTL-201 for MPS-IIIA and OTL-202 for MPS-IIIB
We are developing OTL-201 and OTL-202 as autologous ex vivo gene therapies for treatment of patients with MPS-IIIA and
MPS-IIIB, respectively. In both indications we believe preclinical studies in mice have shown that autologous ex vivo gene
therapy has the potential to address the neurological manifestations of MPS-IIIA and MPS-IIIB. We plan to submit a CTA with
the applicable regulatory authority in Europe for MPS-IIIA by the end of 2019 and plan to continue to progress preclinical
development of MPS-IIIB.
We have obtained worldwide development and commercialization rights to OTL-201 for treatment of MPS-IIIA and OTL-202
for treatment of MPS-IIIB from The University of Manchester.
OTL-201 has received orphan drug designation from the EMA and FDA for the treatment of MPS-IIIA and has received rare
pediatric disease designation from the FDA.
Preclinical studies
A comprehensive panel of preclinical studies has been performed by The University of Manchester, which we believe supports
the use of OTL-201 in clinical trials.
In a mouse model of MPS-IIIA, engraftment of HSCs from a donor mouse modified with GFP using autologous ex vivo gene
therapy with the selected vector for this program (a hCD11b-coSGSH lentiviral vector) was observed. Sustained gene
expression of the GFP-modified HSCs was seen over a follow-up of approximately six months, which we believe supports the
stability of the engraftment of modified cells.
Transplantation of gene-modified HSCs resulted in a 4.72-fold increase in enzyme activity relative to wild type enzyme levels
and significantly elevated brain enzyme activity. Increased enzyme activity resulted in decreased heparan sulphate substrate
accumulation in the brain and correction of behavioral abnormalities, such as hyperactivity and a reduced sense of danger, to
normal levels.
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The figures below illustrate the increased enzyme expression observed in the brain, the corresponding decreased substrate
accumulation in the brain, and the resulting behavioural correction in a mouse model of MPS-IIIA.
Preclinical studies in a mouse model of MPS-IIIB have demonstrated correction of neurological activity, as measured by
reduction in hyperactivity. Lentivirus vector optimization for OTL-202 for treatment of MPS-IIIB is ongoing.
Future applications of our autologous ex vivo gene therapy approach
We believe that our versatile autologous ex vivo gene therapy approach has the potential to deliver promising gene therapies to
patients across a broad range of rare diseases. Although our initial focus is on delivering our commercial and clinical-stage
gene therapies to patients suffering from ADA-SCID, MLD, WAS, X-CGD and TDBT, we believe we can leverage our
significant research and development experience and partnerships with academic institutions to identify other rare diseases in
our target franchise areas, including primary immune deficiencies, neurometabolic disorders and hemoglobinopathies, where ex
vivo gene therapy has a comparably high probability of success.
Our Regulatory Strategy
Due to the nature of our gene therapy product candidates and the indications our product candidates are intended to treat, which
are often fatal without treatment, and which are rare or ultra-rare indications, we believe our clinical programs may be eligible
to proceed to registration without having to conduct one or more Phase 1 safety studies in healthy volunteers or Phase 3
randomized, double-blind and placebo-controlled clinical trials. Both the FDA and the EMA provide expedited pathways for
the development of drug product candidates for the treatment of rare diseases, particularly life threatening diseases with high
unmet medical need. Such drug product candidates may be eligible to proceed to registration following one or more clinical
trials in a limited patient population, following review of the trial’s design, endpoints and clinical data by the applicable
regulatory agencies. These determinations are based on the applicable regulatory agency’s scientific judgement and these
determinations may differ in the United States and the European Union.
We refer to an exploratory study, which is sometimes referred to as a Phase 1 or Phase 1/2 clinical trial, as a proof of concept
trial, and a confirmatory efficacy and safety study to support submission of a potential marketing application with the
applicable regulatory authorities, which is sometimes referred to as a Phase 2/3 or Phase 3 clinical trial or a pivotal trial, as a
registrational trial. In some cases applicable regulatory agency may require us to perform analytical studies or conduct
additional clinical trials to support analytical comparability of drug product, for example by demonstrating comparability of
drug product manufactured using HSCs derived from a patient’s mobilized peripheral blood and drug product manufactured
using HSCs derived from a patient’s bone marrow and/or comparability of drug product that has been cryopreserved and fresh
drug product. For purposes of this Annual Report we refer to these clinical trials as supportive clinical trials. In addition,
certain of our product candidates may be evaluated in clinical trials for which clinical data is not intended to be pooled with
data from our registrational trials for purposes of a regulatory submission, but will be submitted to the applicable regulatory
agencies for informational purposes. For purposes of this Annual Report we refer to these trials as additional clinical trials. In
addition, in some cases patients may be ineligible for participation in our clinical trials and may receive treatment under a
compassionate use program. We expect that the available safety and efficacy results from all these trials would be included in
any regulatory submission we may submit and the applicable regulatory agency with respect to each clinical program the
applicable regulatory agency will make a determination as to whether the available data is sufficient to support a regulatory
submission. See “Risk factors—The results from our clinical trials for OTL-101 for ADASCID, OTL-200 for MLD, OTL-103
for WAS and for any of our other product candidates may not be sufficiently robust to support the submission of marketing
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approval for our product candidates,” “Risk factors—We may be unable to demonstrate comparability between drug product
manufactured using hematopoietic stem cells (HSCs) derived from the patient’s mobilized peripheral blood and drug product
manufactured using HSCs derived from the patient’s bone marrow and/or comparability between drug product that has been
cryopreserved and fresh drug product,” and “Risk factors—To date, most of the clinical trials for our product candidates were
conducted as investigator sponsored clinical trials using drug product manufactured at the academic sites.”
Manufacturing
The diseases we are targeting affect patients across the world. Therefore, we are implementing our plans to build a commercial-
scale manufacturing infrastructure and leverage technologies that will allow us to deliver our gene therapies globally.
Global supply network with experienced CMOs
We currently partner with a network of experienced CMOs, including Oxford BioMedica and MolMed S.p.A., for the supply
of our vectors and/or drug product. We have established relationships with commercial CMO partners with the resources and
capacity to meet our clinical and existing and expected initial commercial needs. Two of our vector CMOs currently
manufacture for approved commercial gene therapy products. Our CMO partners also provide us with access to state-of-the art
production technologies.
Manufacturing efficiencies and scalability
We are in the process of implementing our plans to functionally close and/or automate some process steps for the manufacture
of our gene therapies. We currently operate two development laboratory facilities in California and signed a lease for a facility
in Fremont, California in which we plan to invest in additional facilities to accommodate our expanding technical operations
and implement in-house manufacture for some of our CGMP vector and drug product needs. We also continue to invest in the
human talent and facility infrastructure required to support the initial development and validation of processes and controls for
the manufacture of our product candidates. We believe this industrialization of our manufacturing processes will afford us
more flexibility and control over our development programs. We are actively investing in improving the yield of vector and
drug product production and enhancing transduction efficiency, including evaluation of transduction enhancers, in order to
lower cost of goods. We are also investigating automation of the entire drug production process. We believe these initiatives
will allow us to increase production yield while lowering production costs for our programs.
Cryopreservation of our gene therapy programs
Cryopreservation of the gene-modified cells is a key component of our strategy to deliver potentially transformative gene
therapies to patients worldwide. We have developed cryopreserved formulations of our OTL-101, OTL-102, OTL-103, OTL-
200 and OTL-300 programs and expect to demonstrate comparability of our cryopreserved formulations to earlier
manufactured fresh formulations in support of future submissions for marketing approval in the United States and Europe. We
plan to establish cryopreserved product formulations as the standard for all of our future gene therapy candidates.
In the cryopreservation process, a patient’s gene-modified HSCs are frozen at extremely low temperatures and then stored to
allow quality control testing and release to be performed before introducing the cells back into the patient. Our cryopreserved
formulations are expected to have shelf-lives of months to years, enabling us to potentially distribute our products and product
candidates from a few centralized manufacturing facilities to geographically dispersed treatment sites. Our ability to ultimately
distribute our product candidates globally will facilitate access of the therapies to patients, and reduces the logistical burden on
the patients and their families.
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Intellectual property and barriers to entry
Our commercial success depends, in part, upon our ability to protect commercially important and proprietary aspects of our
business, defend and enforce our intellectual property rights, preserve the confidentiality of our know-how and trade secrets,
and operate without infringing misappropriating and otherwise violating valid and enforceable intellectual property rights of
others. In particular, we strive to protect the proprietary aspects of our business and to develop barriers to entry that we believe
are important to the development and commercialization of our gene therapies. For example, where appropriate, we develop, or
acquire exclusive rights to, clinical data for Strimvelis and each of our product candidates, know-how and trade secrets
associated with Strimvelis and each of our product candidates. However, we do not own any patents or patent applications that
cover Strimvelis or any of our product candidates. We in-license from UCLB and UCLA one family of patent applications
directed at OTL-101. We cannot guarantee that patents will issue from any of these patent applications or from any patent
applications we or our licensors may file in the future, nor can we guarantee that any patents that may issue in the future from
such patent applications will be commercially useful in protecting Strimvelis or our product candidates. In addition, we plan to
rely on regulatory protection based on orphan drug exclusivities, data exclusivities and market exclusivities. See “—
Government regulation” for additional information.
We currently rely primarily on know-how and trade secret protection for aspects of our proprietary technologies that we or our
licensors believe are not amenable to or appropriate for patent protection, including, for example, clinical data and production
information for Strimvelis and each of our product candidates. However, know-how and trade secrets can be difficult to
protect. Although we take steps to protect our know-how, trade secrets and other proprietary information, including restricting
access to our premises and our confidential information, as well as entering into agreements with our employees, consultants,
advisors and potential collaborators, third parties may independently develop the same or similar know-how, trade secrets or
proprietary information or may otherwise gain access to such know-how, trade secrets and other proprietary information or
such know-how, trade secrets or other proprietary information may otherwise become known. Moreover, we cannot guarantee
that our confidentiality agreements will provide meaningful protection or that they may not be breached and we may not have
an adequate remedy for any such breach. As a result, we may be unable to meaningfully protect our know-how, trade secrets
and other proprietary information.
In addition, with regard to patent protection, the scope of coverage being sought in a patent application may be reduced
significantly before a patent is issued, and even after issuance the scope of coverage may be challenged. As a result, we cannot
guarantee that any of our product candidates will be protectable or remain protected by enforceable patents. We cannot predict
whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the
claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be
challenged, circumvented or invalidated by third parties.
With regards to our OTL-101 product candidate, we have exclusive, worldwide, sub-licensable, licenses pursuant to the
UCLB/UCLA Agreement to clinical data and to a patent family containing one pending U.S. patent application with
composition of matter claims directed to the OTL-101 product candidate and its use in the treatment of ADA-SCID, and one
pending counterpart European patent application. The U.S. patent application, if issued as a U.S. patent, would be expected to
expire in 2036, without taking a potential patent term adjustment or extension into account. In addition, under the
UCLB/UCLA Agreement, we have non-exclusive, worldwide, sub-licensable, licenses to know-how and materials relating to
the OTL-101 product candidate.
With regards to Strimvelis, OTL-103, OTL-200 and OTL-300, and as discussed in detail in “—License agreements”, we have
exclusive, worldwide, sub-licensable licenses pursuant to the GSK Agreement and the R&D Agreement to anonymized patient-
level data arising from the clinical trials of Strimvelis, OTL-103, OTL-200 and OTL-300 and know-how, including other
clinical data and production information relating to Strimvelis, OTL-103, OTL-200, and OTL-300.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most
countries in which we are seeking patent protection for our product candidates, the patent term is 20 years from the earliest date
of filing a non-provisional patent application. In the United States, the term of a patent may be lengthened by a patent term
adjustment, which provides additional term caused by administrative delays at the USPTO in granting a patent, or may be
shortened it a patent is terminally disclaimer over another patent with an earlier expiration date.
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Furthermore, in the United States, the term of a patent covering an FDA-approved drug may be eligible for a patent term
extension under the Hatch-Waxman Amendments as compensation for the loss of patent term during the FDA regulatory
review process. The period of extension may be up to five years beyond the expiration of the patent but cannot extend the
remaining term of a patent beyond a total of 14 years from the date of product approval. Only one patent among those eligible
for an extension may be extended. Similar provisions are available in Europe and in certain other jurisdictions to extend the
term of a patent that covers an approved drug. In the future, if we obtain an issued U.S. patent covering one of our present or
future product candidates, and if such product candidate receives FDA approval, we expect to apply for a patent term
extension, if available, to extend the term of the patent covering such approved product candidate. We also expect to seek
patent term extensions in any jurisdictions where they are available, however, there is no guarantee that the applicable
authorities, including the FDA, will agree with our assessment of whether such an extension should be granted, and even if
granted, the length of such an extension.
License agreements
GSK asset purchase and license agreement
In April 2018, we entered into the GSK Agreement pursuant to which GSK transferred to us its portfolio of approved and
investigational rare disease gene therapies, including Strimvelis, the first gene therapy approved by the EMA for ADA-SCID,
two late-stage clinical gene therapy programs in ongoing registrational trials, OTL-200 for MLD and OTL-103 for WAS; and
OTL-300, a clinical-stage gene therapy program for TDBT. In addition, GSK novated to us their R&D Agreement with
Telethon-OSR.
Under the GSK Agreement, we are subject to certain obligations to develop and advance certain of the acquired product
candidates. For example, we are required to first use best endeavors to file an MAA for OTL-200 for MLD in either Europe or
a BLA for MLD in the United States and to subsequently use commercially reasonable efforts to file an MAA or BLA, as
applicable, in the other jurisdiction and to market, sell and promote OTL-200 in such jurisdictions. We are also required to use
best endeavors to file a BLA for OTL-103 for WAS in the United States and to use commercially reasonable efforts to file an
MAA for OTL-103 in Europe, and to subsequently market, sell and promote OTL-103 in such jurisdictions. We are also
required to use commercially reasonable efforts to develop and file an MAA or BLA, as applicable, for OTL-300 for TDBT in
either the United States or Europe. In addition, we must also use best endeavors to maintain the MAA and regulatory
designations for Strimvelis in the European Union and to continue to make Strimvelis available to eligible patients until an
alternative gene therapy product has received marketing approval in Europe. We must also continue to make Strimvelis
available at the San Raffaele Hospital for as long as a minimum number of patients are treated and entitled to
receive reimbursement for the provision of Strimvelis, over a defined period. We intend to continue to make Strimvelis
available for so long as we are required to do so under the GSK Agreement.
We are required to use commercially reasonable efforts to obtain a PRV from the FDA for each of Strimvelis, OTL-200, OTL-
103 and OTL-300 and to transfer the first such PRV to GSK. GSK also has an option to acquire at a defined price any PRVs
granted to us thereafter for Strimvelis, OTL-200, OTL-103 and OTL-300. In the event that GSK does not exercise this option
with respect to any PRV, we may sell the PRV to a third party and must share any proceeds in excess of a specified sale price
equally with GSK.
GSK received a one-time upfront fee of £10.0 million under the GSK Agreement, and we issued to GSK 12,455,252 of our
Series B-2 convertible preferred shares and we recorded a payable due to GSK of £4.9 million. The Series B-2 convertible
preferred shares were converted to ordinary shares as part of our IPO.
Under the GSK Agreement we are also obligated to pay non-refundable royalties and milestone payments in relation to the
gene therapy programs acquired and OTL-101. We will pay a mid-single-digit percentage royalty on the combined annual net
sales of ADA-SCID products, which includes Strimvelis and our product candidate, OTL-101. We will also pay tiered royalty
rates at percentages from the mid-teens to the low twenties for the MLD and WAS products, upon marketing approval,
calculated as percentages of aggregate cumulative net sales of the MLD and WAS products, respectively. We will pay a tiered
royalty at percentages from the high single-digits to the low teens for the TDBT product, upon marketing approval, calculated
as percentages of aggregate annual net sales of the TDBT product. These royalties owed to GSK are in addition to any royalties
owed to other third parties under various license agreements for the GSK programs. In aggregate, we may pay up to £90.0
million in milestone payments upon achievement of certain sales milestones. Our royalty obligations with respect to MLD and
WAS may be deferred for a certain period in the interest of prioritizing available capital to develop each product. Our royalty
obligations are subject to reduction on a product-by-product basis in the event of market control by biosimilars, and will expire
in April 2048.
We may terminate our development and/or commercialization activities of any of the programs under the GSK Agreement,
upon the occurrence of an SAE, or if we believe such program poses a safety risk to patients. GSK may require us to grant a
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third party a non-exclusive license under the intellectual property we have acquired from GSK under the GSK Agreement if we
materially breach of our obligations to use best endeavors and/or commercially reasonable efforts to develop and
commercialize the acquired programs and fail to develop and implement a mutually agreeable plan to cure such material breach
within a specified time period. The foregoing license only continues until such time as we cure our material breach and we
must pay GSK all amounts we receive from the third party in connection with such license.
Telethon-OSR research and development collaboration and license agreement
In April 2018, in connection with our entering into the GSK Agreement, we entered into a deed of novation with GSK,
Telethon Foundation and San Raffaele Hospital, together referred to as Telethon-OSR, pursuant to which we acquired and
assumed all of GSK’s rights and obligations under the R&D Agreement with Telethon-OSR for the research, development and
commercialization of ex vivo HSC gene therapies for ADA-SCID, WAS, MLD, TDBT, and options on three additional earlier-
stage development programs.
Pursuant to the R&D Agreement, Telethon-OSR had granted to GSK an exclusive, worldwide, sublicensable license under
certain intellectual property rights to develop and commercialize ex vivo gene therapy products for the treatment of ADA-
SCID. In addition, Telethon-OSR had granted to GSK an exclusive option for an exclusive, sublicensable, worldwide license
under certain intellectual property rights to develop and commercialize certain vectors and gene therapy products from disease-
specific development programs for the treatment of WAS, MLD, TDBT, as well as three additional earlier-stage development
programs. Our options under the R&D Agreement with respect to the three earlier-stage programs have lapsed. At the time we
entered into the deed of novation agreement, GSK had completed development, launched and commercialized Strimvelis for
ADA-SCID in EU, and had exercised its exclusive option to obtain exclusive licenses from Telethon-OSR to the WAS, MLD
and TDBT programs. We acquired Strimvelis and GSK’s exclusive licenses relating to the ADA-SCID, WAS, MLD and
TDBT collaboration programs pursuant to the GSK Agreement and to the deed of novation.
Under the R&D Agreement, Telethon-OSR is required to use commercially reasonable efforts to conduct each of the
collaboration programs in accordance with development plans approved by a joint steering committee. With respect to those
programs in relation to which our option has been exercised, we are required to use commercially reasonable efforts to
develop, obtain regulatory approval, launch and promote in both the European Union and the United States all licensed
products and to commercialize and manufacture such products at levels sufficient to meet commercial demands. We are
required to use best efforts to renew the EU marketing authorization for Strimvelis to enable patients to be treated at the San
Raffaele hospital from all referring centers globally, as permitted by applicable law. With certain exceptions, Telethon-OSR is
responsible for all costs and activities associated with the collaboration programs prior to our exercise of the option for any
such program. We are responsible for the costs and activities associated with the continued development of Strimvelis and each
program for which an option under the R&D Agreement is exercised.
As consideration for the licenses and options granted under the R&D Agreement, we are required to make payments to
Telethon-OSR upon achievement of certain product development milestones. We are also required to pay Telethon-OSR a fee
in connection with the exercise of our option for each collaboration program. We are obligated to pay up to an aggregate of
€31.0 million in connection with product development milestones with respect to those programs for which we have exercised
an option under this agreement (that is, our WAS, MLD and TDBT programs). Additionally, we are required to pay to
Telethon-OSR a tiered mid-single to low-double digit royalty percentage on net annual sales of licensed products on a country-
by-country basis, as well as a low double-digit percentage of sublicense income received from any certain third party
sublicensees of the collaboration programs. Our royalty obligation expires on a licensed product-by-licensed product and
country-by-country basis upon the latest to occur of the expiration of the last valid claim under the licensed patent rights in
such country, the 10th anniversary of the first commercial sale of such licensed product in such country, and the expiration of
any applicable regulatory exclusivity in such country, provided that our royalty obligation will terminate immediately in the
event significant generic or biosimilar competition to a licensed product achieves a certain threshold percentage of the market
share.
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Unless terminated earlier, the R&D Agreement will expire (i) on a product-by-product and country-by-country basis upon the
expiration of all payment obligations with respect to such product in such country, (ii) in its entirety upon the expiration of all
payment obligations with respect to the last product in all countries in the world and (iii), on a program-by-program basis when
no vector or gene therapy product is being researched, developed or commercialized. Either we or Telethon-OSR may
terminate the R&D Agreement in its entirety or on a program-by-program basis if the other party commits a material breach
and fails to cure such breach within a certain period of time. Additionally, either we or Telethon-OSR may terminate
involvement in a collaboration program for compelling safety reasons, and either we or Telethon-OSR may terminate the R&D
Agreement if the other party becomes insolvent. We may also terminate the R&D Agreement either in its entirety or on a
program-by-program basis for any reason upon notice to Telethon-OSR.
UCLB/UCLA License Agreement
In February 2016, we entered into a license agreement, or the UCLB/UCLA Agreement, with UCLB and UCLA, pursuant to
which we obtained an exclusive, worldwide, sublicenseable license to certain technology, clinical data, manufacturing know-
how, and intellectual property rights related to the production of virally transduced HSCs for treatment of patients with ADA-
SCID, in addition to certain other rare disease indications. We must use diligent efforts to develop and commercialize a gene
therapy product in each of the foregoing indications in the United States, United Kingdom and at least one of France, Germany,
Italy and Spain as soon as reasonably possible.
UCLB received an aggregate upfront fee of £1,400,000 and a patent reimbursement fee of £12,524 under the UCLB/UCLA
Agreement, and we issued to UCLB 1,224,094, and 3,441,290 of our ordinary shares in 2017 and 2016, respectively. We are
also required to make certain annual administration payments to UCLB upon our receipt of VAT invoices.
Under the UCLB/UCLA Agreement, we are also obligated to pay UCL royalties ranging from low to mid-single-digit
percentages on net sales of each of the product candidates subject to the UCLB/UCLA Agreement that receive marketing
approval. Our royalty obligations under the UCLB/UCLA Agreement terminate in February 2041. In addition, we are required
to pay to UCLB milestone payments up to an aggregate of £28.85 million upon achievement of our first, second and third
marketing approvals of product candidates under the UCLB/UCLA Agreement.
Unless terminated earlier, the UCLB/UCLA Agreement will expire in February 2041. We may terminate the UCLB/UCLA
Agreement in its entirety or with respect to either UCLB or UCLA for any reason upon prior written notice. Additionally,
either we or UCLB may terminate the UCLB/UCLA Agreement in its entirety or on a program-by-program basis if the other
party commits a material breach and fails to cure such breach within a certain period of time, or if the other party becomes
insolvent.
Oxford BioMedica License and Development Agreement
In November 2016, we entered into a license and development agreement, or the Oxford Development Agreement, with
Oxford BioMedica (UK) Limited, or Oxford BioMedica, for the development of gene therapies for ADA-SCID, MPS-IIIA and
certain other diseases that we may request be included under the Oxford Development Agreement, such other diseases referred
to as Subsequent Indications. The Oxford Development Agreement was amended in June 2017, May 2018, July 2018 and
September 2018.
Pursuant to the Oxford Development Agreement, Oxford BioMedica granted us an exclusive, worldwide license under certain
intellectual property rights for the purposes of research, development and commercialization of ex vivo gene therapy products
for the treatment of ADA-SCID, MPS-IIIA and Subsequent Indications, except that such license is non-exclusive to the extent
the treatment of a Subsequent Indication is the subject of a certain previous license granted by Oxford BioMedica. Oxford
BioMedica also granted us a non-exclusive, worldwide license under certain intellectual property rights for the purposes of
research, development, commercialization and manufacture of ex vivo gene therapy products for the treatment of certain
diseases other than ADA-SCID, MPS-IIIA and Subsequent Indications. Under the Oxford Development Agreement, Oxford
BioMedica is required to use commercially reasonable efforts to perform the activities set forth in a collaboration plan
approved by a joint steering committee, and we are responsible for certain costs of the activities set forth in such collaboration
plan.
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As consideration for the licenses granted under the agreement, we issued 588,220 of our ordinary shares to Oxford BioMedica.
We are also obligated to issue additional equity upon the achievement of certain milestones, pursuant to which we issued
150,826 ordinary shares upon the achievement of the first milestone in November 2017 and 150,826 ordinary shares were
issued upon the achievement of further milestones in August 2018. We will be required to issue additional ordinary shares to
Oxford BioMedica upon achievement of the remaining milestone under the Oxford Development Agreement. Additionally, we
are obligated to pay low single-digit royalties on net sales of licensed products until January 31, 2039. The foregoing royalties
are reduced by a mid-double digit percentage in the case of compassionate use of a licensed product in a country until the first
commercial sale following marketing authorization in such country. We are also required to pay a set monthly fee to Oxford
BioMedica in the event we use a certain Oxford BioMedica system for generating stable cell lines.
Unless terminated earlier, the Oxford Development Agreement will expire when no further payments are due to Oxford
BioMedica. We may terminate the performance of the collaboration plan upon notice to Oxford BioMedica, and either party
may terminate the performance of the collaboration plan or the Oxford Development Agreement if the other party commits a
material breach that is not cured within a certain period of time. Either party may also terminate the Oxford Development
Agreement in the event the other party becomes insolvent.
Competition
The biotechnology and pharmaceutical industries are characterized by intense and rapidly changing competition to develop
new technologies and proprietary products. While we believe that our portfolio of product candidates and scientific expertise in
gene therapy provides us with competitive advantages, we face potential competition from many different sources.
We face competition not only from gene therapy companies, but also from companies that are developing novel, non-gene
therapy approaches or improving existing treatment approaches. Depending on how successful these efforts are, it is possible
they may increase the barriers to adoption and success for our product candidates, if approved.
We are currently aware of the following competitive approaches:
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ADA-SCID: The current standards of care for the treatment of ADA-SCID are HSCT and chronic ERT. Adagen,
marketed by Leadiant Biosciences, is the only approved ERT for ADA-SCID. We are aware that Leadiant Biosciences
has filed a supplemental BLA for elapegademase, a pegylated recombinant version of Adagen, for the treatment of ADA-
SCID.
MLD: There is currently no effective treatment option for patients with MLD. HSCT has demonstrated limited efficacy
in arresting disease progression and is therefore not considered a standard of care for this disease. A number of
alternative approaches to HSCT are under investigation. We are aware that the Institut National de la Santé Et de la
Recherche Médicale and Bicêtre hospital in Paris are investigating intracerebral gene therapy for MLD using an
adenovirus AAV-10 vector in a clinical trial. We are also aware that Shire is investigating ERT for MLD with a biweekly
intrathecal infusion. We are also aware that Shenzhen University is evaluating a lentiviral ex vivo gene therapy for MLD.
• WAS: The current standard of care for WAS is HSCT. Patients who are unable to match with a blood donor or who are
otherwise ineligible for HSCT may pursue palliative care options, including intravenous immunoglobulin and
antimicrobials to prevent and treat infections, topical corticosteroids to manage outbreaks of eczema, platelet transfusions
to treat severe bleeds, and immunosuppressive drugs, such as rituximab, to counter autoimmune manifestations.
Splenectomy may also be used to treat thrombocytopenia. These palliative approaches do not slow disease progression or
address the underlying etiology of WAS. We are also aware that Généthon and Boston Children’s Hospital are
sponsoring clinical trials with autologous ex vivo lentiviral gene therapy. We do not currently have a license or an option
to acquire a license from Généthon to these clinical trials in WAS and accordingly Généthon or its licensee may elect to
compete against us with respect to this program. To our knowledge no other gene therapy approaches are being currently
investigated in WAS.
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X-CGD: Management options for patients with X-CGD include prophylactic antibiotics, antifungal medications and
interferon-gamma. HSCT is also a treatment option for some patients for whom a sufficiently well-matched donor is
identified. We are aware that Généthon is sponsoring a clinical trial for X-CGD with an autologous ex vivo lentiviral
gene therapy in France. We are party to an exclusive option and license agreement with Généthon, pursuant to which we
have the right to exercise an option with respect to this ongoing clinical trial, which option expires in June 2019. In the
event we elect not to exercise this option, Généthon or its licensee may elect to pursue a competitive program in X-CGD
using any intellectual property or clinical data derived from this ongoing clinical trial.
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TDBT: The current standard of care for the treatment of TDBT involves chronic blood transfusions to address anemia
combined with iron chelation therapy to manage the iron overload often associated with such chronic blood transfusions.
HSCT is also a treatment option for some patients for whom a sufficiently well-matched donor is identified. TDBT is a
highly competitive research area with several novel approaches under investigation. We are aware that bluebird bio is
investigating LentiGlobin, an autologous ex vivo gene therapy, for treatment of TDBT and sickle cell disease. In October
2018, bluebird bio announced that the EMA had accepted its MAA for Lentiglobin for the treatment of adolescents and
adults with TDBT and a non-ß0/ß0 genotype. bluebird bio has publicly announced its intention to file a BLA in the
United States for Lentiglobin in the future. In addition, Memorial Sloane Kettering Cancer Center has been conducting a
clinical trial utilizing a lentiviral vector. In addition, we are aware that Sangamo is investigating zinc finger nuclease-
mediated gene-correction techniques in TDBT. Several other groups are developing gene editing approaches for beta-
thalassemia, including CRISPR Therapeutics, EDITAS and Intellia Therapeutics. CRISPR Therapeutics’ CTA for its
gene editing approach for beta-thalassemia was approved in 2018. Several other non-gene therapy approaches are under
investigation to improve treatment outcomes in beta-thalassemia.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and
other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations.
Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being
concentrated among a smaller number of competitors. Our commercial opportunity could be reduced or eliminated if
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. Competitors also may obtain FDA, EMA or other
regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are able to enter the market. Additionally, technologies developed
by our competitors may render our potential product candidates uneconomical or obsolete, and we may not be successful in
marketing our product candidates against competitors.
Government regulation
In the United States, biological products, including gene therapy products, are subject to regulation under the Federal Food, Drug,
and Cosmetic Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes
and regulations. Both the FD&C Act and the PHS Act and their corresponding regulations govern, among other things, the research,
development, clinical trial, testing, manufacturing, safety, efficacy, labeling, packaging, storage, record keeping, distribution,
reporting, advertising and other promotional practices involving biological products. Each clinical trial protocol for a gene therapy
product must be reviewed by the FDA, and, in some instances, the NIH, through its RAC. FDA approval must be obtained before
the marketing of biological products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate
federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and we
may not be able to obtain the required regulatory approvals.
Within the FDA, the CBER regulates gene therapy products. The CBER works closely with the NIH and its RAC, which makes
recommendations to the NIH on gene therapy issues and engages in a public discussion of scientific, safety, ethical and societal
issues related to proposed and ongoing gene therapy protocols. The FDA and the NIH have published guidance documents with
respect to the development and submission of gene therapy protocols. The FDA also has published guidance documents related to,
among other things, gene therapy products in general, their preclinical assessment, observing subjects involved in gene therapy
studies for delayed adverse events, potency testing, and chemistry, manufacturing and control information in IND for gene
therapies. In July 2018, FDA issued draft guidance documents for public comment involving various aspects of gene therapy
product development, review, and approval. If finalized by FDA, these guidance documents would represent FDA’s current
thinking on the development of gene therapy products for specific disease categories, including for rare diseases, as well as update
and replace FDA’s previous guidance on manufacturing issues related to gene therapy products and long-term follow-up
observational studies for gene therapy products.
Ethical, social and legal concerns about gene therapy, genetic testing and genetic research could result in additional laws and
regulations restricting or prohibiting the processes we may use. Federal and state legislatures, agencies, congressional
committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive laws and
regulations or interpretations of existing laws or regulations, or claims that our products are unsafe or pose a hazard could
prevent us from commercializing any products. New government requirements may be established that could delay or prevent
regulatory approval of our product candidates under development. It is impossible to predict whether legislative changes will
be enacted, regulations, policies or guidance changed, or interpretations by agencies or courts changed, or what the impact of
such changes, if any, may be.
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U.S. Biological products development process
The process required by the FDA before a biological product may be marketed in the United States generally involves the
following:
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completion of nonclinical laboratory tests and animal studies according to GLPs, and applicable requirements for the
humane use of laboratory animals or other applicable regulations;
submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin;
approval of the protocol and related documentation by an independent IRB or ethics committee at each clinical trial site
before each study may be initiated;
performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly
referred to as GCPs and any additional requirements for the protection of human research subjects and their health
information, to establish the safety and efficacy of the proposed biological product for its intended use;
submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency
from results of nonclinical testing and clinical trials;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is
produced to assess compliance with CGMP to assure that the facilities, methods and controls are adequate to preserve the
biological product’s identity, strength, quality and purity and, if applicable, the FDA’s current good tissue practices, or
CGTPs, for the use of human cellular and tissue products;
potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA in
accordance with any applicable expedited programs or designations;
payment of user fees for FDA review of the BLA (unless a fee waiver applies); and
FDA review and approval, or licensure, of the BLA.
Before testing any biological product candidate, including a gene therapy product, in humans, the product candidate enters the
preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product
biological characteristics, chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and
activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements
including GLPs.
Where a gene therapy study is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA
research, prior to the submission of an IND to the FDA, a protocol and related documentation are submitted to and the study is
registered with the NIH Office of Science Policy, or OSP, pursuant to the NIH Guidelines for Research Involving Recombinant
or Synthetic Nucleic Acid Molecules, or NIH Guidelines. Compliance with the NIH Guidelines is mandatory for investigators
at institutions receiving NIH funds for research involving recombinant DNA; however, many companies and other institutions
not otherwise subject to the NIH Guidelines voluntarily follow them. The NIH is responsible for convening the RAC, a federal
advisory committee that discusses protocols that raise novel or particularly important scientific, safety or ethical
considerations, at one of its quarterly public meetings. The OSP will notify the FDA of the RAC’s decision regarding the
necessity for full public review of a gene therapy protocol. RAC proceedings and reports are posted to the OSP web site and
may be accessed by the public.
The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical
data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical
testing may continue even after the IND is submitted. An IND is a request for authorization from the FDA to ship an
unapproved, investigational product in interstate commerce and to administer it to humans, and must become effective before
clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places
the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve
any outstanding concerns before the clinical trial can begin. With gene therapy protocols, if the FDA allows the IND to
proceed, but the RAC decides that full public review of the protocol is warranted, the FDA will request at the completion of its
IND review that sponsors delay initiation of the protocol until after completion of the RAC review process. The FDA also may
impose clinical holds on a biological product candidate at any time before or during clinical trials due to, among other
considerations, unreasonable or significant safety concerns, inability to assess safety concerns, lack of qualified investigators, a
misleading or materially incomplete investigator brochure, study design deficiencies, interference with the conduct or
completion of an a study designed to be adequate and well-controlled for the same or another investigational drug, insufficient
quantities of investigational product, lack of effectiveness, or non-compliance. If the FDA imposes a clinical hold, studies may
not recommence without FDA authorization and then only under terms authorized by the FDA. Accordingly, we cannot be sure
that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues or circumstances
will not arise that delay, suspend or terminate such studies.
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Clinical trials involve the administration of the biological product candidate to healthy volunteers or patients under the
supervision of qualified investigators, generally physicians not employed by or under the study sponsor’s control. Clinical trials
are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject
selection and exclusion criteria, and the parameters to be used to monitor subject safety, including stopping rules that assure a
clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be
submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s
regulations comprising the GCP requirements, including the requirement that all research subjects provide informed consent.
Further, each clinical trial and its related documentation must be reviewed and approved by an IRB at or servicing each
institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of study
participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and
are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent that
must be signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until
completed. Clinical research involving recombinant DNA that is subject to NIH guidelines also must be reviewed by an IBC, a
local institutional committee that reviews and oversees basic and clinical research conducted at that institution. The IBC
assesses the safety of the research and identifies any potential risk to public health or the environment.
In August 2018, the NIH published a notice in the Federal Register to seek public comment on its proposal to amend the NIH
Guidelines to streamline oversight for human gene transfer clinical research protocols and reduce duplicative reporting
requirements while focusing the NIH Guidelines more specifically on biosafety issues associated with research involving
recombinant or synthetic nucleic acid molecules. The notice included proposed amendments to eliminate RAC review and
reporting requirements to NIH for human gene transfer research protocols and to modify the roles and responsibilities of
investigators, institutions, IBCs, the RAC, and the NIH to be consistent with these goals.
Clinical trials typically are conducted in three sequential phases that may overlap or be combined:
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Phase 1. The biological product is initially introduced into healthy human subjects and tested for safety. In the case of
some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to
ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage
tolerance, optimal dosage and dosing schedule.
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded
patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall
risk/benefit ratio of the product and provide an adequate basis for approval and product labeling.
Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval.
These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication,
particularly for long-term safety follow-up. The FDA recommends that sponsors observe subjects for potential gene therapy-
related delayed adverse events for a 15-year period, including a minimum of five years of annual examinations followed by ten
years of annual queries, either in person or by questionnaire, of study subjects.
Both the FDA and the EMA provide expedited pathways for the development of drug product candidates for treatment of rare
diseases, particularly life threatening diseases with high unmet medical need. Such drug product candidates may be eligible to
proceed to registration following a single clinical trial in a limited patient population, sometimes referred to as a Phase 1/2 trial,
but which may be deemed a pivotal or registrational trial following review of the trial’s design and primary endpoints by the
applicable regulatory agencies. Determination of the requirements to be deemed a pivotal or registrational trial is subject to the
applicable regulatory authority’s scientific judgement and these requirements may differ in the U.S. and the European Union.
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During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical
activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be
submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators for
serious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that
suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse
reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15
calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA
of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial
receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified
period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation from the sponsor’s data safety
monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or
patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial
at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological
product has been associated with unexpected serious harm to patients.
Human gene therapy products are a new category of therapeutics. Because this is a relatively new and expanding area of novel
therapeutic interventions, there can be no assurance as to the length of the study period, the number of patients the FDA will
require to be enrolled in the studies in order to establish the safety, efficacy, purity and potency of human gene therapy
products, or that the data generated in these studies will be acceptable to the FDA to support marketing approval. The NIH has
a publicly accessible database, the Genetic Modification Clinical Research Information System which includes information on
gene transfer studies and serves as an electronic tool to facilitate the reporting and analysis of adverse events on these studies.
Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional
information about the physical characteristics of the biological product as well as finalize a process for manufacturing the
product in commercial quantities in accordance with CGMP requirements. To help reduce the risk of the introduction of
adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for
products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing
quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity,
strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and
tested and stability studies must be conducted to demonstrate that the biological product candidate does not undergo
unacceptable deterioration over its shelf life.
U.S. review and approval processes
After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial
marketing of the biological product. The BLA must include results of product development, laboratory and animal studies,
human studies, information on the manufacture and composition of the product, proposed labeling and other relevant
information. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA
will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all.
Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially
complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly
reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with
the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. In most
cases, the submission of a BLA is subject to a substantial application user fee, although the fee may be waived under certain
circumstances. Under the performance goals and policies implemented by the FDA under the Prescription Drug User Fee Act,
or PDUFA, for original BLAs, the FDA targets ten months from the filing date in which to complete its initial review of a
standard application and respond to the applicant, and six months from the filing date for an application with priority review.
The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests
for additional information or clarification. This review typically takes twelve months from the date the BLA is submitted to the
FDA because the FDA has approximately two months to make a ‘‘filing’’ decision. The review process and the PDUFA goal
date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or
clarification regarding information already provided in the submission within the last three months before the PDUFA goal
date.
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Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the
BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and
has an acceptable purity profile, and whether the product is being manufactured in accordance with CGMP to assure and
preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel
biological products or biological products that present difficult or novel questions of safety or efficacy to an advisory
committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to
whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an
advisory committee, but it considers such recommendations carefully when making decisions. During the biological product
approval process, the FDA also will determine whether a REM is necessary to assure the safe use of the biological product. If
the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the
BLA without a REMS, if required.
Before approving a BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not
approve the product unless it determines that the manufacturing processes and facilities are in compliance with CGMP
requirements and adequate to assure consistent production of the product within required specifications. For a gene therapy
product, the FDA also will not approve the product if the manufacturer is not in compliance with the CGTPs. These are FDA
regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues,
and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant,
infusion, or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that cell and tissue based
products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease.
FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to
evaluate donors through appropriate screening and testing. Additionally, before approving a BLA, the FDA will typically
inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements
and GCP requirements. To assure CGMP, CGTP and GCP compliance, an applicant must incur significant expenditure of time,
money and effort in the areas of training, record keeping, production and quality control.
Under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a novel product (e.g., new active
ingredient, new indication, etc.) must contain data to assess the safety and effectiveness of the biological 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 grant deferrals for submission of data or full or partial
waivers. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for which
orphan designation has been granted.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy
its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA
may interpret data differently than we interpret the same data. If the FDA decides not to approve the BLA in its present form,
the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the
FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring
additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might
take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either
resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the
indications for use may otherwise be limited, including to subpopulations of patients, which could restrict the commercial
value of the product. Further, the FDA may require that certain contraindications, warnings precautions or interactions be
included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or
dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post
marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological product’s safety
and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been
commercialized.
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Orphan drug designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare
disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States,
or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of
developing and making a drug or biological product available in the United States for this type of disease or condition will be
recovered from sales of the product. Orphan product designation must be requested before submitting a BLA. After the FDA
grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by
the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and
approval process.
Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial
costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA
approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity,
which means that the FDA may not approve any other applications to market the same drug or biological product for the same
indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan
exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product
has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has
exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor
obtains approval of the same biological product as defined by the FDA or if our product candidate is determined to be
contained within the competitor’s product for the same indication or disease. If a drug or biological product designated as an
orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan
product exclusivity. Orphan drug status in the European Union has similar, but not identical, benefits.
Expedited development and review programs
The FDA has various programs, including Fast Track designation, breakthrough therapy designation, accelerated approval and
priority review, that are intended to expedite or simplify the process for the development and FDA review of drugs and
biologics that are intended for the treatment of serious or life-threatening diseases or conditions. These programs do not change
the standards for approval but may help expedite the development or approval process. To be eligible for fast track designation,
new drugs and biological products must be intended to treat a serious or life-threatening condition and demonstrate the
potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product
and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to
designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. One benefit
of fast track designation, for example, is that the FDA may consider for review sections of the marketing application for a
product that has received Fast Track designation on a rolling basis before the complete application is submitted.
Under the FDA’s breakthrough therapy program, products intended to treat a serious or life-threatening disease or condition
may be eligible for the benefits of the Fast Track program when preliminary clinical evidence demonstrates that such product
may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally, the
FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications
to help the sponsor design and conduct a development program as efficiently as possible.
Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory
alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to
marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or
biological product designated for priority review in an effort to facilitate the review. Under priority review, the FDA’s goal is
to review an application in six months once it is filed, compared to ten months for a standard review.
Additionally, a product may be eligible for accelerated approval. 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 receive accelerated approval, which means that they may be approved on the basis of adequate and well-
controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a
clinical benefit, or on the basis of an effect on an intermediate clinical endpoint other than survival or irreversible morbidity.
As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval
perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires as a condition for
accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch
of the product.
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RMAT designation
As part of the 21st Century Cures Act, enacted in December 2016, Congress amended the FD&C Act to facilitate an efficient
development program for, and expedite review of RMAT, which include cell and gene therapies, therapeutic tissue engineering
products, human cell and tissue products, and combination products using any such therapies or products. RMAT do not
include those HCT/Ps regulated solely under section 361 of the PHS Act and 21 CFR Part 1271. This program is intended to
facilitate efficient development and expedite review of regenerative medicine therapies, which are intended to treat, modify,
reverse, or cure a serious or life-threatening disease or condition and qualify for RMAT designation. A drug sponsor may
request that FDA designate a drug as a RMAT concurrently with or at any time after submission of an IND. FDA has 60
calendar days to determine whether the drug meets the criteria, including whether there is preliminary clinical evidence
indicating that the drug has the potential to address unmet medical needs for a serious or life-threatening disease or condition.
A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority review or
accelerated approval through use of surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit,
or reliance upon data obtained from a meaningful number of sites. Benefits of RMAT designation also include early
interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A
regenerative medicine therapy with RMAT designation that is granted accelerated approval and is subject to post-approval
requirements may fulfill such requirements through the submission of clinical evidence from clinical trials, patient registries, or
other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-
approval monitoring of all patients treated with such therapy prior to its approval. Like some of FDA’s other expedited
development programs, RMAT designation does not change the standards for approval but may help expedite the development
or approval process.
Post-approval requirements
Maintaining substantial compliance with applicable federal, state, and local statutes and regulations requires the expenditure of
substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after
approval, particularly with respect to CGMP. We currently rely, and may continue to rely, on third parties for the production of
clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to
comply with applicable requirements in the CGMP regulations, including quality control and quality assurance and
maintenance of records and documentation. Other post-approval requirements applicable to biological products, include
reporting of CGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-
keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with
electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release.
As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it
is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each
lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the
results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of
some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA
conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological
products.
We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer
advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s
approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional
activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable
regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market
as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the
product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or
judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications,
withdrawal of an approval, clinical holds, warning or untitled letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising
or communications with doctors or other stakeholders, debarment, restitution, disgorgement of profits, or civil or criminal
penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
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Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological
products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic
unannounced inspections by the FDA and certain state agencies for compliance with CGMP and other laws. Accordingly,
manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain
CGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer,
or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing
process or facility generally require prior FDA approval before being implemented and other types of changes to the approved
product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
U.S. Patent term restoration and marketing exclusivity
Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates, some of our U.S.
patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman
Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a
patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the
time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a
BLA and the approval of that application. Only one patent applicable to an approved biological product is eligible for the
extension and the application for the extension must be submitted prior to the expiration of the patent. In addition, a patent can
only be extended once and only for a single product. The U.S. PTO, in consultation with the FDA, reviews and approves the
application for any patent term extension or restoration. In the future, we may intend to apply for restoration of patent term for
one of our patents, if and as applicable, to add patent life beyond its current expiration date, depending on the expected length
of the clinical trials and other factors involved in the filing of the relevant BLA.
A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six
months to existing exclusivity periods, including some regulatory exclusivity periods tied to patent terms. This six-month
exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary
completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
The ACA, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of
2009 which created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with,
an FDA-licensed reference biological product. This amendment to the PHS Act attempts to minimize duplicative testing.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the
reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical
trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate
that it can be expected to produce the same clinical results as the reference product and, for products administered multiple
times, the biologic and the reference biologic may be switched after one has been previously administered without increasing
safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated
with the larger, and often more complex, structure of biological products, as well as the process by which such products are
manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.
A reference biological product is granted four and 12 year exclusivity periods from the time of first licensure of the product.
FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until
four years after the date of first licensure of the reference product, and FDA will not approve an application for a biosimilar or
interchangeable product based on the reference biological product until twelve years after the date of first licensure of the
reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United
States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a
biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same
sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not
including a modification to the structure of the biological product) that results in a new indication, route of administration,
dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the
biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new
product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or
potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity.
Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is
determined on a case-by-case basis with data submitted by the sponsor.
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Additional regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the
Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act,
affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive
substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or
expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in
material compliance with applicable environmental laws and that continued compliance therewith will not have a material
adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
U.S. Foreign Corrupt Practices act
The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in
certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to
pay or authorize the payment of anything of value to any foreign government official, government staff member, political party
or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official
capacity.
Government regulation outside of the United States
In addition to regulations in the United States, we are subject to a variety of regulations in other jurisdictions governing, among
other things, research and development, clinical trials, testing, manufacturing, safety, efficacy, labeling, packaging, storage,
record keeping, distribution, reporting, advertising and other promotional practices involving biological products as well as
authorization and approval of our products. Because biologically sourced raw materials are subject to unique contamination
risks, their use may be restricted in some countries.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in
foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries
outside of the United States have a similar process that requires the submission of a clinical trial application much like the IND
prior to the commencement of human clinical trials. In the European Union, for example, a CTA must be submitted for each
clinical trial to each country’s national health authority and an independent ethics committee, much like the FDA and an IRB,
respectively. Once the CTA is approved in accordance with a country’s requirements, the corresponding clinical trial may
proceed.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from
country to country. In all cases, the clinical trials must be conducted in accordance with GCP and the applicable regulatory
requirements and the ethical principles that have their origin in the Declaration of Helsinki.
Regulation in the European Union
In the European Union, medicinal products, including advanced therapy medicinal products, or ATMPs, are subject to
extensive pre- and post-market regulation by regulatory authorities at both the European Union and national levels. ATMPs
comprise gene therapy products, somatic cell therapy products and tissue engineered products, which are cells or tissues that
have undergone substantial manipulation and that are administered to human beings in order to regenerate, repair or replace a
human tissue. We anticipate that our gene therapy development products would be regulated as ATMPs in the European Union.
To obtain regulatory approval of an investigational product under European Union regulatory systems, we must submit an
MAA. The application used to submit the BLA in the United States is similar to that required in the European Union, with the
exception of, among other things, region-specific document requirements. The European Union also provides opportunities for
market exclusivity. For example, in the European Union, upon receiving marketing authorization, innovative medicinal
products generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data
exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic or
biosimilar application. During the additional two-year period of market exclusivity, a generic or biosimilar marketing
authorization can be submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be
marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered by the
European Union’s regulatory authorities to be an innovative medicinal product, and products may not qualify for data
exclusivity. Products receiving orphan designation in the European Union can receive ten years of market exclusivity, during
which time no similar medicinal product for the same indication may be placed on the market. An orphan product can also
obtain an additional two years of market exclusivity in the European Union for pediatric studies. No extension to any
supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.
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The criteria for designating an “orphan medicinal product” in the European Union are similar in principle to those in the United
States. Under Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1) it is intended for
the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition
affects no more than five (5) in ten thousand (10,000) persons in the European Union when the application is made, or (b) the
product, without the benefits derived from orphan status, would not generate sufficient return in the European Union to justify
investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for
marketing in the European Union, or if such a method exists, the product will be of significant benefit to those affected by the
condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as
reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for
the approved therapeutic indication. The application for orphan drug designation must be submitted before the application for
marketing authorization. The applicant will receive a fee reduction for the MAA if the orphan drug designation has been
granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no
longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance
of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any
time if:
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The second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically
superior;
The applicant consents to a second orphan medicinal product application; or
The applicant cannot supply enough orphan medicinal product.
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the
requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to
country. In all cases, again, the clinical trials must be conducted in accordance with GCP and the applicable regulatory
requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines,
suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution.
Pediatric development
In the European Union, companies developing a new medicinal product must agree upon a Pediatric Investigation Plan, or PIP,
with the EMA, and must conduct pediatric clinical trials in accordance with that PIP, unless a waiver applies, (e.g., because the
relevant disease or condition occurs only in adults). The marketing authorization application for the product must include the
results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted,
in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization
on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the
protection under a supplementary protection certificate (if any is in effect at the time of approval) or, in the case of orphan
medicinal products, a two year extension of the orphan market exclusivity. This pediatric reward is subject to specific
conditions and is not automatically available when data in compliance with the PIP are developed and submitted.
Post-approval controls
The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an individual
qualified person for pharmacovigilance, who is responsible for oversight of that system. Key obligations include expedited
reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.
All new MAAs must include a risk management plan, or RMP, describing the risk management system that the company will
put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities
may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-
authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of
additional clinical trials or post-authorization safety studies. RMPs and PSURs are routinely available to third parties
requesting access, subject to limited redactions.
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All advertising and promotional activities for the product must be consistent with the approved SmPC and therefore all off-
label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the European
Union. Although general requirements for advertising and promotion of medicinal products are established under EU
directives, the details are governed by regulations in each European Union Member State and can differ from one country to
another.
Other healthcare laws and compliance requirements
In the United States, our current and future operations are subject to regulation by various federal, state and local authorities in
addition to the FDA, including but not limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of
the U.S. Department of Health and Human Services, or HHS (such as the Office of Inspector General, Office for Civil Rights
and the Health Resources and Service Administration), the U.S. Department of Justice, or DOJ, and individual U.S. Attorney
offices within the DOJ, and state and local governments. For example, our clinical research, sales, marketing and
scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act,
the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or
HIPAA, and similar state laws, each as amended, as applicable:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly,
in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order,
arrangement or recommendation of any good, facility, item or service for which payment may be made, in whole or in
part, under a federal healthcare program, such as the Medicare and Medicaid programs; a person or entity does not need
to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a
violation. In addition, the government may assert that a claim including items or services resulting from a violation of the
federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or
federal civil money penalties statute;
the federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which
prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or
fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs, knowingly
making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an
obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly
avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be held
liable under the False Claims Act even when they do not submit claims directly to government payers if they are deemed
to “cause” the submission of false or fraudulent claims. The False Claims Act also permits a private individual acting as
a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to
share in any monetary recovery;
the anti-inducement law, which prohibits, among other things, the offering or giving of remuneration, which includes,
without limitation, any transfer of items or services for free or for less than fair market value (with limited exceptions), to
a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s
selection of a particular supplier of items or services reimbursable by a federal or state governmental program;
HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to
execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare
benefit program, regardless of the payer (e.g., public or private) and knowingly and willfully falsifying, concealing or
covering up by any trick or device a material fact or making any materially false, fictitious, or fraudulent statements or
representations in connection with the delivery of, or payment for, healthcare benefits, items or services relating to
healthcare matters; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their
respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans,
and healthcare clearinghouses as well as their respective business associates that perform services for them that involve
the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of
individually identifiable health information;
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the federal transparency requirements under the ACA, including the provision commonly referred to as the Physician
Payments Sunshine Act, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for
which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to
the U.S. Department of Health and Human Services, CMS, information related to payments or other transfers of value
made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching
hospitals, as well as ownership and investment interests held by the physicians described above and their immediate
family members;
federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate
and timely manner to government programs; and
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities
that potentially harm consumers.
Additionally, we are subject to state and foreign equivalents of each of the healthcare laws and regulations described above,
among others, some of which may be broader in scope and may apply regardless of the payer. Many U.S. states have adopted
laws similar to the federal Anti-Kickback Statute and False Claims Act, and may apply to our business practices, including, but
not limited to, research, distribution, sales or marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental payors, including private insurers. In addition, some states have passed laws that require
pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for
Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with
Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make
marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements
and if we fail to comply with an applicable state law requirement, we could be subject to penalties. Finally, there are state
and foreign laws governing the privacy and security of health information, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible
that some of our business activities could be subject to challenge under one or more of such laws.
Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines,
imprisonment and/or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and
debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on
behalf of the U.S. government under the federal False Claims Act as well as under the false claims laws of several states.
Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our
practices may be challenged under these laws. Efforts to ensure that our current and future business arrangements with third
parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs.
If our operations, including our arrangements with physicians and other healthcare providers, some of whom receive stock
options as compensation for services provided, are found to be in violation of any of such laws or any other governmental
regulations that apply to us, we may be subject to penalties, including, without limitation, administrative, civil and criminal
penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, the
curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs (such as
Medicare and Medicaid), and imprisonment, any of which could adversely affect our ability to operate our business and our
financial results. In addition, our gene therapy program, Strimvelis, was approved by the EMA in 2016, and the approval and
commercialization of Strimvelis subjects us to foreign equivalents of the healthcare laws mentioned above, among other
foreign laws. The approval and commercialization of any of our other gene therapies outside the United States will also likely
subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
If any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in
compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from
government funded healthcare programs, which may also adversely affect our business.
The risk of our being found in violation of these laws is increased by the fact that many of these laws have not been fully
interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action
against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal
expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and
the need to build and maintain a robust system to comply with multiple jurisdictions with different compliance and reporting
requirements increases the possibility that a healthcare company may violate one or more of the requirements. Efforts to ensure
that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial cost.
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Healthcare reform
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For
example, in March 2010, the ACA was enacted, which, among other things, increased the minimum Medicaid rebates owed by
most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by
manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted
or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid
managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’
outpatient drugs coverage under Medicare Part D; subjected drug manufacturers to new annual, nondeductible fees based on
pharmaceutical companies’ share of sales to federal healthcare programs; imposed a new federal excise tax on the sale of
certain medical devices; expanded healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback
Statute, new government investigative powers and enhanced penalties for non-compliance; expanded eligibility criteria for
Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals with income at
or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; expanded
the entities eligible for discounts under the PHS Act’s pharmaceutical pricing program, also known as the 340B Drug Pricing
Program; created new requirements to report financial arrangements with physicians and teaching hospitals, commonly
referred to as the Physician Payments Sunshine Act; created a new requirement to annually report the identity and quantity of
drug samples that manufacturers and authorized distributors of record provide to physicians; created a new Patient Centered
Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research, along
with funding for such research; and established the Center for Medicare Innovation at the CMS to test innovative payment and
service delivery models to lower Medicare and Medicaid spending.
Some of the provisions of the ACA have yet to be implemented, and there have been legal and political challenges to certain
aspects of the ACA. Since January 2017, President Trump has signed two executive orders and other directives designed to
delay, circumvent, or loosen certain requirements mandated by the ACA. Concurrently, Congress has considered legislation
that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal
legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and
Jobs Act of 2017, or Tax Act, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility
payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year
that is commonly referred to as the “individual mandate.” On January 22, 2018, President Trump signed a continuing
resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA -mandated fees, including the
so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health
insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan
Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to close the coverage gap in
most Medicare drug plans, commonly referred to as the “donut hole”. In July 2018, CMS announced that it is suspending
further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the
Affordable Care Act risk adjustment program pending the outcome of federal district court litigation regarding the method
CMS uses to determine this risk adjustment. On December 14, 2018, a U.S. District Court Judge in the Northern District of
Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inserverable feature of the ACA,
and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. The
Texas District Court Judge, as well as the Trump Administration and CMS, have stated that the ruling will have no immediate
effect, and on December 30, 2018 the Texas District Court Judge issued an order staying the judgment pending appeal. It is
unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA.
Other legislative changes have been proposed and adopted since the ACA was enacted. For example, in August 2011, President
Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on
Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit
Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the
legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to
providers of up to 2% per fiscal year, which went into effect beginning on April 1, 2013 and, due to legislation amendments to
the statute, including the BBA, will stay in effect through 2027 unless additional Congressional action is taken. In January
2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare
payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the
statute of limitations period for the government to recover overpayments to providers from three to five years.
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Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug
pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal
and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription
drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal
year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future
legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under
Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs
for low-income patients. Further, the Trump administration released a “Blueprint”, or plan, to lower drug prices and reduce out
of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating
power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the
out of pocket costs of drug products paid by consumers. HHS has already started the process of soliciting feedback on some of
these measures and, at the same, is immediately implementing others under its existing authority. For example, in September
2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning
January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television
advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or
Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product.
While a number of these and other proposed measures will require authorization through additional legislation to become
effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or
administrative measures to control drug costs. Individual states in the United States have also 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.
Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of
2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain
patients to request access to certain investigational new drug products that have completed a Phase I clinical trial and that are
undergoing investigation for FDA approval. There is no obligation for a pharmaceutical manufacturer to make its drug
products available to eligible patients as a result of the Right to Try Act.
Coverage and reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any gene therapies for which we obtain regulatory
approval. In the United States and markets in other countries, sales of any gene therapies for which we receive regulatory
approval for commercial sale will depend, in part, on the availability of coverage and reimbursement from payors. Payors
include government authorities, managed care providers, private health insurers and other organizations. The process for
determining whether a payer will provide coverage for a product may be separate from the process for setting the
reimbursement rate that the payer will pay for the product. Payors may limit coverage to specific products on an approved list,
or formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a payor not
to cover our gene therapies could reduce physician utilization of our products once approved and have a material adverse effect
on our sales, results of operations and financial condition. Moreover, a payor’s decision to provide coverage for a product does
not imply that an adequate reimbursement rate will be approved. 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 product development.
In addition, coverage and reimbursement for products can differ significantly from payer to payer. One payor’s decision to
cover a particular medical product or service does not ensure that other payers will also provide coverage for the medical
product or service, or will provide coverage at an adequate reimbursement rate.
As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our
products to each payer separately and will be a time-consuming process.
Payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products
and services, in addition to their safety and efficacy. In order to obtain and maintain coverage and reimbursement for any
product, we may need to conduct expensive clinical trials in order to demonstrate the medical necessity and cost-effectiveness
of such product, in addition to the costs required to obtain regulatory approvals. If payors do not consider a product to be cost-
effective compared to other available therapies, they may not cover the product as a benefit under their plans or, if they do, the
level of payment may not be sufficient to allow a company to sell its products at a profit.
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Outside of the United States, the pricing of pharmaceutical products is subject to governmental control in many countries. For
example, in the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries
provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the
completion of additional studies that compare the cost-effectiveness of a particular therapy to currently available therapies or
so-called health technology assessments, in order to obtain reimbursement or pricing approval. Other countries may allow
companies to fix their own prices for products, but monitor and control product volumes and issue guidance to physicians to
limit prescriptions. Efforts to control prices and utilization of pharmaceutical products and medical devices will likely continue
as countries attempt to manage healthcare expenditures.
Legal proceedings
From time to time, we may be a party to litigation or subject to claims incident to the ordinary course of business. Although the
results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary
course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an
adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. We are not
currently a party to any material legal proceedings.
C. Organizational structure.
The following is a list of our subsidiaries:
Name
Orchard Therapeutics (Europe) Limited
Orchard Therapeutics North America
Orchard Therapeutics (Netherlands) B.V.
D.
Property, plants and equipment.
Facilities
Country of
Registration
England and Wales
United States
Netherlands
Activity
Research and Development
Research and Development
Research and Development
% Holding
100%
100%
100%
Our principal office is located at 108 Cannon Street, London EC4N 6EU, United Kingdom. We lease approximately 14,000
square feet of office space at this location and our lease for this location extends through January 2023.
We also lease approximately 5,981 square feet of office space in Boston, Massachusetts, 14,138 and 9,117 square feet of
research and development laboratories and office space in Menlo Park, California, and 4,472 square feet of research and
development laboratories and office space in Foster City, California.
On December 11, 2018, we entered into an agreement to lease approximately 152,995 square feet of manufacturing and office
space in Fremont, California to support our manufacturing expansion. This lease extends through May 2030. We expect to
spend approximately $84.5 million to fund the design, initial construction, and operation of this facility, including the
necessary laboratory and manufacturing equipment, to support our long-term capacity needs for our product pipeline.
We believe that suitable additional or substitute space will be available as needed to accommodate any future expansion of our
operations
Item 4A. Unresolved Staff Comments
There are no written comments from the staff of the U.S. Securities and Exchange Commission which remain unresolved
before the end of the fiscal year to which this Annual Report relates.
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Item 5. Operating and Financial Review and Prospects
You should read the following discussion and analysis of our financial condition and results of operations together with Item
3.A. “Selected consolidated financial data” and our consolidated financial statements and the related notes appearing
elsewhere in this Annual Report. Some of information contained in this discussion and analysis or set forth elsewhere in this
Annual Report, including statements of our plans, objectives, expectations and intentions, contain forward-looking statements
that involve risks and uncertainties. As a result of many factors, including those factors set forth in Item 3.D. “Risk factors”
section of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-
looking statements contained in the following discussion and analysis. Please also see the section titled “Cautionary Statement
Regarding Forward-Looking Statements.”
We have historically conducted our business through Orchard Therapeutics (Europe) Limited (formerly Orchard Therapeutics
Limited) and our U.S. subsidiary. Following the completion of our initial public offering in November 2018, our consolidated
financial statements present the consolidated results and operations of Orchard Therapeutics plc.
A. Operating results.
Overview
We are a commercial-stage, fully-integrated biopharmaceutical company dedicated to transforming the lives of patients with
serious and life-threatening rare diseases through autologous ex vivo gene therapies. Our gene therapy approach seeks to
transform a patient’s own, or autologous hematopoietic stem cells, or HSCs, into a gene-modified drug product to treat the
patient’s disease through a single administration. We achieve this outcome by utilizing a lentiviral vector to introduce a
functional copy of a missing or faulty gene into the patient’s autologous HSCs through an ex vivo process, resulting in a drug
product that can then be re-introduced into the patient at the bedside.
Since our inception in 2015, we have devoted substantially all of our resources to conducting research and development of our
product candidates, in-licensing and acquiring rights to our product candidates, business planning, raising capital and providing
general and administrative support for our operations. To date, we have financed our operations primarily with proceeds from
the sale of convertible preferred shares and ADSs. Through December 31, 2018, we had received gross proceeds of
$283.4 million from sales of our convertible preferred shares, and $205.5 million from sales of ADSs in our initial public
offering.
We have incurred significant operating losses since our inception in 2015. With the exception of our commercial product
Strimvelis, which was acquired in April 2018, we will not generate revenue from product sales unless and until we successfully
complete clinical development and obtain regulatory approval for our product candidates. Our net losses were $19.1 million,
$39.7 million and $230.5 million for the years ended December 31, 2016, 2017, and 2018, respectively. As of December 31,
2018, we had an accumulated deficit of $290.2 million. These losses have resulted primarily from costs incurred in connection
with research and development activities and general and administrative costs associated with our operations. We expect to
continue to incur significant expenses and increasing operating losses for the foreseeable future.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through
a combination of equity offerings, debt financings, collaborations, government contracts or other strategic transactions. We
may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms,
or at all.
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Components of our results of operations
Revenue
Since inception through December 31, 2018, we have generated $2.1 million in net revenue from product sales for sales of
Strimvelis. We do not expect to generate any revenue from the sale of products, with the exception of Strimvelis, in the near
future. If our development efforts for our product candidates that we may develop in the future are successful and result in
regulatory approval, or collaboration or license agreements with third parties, we may generate revenue in the future from a
combination of product sales or payments from collaboration or license agreements.
During the year ended December 31, 2018, we made the first sales of Strimvelis since acquisition under the GSK Agreement
and recognized $2.1 million in net product sales. Strimvelis is currently distributed exclusively at the San Raffaele Hospital in
Milan, Italy. Strimvelis sales are currently under a buy-and-bill model where the treatment center purchases and pays for the
product and submits a claim to the payer. We evaluated the variable consideration under Accounting Standards Codification
(ASC) 606, Revenue from Contracts with Customers, and there is currently no variable consideration included in the
transaction price for Strimvelis. We expect that net product sales of Strimvelis will fluctuate quarter over quarter, in particular
as we continue to build and promote access. Net product sales for the year ended December 31, 2018 may not be representative
of our sales for any future period.
Operating expenses
Research and development expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery
efforts and the development of our product candidates, and include:
•
•
•
•
•
•
•
•
expenses incurred under agreements with third parties, including CROs that conduct research, preclinical activities and
clinical trials on our behalf as well as CMOs that manufacture lentiviral vectors and cell-based drug products for use in
our preclinical and clinical trials;
expenses to acquire technologies to be used in research and development;
salaries, benefits and other related costs, including share-based compensation expense, for personnel engaged in research
and development functions;
costs of outside consultants, including their fees, share-based compensation and related travel expenses;
the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial
materials;
costs related to compliance with regulatory requirements;
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of
facilities and other operating costs; and
upfront, milestone and management fees for maintaining licenses under our third-party licensing agreements.
In January 2017, we and UCLA, executed a subcontract agreement, whereby we provide UCLA certain research and
development services related to autologous lentiviral gene therapy in ADA-SCID as part of UCLA’s existing ADA-SCID
research program that is being funded by CIRM. The total reimbursement we may have received under this agreement was
$10.4 million, which may have been received during the period from January 2017 to December 2021. Through June 30, 2018,
we received and recognized $7.3 million from this agreement. In July 2018, a transfer of the sponsorship took place and we
became the awardee under the program funded by CIRM, and we were awarded a continuation of the ADA-SCID research
award, which superseded the previous award. The total reimbursement we may receive under this award is $8.5 million, of
which $5.5 million may be reimbursed to UCLA. Under the terms of the CIRM grants, we are obligated to pay royalties and
licensing fees based on a low single digit royalty percentage on net sales of CIRM-funded product candidates or CIRM-funded
technology. We have the option to decline any and all amounts awarded by CIRM. As an alternative to revenue sharing, we
have the option to convert the award to a loan. No such election has been made as of the date of this Annual Report. These
reimbursements are recognized as a reduction in research and development expense to the extent we have earned them for
research activities that have taken place. In the event the reimbursement is received in advance of research activities, it is
recognized within other liabilities. In the event we have performed reimbursable research activities and have not been
reimbursed, it is recognized within prepaid expenses and other current assets.
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Orchard Therapeutics plc 167
We expense research and development cost as incurred. We recognize external development costs based on an evaluation of
the progress to completion of specific tasks using information provided to us by our service providers. Payments for these
activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are
reflected in our financial statements as a prepaid expense or accrued research and development expenses. United Kingdom
research and development tax credits are recorded as an offset to research and development expense. See “—Income tax
(expense) benefit.”
In 2016 and 2017 we issued ordinary shares to various academic and health care institutions as part of the consideration for
entering into several license agreements to in-license intellectual property rights and know-how relevant to our programs. This
consideration was accounted for as research and development expense based on the fair value of the shares issued as of the
time the agreements were executed or amended.
Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs, such as
fees paid to consultants, contractors and CMOs in connection with our preclinical and clinical development activities. License
fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate
are included in direct research and development expenses for that program. License fees and other costs incurred prior to
designating a product candidate are included in other program expense. We do not allocate employee costs, costs associated
with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product
development programs because these costs are deployed across multiple product development programs and, as such, are not
separately classified.
Research and development activities are central to our business model. Product candidates in later stages of clinical
development generally have higher development costs than those in earlier stages of clinical development, primarily due to the
increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to
increase for the foreseeable future as a result of our expanded portfolio of product candidates and as we: (i) expedite the
clinical development and obtain marketing approval for our lead product candidates, including OTL-101 for ADA-SCID, OTL-
200 for MLD and OTL-103 for WAS; (ii) initiate additional clinical trials for our product candidates, including OTL-102 for
X-CGD and OTL-300 for TDBT; (iii) improve the efficiency and scalability of our manufacturing processes and supply chain;
and (iv) build our in-house process development, analytical and manufacturing capabilities and continue to discover and
develop additional product candidates. We also expect to incur additional expenses related to milestone, royalty payments and
maintenance fees payable to third parties with whom we have entered into license agreements to acquire the rights related to
our product candidates.
As a result of the GSK Agreement, for the year ended December 31, 2018, we recognized a charge to research and
development expense of $133.6 million related to the acquisition of in-process research and development programs that have
no future alternative use. See Note 9 to our consolidated financial statements in this Annual Report for additional details of the
GSK Agreement and its accounting.
The successful development of our product candidates and commercialization of our commercial product and product
candidates, if approved, is highly uncertain. This is due to the numerous risks and uncertainties associated with product
development and commercialization, including the following:
•
•
•
•
•
•
completing research and preclinical development of our product candidates and identifying new gene therapy product
candidates;
conducting and fully enrolling clinical trials in the development of our product candidates;
seeking and obtaining regulatory and marketing approvals for product candidates for which we complete registrational
clinical trials that achieve their primary endpoints;
launching and commercializing product candidates for which we obtain regulatory and marketing approval by expanding
our existing sales force, marketing and distribution infrastructure or, alternatively, collaborating with a
commercialization partner;
maintaining marketing authorization and related regulatory compliance for Strimvelis in the European Union;
qualifying for, and maintaining, adequate coverage and reimbursement by government and payors for Strimvelis and any
product candidate for which we obtain marketing approval;
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168 Orchard Therapeutics plc
•
•
•
•
•
•
•
establishing and maintaining supply and manufacturing processes and relationships with third parties that can provide
adequate, in both amount and quality, products and services to support clinical development of our product candidates
and the market demand for Strimvelis and any of our product candidates for which we obtain marketing approval;
obtaining market acceptance of Strimvelis and our product candidates, if approved, as viable treatment options with
acceptable safety profiles;
addressing any competing technological and market developments;
implementing additional internal systems and infrastructure, as needed, including robust quality systems and compliance
systems;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and
performing our obligations under such arrangements;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and
know-how; and
attracting, hiring and retaining qualified personnel.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a
significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA,
EMA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be
required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to
patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the
completion of clinical development and we may never succeed in obtaining regulatory approval for any of our product
candidates.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of salaries and other related costs, including share-based
compensation, for personnel in our executive, finance, commercial, corporate and business development, and administrative
functions. Selling, general and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax
and consulting services, travel expenses and facility-related expenses, which include direct depreciation costs and allocated
expenses for rent and maintenance of facilities and other operating costs.
We expect that our selling, general and administrative expenses will increase in the future as we increase our selling, general
and administrative headcount to support our continued research and development and potential commercialization of our
expanded portfolio of product candidates. We also expect to incur increased expenses associated with compliance with our
obligations as a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director
and officer insurance costs and investor and public relations costs.
Other income (expense), net
Interest income
Interest income consists of income earned on our cash. Our interest income for the periods ended December 31, 2018 and
December 31, 2017 were $1.1 million and nil, respectively.
Change in fair value of tranche obligations
In 2016, Series A convertible preferred shares were issued in three tranches, and tranche obligations were recognized for the
obligations related to the second and third tranches, which were measured at fair value at each reporting date. We recognized
changes in fair value of these tranche obligations as a component of other income (expense) in our consolidated statement of
operations and comprehensive loss. The tranche obligation liabilities were satisfied when the respective second and third
tranche of Series A convertible preferred shares closed in July 2016 and January 2017.
Other income (expense)
Other income (expense), net consists primarily of realized and unrealized foreign currency transaction gains and losses.
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Orchard Therapeutics plc 169
Income tax (expense) benefit
We are subject to corporate taxation in the United States and the United Kingdom. Due to the nature of our business, we have
generated losses since inception and have therefore not paid United Kingdom corporation tax. Our income tax (expense)
benefit represents only income taxes in the United States.
The research and development tax credit received in the United Kingdom is recorded as a credit against R&D expenses. The
UK research and development tax credit, as described below, is fully refundable to the Company and is not dependent on
current or future taxable income. As a result, we have recorded the entire benefit from the UK research and development tax
credit as a reduction to R&D expenses and have not reflected it as part of the income tax provision. If, in the future, any UK
research and development tax credits generated are needed to offset a corporate income tax liability in the UK, that portion
would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income
would continue to be recorded as a reduction to research and development expenses.
As a company that carries out extensive research and development activities, we seek to benefit from one of two U.K. research
and development tax credit cash rebate regimes: the SME Program and the RDEC Program. Qualifying expenditures largely
comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research
projects for which we do not receive income.
Based on criteria established by HM Revenue and Customs, or HMRC, we expect a portion of expenditures being carried out
in relation to our pipeline research and development, clinical trials management and manufacturing development activities to
be eligible for the RDEC Program for the years ended December 31, 2016, 2017 and 2018. The Company will assess whether it
is possible to qualify under the more favorable SME regime for future accounting periods, but this may be affected as a result
of becoming a United States public company.
Unsurrendered U.K. losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous
utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50%
of U.K. taxable profits. After accounting for tax credits receivable, we had accumulated tax losses for carry forward in the
United Kingdom of $155.2 million as of December 31, 2018.
In the event we generate revenues in the future, we may benefit from the U.K. “patent box” regime that allows profits
attributable to revenues from patents or patented products to be taxed at effective rate of 10%.
Value Added Tax, or VAT, is broadly charged on all taxable supplies of goods and services by VAT-registered businesses in
the United Kingdom. Under current rates, an amount of 20% of the value, as determined for VAT purposes, of the goods or
services supplied is added to all sales invoices and is payable to HMRC. Similarly, VAT paid on purchase invoices is generally
reclaimable from HMRC.
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170 Orchard Therapeutics plc
Results of operations
Comparison of the years ended December 31, 2018 and 2017
The following table summarizes our results of operations for the years ended December 31, 2018 and 2017:
Product sales, net
Cost and operating expenses:
Cost of product sales
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Other income (expense), net
Total other income (expense)
Net loss before income tax
Income tax expense
Net loss attributable to ordinary shareholders
Research and development expenses
Year Ended December 31,
2017
2018
(in thousands)
Change
$
2,076 $
— $
2,076
422
205,319
31,366
237,107
(235,031)
1,116
4,390
5,506
(229,525)
(970)
(230,495) $
—
32,527
5,985
38,512
(38,512)
—
(1,179)
(1,179)
(39,691)
(53)
(39,744) $
422
172,792
25,381
198,595
(196,519)
1,116
5,569
6,685
(189,834)
(917)
(190,751)
$
The table below summarizes our research and development expenses by product candidate or development program:
Direct research and development expenses by program:
OTL-200 for MLD.
OTL-103 for WAS.
OTL-101 for ADA-SCID
OTL-102 for X-CGD
OTL-201 for MPS-IIIA
Other programs
$
Research and discovery and unallocated costs
Personnel related (including share-based compensation)
Facility and other
Total research and development expenses
$
Year Ended December 31,
2017
2018
(in thousands)
Change
75,422 $
66,728
18,540
2,929
4,329
9,537
18,553
9,281
205,319 $
— $
—
13,181
1,303
3,158
4,938
6,770
3,177
32,527 $
75,422
66,728
5,359
1,626
1,171
4,599
11,783
6,104
172,792
In April 2018, GSK transferred OTL-200, OTL-103 and OTL-102 to us resulting in increased direct research and development
expenses of $75.4 million, relating to OTL-200, and $66.7 million, relating to OTL-103, and $1.6 million, relating to OTL-102
in the year ended December 31, 2018.
The increase of $75.4 million, relating to OTL-200, consists of $69.3 million of in-process research and development charges
related to the GSK transaction along with $3.7 million of clinical trial costs and $2.0 million of costs to prepare our viral vector and
cell manufacturing processes for patients enrolled in both fresh and cryopreserved cell formulation clinical trials. The Company also
incurred $5.0 million in consulting expense generally attributable to our transition services agreement with GSK. These amounts
were decreased by $4.6 million in offsets to research and development expenses associated with amortization of the Strimvelis loss
provision and the UK research and development tax credit.
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Orchard Therapeutics plc 171
The increase of $66.7 million, relating to OTL-103, consists of $64.3 million of in-process research and development charges
related to the GSK transaction along with $2.5 million of clinical trial costs and $3.0 million of costs to prepare our viral vector and
cell manufacturing processes for patients enrolled in both fresh and cryopreserved cell formulation clinical trials. These amounts
were decreased by $3.8 million in offsets to research and development expenses associated with amortization of the Strimvelis loss
provision and the U.K. research and development tax credit.
Direct research and development expenses relating to OTL-101 increased by $5.4 million in the year ended December 31,
2018, primarily due to increased manufacturing costs of $9.4 million to prepare our viral vector and cell manufacturing
processes for patients enrolled in both fresh and cryopreserved cell formulation clinical trials, increased clinical consulting and
other costs of $2.0 million to prepare and activate clinical trial sites. These amounts were decreased by $6.1 million in offsets
to research and development expenses associated with the U.K. research and development tax credit and our research grants
with CIRM.
Direct research and development expenses relating to OTL-102 increased by $1.6 million in the year ended December 31,
2018, primarily due to increases in manufacturing costs of $2.2 million to prepare our viral vector and cell manufacturing
processes for patients enrolled in both fresh and cryopreserved cell formulation clinical trials and clinical trial costs of $0.7
million to prepare and activate clinical trial sites. This is offset by a decrease of $1.3 million in costs related to in-licensing the
technology relevant to the program, which were a one-time expense in 2017.
Direct research and development expenses relating to OTL-201 increased by $1.2 million in the year ended December 31,
2018. The increase primarily relates to an increase of $1.1 million in costs to prepare and activate clinical trials, and $0.7
million in milestone payments. This is offset by a decrease in pre-clinical costs of $0.8 million.
Direct research and development expenses for other programs increased by $4.6 million in the year ended December 31, 2018.
This is primarily due to our acquisition of Strimvelis and OTL-300 in the GSK transaction. In the year ended December 31,
2018 we spent $5.1 million in research and development costs to maintain Strimvelis, including $1.9 million in manufacturing-
related costs, $1.9 million for ongoing trial-related costs, and $1.8 million for consulting expense generally attributable to our
transitional services agreement with GSK. In the year ended December 31, 2018, we spent $2.2 million on OTL-300, which
consists of $2.0 million in clinical trial costs and $0.3 million in manufacturing costs. Further, in July 2018 we paid a $1.8
million milestone associated with our MPS-I clinical study. These amounts were offset by decreases in spending on other pre-
clinical programs of $4.9 million.
The increase of $17.9 million in unallocated research and development expenses was attributable to personnel-related costs,
including share-based compensation, which was primarily due to an increase in headcount in our research and development
functions. Personnel-related costs increased by $11.8 million in the year ended December 31, 2018. Personnel-related costs for
each of the years ended December 31, 2018 and 2017 included share-based compensation expense of $2.7 million and $0.6
million, respectively. Facility and other costs increased primarily due to the lease of new laboratory and office space and the
increased costs of supporting the increased headcount in our research and development functions and their research efforts.
Selling, general and administrative expenses
Selling, general and administrative expenses were $31.4 million for the year ended December 31, 2018, compared to
$6.0 million for the year ended December 31, 2017. The increase of $25.9 million was primarily due to increased personnel-
related costs of $10.9 million from an increased headcount in our selling, general and administrative function. Share-based
compensation expense of $4.0 million and $0.4 million is included in selling, general and administrative expense for the year
ended December 31, 2018 and 2017, respectively. Professional and consulting fees increased by $7.8 million in 2018 as a
result of an increase in accounting, audit, legal, recruitment, and information technology fees as well as costs associated with
ongoing business activities. Facility and other costs increased $7.2 million in 2018, primarily due to the leases of new office
space and increased costs of supporting the expansion of our business. Additionally, included in the $31.4 million in selling,
general and administrative expenses is $8.5 million in expenses associated with maintaining commercial availability of
Strimvelis, and costs associated with potential future commercialization of our product candidates, if approved. There were no
such costs in 2017.
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172 Orchard Therapeutics plc
Other income (expense), net
Other income (expense), net for the years ended December 31, 2018 and 2017 was income of $5.5 million and expense of
$1.2 million, respectively. During the year ended December 31, 2018, we had realized and unrealized gains on foreign currency
of $4.4 million for the year ended December 31, 2018, compared to realized and unrealized foreign currency loss of $1.2
million for the year ended December 31, 2017, primarily due to the strength of the U.S. dollar relative to the British pound as
compared to 2017. Additionally, we had interest income of $1.1 million and nil for the years ended December 31, 2018 and
2017, respectively.
Comparison of the years ended December 31, 2017 and 2016
The following table summarizes our results of operations for the years ended December 31, 2017 and 2016:
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest Income
Change in fair value of tranche obligations
Other income (expense), net
Total other income (expense)
Net loss before income tax
Income tax expense
Net loss attributable to ordinary shareholders
Research and development expenses
Year ended December 31
2016
2017
(in thousands)
Change
$
$
32,527 $
5,985
38,512
(38,512)
—
—
(1,179)
(1,179)
(39,691)
(53)
(39,744) $
16,206 $
2,997
19,203
(19,203)
3
289
(154)
138
(19,065)
(20)
(19,085) $
16,321
2,988
19,309
(19,309)
(3)
(289)
(1,025)
(1,317)
(20,626)
(33)
(20,659)
The table below summarizes our research and development expenses by product candidate or development program:
Direct research and development expenses by program:
OTL-101 for ADA-SCID
OTL-102 for X-CGD
OTL-201 for MPS-IIIA
Other programs
Research and discovery and unallocated costs
Personnel related (including share-based compensation)
Facility and other
Total research and development expenses
Year ended December 31
2016
2017
(in thousands)
Change
$
$
13,181 $
1,303
3,158
4,938
6,770
3,177
32,527 $
7,468
—
3,565
1,548
1,892
1,733
16,206 $
5,713
1,303
(407)
3,390
4,878
1,444
16,321
Direct research and development expenses relating to OTL-101 increased by $5.7 million in 2017, primarily driven by
increased manufacturing costs of $9.4 million to prepare our viral vector and cell manufacturing processes for patients enrolled
in both fresh and cryopreserved cell formulation clinical trials and increased clinical costs of $3.5 million to prepare and
activate clinical trial sites. The increase was offset by $4.3 million of reimbursements received in 2017 as part of our
subcontract agreement with UCLA and a $2.9 million decrease in in-licensing fees in 2017 as a majority of the OTL-
101 related in-licensing transactions took place in 2016.
Direct costs related to OTL-102 in 2017 consist of the costs of in-licensing the technology relevant to the program, which
included our commitment to issue 349,770 ordinary shares to the licensor.
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Orchard Therapeutics plc 173
Direct research and development expenses relating to OTL-201 decreased by $0.4 million in 2017. The decrease primarily
relates to a decrease in in-licensing fees of $3.0 million in 2017 as all in-licensing transactions relevant to this program took
place in 2016. This decrease is offset by an increase in OTL-201 manufacturing costs of $2.4 million and clinical costs of
$0.2 million, as a result of increasing clinical research activities.
Direct research and development expenses for other programs increased by $3.4 million in 2017, primarily related to an
increase in manufacturing costs of $3.7 million as we prepare certain programs for clinical trials. The increase was offset by a
$0.2 million decrease in preclinical costs and a $0.1 million decrease in in-licensing fees.
The increase of $6.3 million in unallocated research and development expenses was attributable to personnel-related costs,
including share-based compensation, which was primarily due to an increase in headcount in our research and development
functions. Personnel-related costs for each of the year ended December 31, 2016 and 2017 included share-based compensation
expense of $0.2 million and $0.6 million, respectively. In 2017, the personnel related costs have been reduced by $0.7 million
of reimbursements received as part of our subcontract agreement with UCLA. Facility and other costs increased primarily due
to the lease of new laboratory space and the increased costs of supporting the increased headcount in our research and
development functions and their research efforts.
General and administrative expenses
General and administrative expenses were $3.0 million for the year ended December 31, 2016, compared to $6.0 million for
the year ended December 31, 2017. The increase of $3.0 million was primarily due to increased personnel-related costs of
$2.1 million from an increased headcount in our general and administrative function. Share-based compensation expense of
less than $0.1 million and $0.4 million is included in general and administrative expense for the year ended December 31, 2016
and 2017, respectively. Professional and consulting fees increased by $0.5 million in 2017 as a result of an increase in
accounting, audit and information technology fees as well as costs associated with ongoing business activities. Facility and
other costs increased $0.4 million in 2017, primarily due to the lease of new office space and increased costs of supporting the
expansion of our business.
Other income (expense), net
Other income (expense), net for the years ended December 31, 2016 and 2017 was income of $0.1 million and expense of
$1.2 million, respectively. During the year ended December 31, 2017, as our business activities increased in the United States
and Europe, realized and unrealized foreign currency loss increased by $1.0 million. The year ended December 31, 2016 also
included $0.3 million of other income in 2016 from the change in fair value of tranche obligations, which was associated with
our obligation to issue the second and third tranches of Series A convertible preferred shares. We settled the final tranche
obligation in early 2017 and there was no change in fair value recorded in the year ended December 31, 2017.
B.
Liquidity and capital resources.
From our inception through December 31, 2018, we have generated only $2.1 million from product sales and incurred
significant operating losses and negative cash flows from our operations. We currently have only one commercial product,
Strimvelis, which we acquired from GSK in April 2018 and our product candidates are in various phases of preclinical and
clinical development. We do not expect to generate significant revenue from sales of any products for several years, if at all. To
date, we have financed our operations primarily with proceeds from the sale of ADSs in our initial public offering, proceeds
from the sale of convertible preferred shares, reimbursements from our research agreement with UCLA and, following transfer
of the ADA-SCID research program sponsorship from UCLA to us in July 2018, a grant from CIRM.
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174 Orchard Therapeutics plc
Through December 31, 2018, we had received net proceeds of $283.4 million from sales of convertible preferred shares, net
proceeds of $205.5 million from the sale of ADSs in our initial public offering, and reimbursement of $7.9 million from our
agreement with the California Institute of Regenerative Medicine, which was formerly a subcontract agreement with UCLA.
As of December 31, 2018, we had cash of $335.8 million.
We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect
our liquidity over the next five years, other than our manufacturing and lease obligations described below.
Cash flows
The following table summarizes our cash flows for each of the periods presented:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash
Operating activities
2018
Year Ended December 31,
2017
(in thousands)
2016
$
$
(97,536) $
(4,032)
354,864
(3,471)
249,825 $
(32,487) $
(1,559)
115,696
4,709
86,359 $
(14,566)
(190)
18,034
(751)
2,527
During the year ended December 31, 2018, operating activities used $97.5 million of cash, primarily resulting from our net loss
of $230.5 million, off-set by net cash provided by changes in our operating assets and liabilities of $36.5 million and net non-
cash charges and credits of $96.5 million, which included $93.4 million for the issuance of our preferred shares as non-cash in-
license fees under the GSK Agreement, $6.8 million in non-cash share-based compensation, $1.4 million in non-cash milestone
expense, and $1.2 million in depreciation expense. These amounts were offset by a $6.3 million reduction in the Strimvelis loss
provision. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2018 is
primarily due to the impact of a $10.1 million increase in our research and development tax credit receivable and a $6.8 million
increase in receivables, prepaid expenses and other assets, offset by a $31.7 million increase in accrued expenses and other
current liabilities, a $6.9 million increase in other long-term liabilities, and a $14.8 million increase in accounts payable.
Included within operating activities was a cash payment of $14.2 million for the GSK upfront license fee.
During the year ended December 31, 2017, operating activities used $32.5 million of cash, primarily resulting from our net loss
of $39.7 million, net cash provided by changes in our operating assets and liabilities of $2.8 million and net non-cash charges
of $4.4 million, which included $3.1 million for the issuance of our ordinary shares as non-cash in-license fees and $1.0 million
of share-based compensation. Net changes in our operating assets and liabilities for the year ended December 31, 2017
consisted primarily of a $1.2 million increase in other receivables and a $2.7 million increase in prepaid expenses and other
current assets, offset by a $1.9 million increase in accounts payable and a $4.7 million increase in accrued expenses. Net cash
used in operating activities for the year ended December 31, 2017 included $1.2 million of cash payments for in-licensing
technology fees.
During the year ended December 31, 2016, operating activities used $14.6 million of cash, primarily resulting from our net loss
of $19.1 million, offset by net cash provided by changes in our operating assets and liabilities of $1.5 million and net non-cash
charges of $3.0 million, which included $3.1 million for the issuance of our ordinary shares as non-cash in-license fees. Net
cash provided by changes in our operating assets and liabilities for the year ended December 31, 2016 is primarily due to the
impact of a $0.6 million increase in prepaid expenses and other current assets, offset by a $0.7 million increase in accounts
payable and a $1.5 million increase in accrued expenses and other current liabilities. Net cash used in operating activities for
the year ended December 31, 2016 included $4.6 million of cash payments for in-licensing technology fees.
The change in net cash used in operating activities from 2017 to 2018 is the result of our increased net loss, generally due to
growth in our business and the advancement of our development programs, as described in “—Results of operations.”
Investing activities
During the years ended December 31, 2018, 2017, and 2016, we used $4.0 million, $1.6 million, and $0.2 million, respectively,
of cash in investing activities for purchases of property and equipment.
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Orchard Therapeutics plc 175
Financing activities
During the year ended December 31, 2018, net cash provided by financing activities was $354.9 million, consisting of $2.3
million of net proceeds from subsequent closing of our Series B convertible preferred shares in January 2018, $147.1 million of
net proceeds from the sale of our Series C convertible preferred shares in August 2018, and $205.5 million of net proceeds
from the sale of our ADSs in our initial public offering in November 2018.
During the year ended December 31, 2017, net cash provided by financing activities was $115.7 million, consisting of
$8.6 million of net proceeds from the sale of our Series A convertible preferred shares in January 2017 and $107.1 million of
net proceeds from the sale of our Series B convertible preferred shares issued throughout 2017.
During the year ended December 31, 2016, net cash provided by financing activities was $18.0 million, consisting of net
proceeds from the sale of our Series A convertible preferred shares.
Funding requirements
We expect our expenses and capital expenditures to increase substantially in connection with our ongoing activities,
particularly as we advance the preclinical activities and clinical trials of our product candidates and as we:
•
•
•
•
•
•
•
•
•
•
•
seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
continue to grow a sales, marketing and distribution infrastructure for our commercialization of Strimvelis in the
European Union, and any product candidates for which we may submit for and obtain marketing approval anywhere in
the world;
continue our development of our product candidates, including continuing our ongoing advanced registrational trials and
supporting studies of OTL-101 for ADA-SCID, OTL-200 for MLD and OTL-103 for WAS and our ongoing clinical
trials of OTL-102 for X-CGD and OTL-300 for TDBT, and any other clinical trials that may be required to obtain
marketing approval for our product candidates;
conduct IND and CTA-enabling studies for our preclinical programs;
initiate additional clinical trials and preclinical studies for our other product candidates;
seek to identify and develop, acquire or in-license additional product candidates;
develop the necessary processes, controls and manufacturing data to obtain marketing approval for our product
candidates and to support manufacturing of product to commercial scale;
develop and implement plans to establish and operate our own in-house manufacturing operations and facility;
hire and retain additional personnel, such as non-clinical, clinical, pharmacovigilance, quality assurance, regulatory
affairs, manufacturing, distribution, legal, compliance, medical affairs, finance, general and administrative, commercial
and scientific personnel; and
develop, maintain, expand and protect our intellectual property portfolio; and
comply with our obligations as a public company.
Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to
accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain
profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are
unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be
forced to reduce or terminate our operations.
We believe our existing cash, will enable us to fund our operating expenses and capital expenditure requirements into the
second half of 2020. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our
available capital resources sooner than we expect.
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176 Orchard Therapeutics plc
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial
statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We
base our estimates on historical experience, known trends and events and various other factors that we believe are 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 or conditions.
While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements in
this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates
used in the preparation of our consolidated financial statements.
Fair value of asset acquisitions
We assign fair value to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair
values as of the acquisition date. The purchase price allocation process requires management to make significant estimates and
assumptions, especially at the acquisition date with respect to intangible assets and in-process research and development
(“IPR&D”).
Accrued research and development expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and
development expenses. This process involves reviewing open contracts and purchase orders, communicating with our
personnel to identify services that have been performed on our behalf and estimating the level of service performed and the
associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority
of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual
milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance
sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. Examples of
estimated accrued research and development expenses include fees paid to:
•
•
•
•
•
Vendors in connection with performing research activities on our behalf and conducting preclinical studies and clinical
trials on our behalf;
CMOs in connection with the production of preclinical and clinical trial materials;
investigative sites or other service providers in connection with clinical trials;
vendors in connection with preclinical and clinical development activities; and
vendors related to product manufacturing and development and distribution of preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts
expended pursuant to quotes and contracts with multiple CMOs, research institutions and vendors that supply, conduct and
manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation,
vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to
our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of
these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.
In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be
expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we
adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially
different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual
status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any
particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and
development expenses.
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Orchard Therapeutics plc 177
Valuation of share-based compensation
We measure share-based awards granted to employees, non-employees and directors based on the fair value on the date of the
grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting
period of the respective award. Forfeitures are accounted for as they occur. Generally, we issue share-based awards with only
service-based vesting conditions and record the expense for these awards using the straight-line method. We have not issued
any share-based awards with performance-based vesting conditions.
Prior to the adoption of Accounting Standards Update (ASU) No. 2018-07, Compensation—Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07), as discussed in Note 2 to our consolidated
financial statements in this Annual Report, the measurement date for non-employee awards was generally the date the services
are completed, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for
changes in the fair value of the awards. After adoption of ASU 2018-07, the measurement date for non-employee awards is the
later of the adoption date of ASU 2018-07, or the date of grant, without change in the fair value of the award.
The fair value of each share option is estimated on the date of grant using the Black-Scholes option pricing model. Until the
completion of our initial public offering in November 2018, we had been a private company and lacked company-specific
historical and implied volatility information for our shares. Therefore, we estimate our expected share price volatility based on
the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate
historical data regarding the volatility of our own traded share price. The expected term of our share options has been
determined utilizing the “simplified method” for awards that qualify as “plain-vanilla” options. Prior to the adoption of
ASU 2018-07, the expected term of share options granted to non-employees was the contractual term. After adoption of
ASU 2018-07, the expected term of share options granted to non-employees is determined in the same manner as share options
granted to employees. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the
time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is
based on the fact that we have never paid cash dividends on our ordinary shares and do not expect to pay any cash dividends in
the foreseeable future.
As there has historically been no public market for our ordinary shares to date, the estimated fair value of our ordinary shares
has been determined by our board of directors as of the date of each option grant, with input from management, considering
third-party valuations of our ordinary shares as well as our board of directors’ assessment of additional objective and subjective
factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation
through the date of the grant. Following our completed initial public offering, our share option grants are issued at the fair
market value of our ADSs at the date the grant is approved by the Board.
We estimate the fair value of our performance-based restricted stock unit (“RSUs”) awards or components of RSU awards
whose vesting is contingent upon market conditions, such as volume weighted-average price (“VWAP”), using the Monte-
Carlo simulation model. The fair value of RSUs or components of RSU awards where vesting is contingent upon market
conditions is amortized based upon the estimated derived service period.
C.
Research and development, patents and licenses, etc.
Full details of our research and development activities and expenditures are given in “Item 4.B. Information on the Company –
Business overview” and “Item 5.A. Operating results” within this Annual Report.
D.
Trend information.
Other than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments
or events for the period from January 1, 2018 to December 31, 2018 that are reasonably likely to have a material adverse effect
on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be
not necessarily indicative of future operating results or financial conditions. For a discussion of trends, see “Item 5.A.
Operating Results” and “Item 5.B. Liquidity and Capital Resources” within this Annual Report.
E. Off-balance sheet arrangements.
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in
the rules and regulations of the SEC.
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178 Orchard Therapeutics plc
F.
Tabular disclosure of contractual obligations.
The following table summarizes our contractual obligations as of December 31, 2018 and the effects that such obligations are
expected to have on our liquidity and cash flows in future periods:
Manufacturing commitments(1)
Operating lease commitments(2)
Total
Total
Less Than
1 Year
Payments Due By Period
1 to 3
Years
(in thousands)
4 to 5
Years
More Than
5 Years
$
$
$
10,146 $
39,499 $
49,645 $
5,586 $
3,303 $
8,889 $
4,560 $
9,045 $
13,605 $
— $
6,765 $
6,765 $
—
20,386
20,386
(1)
(2)
Amounts reflect commitments for costs associated with our external CMOs, which we engaged to manufacture clinical trial materials. Our manufacturing
commitment included non-cancelable minimum quantities to be purchased as of December 31, 2018.
Amounts reflect minimum payments due for our office and laboratory space leases. We have two office lease in London, U.K. under operating leases that expire
in January 2023. We lease laboratory space in Foster City, California and Menlo Park, California under operating leases that expire between June 2020 and
October 2021. We lease manufacturing and office space in Fremont, California under an operating lease that expires in May 2030. We lease office space in
Boston, Massachusetts under an operating lease that expires in September 2022.
We enter into contracts in the normal course of business with CMOs and other third parties for clinical trials and preclinical
research studies and testing. Manufacturing commitments in the preceding table include agreements that are enforceable and
legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed,
minimum or variable price provisions, and the approximate timing of the transaction. For obligations with cancellation
provisions, the amounts included in the preceding table are limited to the non-cancelable portion of the agreement terms or the
minimum cancellation fee.
Excluding our agreement with GSK, we may incur potential contingent payments totaling up to $68.0 million upon our
achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we may be required to
make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain
intellectual property. Pursuant to our agreement with Oxford BioMedica, we may incur the obligation to issue additional
ordinary shares upon the achievement of a certain development milestone. Due to the uncertainty of the achievement and
timing of the events requiring payment under these agreements, the amounts to be paid by us are not fixed or determinable at
this time and are excluded from the table above.
In January 2018, we leased office space in London, United Kingdom, with a term through January 2023. The annual rent
commitment is approximately $0.8 million. In November 2017 we leased office and laboratory space in Menlo Park, California
with a term through December 2020. The annual rent commitment is approximately $0.8 million. In October 2016 we leased
laboratory space in Foster City, California with a term through October 2021. The annual rent commitment is approximately
$0.2 million. In March 2018, we leased office space in Boston, Massachusetts, with a term through September 2022. The
annual rent commitment is approximately $0.3 million. In December 2018, we leased office and manufacturing space in
Fremont, California, with a term through May 2030. The annual rent commitment is approximately $2.8 million. In December
2018, we leased additional office space in London, United Kingdom, with a term through January 2023. The annual rent
commitment is approximately $0.1 million.
Under the GSK Agreement, we are also obligated to pay non-refundable royalties and milestone payments in relation to the
gene therapy programs acquired by GSK and OTL-101. We will pay a mid-single-digit percentage royalty on the combined
annual net sales of ADA-SCID products, which includes Strimvelis and our product candidate, OTL-101. We will also pay
tiered royalty rates at percentages from the mid-teens to the low twenties for the MLD and WAS products, upon marketing
approval, calculated as percentages of aggregate cumulative net sales of the MLD and WAS products, respectively. We will
pay a tiered royalty at percentages from the high single-digit to the low teens for the TDBT product, upon marketing approval,
calculated as percentages of aggregate annual net sales of the TDBT product. These royalties owed to GSK are in addition to
any royalties owed to other third parties under various license agreements for the GSK programs. We may pay up to an
aggregate of £90.0 million in milestone payments upon achievement of certain sales milestones. Our royalty obligations with
respect to MLD and WAS may be deferred for a certain period in the interest of prioritizing available capital to develop each
product. Our royalty obligations are subject to reduction on a product-by-product basis in the event of market control by
biosimilars, and will expire in April 2048.
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Orchard Therapeutics plc 179
As consideration for the licenses and options in the Telethon-OSR agreements acquired and assumed in the Transaction, we are
required to make payments to Telethon-OSR upon achievement of certain product development milestones. We are also
required to pay Telethon-OSR a fee in connection with the exercise of our option for each collaboration program. We are
obligated to pay up to an aggregate of €31.0 million in connection with product development milestones with respect to those
programs for which we have exercised an option under this agreement (that is, our WAS, MLD and TDBT programs).
Additionally, we are required to pay to Telethon-OSR a tiered mid-single to low-double digit royalty percentage on annual
sales of licensed products covered by patent rights on a country-by-country basis, as well as a low double-digit percentage of
sublicense income received from any certain third party sublicensees of the collaboration programs.
G.
Safe harbor.
This Annual Report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act and as defined in the Private Securities Litigation Reform Act of 1995. See the
section titled “Cautionary Statement Regarding Forward-Looking Statements” at the beginning of this Annual Report.
Item 6. Directors, Senior Management and Employees
A.
Directors and senior management.
The following table sets forth the name, age and position our executive officers and directors as of December 31, 2018.
Name
Executive Officers:
Mark Rothera
Frank E. Thomas
Bobby Gaspar, M.D., Ph.D.
Non-Executive Directors:
James A. Geraghty
Joanne T. Beck, Ph.D.
Marc Dunoyer
Jon Ellis, Ph.D.
Charles A. Rowland, Jr.
Hong Fang Song
Alicia Secor
Executive officers
Age
Position(s)
57
49
54
63
57
65
51
60
53
56
President, Chief Executive Officer and Director
Chief Financial Officer and Chief Business Officer
Chief Scientific Officer and Director
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Mark Rothera has served as our President, Chief Executive Officer and a member of our board of directors since August 2017.
Previously, from April 2013 to August 2017, Mr. Rothera served as the Chief Commercial Officer of PTC Therapeutics, Inc., a
public biopharmaceutical company. Prior to joining PTC Therapeutics, Inc., Mr. Rothera served as Global President of
Aegerion Pharmaceuticals, Inc., a biopharmaceutical company, from April 2012 to January 2013. From January 2006 to March
2012, he served as Vice President and General Manager for the commercial operations of Shire Human Genetic Therapies, Inc.
in Europe, the Middle East & Africa. Prior to joining Shire, Mr. Rothera served as Area VP Europe, Middle East and Africa for
Chiron BioPharmaceuticals from September 2000 to April 2005. Prior to Chiron, Mr. Rothera held various global strategic and
operational marketing and sales roles with French and UK operations of Glaxo Wellcome. Mr. Rothera holds an M.A. in
Natural Science from Cambridge University, an M.B.A. from the European Institute for Business Administration and a
Diploma in Company Direction from Institute of Directors, United Kingdom. We believe Mr. Rothera is qualified to serve on
our board because of his executive experience in our industry.
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Frank E. Thomas has served as our Chief Financial Officer and Chief Business Officer since January 2018. Previously,
Mr. Thomas served as President and Chief Operating Officer of AMAG Pharmaceuticals, Inc., a publicly traded, specialty
pharmaceutical company, from April 2015 to April 2017, as AMAG’s Executive Vice President and Chief Operating Officer
from May 2012 through April 2015 and as Executive Vice President, Chief Financial Officer and Treasurer from August 2011
through May 2012. Prior to AMAG, he served as Senior Vice President, Chief Operating Officer and Chief Financial Officer
for Molecular Biometrics, Inc., a commercial stage medical diagnostics company, from October 2008 to July 2011. Prior to
Molecular Biometrics, Mr. Thomas spent four years at Critical Therapeutics, Inc., a public biopharmaceutical company, from
April 2004 to March 2008, where he was promoted to President in June 2006 and Chief Executive Officer in December 2006
from the position of Senior Vice President and Chief Financial Officer. He also served on the Board of Directors of Critical
Therapeutics from 2006 to 2008. Prior to 2004, Mr. Thomas served as the Chief Financial Officer and Vice President of
Finance and Investor Relations at Esperion Therapeutics, Inc., a public biopharmaceutical company. Since June 2014,
Mr. Thomas has served on the board of directors of Zafgen, Inc., a publicly traded biopharmaceutical company. Since July
2017, Mr. Thomas has served on the Board of Directors of Spero Therapeutics, Inc., a publicly traded, development-stage
biotechnology company. Mr. Thomas was a member of the Board of Directors of the Massachusetts Biotechnology Council
from 2007 to 2015. Mr. Thomas holds a B.B.A. from the University of Michigan, Ann Arbor.
Bobby Gaspar, M.D., Ph.D. has served as our Chief Scientific Officer and as a member of our board of directors since
February 2016. Dr. Gaspar joined UCL and GOSH with an interest in gene therapy. Since October 2007, he has been professor
of pediatrics and immunology at the UCL Institute of Child Health and Honorary Consultant in pediatric immunology at
GOSH. Dr. Gaspar holds an M.B. B.S. from Kings College London and a Ph.D. from UCL. We believe Dr. Gaspar is qualified
to serve on our board of directors because of his scientific and industry experience in the field in which we operate.
Non-executive directors
James A. Geraghty has been chairman of our board of directors since May 2018. He also serves as chairman of the boards of
directors of publicly traded biopharmaceutical companies Idera Pharmaceuticals, Inc., Juniper Pharmaceuticals, Inc., and Pieris
Pharmaceuticals, Inc., and as a member of the board of directors of publicly traded AAV gene therapy company Voyager
Therapeutics, Inc. and privately held biotechnology company Fulcrum Therapeutics, Inc. He served as an Entrepreneur in
Residence at Third Rock Ventures, a venture capital firm, from May 2013 to October 2016. Prior to that, Mr. Geraghty served
as Senior Vice President, North America Strategy and Business Development at Sanofi S.A., a publicly traded pharmaceutical
company, from February 2011 to October 2013. Earlier, he held many roles at Genzyme Corporation from 1992 to 2011, most
recently as Senior Vice President of International Development and an executive officer. While at Genzyme, his roles included
President of Genzyme Europe and General Manager of Genzyme’s cardiovascular business. He also served as Chairman,
President and CEO of GTC Biotherapeutics, Inc. (formerly Genzyme Transgenics), a pharmaceutical company. Mr. Geraghty
holds a B.A. in Psychology and English from Georgetown University, an M.S. in Clinical Psychology from the University of
Pennsylvania, and a J.D. from Yale Law School. We believe Mr. Geraghty’s experience as a senior executive and service on
the boards of other life sciences companies qualifies him to serve on our board of directors.
Joanne T. Beck, Ph.D. has been a member of our board of directors since July 2018. Since April 2016, Dr. Beck has served as
the Executive Vice President, Pharmaceutical Development & Operations at Celgene. Prior to joining Celgene, Dr. Beck was
the Senior Vice President, Pharmaceutical Development at Shire from January 2012 to April 2016. From May 2004 to January
2012, Dr. Beck held leadership roles in both Pharmaceutical and Vascular Operations at Abbott, most recently as Head of
Global Business Excellence and Strategic Program Management. Earlier in her career she had technical leadership roles at
Amgen and Genentech. Since January 2019, Dr. Beck also serves on the board of directors of Alliance for Regenerative
Medicine, an international multi-stakeholder advocacy organization. Dr. Beck holds a B.A. in Chemistry from Lewis and Clark
College and a Ph.D. in Biochemistry and Molecular Biology from Oregon Health and Science University. We believe Dr. Beck
is qualified to serve on our board because of her executive experience in our industry.
Marc Dunoyer has been a member of our board of directors since May 2018. Since November 2013, Mr. Dunoyer has served
as the chief financial officer at AstraZeneca plc, a publicly traded pharmaceutical company. At AstraZeneca, Mr. Dunoyer also
held the role of Executive Vice President, Global Portfolio & Product Strategy from June 2013 to October 2013. Additionally,
Mr. Dunoyer serves on the board of directors of AstraZeneca. Prior to joining AstraZeneca, from February 2010 to March
2013, Mr. Dunoyer served as the foundational Global Head of the Rare Diseases Unit at GlaxoSmithKline plc, a publicly
traded pharmaceutical company. At GSK, Mr. Dunoyer also served on the company’s corporate executive team and previously
held the position of President for Asia-Pacific and Japan. Mr. Dunoyer has previously held international positions in operations
and general management at Hoechst Marion Roussel, a wholly owned subsidiary of Sanofi S.A., a publicly traded
pharmaceutical company, and holds an M.B.A. degree from the Hautes Etudes Commerciales and a Bachelor of Law degree
from Paris University. We believe Mr. Dunoyer is qualified to serve on our board because of his executive experience in our
industry.
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Jon Ellis, Ph.D. has been a member of our board of directors since July 2018. Since January 2016, Dr. Ellis has served as the
Vice President and Head, Science & Technology Licensing Pharmaceuticals R&D at GlaxoSmithKline plc, a publicly traded
pharmaceutical company. At GSK, Dr. Ellis has also held the roles of Vice President & Head of Platforms BD & Academic,
Vice President & Head of Platforms BD, Vice President & Head of Biopharmaceuticals BD, as well as the Head of Antibody
Engineering and Biopharm Licensing. Prior to joining GSK in 2001, Dr. Ellis worked as a group leader at GlaxoWellcome plc,
a former publicly traded pharmaceutical company, from November 1995 to January 2001. Prior to joining GlaxoWellcome in
1995, Dr. Ellis was a Senior Molecular Biologist at Wellcome Foundation Ltd, a former publicly traded pharmaceutical
company, from November 1993 to November 1995. Prior to joining Wellcome Foundation in 1993, Dr. Ellis was a staff
scientist at Quantum Biosystems Ltd from October 1992 to November 1993. Dr. Ellis holds a B.A. and M.A. from Magdalene
College, University of Cambridge, a Ph.D. from the University of Cambridge, and an M.B.A. from Henley Management
College. We believe Dr. Ellis is qualified to serve on our board because of his extensive experience in our industry.
Charles A. Rowland, Jr. has been a member of our board of directors since July 2018. From April 2016 to February 2017,
Mr. Rowland served as President and Chief Executive Officer of Aurinia Pharmaceuticals Inc., and as a member of the board
of directors of Aurinia from July 2014 to February 2017. Mr. Rowland previously served as Vice President and Chief Financial
Officer of ViroPharma Incorporated, an international biopharmaceutical company, from October 2008 until it was acquired by
Shire plc, in January 2014. Mr. Rowland previously held positions of increasing responsibility at the following companies:
Biovail Pharmaceuticals, Inc., Breakaway Technologies, Inc., Endo Pharmaceuticals Inc., Pharmacia Corporation, Novartis
AG, and Bristol-Myers Squibb Co. Mr. Rowland has served as a member of the board of directors, chairman of the audit
committee of Generation Bio since July 2018. Since July 2017, he has served as a member of the board of directors and
chairman of the compensation committee and member of the audit committee of Viking Therapeutics, Inc. Since January 2015,
he has served as a member of the board of directors and chairman of the audit committee and compensation committee of
Nabriva Therapeutics, AG, based in Dublin, Ireland. Since March 2015, Mr. Rowland has served as a member of the board of
directors and chairman of the audit committee and compensation committee of Blueprint Medicines Corporation, a publicly
traded biopharmaceutical company. Mr. Rowland served as a member of the board of directors and audit committee of Idenix
Pharmaceuticals, Inc., a biopharmaceutical company, from June 2013, until it was acquired by Merck & Co., Inc. in
August 2014. Mr. Rowland served as a member of the board of directors and chairman of the audit committee of Vitae
Pharmaceuticals, Inc., from September 2014 until it was acquired by Allergan Inc., in September 2016. Mr. Rowland served as
a member of the board of directors and chairman of the audit committee of BIND Therapeutics, Inc., from May 2014 to
July 2016. Mr. Rowland holds a B.S. in Accounting from Saint Joseph’s University and an M.B.A. with a finance
concentration from Rutgers University. We believe that Mr. Rowland’s extensive professional experience as a chief financial
executive in the biotechnology and pharmaceutical industries and his experience serving as a director of various publicly traded
biotechnology companies qualifies him to serve as a member of our board of directors.
Hong Fang Song has served as a member of our board of directors since September 2017. Ms. Song is the founder and has
been a Senior Partner of ORI Capital since July 2015. Previously, from January 2010 to June 2015, Ms. Song was the
Managing Director of the China Healthcare Business Division of Goldman Sachs, a multinational investment bank and
financial services company. Ms. Song holds a B.A. in Economics from Fudan University, China and an M.A. in Economics
from Claremont Graduate School in the United States. We believe Ms. Song is qualified to serve on our board because of her
extensive experience in the healthcare sector.
Alicia Secor has served as a member of our board of directors since November 2018. Most recently, from August 2016 until its
sale to Catalent in August 2018, Ms. Secor served as president and chief executive officer at Juniper Pharmaceuticals, Inc., a
diversified public healthcare company. Prior to her role at Juniper, Ms. Secor held several leadership positions in the life
sciences industry, including chief commercial officer at Zafgen Inc. from January 2014 to July 2016, senior vice president and
chief operating officer at Synageva BioPharma Corp from August 2013 to October 2013, and roles of increasing responsibility
at Genzyme from November 1998 to July 2013, including serving as vice president and general manager of the metabolic
disease division. Ms. Secor is also a member of the board of directors at GW Pharmaceuticals, plc. and a board member of the
Foundation for Prader-Willi Research. She received her B.S. in health administration from the University of New Hampshire
and an MBA from Northeastern University. We believe Ms. Secor is qualified to serve on our board because of her experience
serving as an officer and director of various publicly traded biotechnology companies.
Family relationships
There are no family relationships among any of our executive officers or directors.
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B.
Compensation.
For the year ended December 31, 2018, 2017, and 2016, the aggregate compensation accrued or paid to the members of our
board of directors and our executive officers for services in all capacities was $13.6 million, $5.1 million, and $0.6 million,
respectively.
During and for the years ended December 31, 2018, 2017 and 2016, we had no performance-based compensation programs or
amount set aside or accrued by us to provide pension, retirement or similar benefits to members of our board of directors or
executive officers.
Non-executive director compensation
The compensation of our non-executive directors is determined by our board as a whole, based on a review of current practices
in other companies.
Equity incentive plans
2016 Employee share option plan with non-employee sub-plan and U.S. sub-plan
2016 Employee Share Option Plan
Our 2016 Plan was adopted by our board of directors on September 14, 2016 and approved by our shareholders on March 29,
2017 and became effective on September 14, 2016. Our 2016 Plan was subsequently amended by our board of directors on
February 7, 2018 and May 25, 2018. The 2016 Plan allows for the grant of options to our employees and executive directors.
The board of directors has determined not to grant any further awards under the 2016 Plan.
The 2016 Plan is administered by our board of directors. The board of directors has the authority to take all actions and make
all determinations under the 2016 Plan, to interpret the 2016 Plan and award agreements and to adopt, amend and repeal rules
for the administration of the 2016 Plan as it deems advisable, subject to certain limitations imposed under the 2016 Plan, and
other applicable laws and stock exchange rules. The plan administrator also has the authority to determine which eligible
service providers receive awards, grant awards, set the terms and conditions of all awards under the 2016 Plan, including any
vesting and vesting acceleration provisions, subject to the conditions and limitations in the 2016 Plan.
The 2016 Plan provides for the grant of options to purchase our ordinary shares in the future upon written exercise notice. All
awards under the 2016 Plan will be set forth in an option certificate, which will detail the terms and conditions of the awards,
including any exercise conditions and lapse information.
In connection with certain corporate transactions, including a change of control, our board of directors has broad discretion to
take action under the 2016 Plan to prevent the dilution or enlargement of intended benefits, or to facilitate the transaction or
event. This includes providing for the assumption or substitution of awards by a successor entity. In addition, in the event of a
change in control, the board of directors may accelerate the vesting and exercisability of any option in its discretion. The board
of directors may also specify a period of up to 90 days following a change in control during which such options must be
exercised and, if not so exercised, such options will terminate.
Except as our board of directors may determine or provide in an option certificate, options granted under the 2016 Plan are
generally non-transferrable, except by will or the laws of descent and distribution, and are generally exercisable only by the
participant. With regard to tax withholding obligations arising in connection with awards under the 2016 Plan, and exercise
price obligations arising in connection with the exercise of options under the 2016 Plan, the plan administrator may, in its
discretion, accept cash, wire transfer or check, or a net exercise arrangement.
As of December 31, 2018, options to purchase 10,074,321 shares of common stock remained outstanding under the 2016 Plan.
Our board of directors has determined not to make any further awards under the 2016 Plan.
2016 Non-Employee Sub-Plan
The 2016 Non-Employee Sub-Plan allows for the grant of options to our non-executive directors, consultants, advisers and
other non-employee service providers. Except as modified, all provisions of the 2016 Plan are incorporated into the 2016 Non-
Employee Sub-Plan and provides for awards to be made on identical terms to awards made under our 2016 Plan.
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2016 U.S. Sub-Plan
The 2016 U.S. Sub-Plan allows for the grant of options to an employee, director or consultant who is a U.S. resident or U.S.
taxpayer. The 2016 U.S. Sub-Plan permits the granting of both options to purchase ordinary shares intended to qualify as
incentive share options under Section 422 of the Code, and options that do not so qualify. Except as modified, all provisions of
the 2016 Plan are incorporated into the 2016 U.S. Sub-Plan and provides for awards to be made on identical terms to awards
made under our 2016 Plan.
2018 Share Option and Incentive Plan
Our 2018 Plan was adopted by our board of directors in October 2018 and approved by our shareholders in October 2018 and
became effective on October 30, 2018. The 2018 Plan will replace the 2016 Plan as our board of directors has determined not
to make additional awards under the 2016 Plan following the close of our initial public offering in November 2018. The 2018
Plan allows the compensation committee to make equity-based and cash-based incentive awards to our officers, employees,
directors and other key persons (including consultants). Except where the context indicates otherwise, references hereunder to
our ordinary shares shall be deemed to include a number of ADSs equal to the number of ordinary shares.
We initially reserved 4,254,741 ordinary shares, or the Initial Limit, for the issuance of awards under the 2018 Plan. The 2018
Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each
January 1, beginning on January 1, 2019, by 5% of the outstanding number of ordinary shares on the immediately preceding
December 31, or such lesser number of shares as determined by our compensation committee, or the Annual Increase. This
number is subject to adjustment in the event of a split-up, share dividend or other change in our capitalization.
The shares we issue under the 2018 Plan will be authorized but unissued shares or shares that we reacquire. The ordinary
shares underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the
exercise price or tax withholding, reacquired by us prior to vesting, satisfied without any issuance of shares, expire or are
otherwise terminated (other than by exercise) under the 2018 Plan and the 2016 Plan will be added back to the ordinary shares
available for issuance under the 2018 Plan.
The maximum aggregate number of shares that may be issued in the form of incentive share options shall not exceed the Initial
Limit cumulatively increased on January 1, 2019 and on each January 1 thereafter by the lesser of the Annual Increase for such
year or 4,254,741 ordinary shares.
The 2018 Plan is administered by our compensation committee. Our compensation committee has full power to select, from
among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards
to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2018 Plan.
Persons eligible to participate in the 2018 Plan are those full or part-time officers, employees, non-employee directors and
other key persons (including consultants) as selected from time to time by our compensation committee in its discretion.
The 2018 Plan permits the granting of both options to purchase ordinary shares intended to qualify as incentive share options
under Section 422 of the Code, and options that do not so qualify. The option exercise price of each option will be determined
by our compensation committee but may not be less than 100% of the fair market value of our ordinary shares on the date of
grant. The term of each option will be fixed by our compensation committee and may not exceed 10 years from the date of
grant. Our compensation committee will determine at what time or times each option may be exercised.
Our compensation committee may award share appreciation rights subject to such conditions and restrictions as it may
determine. Share appreciation rights entitle the recipient to ordinary shares, or cash, equal to the value of the appreciation in
our share price over the exercise price. The exercise price of each share appreciation right may not be less than 100% of the fair
market value of the ordinary shares on the date of grant.
Our compensation committee may award restricted shares and restricted share units to participants subject to such conditions
and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance
goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant
ordinary shares that are free from any restrictions under the 2018 Plan. Unrestricted shares may be granted to participants in
recognition of past services or other valid consideration and may be issued in lieu of cash compensation due to such
participant. Our compensation committee may grant cash bonuses under the 2018 Plan to participants, subject to the
achievement of certain performance goals.
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The 2018 Plan provides that in the case of, and subject to, the consummation of a “sale event” as defined in the 2018 Plan, all
outstanding awards may be assumed, substituted or otherwise continued by the successor entity. To the extent that the
successor entity does not assume, substitute or otherwise continue such awards, then (i) all share options and share appreciation
rights will automatically become fully exercisable and the restrictions and conditions on all other awards with time-based
conditions will automatically be deemed waived, and awards with conditions and restrictions relating to the attainment of
performance goals may become vested and non-forfeitable in connection with a sale event in the compensation committee’s
discretion and (ii) upon the effectiveness of the sale event, the 2018 Plan and all awards will automatically terminate. In the
event of such termination, (i) individuals holding options and share appreciation rights will be permitted to exercise such
options and share appreciation rights (to the extent exercisable) prior to the sale event; or (ii) we may make or provide for a
cash payment to participants holding options and share appreciation rights equal to the difference between the per share cash
consideration payable to shareholders in the sale event and the exercise price of the options or share appreciation rights (to the
extent then exercisable).
Our board of directors may amend or discontinue the 2018 Plan and our compensation committee may amend the exercise
price of options and amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose
but no such action may adversely affect rights under an award without the holder’s consent. Certain amendments to the 2018
Plan require the approval of our shareholders. No awards may be granted under the 2018 Plan after the date that is 10 years
from the date of shareholder approval.
As of December 31, 2018, options to purchase 129,011 ordinary shares were outstanding under the 2018 Plan and 219,922
unvested performance-based restricted share units were outstanding under the 2018 plan. The total share options and restricted
share units outstanding under the 2018 plan as of December 31, 2018 was 349,033.
2018 Employee Share Purchase Plan
Our 2018 Employee Share Purchase Plan, or the ESPP, was adopted by our board of directors in October 2018 and approved
by our shareholders in October 2018 and became effective on October 30, 2018. The ESPP is intended to qualify as an
“employee share purchase plan” within the meaning of Section 423(b) of the Code. Except where the context indicates
otherwise, references hereunder to our ordinary shares shall be deemed to include a number of ADSs equal to the number of
ordinary shares. The ESPP initially reserves and authorizes the issuance of up to a total of 850,948 ordinary shares to
participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically
increase each January 1, beginning on January 1, 2019 and each January 1 thereafter through January 1, 2028, by the least of (i)
1% of the outstanding number of ordinary shares on the immediately preceding December 31; (ii) 1,500,000 shares or (iii) such
number of shares as determined by the ESPP administrator. The number of shares reserved under the ESPP is subject to
adjustment in the event of a split-up, share dividend or other change in our capitalization.
All employees who have completed at least 30 days of employment and whose customary employment is for more than 20
hours per week are eligible to participate in the ESPP. However, any employee who owns 5% or more of the total combined
voting power or value of all classes of shares is not eligible to purchase shares under the ESPP.
We make one or more offerings each year to our employees to purchase shares under the ESPP. Unless otherwise determined
by our compensation committee, offerings usually begin on each January 1 and July 1 and continue for six-month periods,
referred to as offering periods. The first offering began on October 30, 2018. Each eligible employee may elect to participate in
any offering by submitting an enrollment form at least 15 business days before the relevant offering date.
Each employee who is a participant in the ESPP may purchase shares by authorizing payroll deductions of up to 15% of his or
her base compensation during an offering period. Unless the participating employee has previously withdrawn from the
offering, his or her accumulated payroll deductions will be used to purchase shares on the last business day of the offering
period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the
offering period, whichever is lower. Under applicable U.S. tax rules, an employee’s right to purchase shares under the ESPP
may not accrue at a rate that exceeds $25,000 worth of ordinary shares, valued at the start of the purchase period, under the
ESPP, for each calendar year in the purchase period.
The accumulated payroll deductions of any employee who is not a participant on the last day of an offering period will be
refunded. An employee’s rights under the ESPP terminate upon voluntary withdrawal from the plan or when the employee
ceases employment with us for any reason.
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The ESPP may be terminated or amended by our board of directors at any time. An amendment that increases the number of
ordinary shares authorized under the ESPP and certain other amendments require the approval of our shareholders.
C.
Board practices.
Composition of Our Board of Directors
Our board of directors is currently composed of nine members. As a foreign private issuer, under the listing requirements and
rules of Nasdaq, we are not required to have independent directors on our board of directors, except that our audit committee is
required to consist fully of independent directors, subject to certain phase-in schedules. However, our board of directors has
determined that James Geraghty, Joanne Beck, Marc Dunoyer, Jon Ellis, Charles Rowland Jr., Simone Song, and Alicia Secor
do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of
director and that each of these directors is “independent” as that term is defined under Nasdaq rules.
In accordance with our Articles of Association, our board members are elected for three-year terms and are subject to
retirement by rotation at annual general meetings of shareholders pursuant to our Articles of Association and at least once
every three years. A director who retires at an annual general meeting shall be eligible for reappointment if such director is
willing to be re-elected. The expiration of the current terms of the members of the Board of Directors and the period each
member has served in that term are as follows:
Name
Joanne Beck
Marc Dunoyer
Jon Ellis
Bobby Gaspar
James Geraghty
Mark Rothera
Charles Rowland Jr.
Alicia Secor
Hong Fang Song
Year Current
Term Began
Year Current
Term Expires
2018
2018
2018
2018
2018
2018
2018
2018
2018
2021
2020
2021
2019
2020
2020
2021
2019
2019
There are no arrangements or understanding between us and any of the members of our board of directors providing for
benefits upon termination of their service.
Committees of Our Board of Directors
Our board of directors has three standing committees: an audit committee, a compensation committee and a nominating and
corporate governance committee.
Audit Committee
The audit committee consists of Charles A. Rowland, Jr., Marc Dunoyer and Jon Ellis, Ph.D., and assists the board of directors
in overseeing our accounting and financial reporting processes. Mr. Rowland serves as chairman of the audit committee. The
audit committee consists exclusively of members of our board who are financially literate, and Mr. Rowland is considered an
“audit committee financial expert” as defined by applicable SEC rules and has the requisite financial sophistication as defined
under the applicable Nasdaq rules and regulations. Our board has determined that all of the members of the audit committee
satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act. The audit committee will be
governed by a charter that complies with Nasdaq rules.
The audit committee’s responsibilities include:
•
•
•
recommending the appointment of the independent auditor to the general meeting of shareholders;
the appointment, compensation, retention and oversight of any accounting firm engaged for the purpose of preparing or
issuing an audit report or performing other audit services;
pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is
engaged to render such services;
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186 Orchard Therapeutics plc
•
•
•
•
evaluating the independent auditor’s qualifications, performance and independence, and presenting its conclusions to the
full board of directors on at least an annual basis;
reviewing the adequacy of our internal controls with management and any remediation plan associated with any
significant control deficiencies or material weaknesses;
reviewing and discussing with management and our independent registered public accounting firm our financial
statements and our financial reporting process; and
reviewing, approving or ratifying any related party transactions.
Compensation Committee
The compensation committee consists of Charles A. Rowland, Jr., Joanne T. Beck, Ph.D, and Alicia Secor. and Mr. Rowland
serves as chairman of the compensation committee. Under SEC and Nasdaq rules, there are heightened independence standards
for members of the compensation committee, including a prohibition against the receipt of any compensation from us other
than standard board member fees. Although foreign private issuers are not required to meet this heightened standard, all of our
compensation committee members are expected to meet this heightened standard.
The compensation committee’s responsibilities include:
•
•
•
identifying, reviewing and proposing policies relevant to the compensation and benefits of our directors and executive
officers;
evaluating each executive officer’s performance in light of such policies and reporting to the board; and
overseeing and administering our employee share option scheme or equity incentive plans in operation from time to time.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee consists of James Geraghty and Marc Dunoyer and Mr. Geraghty will
serve as chairman of the nominating and corporate governance committee.
The nominating and corporate governance committee’s responsibilities include:
•
•
•
•
drawing up selection criteria and appointment procedures for directors;
recommending nominees for election to our board of directors and its corresponding committees;
assessing the functioning of individual members of our board of directors and executive officers and reporting the results
of such assessment to the board of directors; and
developing corporate governance guidelines.
D. Employees.
As of December 31, 2018, we had 180 full-time employees. Of these full-time employees, 80 employees are based in the
United Kingdom and European Union and 100 employees are based in the United States. We have no collective bargaining
agreements with our employees and we have not experienced any work stoppages. We consider our relationship with our
employees to be good.
E.
Share ownership.
For information regarding the share ownership of our directors and executive officers, see “Item 6.B – Compensation” and
“Item 7.A – Major shareholders.”
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Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders.
The following table sets forth information with respect to the beneficial ownership of Orchard Therapeutics plc’s ordinary
shares as of March 15, 2019 for:
•
•
•
each beneficial owner of 5% or more of our outstanding ordinary shares;
each of our directors and executive officers; and
all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or investment power with respect to those
securities and include ordinary shares that can be acquired within 60 days of March 15, 2019. Percentage ownership
calculations are based on 85,865,557 ordinary shares outstanding as of March 15, 2019.
Except as otherwise indicated, all of the shares reflected in the table are ordinary shares and all persons listed below have sole
voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property
laws. The information is not necessarily indicative of beneficial ownership for any other purpose.
Except as otherwise indicated in the table below, addresses of the directors, executive officers and named beneficial owners are
in care of Orchard Therapeutics plc, 108 Cannon Street, London EC4N 6EU, United Kingdom.
Name of Beneficial Owner
5% or Greater Shareholders:
Entities affiliated with F-Prime(1)
GSK(2)
Entities affiliated with Deerfield Management Company(3)
Entities affiliated with RA Capital Management (4)
Scottish Mortgage Investment Trust plc(5)
Entities affiliated with Temasek Holdings (Private) Limited (6)
Executive Officers and Directors:
Mark Rothera(7)
Frank E. Thomas(8)
Bobby Gaspar, M.D., Ph.D.(9)
James A. Geraghty(10)
Joanne T. Beck, Ph.D.(11)
Marc Dunoyer(12)
Jon Ellis, Ph.D.
Charles A. Rowland, Jr.(13)
Hong Fang Song
Alicia Secor
All current directors and executive officers as a group (10 persons)(14)
Represents beneficial ownership of less than one percent.
*
(1)
Number
Percent
20,407,650
12,455,252
8,023,600
4,845,933
4,823,325
4,319,049
977,221
206,313
938,782
44,391
9,294
37,179
—
12,294
—
—
2,225,474
23.8%
14.5%
9.3%
5.6%
5.6%
5.0%
1.1%
*
1.1%
*
*
*
*
*
*
*
2.6%
Consists of (i) 10,203,805 of our ordinary shares held of record by F-Prime Capital Partners Healthcare Fund IV LP; and (ii) 10,203,805 of our ordinary shares
held of record by F-Prime Capital Partners Healthcare Fund IV-A LP. F-Prime Capital Partners Healthcare Advisors Fund IV LP is the general partner of F-
Prime Capital Partners Healthcare Fund IV LP. F-Prime Capital Partners Healthcare Advisors Fund IV-A LP is the general partner of F-Prime Capital Partners
Healthcare Fund IV-A LP. Each of F-Prime Capital Partners Healthcare Advisors Fund IV LP and F-Prime Capital Partners Healthcare Advisors Fund IV-A LP
is solely managed by Impresa Management LLC, the managing member of its general partner and investment manager. Each of the entities listed above expressly
disclaims beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address of these entities is 245 Summer
Street, Boston, MA 02210.
(2)
Consists of 12,445,252 of our ordinary shares. The board of directors of GSK may be deemed to share voting and investment authority over the shares held by
GSK. The address of GSK is 980 Great West Road, Brentford, Middlesex, London TW8 9GS, UK.
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188 Orchard Therapeutics plc
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Consists of (i) 464,750 of our ordinary shares held by Deerfield Special Situations Fund, L.P.; (ii) 3,174,708 of our ordinary shares and ADSs held by Deerfield
Private Design Fund III, L.P.; (iii) 3,174,708 of our ordinary shares and ADSs held by Deerfield Private Design Fund IV, L.P.; and (iv) 1,209,434 of our ordinary
shares and ADSs held by Deerfield Partners, L.P. Deerfield Mgmt, L.P. is the general partner of Deerfield Special Situations Fund, L.P and Deerfield Partners,
L.P. Deerfield Mgmt III, L.P. is the general partner of Deerfield Private Design Fund III, L.P. Deerfield Mgmt IV, L.P. is the general partner of Deerfield Private
Design Fund IV, L.P. (collectively with Deerfield Special Situations Fund, L.P. and Deerfield Private Design Fund III, L.P., the “Deerfield Funds”). Deerfield
Management Company, L.P. is the investment manager of each of the Deerfield Funds. Mr. James E. Flynn is the sole member of the general partner of each of
Deerfield Mgmt, L.P., Deerfield Mgmt III, L.P., Deerfield Mgmt. IV, L.P. and Deerfield Management Company, L.P. Deerfield Mgmt, L.P. may be deemed to
beneficially own the shares held by Deerfield Special Situations Fund, L.P. and Deerfield Partners, L.P. Deerfield Mgmt III, L.P. may be deemed to beneficially
own the shares held by Deerfield Private Design III, L.P. Deerfield Mgmt IV, L.P. may be deemed to beneficially own the shares held by Deerfield Private
Design Fund IV, L.P. Each of Deerfield Management Company, L.P. and Mr. James E. Flynn may be deemed to beneficially own the securities held by the
Deerfield Funds. The address of the Deerfield Funds is 780 Third Avenue, 37th Floor, New York, NY 10017.
Based solely on a Schedule 13G filed jointly filed by RA Capital Management, LLC and Dr. Peter Kolchinsky on February 14, 2019. Consists of 4,845,933 of
our ADSs held by RA Capital Healthcare Fund, L.P. RA Capital Management, LLC is the general partner of RA Capital Healthcare Fund, L.P. Dr. Kolchinsky is
the manager of RA Capital Management, LLC. Each of RA Capital Management, LLC and Dr. Kolchinksy may be deemed to beneficially own the ADSs owned
by RA Capital Healthcare Fund, L.P., and each of RA Capital Management, LLC and Dr. Kolchinsky expressly disclaim beneficial ownership of such securities.
The address of RA Capital Management, LLC is 20 Park Plaza, Suite 1200, Boston, MA 02116.
Consists of (i) 4,823,325 of our ordinary shares and ADSs held by Scottish Mortgage Investment Trust plc (“SMIT”). As investment manager for SMIT, Baillie
Gifford & Co. may be deemed to share voting and investment control over the shares held by SMIT. SMIT is a publicly traded company. The address for SMIT
is c/o Baillie Gifford & Co., Calton Square, 1 Greenside Row, Edinburgh EH1 3AN, United Kingdom.
Based solely on a Schedule 13G filed jointly filed by Temasek Holdings (Private) Limited, or Temasek, Fullerton Management Pte Ltd, or FMPL, and Temasek
Life Sciences Private Limited, or TLS, on November 13, 2018. Consists of (i) 3,319,049 ordinary shares and ADRs held by TLS Beta Pte. Ltd, and (ii) 1,000,000
ADSs held by V-Sciences Investments Pte Ltd. TLS Beta Pte. Ltd and V-Sciences Investments Pte Ltd are wholly-owned subsidiaries of TLS which is a wholly
owned subsidiary of FMPL, which is a wholly owned subsidiary of Temasek. Each of TLS, FMPL, and Temasek, through the ownership described herein, may
be deemed to beneficially own the shares held by TLS Beta Pte. Ltd and V-Sciences Investments Pte Ltd. The address of Temasek is 60B Orchard Road, #06-18
Tower 2, The Atrium@Orchard, Singapore 238891.
Consists of (i) 90,304 of our ordinary shares and ADSs and (ii) 886,917 or our ordinary shares issuable upon exercise of options within 60 days of March 15,
2019.
Consists of (i) 14,294 of our ordinary shares and (ii) 192,019 of our ordinary shares issuable upon exercise of options within 60 days of March 15, 2019.
Consists of (i) 417,319 of our ordinary shares and (ii) 521,463 of our ordinary shares issuable upon exercise of options within 60 days of March 15, 2019.
Consists of 44,391 of our ordinary shares and ADSs.
Consists of 9,294 of our ordinary shares and ADSs.
Consists of 37,179 of our ordinary shares and ADSs.
Consists of 12,294 of our ordinary shares and ADSs.
Consists of (i) 625,075 of our ordinary shares and ADSs and (ii) 1,600,399 of our ordinary shares issuable upon exercise of options within 60 days of March 15,
2019.
To our knowledge, there has been no significant change in the percentage ownership held by the major shareholders listed
above since March 15, 2019.
B.
Related party transactions.
Since January 1, 2018, we have engaged in the following transactions with our directors, executive officers or holders of more
than 10% of our outstanding share capital and their affiliates, which we refer to as our related parties.
GSK asset purchase and license agreement
On April 11, 2018, we entered the GSK Agreement pursuant to which GSK transferred to us its portfolio of approved and
investigational rare disease gene therapies, including Strimvelis, the first approved gene therapy by the EMA, two late-stage
clinical gene therapy programs in ongoing registrational studies: OTL-200 for MLD and OTL-103 for WAS; and OTL-300, a
clinical-stage gene therapy program for TDBT. In addition, under this agreement, GSK novated to us their R&D Agreement
with the Telethon-OSR.
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Orchard Therapeutics plc 189
Upon execution of the agreement, we paid GSK a one-time upfront fee of £10.0 million, and we issued GSK 12,455,252 of our
Series B-2 convertible preferred shares. Under the GSK Agreement we are also obligated to pay non-refundable royalties and
milestone payments in relation to the gene therapy programs acquired and OTL-101. We will pay a mid single-digit percentage
royalty on the combined annual net sales of ADA-SCID products, which includes Strimvelis and our product candidate, OTL-
101. We will also pay tiered royalty rates at percentages from the mid-teens to the low twenties for the MLD and WAS
products, upon marketing approval, calculated as percentages of aggregate cumulative net sales of the MLD and WAS
products, respectively. We will pay a tiered royalty at percentages from the high single-digits to the low teens for the TDBT
product, upon marketing approval, calculated as percentages of aggregate annual net sales of the TDBT product. These
royalties owed to GSK are in addition to any royalties owed to other third parties under various license agreements for the GSK
programs. We may pay up to an aggregate of £90.0 million in milestone payments upon achievement of certain sales
milestones. Our royalty obligations with respect to MLD and WAS may be deferred for a certain period in the interest of
prioritizing available capital to develop each product. Our royalty obligations are subject to reduction on a product-by-product
basis in the event of market control by biosimilars, and will expire in April 2048. See Item 4.B “Business — License
agreements — GSK asset purchase and license agreement” for further information regarding the GSK Agreement.
In connection with this agreement, we also entered into (i) a transitional services agreement with GSK on April 11, 2018,
pursuant to which GSK has agreed to provide us certain transitional services in connection with the transfer of the assets
acquired under the GSK Agreement, and (ii) an inventory sale agreement with GSK on April 11, 2018, pursuant to GSK agreed
to transfer certain inventory related to the assets acquired under the GSK Agreement.
As a result of the GSK Agreement, GSK is currently a greater than 10% beneficial owner of our outstanding ordinary shares.
Director nomination agreement
In October 2018, we entered into a director nomination agreement with Glaxo Group Limited, or GSK, pursuant to which we
have agreed to nominate and appoint to our board of directors a designee of GSK during the period commencing upon the
completion of our initial public offering in November 2018 until such time as we obtain marketing approval and commercially
launch OTL-200 for MLD.
Subscription of our Series C convertible preferred shares
In August 2018, we sold an aggregate of 13,942,474 shares of our Series C convertible preferred shares at a purchase price of
$10.76 per share, pursuant to agreements entered into with the investors. The following table summarizes purchases of our
Series C convertible preferred shares by related persons:
Shareholder
Mark Rothera(1)
Frank E. Thomas(2)
James A. Geraghty(3)
Joanne T. Beck, Ph.D.(4)
Marc Dunoyer(5)
Charles A. Rowland, Jr.(6)
Series C
Convertible
Preferred
Shares
Total
Purchase
Price
24,979 $
9,294 $
34,391 $
9,294 $
37,179 $
9,294 $
268,796
100,000
370,000
100,000
400,000
100,000
(1) Mr. Rothera is our President, Chief Executive Officer and a member of our board of directors.
(2) Mr. Thomas is our Chief Financial Officer and Chief Business Officer.
(3) Mr. Geraghty is the chairman of our board of directors.
(4) Dr. Beck is a member of our board of directors.
(5) Mr. Dunoyer is a member of our board of directors.
(6) Mr. Rowland, Jr. is a member of our board of directors.
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190 Orchard Therapeutics plc
Participation in Our Initial Public Offering
In November 2018, we sold an aggregate of 16,103,572 ADS’s in our IPO at a price of $14.00 per share. The following table
summarizes purchases of ADSs in our IPO by related persons:
Shareholder
Mark Rothera(1)
Frank E. Thomas(2)
James A. Geraghty(3)
Charles A. Rowland, Jr.(4)
ADRs in IPO
Total
Purchase
Price
18,500 $
5,000 $
10,000 $
3,000 $
259,000
70,000
140,000
42,000
(1) Mr. Rothera is our President, Chief Executive Officer and a member of our board of directors.
(2) Mr. Thomas is our Chief Financial Officer and Chief Business Officer.
(3) Mr. Geraghty is the chairman of our board of directors.
(4) Mr. Rowland is a member of our board of directors.
Agreements with our executive officers and directors
We have entered into employment agreements with certain of our executive officers and service agreements with our non-
executive directors. These agreements contain customary provisions and representations, including confidentiality, non-
competition, non-solicitation and inventions assignment undertakings by the executive officers. However, the enforceability of
the non-competition provisions may be limited under applicable law.
Indemnification agreements
We have entered into a deed of indemnity with each of our directors and executive officers. These agreements and our Articles
of Association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
Related person transaction policy
We have adopted a written related party transactions policy that such transactions must be approved by our audit committee.
This policy became effective on October 30, 2018, the date on which our registration statement on Form F-1 was declared
effective by the SEC. Pursuant to this policy, the audit committee has the primary responsibility for reviewing and approving
or disapproving “related person transactions,” which are transactions between us and related persons in which the related
person has a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director,
executive officer, nominee for director, or greater than 5% beneficial owner of any class of our voting securities, and their
immediate family members.
C.
Interests of experts and counsel.
Not applicable.
Item 8. Financial Information
A.
Consolidated Statements and Other Financial Information.
See “Item 18. Financial Statements.”
B.
Significant Changes.
Not applicable.
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Orchard Therapeutics plc 191
Item 9. The Offer and Listing.
A. Offer and listing details.
Our ADSs began trading on the Nasdaq Global Select Market under the symbol “ORTX” on October 31, 2018.
On March 21, 2019, the last reported sale price of the ADSs on The Nasdaq Global Select Market was $17.00 per ADS.
B.
Plan of distribution.
Not applicable.
C. Markets.
The ADSs have been listed on the Nasdaq Global Select Market under the symbol “ORTX” since October 31, 2018.
D.
Selling shareholders
Not applicable.
E.
Dilution.
Not applicable.
F.
Expenses of the issue.
Not applicable.
Item 10. Additional Information.
A.
Share capital.
Not applicable.
B.
Memorandum and articles of association.
The information set forth in our prospectus dated October 31, 2018, filed with the SEC pursuant to Rule 424(b), under the
headings “Description of share capital and articles of association—Issued share capital,” “Description of share capital and
articles of association—Ordinary shares,” “Description of share capital and articles of association—Registered shares,”
“Description of share capital and articles of association—Preemptive rights,” “Description of share capital and articles of
association—Post-IPO articles of association,” “Description of share capital and articles of association—Other relevant laws
and regulations,” “Description of share capital and articles of association—Differences in corporate law,” and “Service of
process and enforcement of liabilities” is incorporated herein by reference.
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192 Orchard Therapeutics plc
C.
Material contracts.
Except as otherwise disclosed in this Annual Report (including the exhibits thereto), we are not currently, and have not been in
the last two years, party to any material contract, other than contracts entered into in the ordinary course of our business.
D.
Exchange controls.
There are no governmental laws, decrees, regulations or other legislation in the United Kingdom that may affect the import or
export of capital, including the availability of cash and cash equivalents for use by us, or that may affect the remittance of
dividends, interest, or other payments by us to non-resident holders of our ordinary shares or ADSs, other than withholding tax
requirements. There is no limitation imposed by the laws of England and Wales or our articles of association on the right of
non-residents to hold or vote shares.
E.
Taxation.
The following summary contains a description of material U.K. and U.S. federal income tax consequences of the acquisition,
ownership and disposition of our ordinary shares or ADSs. This summary should not be considered a comprehensive
description of all the tax considerations that may be relevant to beneficial owners of ADSs.
Material U.S. federal income tax considerations for U.S. holders
The following is a description of the material U.S. federal income tax consequences to the U.S. Holders described below of
owning and disposing of our ordinary shares or ADSs. It is not a comprehensive description of all tax considerations that may
be relevant to a particular person’s decision to acquire securities. This discussion applies only to a U.S. Holder that holds our
ordinary shares or ADSs as a capital asset for tax purposes (generally, property held for investment). In addition, it does not
describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including state
and local tax consequences, estate tax consequences, alternative minimum tax consequences, the potential application of the
Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special rules, such as:
•
•
•
•
•
•
•
•
•
•
•
banks, insurance companies, and certain other financial institutions;
U.S. expatriates and certain former citizens or long-term residents of the United States;
dealers or traders in securities who use a mark-to-market method of tax accounting;
persons holding ordinary shares or ADSs as part of a hedging transaction, “straddle,” wash sale, conversion transaction
or integrated transaction or persons entering into a constructive sale with respect to ordinary shares or ADSs;
persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;
brokers, dealers or traders in securities, commodities or currencies;
tax-exempt entities or government organizations;
S corporations, partnerships, or other entities or arrangements classified as partnerships for U.S. federal income tax
purposes;
regulated investment companies or real estate investment trusts;
persons who acquired our ordinary shares or ADSs pursuant to the exercise of any employee stock option or otherwise as
compensation; and
persons holding our ordinary shares or ADSs in connection with a trade or business, permanent establishment, or fixed
base outside the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes holds ordinary shares or ADSs, the U.S.
federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.
Partnerships holding ordinary shares or ADSs and partners in such partnerships are encouraged to consult their tax advisers as
to the particular U.S. federal income tax consequences of holding and disposing of ordinary shares or ADSs.
The discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed
Treasury Regulations, and the income tax treaty between the United Kingdom and the United States, or the Treaty, all as of the
date hereof, changes to any of which may affect the tax consequences described herein—possibly with retroactive effect.
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Orchard Therapeutics plc 193
A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of ordinary shares or ADSs and
is:
(i)
(ii)
An individual who is a citizen or individual resident of the United States;
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any
state therein or the District of Columbia;
(iii)
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
(iv)
a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust or (2) the trust has a valid election to be treated as a
U.S. person under applicable U.S. Treasury Regulations.
The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in
the deposit agreement and any related agreement will be complied with in accordance with their terms. Generally, a holder of
an ADS should be treated for U.S. federal income tax purposes as holding the ordinary shares represented by the ADS.
Accordingly, no gain or loss will be recognized upon an exchange of ADSs for ordinary shares. The U.S. Treasury has
expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security
underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying security.
Accordingly the creditability of foreign taxes, if any, as described below, could be affected by actions taken by intermediaries
in the chain of ownership between the holders of ADSs and our company if as a result of such actions the holders of ADSs are
not properly treated as beneficial owners of the underlying ordinary shares. These actions would also be inconsistent with the
claiming of the reduced tax rate, described below, applicable to dividends received by certain non-corporate holders.
PERSONS CONSIDERING AN INVESTMENT IN ORDINARY SHARES OR ADSs SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO THEM RELATING TO THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE ORDINARY SHARES OR ADSs, INCLUDING THE
APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS.
PFIC Rules
If we are classified as a PFIC in any taxable year, a U.S. Holder will be subject to special rules generally intended to reduce or
eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in a non-U.S.
company that does not distribute all of its earnings on a current basis.
A non-U.S. corporation will be classified as a PFIC for any taxable year in which, after applying certain look-through rules,
either:
•
•
at least 75% of its gross income is passive income (such as interest income); or
at least 50% of its gross assets (determined on the basis of a quarterly average) is attributable to assets that produce
passive income or are held for the production of passive income.
We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any
other corporation, the equity of which we own, directly or indirectly, 25% or more (by value).
We do not believe that we were a PFIC in the 2018 taxable year, though we have not made a determination regarding our PFIC
status in the current taxable year. However, a separate determination must be made after the close of each taxable year as to
whether we are a PFIC for that year. As a result, our PFIC status may change from year to year, and we may be classified as a
PFIC currently or in the future. The total value of our assets for purposes of the asset test generally will be calculated using the
market price of the ordinary shares or ADSs, which may fluctuate considerably. Fluctuations in the market price of the
ordinary shares or ADSs may result in our being a PFIC for any taxable year. However, if we are a “controlled foreign
corporation” for any taxable year (see discussion below in “Controlled foreign corporation considerations”), the value of our
assets for purposes of the asset test will be determined based on the tax basis of such assets which could increase the likelihood
that we are treated as a PFIC. Because of the uncertainties involved in establishing our PFIC status, there can be no assurance
regarding if we currently are treated as a PFIC, or may be treated as a PFIC in the future.
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194 Orchard Therapeutics plc
If we are classified as a PFIC in any year with respect to which a U.S. Holder owns the ordinary shares or ADSs, we will
continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which the U.S. Holder owns
the ordinary shares or ADSs, regardless of whether we continue to meet the tests described above unless (i) we cease to be a
PFIC and the U.S. Holder has made a “deemed sale” election under the PFIC rules, or (ii) the U.S. Holder makes a Qualified
Electing Fund Election, or QEF Election, with respect to all taxable years during such U.S. Holders holding period in which we
are a PFIC. If the “deemed sale” election is made, a U.S. Holder will be deemed to have sold the ordinary shares or ADSs the
U.S. Holder holds at their fair market value and any gain from such deemed sale would be subject to the rules described below.
After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, the U.S. Holder’s ordinary
shares or ADSs with respect to which such election was made will not be treated as shares in a PFIC and the U.S. Holder will
not be subject to the rules described below with respect to any “excess distribution” the U.S. Holder receives from us or any
gain from an actual sale or other disposition of the ordinary shares or ADSs. U.S. Holders should consult their tax advisors as
to the possibility and consequences of making a deemed sale election if we cease to be a PFIC and such election becomes
available.
For each taxable year we are treated as a PFIC with respect to U.S. Holders, U.S. Holders will be subject to special tax rules
with respect to any “excess distribution” such U.S. Holder receives and any gain such U.S. Holder recognizes from a sale or
other disposition (including, under certain circumstances, a pledge) of ordinary shares or ADSs, unless (i) such U.S. Holder
makes a QEF Election or (ii) our ordinary shares or ADSs constitute “marketable“ securities, and such U.S. Holder makes a
mark-to-market election as discussed below. Distributions a U.S. Holder receives in a taxable year that are greater than 125%
of the average annual distributions a U.S. Holder received during the shorter of the three preceding taxable years or the U.S.
Holder’s holding period for the ordinary shares or ADSs will be treated as an excess distribution. Under these special tax rules:
•
•
•
the excess distribution or gain will be allocated ratably over a U.S. Holder’s holding period for the ordinary shares or
ADSs;
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a
PFIC, will be treated as ordinary income; and
the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge
generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any
net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary shares or ADSs cannot be
treated as capital, even if a U.S. Holder holds the ordinary shares or ADSs as capital assets.
If we determine that we are a PFIC for any taxable year, we currently expect that we would provide the information necessary
for U.S. holders to make a QEF Election. In addition, if we are a PFIC, a U.S. Holder will generally be subject to similar rules
with respect to distributions we receive from, and our dispositions of the stock of, any of our direct or indirect subsidiaries that
also are PFICs, as if such distributions were indirectly received by, and/or dispositions were indirectly carried out by, such U.S.
Holder. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to our subsidiaries.
U.S. Holders can avoid the interest charge on excess distributions or gain relating to the ordinary shares or ADSs by making a
mark-to-market election with respect to the ordinary shares or ADSs, provided that the ordinary shares or ADSs are
“marketable.” Ordinary shares or ADSs will be marketable if they are “regularly traded” on certain U.S. stock exchanges or on
a foreign stock exchange that meets certain conditions. For these purposes, the ordinary shares or ADSs will be considered
regularly traded during any calendar year during which they are traded, other than in de minimis quantities, on at least 15 days
during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded. Our
ADSs will be listed on Nasdaq, which is a qualified exchange for these purposes. Consequently, if our ADSs remain listed on
Nasdaq and are regularly traded, we expect the mark-to-market election would be available to U.S. Holders if we are a PFIC.
Each U.S. Holder should consult its tax advisor as to the whether a mark-to-market election is available or advisable with
respect to the ordinary shares or ADSs.
A U.S. Holder that makes a mark-to-market election must include in ordinary income for each year an amount equal to the
excess, if any, of the fair market value of the ordinary shares or ADSs at the close of the taxable year over the U.S. Holder’s
adjusted tax basis in the ordinary shares or ADSs. An electing holder may also claim an ordinary loss deduction for the excess,
if any, of the U.S. Holder’s adjusted basis in the ordinary shares or ADSs over the fair market value of the ordinary shares or
ADSs at the close of the taxable year, but this deduction is allowable only to the extent of any net mark-to-market gains for
prior years. Gains from an actual sale or other disposition of the ordinary shares or ADSs will be treated as ordinary income,
and any losses incurred on a sale or other disposition of the shares will be treated as an ordinary loss to the extent of any net
mark-to-market gains for prior years. Once made, the election cannot be revoked without the consent of the Internal Revenue
Service, or the IRS, unless the ordinary shares or ADSs cease to be marketable.
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Orchard Therapeutics plc 195
However, a mark-to-market election generally cannot be made for equity interests in any lower-tier PFICs that we own, unless
shares of such lower-tier PFIC are themselves “marketable.” As a result, even if a U.S. Holder validly makes a mark-to-market
election with respect to our ordinary shares or ADSs, the U.S. Holder may continue to be subject to the PFIC rules (described
above) with respect to its indirect interest in any of our investments that are treated as an equity interest in a PFIC for U.S.
federal income tax purposes. U.S. Holders should consult their tax advisors to determine whether any of these elections would
be available and if so, what the consequences of the alternative treatments would be in their particular circumstances.
Unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an Annual Report
containing such information as the U.S. Treasury may require. A U.S. Holder’s failure to file the Annual Report will cause the
statute of limitations for such U.S. Holder’s U.S. federal income tax return to remain open with regard to the items required to
be included in such report until three years after the U.S. Holder files the Annual Report, and, unless such failure is due to
reasonable cause and not willful neglect, the statute of limitations for the U.S. Holder’s entire U.S. federal income tax return
will remain open during such period. U.S. Holders should consult their tax advisors regarding the requirements of filing such
information returns under these rules.
WE STRONGLY URGE INVESTORS TO CONSULT YOUR TAX ADVISOR REGARDING THE IMPACT OF OUR PFIC
STATUS ON YOUR INVESTMENT IN THE ORDINARY SHARES OR ADSs AS WELL AS THE APPLICATION OF
THE PFIC RULES TO YOUR INVESTMENT IN THE ORDINARY SHARES OR ADSs.
Controlled foreign corporation considerations
Each “Ten Percent Shareholder” (as defined below) in a non-U.S. corporation that is classified as a “controlled foreign
corporation,” or a CFC, for U.S. federal income tax purposes generally is required to include in income each year for U.S.
federal tax purposes such Ten Percent Shareholder’s pro rata share of certain types of income earned by the CFC, including
“Subpart F income,” “global intangible low-taxed income” and certain other income generated by the CFC, even if the CFC
has made no distributions to its shareholders. In addition, a Ten Percent Shareholder that realizes gain from the sale or
exchange of shares in the CFC may be required to classify a portion of such gain as dividend income rather than capital gain
(see discussion below in “Taxation of distributions” regarding the tax treatment of dividend income). A non-U.S. corporation
generally will be classified as a CFC for U.S. federal income tax purposes if Ten Percent Shareholders own, directly or
indirectly, more than 50% of either the total combined voting power of all classes of stock of such corporation entitled to vote
or of the total value of the stock of such corporation. A “Ten Percent Shareholder” is a United States person (as defined by the
Code) who owns or is considered to own 10% or more of either the total combined voting power of all classes of stock of such
corporation entitled to vote or of the total value of the stock of such corporation.
We believe that we were not a CFC in the 2017 taxable year, though we have not made a determination regarding our CFC
status in the current taxable year, and we may become a CFC in a subsequent taxable year. The determination of CFC status is
complex and includes attribution rules, the application of which is not entirely certain. In addition, recent changes to the
attribution rules relating to the determination of CFC status may make it difficult to determine our CFC status for any taxable
year. It is possible that a shareholder treated as a U.S. person for U.S. federal income tax purposes will acquire, directly or
indirectly, enough shares to be treated as a Ten Percent Shareholder. U.S. Holders should consult their own tax advisors with
respect to the potential adverse U.S. tax consequences of becoming a Ten Percent Shareholder in a CFC. If we are classified as
both a CFC and a PFIC, we generally will not be treated as a PFIC with respect to those U.S. Holders that meet the definition
of a Ten Percent Shareholder during the period in which we are a CFC.
Taxation of distributions
Subject to the discussion above under “PFIC rules,” distributions paid on ordinary shares or ADSs, other than certain pro rata
distributions of ordinary shares or ADSs, will generally be treated as dividends to the extent paid out of our current or
accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we may not calculate our
earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to U.S.
Holders as dividends. Subject to applicable limitations and the discussions above regarding concerns expressed by the U.S.
Treasury, dividends paid to certain non-corporate U.S. Holders may be taxable at preferential rates applicable to “qualified
dividend income” if we are a “qualified foreign corporation” and certain other requirements are met. However, the qualified
dividend income treatment may not apply if we are treated as a PFIC with respect to the U.S. Holder. The amount of the
dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received
deduction generally available to U.S. corporations under the Code. Dividends will generally be included in a U.S. Holder’s
income on the date of the U.S. Holder’s receipt of the dividend. The amount of any dividend income paid in foreign currency
will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive
receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars
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196 Orchard Therapeutics plc
on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend
income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of
receipt. Such gain or loss would generally be treated as U.S.-source ordinary income or loss. The amount of any distribution of
property other than cash (and other than certain pro rata distributions of ordinary shares or ADSs or rights to acquire ordinary
shares or ADSs) will be the fair market value of such property on the date of distribution.
For foreign tax credit limitation purposes, our dividends will generally be treated as passive category income. Because no U.K.
income taxes will be withheld from dividends on ordinary shares or ADSs, there will be no creditable foreign taxes associated
with any dividends that a U.S. Holder will receive. The rules governing foreign tax credits are complex and U.S. Holders
should therefore consult their tax advisers regarding the effect of the receipt of dividends for foreign tax credit limitation
purposes.
Sale or other taxable disposition of ordinary shares and ADSs
Subject to the discussion above under “PFIC rules,” gain or loss realized on the sale or other taxable disposition of ordinary
shares or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the ordinary
shares or ADSs for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax
basis in the ordinary shares or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S.
dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital
losses is subject to limitations.
If the consideration received by a U.S. Holder is not paid in U.S. dollars, the amount realized will be the U.S. dollar value of
the payment received determined by reference to the spot rate of exchange on the date of the sale or other disposition.
However, if the ordinary shares or ADSs are treated as traded on an “established securities market” and you are either a cash
basis taxpayer or an accrual basis taxpayer that has made a special election (which must be applied consistently from year to
year and cannot be changed without the consent of the IRS), you will determine the U.S. dollar value of the amount realized in
a non-U.S. dollar currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If
you are an accrual basis taxpayer that is not eligible to or does not elect to determine the amount realized using the spot rate on
the settlement date, you will recognize foreign currency gain or loss to the extent of any difference between the U.S. dollar
amount realized on the date of sale or disposition and the U.S. dollar value of the currency received at the spot rate on the
settlement date.
Information reporting and backup withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial
intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S.
Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct
taxpayer identification number and certifies that it is not subject to backup withholding on a duly executed Form W-9 or
otherwise establishes an exemption.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund,
provided that the required information is timely furnished to the IRS.
Information with respect to foreign financial assets
Certain U.S. Holders who are individuals (and, under regulations, certain entities) may be required to report information
relating to the ordinary shares or ADSs, subject to certain exceptions (including an exception for ordinary shares or ADSs held
in accounts maintained by certain U.S. financial institutions), by filing IRS Form 8938 (Statement of Specified Foreign
Financial Assets) with their federal income tax return. Such U.S. Holders who fail to timely furnish the required information
may be subject to a penalty. Additionally, if a U.S. Holder does not file the required information, the statute of limitations with
respect to tax returns of the U.S. Holder to which the information relates may not close until three years after such information
is filed. U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to their ownership and
disposition of the ordinary shares or ADSs.
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Orchard Therapeutics plc 197
U.K. Taxation
The following is intended as a general guide to current U.K. tax law and HMRC published practice applying as at the date of
this Annual Report (both of which are subject to change at any time, possibly with retrospective effect) relating to the holding
of ADSs. It does not constitute legal or tax advice and does not purport to be a complete analysis of all U.K. tax considerations
relating to the holding of ADSs, or all of the circumstances in which holders of ADSs may benefit from an exemption or relief
from U.K. taxation. It is written on the basis that the company is and remains solely resident in the U.K. for tax purposes and
will therefore be subject to the U.K. tax regime and not the U.S. tax regime save as set out above under “Material U.S. federal
income tax considerations for U.S. Holders.”
Except to the extent that the position of non-U.K. resident persons is expressly referred to, this guide relates only to persons
who are resident (and in the case of individuals, domiciled or deemed domiciled) for tax purposes solely in the U.K. and do not
have a permanent establishment, branch or agency (or equivalent) in any other jurisdiction with which the holding of the ADSs
is connected, or U.K. Holders, who are absolute beneficial owners of the ADSs (and do not hold the ADSs through an
Individual Savings Account or a Self-Invested Personal Pension) and any dividends paid in respect of the ADSs or underlying
ordinary shares (where the dividends are regarded for U.K. tax purposes as that person’s own income). It is assumed that for
the purposes of this guide that a holder of an ADS is the beneficial owner of the underlying ordinary share and any dividend
income for U.K. direct tax purposes.
This guide may not relate to certain classes of U.K. Holders, such as (but not limited to):
•
•
•
•
•
•
•
•
•
persons who are connected with the company;
financial institutions;
insurance companies;
charities or tax-exempt organizations;
collective investment schemes;
pension schemes;
brokers or dealers in securities or persons who hold ADSs otherwise than as an investment;
persons who have (or are deemed to have) acquired their ADSs by virtue of an office or employment or who are or have
been officers or employees of the company or any of its affiliates; and
individuals who are subject to U.K. taxation on a remittance basis.
THESE PARAGRAPHS ARE A SUMMARY OF CERTAIN U.K. TAX CONSIDERATIONS AND ARE INTENDED AS A
GENERAL GUIDE ONLY. IT IS RECOMMENDED THAT ALL HOLDERS OF ADSs OBTAIN ADVICE AS TO THE
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSAL OF THE ADSs IN THEIR OWN
PARTICULAR CIRCUMSTANCES FROM THEIR OWN TAX ADVISORS. IN PARTICULAR, NON-U.K. RESIDENT
OR DOMICILED PERSONS ARE ADVISED TO CONSIDER THE POTENTIAL IMPACT OF ANY RELEVANT
DOUBLE TAXATION AGREEMENTS.
Dividends
Withholding Tax
Dividends paid by the company will not be subject to any withholding or deduction for or on account of U.K. tax.
Income Tax
An individual U.K. Holder may, depending on his or her particular circumstances, be subject to U.K. tax on dividends received
from the company. An individual holder of ADSs who is not resident for tax purposes in the United Kingdom should not be
chargeable to U.K. income tax on dividends received from the company unless he or she carries on (whether solely or in
partnership) a trade, profession or vocation in the U.K. through a permanent establishment, branch or agency to which the
ADSs are attributable.
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198 Orchard Therapeutics plc
Dividend income is treated as the top slice of the total income chargeable to U.K. income tax. An individual U.K. Holder who
receives a dividend in the 2018/2019 tax year will be entitled to a tax-free allowance of £2,000. Dividend income in excess of
this tax-free allowance will be charged at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for
additional rate taxpayers.
Corporation tax
A corporate holder of ADSs who is not resident for tax purposes in the United Kingdom should not be chargeable to U.K.
corporation tax on dividends received from the company unless it carries on (whether solely or in partnership) a trade in the
United Kingdom through a permanent establishment to which the ADSs are attributable.
Corporate U.K. Holders should not be subject to U.K. corporation tax on any dividend received from the company so long as
the dividends qualify for exemption, which should be the case, although certain conditions must be met. If the conditions for
the exemption are not satisfied, or such U.K. Holder elects for an otherwise exempt dividend to be taxable, U.K. corporation
tax will be chargeable on the amount of any dividends (at the current rate of 19%).
Chargeable gains
A disposal or deemed disposal of ADSs by a U.K. Holder may, depending on the U.K. Holder’s circumstances and subject to
any available exemptions or reliefs (such as the annual exemption), give rise to a chargeable gain or an allowable loss for the
purposes of U.K. capital gains tax and corporation tax on chargeable gains.
If an individual U.K. Holder who is subject to U.K. income tax at either the higher or the additional rate is liable to U.K. capital
gains tax on the disposal of ADSs, the applicable rate will be 20% (2018/2019). For an individual U.K. Holder who is subject
to U.K. income tax at the basic rate and liable to U.K. capital gains tax on such disposal, the applicable rate would be 10%
(2018/2019), save to the extent that any capital gains exceed the unused basic rate tax band. In that case, the rate applicable to
the excess would be 20% (2018/2019).
If a corporate U.K. Holder becomes liable to U.K. corporation tax on the disposal (or deemed disposal) of ADSs, the main rate
of U.K. corporation tax (currently 19%) would apply.
A holder of ADSs which is not resident for tax purposes in the U.K. should not normally be liable to U.K. capital gains tax or
corporation tax on chargeable gains on a disposal (or deemed disposal) of ADSs, unless the person is carrying on (whether
solely or in partnership) a trade, profession or vocation in the United Kingdom through a permanent establishment, branch or
agency to which the ADSs are attributable. However, an individual holder of ADSs who has ceased to be resident for tax
purposes in the U.K. for a period of less than five years and who disposes of ADSs during that period may be liable on his or
her return to the U.K. to U.K. tax on any capital gain realized (subject to any available exemption or relief).
Stamp duty and stamp duty reserve tax
The discussion below relates to the holders of our ordinary shares or ADSs wherever resident, however it should be noted that
special rules may apply to certain persons such as market makers, brokers, dealers or intermediaries.
Issue of Ordinary Shares
No U.K. stamp duty or stamp duty reserve tax, or SDRT, is payable on the issue of the underlying ordinary shares in the
company.
Transfers of Ordinary Shares
An unconditional agreement to transfer ordinary shares will normally give rise to a charge to SDRT at the rate of 0.5% of the
amount or value of the consideration payable for the transfer. The purchaser of the shares is liable for the SDRT. Transfers of
ordinary shares in certificated form are generally also subject to stamp duty at the rate of 0.5% of the amount or value of the
consideration given for the transfer (rounded up to the next £5.00). Stamp duty is normally paid by the purchaser. The charge
to SDRT will be cancelled or, if already paid, repaid (generally with interest), where a transfer instrument has been duly
stamped within six years of the charge arising, (either by paying the stamp duty or by claiming an appropriate relief) or if the
instrument is otherwise exempt from stamp duty.
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Orchard Therapeutics plc 199
An unconditional agreement to transfer ordinary shares to, or to a nominee or agent for, a person whose business is or includes
the issue of depositary receipts or the provision of clearance services will generally be subject to SDRT (and, where the
transfer is effected by a written instrument, stamp duty) at a higher rate of 1.5% of the amount or value of the consideration
given for the transfer unless the clearance service has made and maintained an election under section 97A of the U.K. Finance
Act 1986, or a section 97A election. It is understood that HMRC regards the facilities of DTC as a clearance service for these
purposes and we are not aware of any section 97A election having been made by the DTC.
Based on current published HMRC practice following recent case law in respect of the European Council Directives
69/335/EEC and 2009/7/EC, or the Capital Duties Directives, no SDRT is generally payable where the transfer of ordinary
shares to a clearance service or depositary receipt system outside the European Union is an integral part of an issue of share
capital (although the relevant judgment refers to transfers which are integral to the raising of capital). In addition, a recent
Court of Justice of the European Union judgment (Air Berlin plc v HMRC (2017)) held on the relevant facts that the Capital
Duties Directives preclude the taxation of a transfer of legal title to shares for the sole purpose of listing those shares on a stock
exchange which does not impact the beneficial ownership of the shares, but, as yet, the U.K. domestic law and HMRC’s
published practice remain unchanged and, accordingly, we anticipate that amounts on account of SDRT will continue to be
collected by the depositary receipt issuer or clearance service. Holders of ordinary shares should consult their own independent
professional advisers before incurring or reimbursing the costs of such a 1.5% SDRT charge. Any stamp duty or SDRT payable
on a transfer of ordinary shares to a depositary receipt system or clearance service will in practice generally be paid by the
participants in the clearance service or depositary receipt system.
Transfers of ADSs
No U.K. stamp duty will in practice be payable on a written instrument transferring an ADS provided that the instrument of
transfer is executed and remains at all times outside the United Kingdom. Where these conditions are not met, the transfer of,
or agreement to transfer, an ADS could, depending on the circumstances, attract a charge to U.K. stamp duty at the rate of
0.5% of the value of the consideration.
No SDRT will be payable in respect of an agreement to transfer an ADS.
F.
Dividends and paying agents.
Not applicable.
G.
Statement by experts.
Not applicable.
H.
Documents on display.
We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers and file
reports under those requirements with the SEC. Those reports may be inspected without charge at the locations described
below. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content
of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to
file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose
securities are registered under the Exchange Act.
We maintain a corporate website at www.orchard-tx.com. Information contained in, or that can be accessed through, our
website is not a part of, and shall not be incorporated by reference into, this Annual Report. We have included our website
address in this Annual Report solely as an inactive textual reference.
You may also review a copy of this Annual Report, including exhibits and any schedule filed herewith, and obtain copies of
such materials at prescribed rates, at the SEC’s Public Reference Room in Room 1580, 100 F Street, NE, Washington, D.C.
20549-0102. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-
0330. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other
information regarding registrants, such as us, that file electronically with the SEC.
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200 Orchard Therapeutics plc
With respect to references made in this Annual Report to any contract or other document of our company, such references are
not necessarily complete and you should refer to the exhibits attached or incorporated by reference to this Annual Report for
copies of the actual contract or document.
I.
Subsidiary Information.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate sensitivity
As of December 31, 2018, we had cash of $335.8 million. Our exposure to interest rate sensitivity is impacted by changes in
the underlying U.K. and U.S. bank interest rates. Our surplus cash has been invested in interest-bearing savings accounts from
time to time. We have not entered into investments for trading or speculative purposes. Due to the conservative nature of our
investment portfolio, which is predicated on capital preservation of investments with short-term maturities, we do not believe
an immediate one percentage point change in interest rates would have a material effect on the fair market value of our
portfolio, and therefore we do not expect our operating results or cash flows to be significantly affected by changes in market
interest rates.
As of December 31, 2018, we had no debt outstanding and are therefore not subject to interest rate risk related to debt.
Foreign currency exchange risk
The Company is exposed to foreign currency exchange risk because it currently operates in the United Kingdom and the
United States. The reporting currency of the Company is the U.S. dollar. The Company has determined the functional currency
of the ultimate parent company, Orchard Therapeutics plc, is U.S. dollars because it predominantly raises finance and expense
cash in U.S. dollars, and expects to continue to do so in the future. Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency of the relevant entity at rates of exchange
prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into
the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from
foreign currency transactions are included in the determination of net income (loss) for the respective periods. We recorded a
foreign currency gain of $4.4 million and a $1.2 million loss for the years ended December 31, 2018 and 2017, respectively.
These foreign currency transaction gains and losses are included in other expense in our consolidated statements of operations
and comprehensive loss.
Assets and liabilities have been translated at the exchange rates at the balance sheet dates, while revenue and expenses are
translated at the average exchange rates over the reporting period and shareholders’ equity amounts are translated based on
historical exchange rates as of the date of each transaction. Translation adjustments are not included in determining net income
(loss) but are included in our foreign exchange adjustment to other comprehensive loss, a component of shareholders’ equity.
We do not currently engage in currency hedging activities in order to reduce our currency exposure, but we may begin to do so
in the future. Instruments that may be used to hedge future risks include foreign currency forward and swap contracts. These
instruments may be used to selectively manage risks, but there can be no assurance that we will be fully protected against
material foreign currency fluctuations.
Item 12. Description of Securities Other than Equity Securities.
A.
Debt Securities
Not applicable.
B.
Warrants and Rights.
Not applicable.
C.
Other Securities.
Not applicable.
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Orchard Therapeutics plc 201
D.
American Depositary Shares.
Citibank, N.A., or Citibank, as depositary bank, registers and delivers our American Depositary Shares, also referred to as
ADSs. Citibank’s depositary offices are located at, 388 Greenwich Street, New York, New York 10013. ADSs represent
ownership interests in securities that are on deposit with the depositary. ADSs may be represented by certificates that are
commonly known as American Depositary Receipts, or ADRs. The depositary typically appoints a custodian to safekeep the
securities on deposit. In this case, the custodian is Citibank, N.A., London Branch, located at 25 Canada Square, Canary Wharf,
London, E14 5LB, United Kingdom.
We have appointed Citibank as depositary pursuant to a deposit agreement. A copy of the deposit agreement is on file with the
SEC under cover of a registration statement on Form F-6. A copy of the deposit agreement may be obtained from the SEC’s
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and from the SEC’s website (www.sec.gov). Please
refer to registration number 333-227905 when retrieving such copy.
As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:
Service
Issuance of ADSs (e.g., an issuance of ADS upon a deposit of ordinary shares or upon
a change in the ADS(s)-to-ordinary shares ratio), excluding ADS issuances as a result
of distributions of ordinary shares
Fee
Up to $0.05 per ADS issued
Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited property
or upon a change in the ADS(s)-to-ordinary shares ratio)
Up to $0.05 per ADS cancelled
Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights
and other entitlements)
Up to $0.05 per ADS held
Distribution of ADSs pursuant to (i) share dividends or other free share distributions,
or (ii) exercise of rights to purchase additional ADSs
Up to $0.05 per ADS held
Distribution of securities other than ADSs or rights to purchase additional ADSs
(e.g., upon a spin-off)
Up to $0.05 per ADS held
ADS Services
Up to $0.05 per ADS held on the
applicable record date(s) established by
the depositary
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202 Orchard Therapeutics plc
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not applicable.
PART II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
Not applicable.
Item 15. Controls and Procedures.
A.
Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
December 31, 2018. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that,
as of December 31, 2018, our disclosure controls and procedures were not effective because of the material weakness described
below. We are undertaking the remedial steps to address the material weakness in our disclosure controls and procedures as set
forth below under “Remediation of Previously Identified Material Weakness, and Management’s Plan for Remediation of
Remaining Material Weakness.”
B. Management’s annual report on internal control over financial reporting.
This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting
due to a transition period established by the SEC’s rules for newly public companies.
C.
Attestation report of the registered public accounting firm
This Annual Report does not include an attestation report of our registered public accounting firm due to a transition period
established by rules of the SEC for newly public companies. Additionally, our independent registered public accounting firm
will not be required to opine on our internal control over financial reporting until we are no longer an emerging growth
company.
D.
Changes in internal control over financial reporting.
Other than disclosed below, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f)
of the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Remediation of Previously Identified Material Weakness, and Management’s Plan for Remediation of Remaining Material
Weakness
Our management previously identified deficiencies that were concluded to represent material weaknesses in our internal
control over financial reporting where we did not design or implement sufficient processes, controls and other review
procedures performed by personnel familiar with U.S. GAAP to evaluate (i) the recognition and accrual of research and
development related expenses and reimbursements and (ii) the recognition of assets and liabilities contingent on future events.
SEC guidance regarding management’s report on internal control over financial reporting defines a material weakness as a
deficiency or 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 and corrected on a
timely basis.
With the oversight of senior management and our audit committee, we continue to evaluate our internal control over financial
reporting and have taken several remedial actions to address the material weaknesses that have been identified:
•
We hired a full-time Chief Financial Officer in January 2018, who has significant experience with establishing
appropriate financial reporting policies and experience in supporting, designing and implementing effective internal
controls over financial reporting;
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Orchard Therapeutics plc 203
•
•
We have implemented formal procedures relating to period end financial reporting and the identification and resolution
of non-routine transactions, and;
We have hired additional finance and accounting personnel with appropriate expertise to perform specific functions and
intend to hire additional personnel to further assist in the implementation of improved processes and internal controls,
build our financial management and reporting infrastructure and further develop and document our accounting policies
and financial reporting procedures, including ongoing senior management review and audit committee oversight.
We have determined that through the actions described above we have remediated the previously identified material weakness
associated with our accounting for assets and liabilities contingent on future events.
We have taken and plan to continue to take actions, as described above, that will improve our overall system of internal control
over financial reporting. We expect that these measures will be sufficient to remediate the remaining material weakness.
However, these measures are still ongoing and changes to internal controls over financial reporting need to operate for a period
of time in order for management to evaluate and test whether the internal control changes are effective.
Item 16A. Audit committee financial expert.
The audit committee consists of Charles A. Rowland, Jr., Marc Dunoyer and Jon Ellis, Ph.D. Mr. Rowland will serve as
chairman of the audit committee. The audit committee consists exclusively of members of our board who are financially
literate, and Mr. Rowland is considered an “audit committee financial expert” as defined by applicable SEC rules and has the
requisite financial sophistication as defined under the applicable Nasdaq rules and regulations. Our board has determined that
all of the members of the audit committee satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange
Act.
Item 16B. Code of Ethics.
We have adopted a Code of Ethics, applicable to our and our subsidiaries’ employees, independent contractors, senior
management and directors, including our principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A current copy of the Code of Ethics is posted on our website, which is
located at www.orchard-tx.com. Information contained on, or that can be accessed through, our website does not constitute a
part of this Annual Report and is not incorporated by reference herein.
Item 16C. Principal Accountant Fees and Services.
PricewaterhouseCoopers LLP has served as our independent registered public accountant since June 2018 and has audited our
consolidated financial statements for the years ended December 31, 2018, 2017 and 2016, which appear elsewhere in this
Annual Report.
The following table shows the aggregate fees for services rendered by PricewaterhouseCoopers LLP to us and our subsidiaries,
in the fiscal year ended December 31, 2018 (presented in thousands).
Fee Category
Audit fees
Audit-related fees
Tax fees
All other fees
Total
Year Ended December 31,
2018
2017
(in thousands)
$
$
2,970 $
—
—
50
3,020 $
—
—
—
—
—
Audit Fees. Audit fees consisted $1,063 in fees for the audit and review of our annual and interim financial statements
included in our registration statement for the periods ended December 31, 2016 and 2017, and June 30, 2017 and 2018. Audit
fees also include $513 in fees for the audit and review of our annual financial statements included in this Annual Report for the
year ended December 31, 2018. Additionally, Audit fees consists of $1,394 of fees billed in connection with our initial public
offering that closed in November 2018.
151
204 Orchard Therapeutics plc
All other fees. All other fees represent $47 in consulting costs associated with our corporate reorganization and $3 for access to
PricewaterhouseCoopers LLP online accounting research tool.
Audit Committee Pre-Approval Policies and Procedures
Our audit committee reviews and pre-approves the scope and the cost of audit services related to us and permissible non-audit
services performed by the independent auditors, other than those for de minimis services which are approved by the audit
committee prior to the completion of the audit. All of the services related to our company provided by PricewaterhouseCoopers
LLP during the last fiscal year have been approved by the audit committee.
Item 16D. Exemptions from the Listing Standards for Audit Committees.
The Nasdaq listing rules mandated by Rule 10A-3(b) of the Exchange Act require, among other things, that each member of
the audit committee be independent. A company listing in connection with its IPO may phase in its compliance with the
independent committee requirement pursuant to Rule 10A-3(b)(1)(iv)(A) of the Exchange Act. Accordingly, a company listing
in connection with its IPO is permitted to phase in its compliance with the independent committee requirements as follows:
(1) one independent member at the time of listing; (2) a majority of independent members within 90 days of listing; and (3) all
independent members within one year of listing.
Immediately after our IPO, our audit committee consisted of Charles A. Rowland, Marc Dunoyer and Jon Ellis, Ph.D. Our
audit committee currently consists of these same individuals. Mr. Rowland, Mr. Dunoyer, and Mr. Ellis meet the independence
standards of Nasdaq Listing Rule 5605(a)(2) and satisfy the criteria for independence set forth in Section 10A(m)(3) of the
Exchange Act. Our board has determined that all of the members of the audit committee satisfy the “independence”
requirements set forth in Rule 10A-3under the Exchange Act. The audit committee will be governed by a charter that complies
with Nasdaq rules.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Not applicable.
Item 16F. Change in Registrant’s Certifying Accountant.
Our statutory financial statements were audited by Blick Rothenberg Audit LLP, or Blick Rothenberg for the years ended
December 31, 2016 and 2017 as our group statutory auditor under U.K. GAAP in accordance with International Standards on
Auditing (United Kingdom and Ireland). At the time Blick Rothenberg performed audit services for us, we were not a public
company and were not subject to SEC regulations. In preparation for our initial public offering, on August 2, 2018, we engaged
PricewaterhouseCoopers LLP to audit our financial statements for the years ended December 31, 2016 and 2017 under U.S.
GAAP in accordance with standards of the U.S. Public Company Accounting Oversight Board. These financial statements,
including PricewaterhouseCoopers audit report thereon, are included in this Annual Report. The engagement of
PricewaterhouseCoopers LLP was approved by our board of directors. On December 14, 2018, our Audit Committee appointed
PricewaterhouseCoopers LLP as our group statutory auditor, and we dismissed Blick Rothenberg.
For our fiscal years ended December 31, 2016 and 2017 and the subsequent interim periods through December 14, 2018, no
report by Blick Rothenberg related to our statutory financial statements under U.K. GAAP contained an adverse opinion or a
disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles. During such time
period, there were no disagreements or reportable events (as defined by 20-F 16Fa(V)(a)) between us and Blick Rothenberg on
any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
We have provided Blick Rothenberg with a copy of the disclosure contained in this annual report, which was received by Blick
Rothenberg on March 6, 2019. Blick Rothenberg have furnished a letter addressed to the SEC which is filed as an exhibit to
this Annual Report on Form 20-F stating agreement with the statements made in this Annual Report.
Item 16G. Corporate Governance.
We are a “foreign private issuer,” as defined by the SEC. As a result, in accordance with Nasdaq listing requirements, we may
rely on home country governance requirements and certain exemptions thereunder rather than complying with Nasdaq
corporate governance standards. While we voluntarily follow most Nasdaq corporate governance rules, we may choose to take
advantage of the following limited exemptions:
152
Orchard Therapeutics plc 205
•
•
•
•
•
•
•
exemption from filing quarterly reports on Form 10-Q containing unaudited financial and other specified information or
current reports on Form 8-K upon the occurrence of specified significant events;
exemption from Section 16 rules requiring insiders to file public reports of their stock ownership and trading activities
and liability for insiders who profit from trades in a short period of time, which will provide less data in this regard than
shareholders of U.S. companies that are subject to the Exchange Act;
exemption from the Nasdaq requirement requiring disclosure of any waivers of the Code of Business Conduct and
Ethics, or Code of Ethics, for directors and officers;
exemption from the requirement to obtain shareholder approval for certain issuances of securities, including shareholder
approval of share option plans;
exemption from the requirement that our audit committee have review and oversight over all “related party transactions,”
as defined in Item 7.B of Form 20-F;
exemption from the requirement that our board have a compensation committee that is composed entirely of independent
directors with a written charter addressing the committee’s purpose and responsibilities; and
exemption from the requirement to have independent director oversight of director nominations.
We intend to follow U.K. corporate governance practices in lieu of Nasdaq corporate governance requirements as follows:
•
•
We do not intend to follow Nasdaq Rule 5620(c) regarding quorum requirements applicable to meetings of shareholders.
Such quorum requirements are not required under English law. In accordance with generally accepted business practice,
our Articles of Association will provide alternative quorum requirements that are generally applicable to meetings of
shareholders.
We do not intend to follow Nasdaq Rule 5605(b)(2), which requires that independent directors regularly meet in
executive sessions where only independent directors are present. Our independent directors may choose to meet in
executive sessions at their discretion.
Although we may rely on certain home country corporate governance practices, we must comply with Nasdaq’s Notification of
Noncompliance requirement (Nasdaq Rule 5625) and the Voting Rights requirement (Nasdaq Rule 5640). Further, we must
have an audit committee that satisfies Nasdaq Rule 5605(c)(3), which addresses audit committee responsibilities and authority
and requires that the audit committee consist of members who meet the independence requirements of Nasdaq
Rule 5605(c)(2)(A)(ii).
Because we are a foreign private issuer, our directors and senior management are not subject to short-swing profit and insider
trading reporting obligations under Section 16 of the Exchange Act. They will, however, be subject to the obligations to report
changes in share ownership under Section 13 of the Exchange Act and related SEC rules.
We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicable corporate
governance requirements of the Sarbanes-Oxley Act, the rules adopted by the SEC and Nasdaq listing rules.
Accordingly, our shareholders will not have the same protections afforded to shareholders of companies that are subject to all
of the corporate governance requirements of Nasdaq. For an overview of our corporate governance principles, see the section
titled “Description of share capital and articles of association—Differences in corporate law.”
Item 16H. Mine Safety Disclosure
Not applicable.
153
206 Orchard Therapeutics plc
Item 17. Financial Statements.
We have elected to provide financial statements pursuant to Item 18.
PART III
Item 18. Financial Statements.
The financial statements are filed as part of this Annual Report beginning on page F-1.
Item 19. Exhibits.
List all exhibits filed as part of the registration statement or Annual Report, including exhibits incorporated by reference.
Exhibit
Number
1.1*
Description
Articles of Association of Orchard Therapeutics
plc
2.1*
Deposit Agreement
Incorporation by Reference
Schedule/Form
File Number
Exhibit
File Date
2.2*
2.1†
4.1
4.2#
4.3*#
4.4
Form of American Depositary Receipt (included in
Exhibit 2.1)
Asset Purchase and License Agreement, by and
among the registrant, Glaxo Group Limited and
GlaxoSmithKline Intellectual Property
Development Ltd., dated April 11, 2018
(schedules, exhibits, and similar supporting
attachments are omitted pursuant to
Item 601(b)(2) of Regulation S-K. The registrant
agrees to furnish a supplemental copy of any
omitted schedule or similar attachment to the
Securities and Exchange Commission upon
request).
Investment and shareholders’ agreement by and
between the registrant and the shareholders named
therein, dated August 2, 2018.
2016 Employee Share Option Plan with Non-
Employee Sub-Plan and U.S. Sub-Plan, as
amended.
2018 Share Option and Incentive Plan. (Note: This
exhibit is filed to replace Exhibit 10.3 to our Form
F-1/A filed October 23, 2018, which contained
typographical errors.)
Form F-1
333-227698
2.1
10/4/18
Form F-1
333-227698
10.1
10/4/18
Form F-1
333-227698
10.2
10/4/18
Deed of Novation, by and among the registrant,
Glaxo Group Limited, GlaxoSmithKline
Intellectual Property Development Limited,
GlaxoSmithKline S.p.A., Fondazione Telethon and
Ospedale San Raffaele (in its own capacity and as
successor in interest to Fondazione Centro San
Raffaele Del Monte Tabor), dated April 5, 2018.
Form F-1
333-227698
10.4
10/4/18
154
Orchard Therapeutics plc 207
4.5
4.6#
4.7
4.8†
4.9†
Research and Development Collaboration and
License Agreement, by and among Glaxo Group
Limited, Fondazione Telethon and Fondazione
Centro San Raffaele del Monte Tabor, dated
October 15, 2010, as amended.
Form of Deed of Indemnity between the registrant
and each of its directors and executive officers.
Lease Agreement, dated as of January 19, 2018,
by and between the Registrant and New Connect
Investments Limited.
License and Development Agreement, by and
between the registrant and Oxford BioMedica
(UK) Limited, dated November 28, 2016, as
amended.
Form F-1
333-227698
10.5
10/4/18
Form F-1
333-227698
10.6
10/4/18
Form F-1
333-227698
10.7
10/4/18
Form F-1
333-227698
10.8
10/4/18
License Agreement between UCL Business Plc,
The Regents of the University of California and the
registrant, dated February 6, 2016, as amended.
Form F-1
333-227698
10.9
10/4/18
10.10
10.11
10/23/18
10/23/18
4.10#
2018 Employee Share Purchase Plan.
Form F-1/A 333-227698
Form F-1/A 333-227698
4.11
4.12*
Director Nomination Agreement, dated as of
October 18, 2018, by and between the registrant
and Glaxo Group Limited.
Lease Agreement, dated as of December 11, 2018,
by and between BPP Pacific Industrial CA Non-
REIT Owner 2 LLC and Orchard Therapeutics
North America
4.13*
Letter of Blick Rothenberg Audit LLP, dated
March 19, 2019 regarding changes in Registrant’s
certifying accountants
8.1*
Subsidiaries of the registrant
12.1*
Certification of Principal Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
12.2*
Certification of Principal Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
13.1+
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
155
208 Orchard Therapeutics plc
13.2+
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
15.1*
Consent of Independent Registered Public
Accounting Firm
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB* XBRL Taxonomy Extension Label Linkbase
Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase
Document
Filed herewith.
Furnished herewith
Confidential treatment has been requested for portions of this exhibit. These portions have been omitted from the
registration statement and filed separately with the United States Securities and Exchange Commission.
Indicates a management contract or any compensatory plan, contract or arrangement.
*
+
†
#
156
Orchard Therapeutics plc 209
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this Annual Report on its behalf.
SIGNATURES
Date: March 22, 2019
Orchard Therapeutics plc
By:
/s/ Mark Rothera
Mark Rothera
President and Chief Executive Officer
157
210 Orchard Therapeutics plc
Index to the Financial Statements
Report of independent registered public accounting firm
Consolidated balance sheets
Consolidated statements of operations and comprehensive loss
Consolidated statements of convertible preferred shares and shareholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
Orchard Therapeutics plc 211
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Orchard Therapeutics plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Orchard Therapeutics plc and its subsidiaries (the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive loss,
of convertible preferred shares and shareholders’ equity, and of cash flows for each of the three years in the period ended
December 31, 2018, including 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 as
of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated 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 of these consolidated financial statements 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 consolidated financial
statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Reading, United Kingdom
March 22, 2019
We have served as the Company's auditor since 2018.
F-2
212 Orchard Therapeutics plc
Orchard Therapeutics plc
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets
Current assets:
Cash
Trade and other receivables
Prepaid expenses and other current assets
Research and development tax credit receivable
Total current assets
Non-current assets:
Property and equipment, net
Restricted cash
Other long-term assets
Total non-current assets
Total assets
Liabilities, convertible preferred shares and shareholders’ equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity:
December 31,
2018
2017
$
$
$
335,844 $
2,153
6,935
10,585
355,517
5,476
3,837
1,212
10,525
366,042 $
18,125 $
29,780
47,905
6,799
54,704
89,856
1,247
2,247
871
94,221
2,713
—
360
3,073
97,294
3,891
6,864
10,755
134
10,889
Convertible preferred shares, £0.00001 par value; 33,771,174 shares
authorized as of December 31, 2017; 33,277,678 shares issued and
outstanding as of December 31, 2017; aggregate liquidation preference of
$139,954 as of December 31, 2017.
Ordinary shares, £0.10 par value, authority to allot up to a maximum nominal
value of £13,023,851.50 and £675,413 of shares at December 31, 2018 and
2017, respectively;85,865,557 and 8,927,121 shares issued and outstanding
at December 31, 2018 and 2017, respectively.
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total shareholders’ equity
Total liabilities, convertible preferred shares and shareholders’ equity
$
—
134,069
10,924
587,490
3,163
(290,239)
311,338
366,042 $
1,145
6,808
4,127
(59,744)
86,405
97,294
The accompanying notes are an integral part of these consolidated financial statements..
F-3
Orchard Therapeutics plc 213
Orchard Therapeutics plc
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share amounts)
Product sales, net
Costs and operating expenses
Cost of product sales
Research and development
Selling, general and administrative
Total costs and operating expenses
Loss from operations
Other income (expense):
Interest income
Change in fair value of tranche obligations
Other income (expense)
Total other income (expense), net
Net loss before income tax
Income tax expense
Net loss attributable to ordinary shareholders
Other comprehensive (loss) income
Foreign currency translation adjustment
2018
Year Ended December 31,
2017
2016
$
2,076 $
— $
—
422
205,319
31,366
237,107
(235,031)
1,116
—
4,390
5,506
(229,525)
(970)
(230,495) $
(964)
(231,459) $
(10.22) $
—
32,527
5,985
38,512
(38,512)
—
—
(1,179)
(1,179)
(39,691)
(53)
(39,744) $
4,398
(35,346) $
(4.48) $
—
16,206
2,997
19,203
(19,203)
3
289
(154)
138
(19,065)
(20)
(19,085)
(271)
(19,356)
(2.69)
22,559,389
8,872,768
7,100,528
$
Total comprehensive loss
$
Net loss per share attributable to ordinary shareholders, basic and diluted $
Weighted average number of ordinary shares outstanding, basic and
diluted
The accompanying notes are an integral part of these consolidated financial statements.
F-4
214 Orchard Therapeutics plc
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Orchard Therapeutics plc 215
Orchard Therapeutics plc
Consolidated Statements of Cash Flows
(In thousands, except share amounts)
Cash flows from operating activities
Net loss
$
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense
Share-based compensation
Amortization of provision on loss contract
Non-cash consideration for licenses and milestones
Change in fair value of tranche obligation liability
Changes in components of operating assets and liabilities:
Trade and other receivables
Research and development tax credit receivable, prepaids and other
assets
Accounts payable
Accrued expenses and other current liabilities
Other long-term liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Issuance of convertible preferred shares, net of issuance costs
Issuance of ADRs in initial public offering, net of issuance costs
Proceeds from share options
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net increase in cash and restricted cash
Cash and restricted cash —beginning of year
Cash and restricted cash —end of year
Supplemental disclosure of non-cash investing and financing
activities
Conversion of promissory note to convertible preferred shares
Issuance of tranche obligations with convertible preferred shares
Settlement of tranche obligations
Property and equipment included in accrued expenses and accounts
payable at period end
Convertible preferred shares issued for licenses
$
$
$
$
$
Year Ended December 31,
2018
2017
2016
(230,495) $
(39,744) $
(19,085)
1,199
6,766
(6,300)
94,776
—
302
1,019
—
3,126
—
6
204
—
3,089
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(927)
(1,168)
—
(15,946)
14,848
31,663
6,880
(97,536) $
(2,737)
1,930
4,672
113
(32,487) $
(4,032)
(4,032) $
(1,559)
(1,559) $
149,367
205,469
28
354,864 $
(3,471)
249,825 $
89,856
339,681 $
—
—
—
—
93,391
115,696
—
—
115,696 $
4,709
86,359 $
3,497
89,856 $
— $
—
1,402
1,247
—
(639)
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1,460
22
(14,566)
(190)
(190)
18,034
—
—
18,034
(751)
2,527
970
3,497
946
2,459
451
—
—
The accompanying notes are an integral part of these consolidated financial statements.
F-6
216 Orchard Therapeutics plc
Orchard Therapeutics plc
Notes to Consolidated Financial Statements
1. Nature of Business and Basis of Presentation
Orchard Therapeutics plc (the “Company”), a commercial-stage fully-integrated biopharmaceutical company dedicated to
transforming the lives of patients with serious and life- threatening rare diseases through autologous ex vivo gene therapies.
The Company’s gene therapy approach seeks to transform a patient’s own, or autologous, hematopoietic stem cells (HSCs) into
a gene-modified drug product to treat the patient’s disease through a single administration. The Company has acquired and
developed a portfolio of autologous ex vivo gene therapies focused on three franchises in which it accumulates expertise,
including primary immune deficiencies, inherited metabolic disorders and hemoglobinopathies. The Company’s programs
include Strimvelis, the first autologous ex vivo gene therapy approved by the EMA for ADA-SCID, three clinical programs in
advanced registrational studies in metachromatic leukodystrophy (“MLD”), Wiskott–Aldrich syndrome (“WAS”) and
adenosine deaminase severe combined immunodeficiency (“ADA-SCID”), other clinical programs in X-linked chronic
granulomatous disease (“X-CGD”) and transfusion-dependent beta-thalassemia (“TDBT”), as well as an extensive preclinical
pipeline.
The Company is a public limited company incorporated pursuant to the laws of England and Wales. Orchard Therapeutics plc
(formerly Orchard Rx Limited) was originally incorporated under the laws of England and Wales in August 2018 to become a
holding company for Orchard Therapeutics Limited. Orchard Therapeutics Limited was originally incorporated under the laws
of England and Wales in September 2015 as Newincco 1387 Limited and subsequently changed its name to Orchard
Therapeutics Limited in November 2015.
Pursuant to the corporate reorganization, all the interests in Orchard Therapeutics Limited were exchanged for the same
number and class of newly issued shares of Orchard Rx Limited and, as a result, Orchard Therapeutics Limited became a
wholly owned subsidiary of Orchard Rx Limited. On October 29, 2018, Orchard Rx Limited re-registered as a public limited
company and changed its name to Orchard Therapeutics plc and Orchard Therapeutics Limited changed its name to Orchard
Therapeutics (Europe) Limited.
On November 1, 2018, our different classes of preferred shares and our ordinary shares were consolidated on a one-for-0.8003
basis. Following the share consolidation, each share was re-designated as an ordinary share on a one-for-one basis.
Accordingly, all share and per share amounts for all periods presented in the consolidated financial statements and notes
thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split.
On November 2, 2018, the Company closed its initial public offering (IPO) of American Depositary Shares (“ADS”) in which
the Company sold an aggregate of 16,103,572 ADSs representing the same number of ordinary shares at a public offering price
of $14.00 per ADS. Net proceeds were $205.5 million, after deducting underwriting discounts and commissions of $15.8
million and offering expenses of $4.2 million paid by the Company. As part of the corporate reorganization as described above,
each ordinary share with a nominal value of £0.00001 was redenominated as an ordinary share with a nominal value of £0.10.
Accordingly, equity accounts for all periods presented in the consolidated financial statements and notes thereto have been
adjusted retroactively, where applicable, to reflect the effects of the redenomination of our ordinary shares.
Orchard Therapeutics plc is a continuation of Orchard Therapeutics Limited and its subsidiaries, and the corporate
reorganization has been accounted for as a combination of entities under common control. The corporate reorganization has
been given retrospective effect in these financial statements and such financial statements represent the financial statements of
Orchard Therapeutics Limited for all periods prior to the corporate reorganization. In connection with the corporate
reorganization, outstanding share option awards of Orchard Therapeutics Limited were exchanged for share awards and option
grants of Orchard Therapeutics plc with identical restrictions.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry. There can
be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the
Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval or
that any products, if approved, will be commercially viable. The Company operates in an environment of rapid technological
innovation and substantial competition from pharmaceutical and biotechnological companies. In addition, the Company is
dependent upon the services of its employees, consultants and service providers. Even if the Company’s product development
efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
F-7
Orchard Therapeutics plc 217
Through December 31, 2018, the Company funded its operations primarily with proceeds from the sale of convertible preferred
shares and ADSs in the IPO. The Company has incurred recurring losses since its inception, including net losses of $230.5
million, $39.7 million, and $19.1 for the years ended December 31, 2018, 2017, and 2016, respectively. As of December 31,
2018, the Company had an accumulated deficit of $290.2 million. The Company expects to continue to generate operating
losses for the foreseeable future. The viability of the Company is dependent on its ability to raise additional capital to finance
its operations. If the Company is unable to obtain funding, the Company will be forced to delay, reduce or eliminate some or
all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely
affect its business prospects, or the Company may be unable to continue operations. Although management continues to pursue
these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the
Company to fund continuing operations, if at all. The Company expects that its cash on hand as of December 31, 2018 of
$335.8 million, will be sufficient to fund its operations and capital expenditure requirements through at least the next twelve
months.
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned
subsidiaries, Orchard Therapeutics (Europe) Limited, Orchard Therapeutics North America, and Orchard Therapeutics
(Netherlands) B.V., after elimination of all intercompany accounts and transactions.
Research and development tax credit receivable as of December 31, 2017 previously included in prepaid and other current
assets has been presented as a separate line item on the consolidated balance sheet to conform to current period presentation.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting
periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited
to, the accrual for research and development expenses, the research and development tax credit receivable, the Stimvelis loss
provision, the fair values of ordinary and convertible preferred shares, the fair value of tranche obligations, share-based
compensation and income taxes. Estimates are periodically reviewed in light of changes in circumstances, facts and experience.
Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those
estimates.
Concentration of credit risk
The Company has no significant off-balance sheet risk, such as foreign currency contracts, options contracts, or other foreign
hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist
primarily of cash and other receivables. Periodically, the Company maintains deposits in accredited financial institutions in
excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit
quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk
beyond the normal credit risk associated with commercial banking relationships or entities for which it has a receivable.
Foreign currency translation
The reporting currency of the Company is the U.S. dollar. The Company has determined the functional currency of the parent
company, Orchard Therapeutics plc, is U.S. dollars because it predominantly raises finance and expends cash in U.S. dollars.
The functional currency of our subsidiary operations is the applicable local currency. Transactions in foreign currencies are
translated into the functional currency of the subsidiary in which they occur at the foreign exchange rate in effect on at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated
into the functional currency of the relevant subsidiary at the foreign exchange rate in effect on the balance sheet date. Non-
monetary assets and liabilities denominated in foreign currencies that differ from the functional currency are translated into the
functional currency at the exchange rates prevailing at the date of the transaction. The Company recorded a foreign currency
transaction gain of $4.4 million and foreign currency transaction loss of $1.2 million and $0.2 million for the years ended
December 31, 2018, 2017 and 2016, respectively, which is included in other income (expense) in the statements of operations
and comprehensive loss.
F-8
218 Orchard Therapeutics plc
The results of operations for subsidiaries, whose functional currency is not the U.S. dollar, are translated at an average rate for
the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions and the balance
sheet of these subsidiaries are translated at foreign exchange rates prevailing at the balance sheet date. Exchange differences
arising from this translation of foreign operations are reported as an item of other comprehensive loss.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be
cash equivalents. In 2018 and 2017, the Company did not have any cash equivalents.
Restricted Cash
Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are
recorded as Restricted cash on our consolidated balance sheet. The Company has entered into a lease transaction (Note 12) that
requires a letter of credit of $3.0 million at December 31, 2018. The Company is also contractually required to maintain a cash
collateral account associated with corporate credit card accounts in the amount of $0.9 million at December 31, 2018. The
Company had no restricted cash at December 31, 2017. The Company includes the restricted cash balance in cash and cash
equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the consolidated statements of
cash flows.
Property and equipment
Property and equipment are recorded at cost and depreciated or amortized using the straight-line method over the following
estimated useful lives.
Property and equipment:
Lab equipment
Leasehold improvements
Furniture and fixtures
Office and computer equipment
Estimated useful life
5-10 years
Shorter of lease term or estimated useful life
4 years
3-5 years
As of December 31, 2018, and 2017, the Company’s property and equipment consisted of furniture and fixtures, office and
computer equipment, lab equipment and leasehold improvements. Upon retirement or sale, the cost of assets disposed of and
the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the statement
of operations and other comprehensive loss. Repairs and maintenance expenditures, which are not considered improvements
and do not extend the useful life of property and equipment, are expensed as incurred.
Impairment of long-lived assets
Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability
whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully
recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant
underperformance of the business in relation to expectations, significant negative industry or economic trends and significant
changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group
for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual
disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The
impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, as
determined in accordance with the related accounting literature. To date, the Company has not recorded any impairment losses
on long-lived assets.
Fair value measurements
Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP. Fair value is defined 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. Valuation
techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable
inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels
of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
F-9
Orchard Therapeutics plc 219
•
•
•
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets
or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that
are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair
value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in
determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value
hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying values of the Company’s other receivable, accounts payable, accrued expenses and other current liabilities
approximate their fair values due to the short-term nature of these assets and liabilities.
Tranche obligations
In 2016, Series A convertible preferred shares (the “Series A convertible preferred shares”) were issued in three tranches. The
Company was obligated to issue second and third tranches of Series A convertible preferred shares once certain business
milestones were met; these tranches were recognized as tranche obligations, which are subject to revaluation at each balance
sheet date. Changes in fair value were recorded as a component of other income (expense) until the settlement of the tranche
obligation. The tranche obligations settled in 2017, and no such obligations existed in 2018.
The fair values of the tranche obligations are based on significant inputs not observable in the market, which represents a Level
3 measurement within the fair value hierarchy. The tranche obligations are valued as a forward contract, and the values are
determined using a probability-weighted present value calculation. In determining the fair values of the tranche obligations,
estimates and assumptions impacting fair value included the fair value of the Company’s convertible preferred shares, risk-free
interest rates, the probability and estimated timing of the tranche closings, expected dividend yield and expected volatility of
the price of the underlying convertible preferred shares. The Company determines the per share fair value of the underlying
convertible preferred shares using the option pricing model (“OPM”), which considers the preferred share price paid by
investors, the time to liquidity and volatility. In the OPM, the timing of the liquidity event determines the assumed life in the
Black-Scholes calculation. The Company estimates a time to liquidity taking into account the future tranche funding. If the
future tranche is not expected to be funded, a liquidity event will be assumed to have occurred. If the tranche is expected to be
funded, a longer-term liquidity event is assumed to have occurred. Volatility is estimated based on the daily trading histories of
comparable public companies. The risk-free interest rate is determined by reference to the United States Treasury yield curve.
The Company estimated a 0% dividend yield based on the expected dividend yield and the fact that it has never paid or
declared a dividend.
Segment information
Operating segments are defined as components of an enterprise for which separate discrete information is available for
evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company
and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, views the Company’s operations
and manages its business as a single operating segment, which is focused on discovering, acquiring, developing and
commercializing gene therapies for patients with rare disorders. The Company operates in three geographic regions: the United
Kingdom, European Union, and United States. The Company had fixed assets of $1.7 million and $3.8 million located in the
United Kingdom and United States, respectively, as of December 31, 2018, and $0.5 million and $2.2 million located in the
United Kingdom and United States, respectively, as of December 31, 2017.
Research and development costs
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in
performing research and development activities, including salaries, share-based compensation and benefits, facilities costs,
depreciation, third-party license fees, and external costs of outside vendors engaged to conduct clinical development activities
and clinical trials, as well as to manufacture clinical trial materials. Non-refundable prepayments for goods or services that will
be used or rendered for future research and development activities are recorded as prepaid expenses. Such amounts are
recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that
the goods will be delivered, or the services rendered. In addition, funding from research grants is recognized as an offset to
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220 Orchard Therapeutics plc
research and development expense on the basis of costs incurred on the research program. Royalties associated with our
research grants will be accrued when they become probable.
Research contract costs and accruals
The Company has entered into various research and development-related contracts. These agreements are cancelable, and
related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated
ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies
or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and
estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the
Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs.
Share-based compensation
The Company measures share-based awards granted to employees and directors based on the fair value on the date of the grant
and recognizes compensation expense for those awards over the requisite service period, which is the vesting period of the
respective award. Forfeitures are accounted for as they occur.
Prior to the adoption of Accounting Standards Update (“ASU”) No. 2018-07, Compensation—Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which is discussed below under
“Recently adopted accounting pronouncements,” the measurement date for non-employee awards was generally the date the
services were completed, resulting in financial reporting period adjustments to share-based compensation during the vesting
terms for changes in the fair value of the awards. At the end of each financial reporting period prior to completion of the
service period, the fair value of the unvested awards was remeasured using the then-current fair value of the Company’s
ordinary shares and updated assumption inputs in the Black-Scholes option-pricing model.
After adoption of ASU 2018-07, the measurement date for non-employee awards is the date of the grant. The compensation
expense for non-employees is recognized, without changes in the fair value of the award, over the requisite service period,
which is the vesting period of the respective award.
The Company classifies share-based compensation expense in its consolidated statement of operations and comprehensive loss
in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service
payments are classified.
Valuation of Stock Options
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model. Assumptions used
in the option pricing model include the following:
Expected volatility. The Company estimates its expected share price volatility based on the historical volatility of
publicly traded peer companies and expects to continue to do so until it has adequate historical data regarding the
volatility of its own traded share price.
Expected term. The expected term of the Company’s share options has been determined utilizing the “simplified
method” for awards that qualify as “plain-vanilla” options.
Risk-free interest rate. The risk-free interest rate is determined by reference to the United States Treasury yield curve
in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
Expected dividend. Expected dividend yield is based on the Company’s history of not paying cash dividends on
ordinary shares. The Company does not expect to pay any cash dividends in the foreseeable future.
Fair value of ordinary shares. Options granted subsequent to the Company’s IPO are issued at the fair market value of
the Company’s ADS at the date of grant as approved by the board.
Prior to the IPO, given the absence of an active market for the Company’s ordinary shares, the board of directors, the members
of which the Company believes have extensive business, finance, and venture capital experience, was required to estimate the
fair value of the Company’s ordinary share at the time of each grant of a share-based award. The board of directors determined
the estimated fair value of the Company’s equity instruments based on a number of objective and subjective factors, including
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external market conditions affecting the biotechnology industry sector. The Company and the board of directors utilized
various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants’
Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair
value of its ordinary shares. Each valuation methodology includes estimates and assumptions that require the Company’s
judgment. These estimates and assumptions include a number of objective and subjective factors in determining the value of
the Company’s ordinary shares at each grant date, including the following factors: (1) prices paid for the Company’s
convertible preferred shares, which the Company had sold to outside investors in arm’s-length transactions, and the rights,
preferences, and privileges of the Company’s convertible preferred shares and ordinary shares; (2) valuations performed by an
independent valuation specialist; (3) the Company’s stage of development; (4) the fact that the grants of share-based awards
involved illiquid securities in a private company; and (5) the likelihood of achieving a liquidity event for the ordinary shares
underlying the share-based awards, such as an IPO or sale of the Company, given prevailing market conditions.
Ordinary share valuations were prepared using the OPM to estimate the Company’s enterprise value. The OPM treats ordinary
and convertible preferred shares as call options on the total equity value of a company, with exercise prices based on the value
thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the
ordinary shares have value only if the funds available for distribution to shareholders exceeded the value of the convertible
preferred shares liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for
lack of marketability of the ordinary shares is then applied to arrive at an indication of value for the ordinary shares. The hybrid
method is a probability weighted expected return method, PWERM, where the equity value in one or more scenarios is
calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of ordinary shares based
upon an analysis of future values for the company, assuming various outcomes. The ordinary shares’ value is based on the
probability-weighted present value of expected future investment returns considering each of the possible outcomes available
as well as the rights of each share class. The future value of the ordinary shares under each outcome is discounted back to the
valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the
ordinary shares.
Valuation of RSUs
We estimate the fair value of our performance-based restricted stock unit (“RSUs”) awards or components of RSU awards
whose vesting is contingent upon market conditions, such as volume weighted-average price (“VWAP”), using the Monte-
Carlo simulation model. The fair value of RSUs or components of RSU awards where vesting is contingent upon market
conditions is amortized based upon the estimated derived service period. The fair value of RSUs or components of RSUs
granted to our employees and directors is determined, where vesting is dependent on future services or regulatory or research
and development milestones, based upon the quoted closing market price per share on the date of grant.
Comprehensive loss
Comprehensive loss includes net loss as well as other changes in shareholders’ equity (deficit) that result from transactions and
economic events other than those with shareholders. For the years ended December 31, 2018, 2017 and 2016, other
comprehensive loss included a loss of $1.0 million, a gain of $4.4 million, and a loss of $0.3 million and, respectively, related
to foreign currency translation adjustments.
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222 Orchard Therapeutics plc
Strimvelis loss provision
As part of the GSK transaction, the Company is required to maintain commercial availability of Strimvelis in the European
Union until such time that an alternative gene therapy is available (Note 9). Strimvelis is not currently expected to generate
sufficient cash flows to overcome the costs of maintaining the product and certain regulatory commitments; therefore, the
Company recorded a liability associated with the loss contract of $18.4 million. The Company recognizes the amortization of
the loss provision on a diminishing balance basis based on the actual net loss incurred associated with Strimvelis and the
expected future net losses to be generated until such time as Strimvelis is no longer commercially available. The amortization
of the provision is recorded as a credit to research and development expense. We have made an estimate of the expected future
losses associated with Strimvelis and adjust this estimate as facts and circumstances change regarding the commercial
availability and costs of maintaining and selling Strimvelis. As of December 31, 2018, the total Strimvelis loss provision
liability was $10.3 million. During the year-ended December 31, 2018 the Company amortized $6.3 million as a credit to
research and development expense. The effects of foreign currency translation for the year-ended December 31, 2018 reduced
the liability by $1.7 million.
Research and development income tax credit
As a company that carries out extensive research and development activities, the Company seeks to benefit from one of two
U.K. research and development tax relief programs, the Small and Medium-sized Enterprises R&D Tax Credit Program (“SME
Program”) and the Research and Development Expenditure program (“RDEC Program”). Qualifying expenditures largely
comprise employment costs for research staff, consumables and certain internal overhead costs incurred as part of research
projects for which the Company does not receive income. Such credits are accounted for as reductions in research and
development expense in the period in which the expenditures were incurred.
Based on criteria established by HM Revenue and Customs (“HMRC”), management of the Company expects a proportion of
expenditures being carried in relation to its pipeline research, clinical trials management and manufacturing development
activities to be eligible for the RDEC Program for the years ended December 31, 2018, 2017 and 2016. The Company has
qualified under the more favorable SME regime for the year ended December 31, 2018.
The RDEC and SME credits are not dependent on the Company generating future taxable income or on the ongoing tax status
or tax position of the Company. As such the Company has recorded a United Kingdom research and development tax credit as
an offset to research and development expense in the consolidated statements of operations and comprehensive loss of $10.2
million, $0.7 million, and $0.2 million for the years ended December 31, 2018, 2017, and 2016, respectively. As of
December 31, 2018, and 2017, the Company’s tax incentive receivable from the United Kingdom government was $10.6
million and $0.9 million, respectively. The effects of foreign currency translation for the year-ended December 31, 2018
reduced the receivable by $0.5 million. These amounts have not yet been paid to the Company by HMRC.
Income taxes
The Company is subject to United Kingdom corporate taxation. Due to the nature of its business, the Company has generated
losses since inception and has therefore not paid United Kingdom corporation tax. The Company’s income tax credit
recognized represents the sum of the research and development tax credits recoverable in the United Kingdom and income tax
payable in the United States.
Unsurrendered United Kingdom losses may be carried forward indefinitely to be offset against future taxable profits, subject to
numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an
incremental 50% of United Kingdom taxable profits.
Value Added Tax (“VAT”), is broadly charged on all taxable supplies of goods and services by VAT-registered businesses,
and is generally applicable to our operations in the United Kingdom and European Union. Under current rates, an amount of
20% of the value, as determined for VAT purposes, of the goods or services supplied is added to all sales invoices and is
payable to HMRC. Similarly, VAT paid on purchase invoices associated with our U.K. subsidiary is generally reclaimable
from HMRC.
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Orchard Therapeutics plc 223
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial
statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined on the basis of the differences
between the consolidated financial statements and tax basis of assets and liabilities using substantively enacted tax rates in
effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in
the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered in the future
and, to the extent the Company believes, based upon the weight of available evidence, that it is more likely than not that all or a
portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax
expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and
considering prudent and feasible tax planning strategies.
The Company is subject to corporation taxes in the United Kingdom and the United States. The calculation of the Company’s
tax provision involves the application of both United Kingdom or United States tax law and requires judgement and estimates.
The Company accounts for uncertainty in income taxes by recognizing in the consolidated financial statements by applying a
two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-
likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the consolidated
financial statements. The amount of benefits that may be used is the largest amount that has a greater than 50% likelihood of
being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or
unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties.
Net product sales
During the year, the Company made its first sales of Strimvelis, which is currently distributed exclusively at the San Raffaele
Hospital in Milan, Italy. Strimvelis sales are currently under a buy-and-bill model where the treatment center purchases and
pays for the product and submits a claim to the payer. The Company evaluated the variable consideration under Accounting
Standards Codification (ASC) 606, Revenue from Contracts with Customers, and there is currently no variable consideration
included in the transaction price for Strimvelis.
The Company’s net product sales represent total gross product sales of Strimvelis. All sales are recognized when control is
transferred, which occurs upon the completion of the scheduled Strimvelis treatment. Transduction costs associated with
administering the therapy are included in cost of product sales. As the product is sold in direct relation to a scheduled
treatment, the Company estimates that there is minimal risk of product return, including the risk of product expiration.
Net income (loss) per share
The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares
that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class
of ordinary and participating securities according to dividends declared or accumulated and participation rights in undistributed
earnings. The two-class method requires income available to ordinary shareholders for the period to be allocated between
ordinary and participating securities based upon their respective rights to receive dividends as if all income for the period had
been distributed.
Basic net income (loss) per share attributable to ordinary shareholders is computed by dividing the net income (loss)
attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding for the period. Diluted net
income (loss) attributable to ordinary shareholders is computed by adjusting net income (loss) attributable to ordinary
shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss)
per share attributable to ordinary shareholders is computed by dividing the diluted net income (loss) attributable to ordinary
shareholders by the weighted average number of ordinary shares outstanding for the period, including potential dilutive
ordinary shares. For purpose of this calculation, outstanding options and convertible preferred shares are considered potential
dilutive ordinary shares.
The Company’s convertible preferred shares contractually entitle the holders of such shares to participate in dividends but do
not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which
the Company reports a net loss attributable to ordinary shareholders, such losses are not allocated to such participating
securities. In periods in which the Company reports a net loss attributable to ordinary shareholders, diluted net loss per share
attributable to ordinary shareholders is the same as basic net loss per share attributable to ordinary shareholders, since dilutive
ordinary shares are not assumed to have been issued if their effect is anti-dilutive.
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224 Orchard Therapeutics plc
The Company reported a net loss attributable to ordinary shareholders for the years ended December 31, 2018, 2017, and 2016.
Recently adopted accounting pronouncements
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-07 (“ASU 2018-07”). ASU 2018-07
expands the scope of Topic 718, Compensation—Stock Compensation, to include share-based payments issued to
nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees
will be substantially aligned. ASU 2018-07 supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees.
The amendments are effective for public companies for fiscal years beginning after December 15, 2018, including interim
periods within that fiscal year. For all other companies, the amendments are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted,
but no earlier than a company’s adoption date of Topic 606. ASU 2018-07 was adopted as of January 1, 2017 and did not have
a material impact on the Company’s financial position, results of operations or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification
Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based
payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the
vesting conditions or the classification of the award (as equity or liability) changes as a result of the change in terms or
conditions. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods,
beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for 1) public
business entities for reporting periods for which financial statements have not yet been issued and 2) all other entities for
reporting periods for which financial statements have not yet been made available for issuance. The Company adopted ASU
2017-09 as of January 1, 2018. The adoption of ASU 2017-09 did not have a material impact on the Company’s financial
position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a
Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business by adding guidance to assist entities in
evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The definition of a business
affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The ASU is effective for public
entities for fiscal years beginning after December 15, 2017. For all other entities, the guidance is effective for annual periods
beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early
application is permitted for transactions for which the acquisition date occurs before the effective date when the transaction has
not been reported in financial statements that have been issued or made available for issuance. As such, the Company adopted
this standard effective as of January 1, 2016 and applied the guidance to our analysis of arrangements entered into during the
years ended during the year ended December 31, 2016 and subsequent reporting periods.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-
18”), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in
cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of
cash flows. The Company adopted ASU 2016-18 for annual period beginning after December 15, 2017. Prior to the adoption of
ASU 2016-18, the Company did not have material balances meeting the definition of restricted cash or restricted cash
equivalents.
In August 2016, the FASB issued Accounting Standards Update No 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) to clarify guidance on the classification of
certain cash receipts and payments in the statement of cash flows. The Company adopted this guidance as of January 1, 2018.
The adoption of ASU 2016-15 did not have a material impact on the Company’s financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than
Inventory (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer (sales) of
an asset, other than inventory, when the transfer occurs. The standard is effective for the Company beginning January 1, 2018.
The Company does not currently engage in sale transactions with its wholly owned subsidiaries. Adoption of this standard did
not have a material impact on the Company’s consolidated financial statements.
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Orchard Therapeutics plc 225
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 addresses several aspects of the accounting for
share-based payment transactions, including the income tax consequences, classification of awards as either equity or
liabilities, an option to recognize gross share compensation expense with actual forfeitures recognized as they occur, and
classification on the statement of cash flows. Certain of these changes are required to be applied retrospectively, while other
changes are required to be applied prospectively. ASU 2016-09 is effective for public entities for annual periods beginning
after December 15, 2016, and interim periods within those annual periods. For all other entities, the guidance is effective for
annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15,
2018. Early adoption is permitted for any entity in any interim or annual period and an entity that elects early adoption must
adopt all of the amendments in the same period. The Company early adopted ASU 2016-09 effective as of January 1, 2016.
The adoption of ASU 2016-09 did not have a material impact on the Company’s financial position, results of operations or
cash flows.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which amended the guidance on the recognition
and measurement of financial assets and financial liabilities. The new guidance requires that equity investments (except those
accounted for under the equity method of accounting, or those that result in consolidation of the investee) are measured at fair
value with changes in fair value recognized in net income. The guidance also requires the use of an exit price when measuring
the fair value of financial instruments for disclosure purposes, eliminates the requirement to disclose the methods and
significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost and requires separate presentation of financial assets and financial liabilities by measurement category and form
of financial asset. The guidance became effective for the fiscal year beginning January 1, 2018, including interim periods
within that fiscal year. Adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial
statements as the Company does not hold any equity securities.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes (“ASU 2015-17”), which requires deferred tax liabilities and assets to be classified as non-current in the consolidated
balance sheet. ASU 2015-17 is effective for public entities for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. For all other entities, the guidance is effective for annual periods beginning after
December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted
and the Company elected to early adopt the standard on January 1, 2016. The adoption of ASU 2015-17 had no material impact
on the Company’s financial position, results of operations or cash flows as the company has recorded a full valuation
allowance on deferred tax assets for the period ended December 31, 2016 and subsequent reporting periods.
In November 2014, the FASB issued ASU No. 2014-16, Determining Whether the Host Contract in a Hybrid Financial
Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (“ASU 2014-16”). The guidance requires an entity
to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid
financial instrument, weighing each term and feature on the basis of the relevant facts and circumstances (commonly referred
to as the whole-instrument approach). The Company adopted the standard modified retrospectively to all periods presented on
the required effective date of January 1, 2016, and its adoption had no impact on the Company’s financial position, results of
operations or cash flows.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a
Going Concern (“ASU 2014-15”). The amendments in this update explicitly require a company’s management to assess an
entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The new
standard is effective for all entities for annual periods ending after December 15, 2016 and for annual and interim periods
thereafter. Early adoption is permitted. The Company adopted ASU 2014-15 as of the required effective date of December 31,
2016. This guidance relates to footnote disclosure only, and its adoption had no impact on the Company’s financial position,
results of operations or cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”),
which supersedes existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company
will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which the Company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to
achieve this principle and will require companies to use more judgment and make more estimates than under the current
guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the
customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the
transaction price to each separate performance obligation. ASU 2014-09 also requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued
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226 Orchard Therapeutics plc
ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective
date of ASU 2014-09 such that the standard is effective for public entities for annual period beginning after December 15,
2017, including interim periods within those fiscal years. For all other entities, the guidance is effective beginning after
December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption of the
standard is permitted for annual periods beginning after December 15, 2016, including interim periods within those fiscal
years. The Company adopted these revenue standards on January 1, 2017. Prior to 2018, the Company had no sources of
revenue. In 2018, the Company had its first sales of Strimvelis and have applied this guidance to our revenue recognition, and
as such there was no impact from the adoption of ASC 606 in prior periods.
Recently issued accounting pronouncements not yet adopted
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity
(Topic 480), Derivatives and Hedging (Topic 815) (Part I) Accounting for Certain Financial Instruments with Down Round
Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”).
Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that
contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests
and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope
exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be
adopted for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
For all other entities, the guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within
fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities. The Company does not expect ASU
2017-11 to have a material impact on the Company’s financial position.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for
the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The
new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the
principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether
lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than
12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing
guidance for operating leases today. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), (“ASU 2018-01”),
which adds two practical expedients to the new lease guidance. Topic 842 is effective for the Company in its annual periods
beginning after December 15, 2019. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will
have on its consolidated financial statements.
The Company has considered other recent accounting pronouncements and concluded that they are either not applicable to the
business, or that the effect is not expected to be material to the financial statements as a result of future adoption.
3. Fair value of Financial Assets and Liabilities
The Company had no financial assets measured at fair value on a recurring basis at December 31, 2018 or 2017.
The following table presents information about the Company’s financial liabilities that have been measured at fair value on a
recurring basis as of December 31, 2016 (there were no financial liabilities measured at fair value on a recurring basis as of
December 31, 2018 or 2017):
Liabilities:
Tranche obligations
Fair Value Measurements as of
December 31, 2016 Using:
Level 1
Level 2
Level 3
Total
(in thousands)
$
$
— $
— $
— $
— $
1,402 $
1,402 $
1,402
1,402
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Orchard Therapeutics plc 227
The tranche obligations in the table above represents the Company’s obligation to issue for sale Series A convertible preferred
shares once certain business milestones were met. The fair value of the tranche obligations was based on significant inputs not
observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The tranche obligations are
valued as a forward contract as described in Note 2. The Company assessed these assumptions and estimates on a quarterly
basis as additional information impacting the assumptions was obtained. The Company recognized changes in fair value of
these tranche obligations as a component of other income (expense) in its consolidated statement of operations and
comprehensive loss.
Estimates and assumptions impacting the fair value measurement included the fair value of the Company’s convertible
preferred shares, risk-free interest rate, the probability and estimated timing of each tranche closing, expected dividend yield
and expected volatility of the price of the underlying convertible preferred shares (Note 2). Significant changes to the fair value
of the underlying shares would have resulted in a significant change in the fair value measurements.
The tranche obligations were settled when the respective second and third tranches of Series A convertible preferred shares
were issued in July 2016 and January 2017.
The following assumptions were used in valuing the tranche obligations:
Risk-free interest rate
Expected dividend yield
Expected term (in years)
Expected volatility
Fair value of convertible preferred shares
Year Ended
December 31, 2016
0.00 - 0.53%
0.00%
0.00 - 0.92
75.5 - 89.9%
$1.00 - $1.58
The following table provides a summary of the changes in fair value of the tranche obligation liability measured at fair value
on a recurring basis using significant unobservable inputs during the years ended December 31, 2016 and 2017 (in thousands):
Balance at December 31, 2015
Issuance of tranche obligations to purchase convertible preferred shares
Change in fair value of second tranche obligation
Settlement of second tranche obligation upon issuance of convertible preferred shares
Change in fair value of third tranche obligation
Effect of exchange rate changes on tranche obligation
Balance at December 31, 2016
Settlement of third tranche obligation upon issuance of convertible preferred shares
Balance at December 31, 2017
4. Revenue Recognition
Tranche Obligations
(in thousands)
$
$
—
2,459
(424)
(451)
135
(317)
1,402
(1,402)
—
The Company adopted the new accounting guidance under ASC606 regarding recognition of revenue from customers as of
January 1, 2018. Prior to 2018, the Company had no revenue, and the adoption of this guidance resulted in no cumulative
adjustment to the Company’s consolidated financial statements.
The Company currently has one commercial-stage therapy, Strimvelis, for the treatment of ADA-SCID. During the year, the
Company made its first sales of Strimvelis, which is currently distributed exclusively at the San Raffaele Hospital in Milan,
Italy. Strimvelis sales are currently under a buy-and-bill model where the treatment center purchases and pays the Company for
the product and submits a claim to the payer.
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228 Orchard Therapeutics plc
The Company’s net product sales represent total gross product sales of Strimvelis, less any allowances based on contractual
terms or the arrangement with the treatment center. All sales are recognized when control is transferred, which follows the
Company’s verification of a scheduled Strimvelis treatment. Transduction costs associated with administering the therapy are
included in cost of product sales. As the product is sold in direct relation to a scheduled treatment, the Company estimates that
there is minimal risk of product return, including the risk of product expiration. The Company excludes from measurement of
the transaction price all taxes assessed by a governmental authority that are both imposed concurrent with the specific revenue-
producing transaction and collected by the Company from a customer.
Payment terms and conditions generally require payment for Strimvelis sales within 60 days of treatment. Strimvelis is
currently distributed exclusively at the San Rafaelle Hospital, and there is currently no variable consideration included in the
transaction price of Strimvelis.
5. Property and Equipment
Property and equipment consist of the following:
Property and equipment:
Lab equipment
Leasehold improvements
Furniture and fixtures
Office and IT equipment
Property and equipment
Less: accumulated depreciation
Property and equipment, net
December 31,
2018
2017
(in thousands)
$
$
$
4,930 $
1,487
403
152
6,972
(1,496)
5,476 $
Depreciation expense for the years ended December 31, 2018 and 2017 was $1.2 million and $0.3 million, respectively.
6. Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consisted of the following:
Accrued external research and development expenses
Accrued payroll and related expenses
Accrued professional fees
Accrued other
Strimvelis liability - current portion
Deferred UCLA reimbursement
Due to UCLA
Total accrued expenses and other current liabilities
7. Shareholders’ Equity and Convertible Preferred Shares
Ordinary shares
December 31,
2018
2017
(in thousands)
$
$
12,738 $
7,372
1,186
2,762
4,170
—
1,552
29,780 $
2,708
244
59
12
3,023
(310)
2,713
1,834
2,090
394
279
—
2,267
—
6,864
As of December 31, 2018, each holder of ordinary shares is entitled to one vote per ordinary share and to receive dividends
when and if such dividends are recommended by the board of directors and declared by the shareholders. As of December 31,
2018, the Company has not declared any dividends.
As of December 31, 2018, the Company had authority to allot ordinary shares up to a maximum nominal value of
£13,023,851.50 with a nominal value of £0.10 per share.
As of December 31, 2017, the voting, dividend and liquidation rights of the holders of the Company’s ordinary shares are
subject to and qualified by the rights, powers and preferences of the holders of the Convertible Preferred Shares. Each ordinary
F-19
Orchard Therapeutics plc 229
share entitles the holder to one vote, together with the holders of Convertible Preferred Shares, on all matters submitted to the
shareholders for a vote. The holders of Convertible Preferred Shares are entitled to elect a total of three directors of the
Company. The holders of ordinary shares are entitled to elect the remaining directors of the Company by vote of a majority of
such shares. Ordinary shareholders are entitled to receive dividends, as may be declared by the board of directors, if any,
subject to Liquidation Preferences. Through December 31, 2017, no cash dividends have been declared or paid.
As of December 31, 2017, the Company had authority to allot ordinary shares up to a maximum nominal value of £675,413,
with a nominal value of £0.00001 per share. The authority has taken into consideration the conversion of outstanding
Convertible Preferred Shares of 33,277,678 as of December 31, 2017; 500,596 ordinary shares the Company committed to
issue as part of its license and research agreements as of December 31, 2017; 4,153,196 for the exercise of outstanding share
options, as of December 31, 2017; and 2,354,595 shares remaining available for future issuance under the 2016 Share Option
Plan as of December 31, 2017.
Initial Public Offering and Corporate Reorganization
On November 2, 2018, the Company closed its IPO of ADSs. In the IPO, the Company sold an aggregate of 16,103,572 ADSs
representing the same number of ordinary shares at a public offering price of $14.00 per ADS, including a partial exercise by
the underwriters of their option to purchase additional ADSs. Net proceeds were $205.5 million, after deducting underwriting
discounts, and commissions and offering expenses paid by the Company of $4.2 million.
Immediately prior to the completion of the IPO, all outstanding Convertible Preferred Shares of Orchard Therapeutics plc were
converted into their respective class of preferred shares of Orchard Therapeutics plc on a one-for-0.8003 basis. All ordinary
shares were consolidated on a one-for-0.8003 basis. Following completion of these steps, and immediately prior to the
completion of the IPO, each share outstanding was re-designated as an ordinary share on a one-for-one basis. Accordingly, all
share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto
have been adjusted retroactively, where applicable, to reflect this reverse split. In addition, all share options for all periods
presented have been adjusted retroactively to reflect this reverse split.
Additionally, as part of the corporate reorganization associated with our IPO, each ordinary share with a nominal value of
£0.00001 was redenominated as an ordinary share with a nominal value of £0.10. Accordingly, equity accounts for all periods
presented in the consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to
reflect the effects of the redenomination of our ordinary shares.
Other ordinary share issuances
In November 2016, as amended in September 2018, the Company entered into a license and development agreement with
Oxford BioMedica U.K. Limited (“Oxford BioMedica”). As consideration for the rights and licenses granted to Orchard under
the license and development agreement, the Company issued 588,220 ordinary shares to Oxford BioMedica in December 2016.
The Company also agreed to grant additional ordinary shares upon achievement of specified milestones. In November 2017,
the first milestone was achieved and the Company was obligated to issue an additional 150,826 shares. The shares issued in
2016 and 2017 were recorded based on their fair values as of the time the agreement was executed of $0.5 million and
$0.1 million, respectively. In August 2018, the terms of the arrangement were modified to extend milestone agreements under
the plan, and the second milestone was met and the company issued an additional 150,826 shares. The shares issued in 2018
were recorded based on their fair value at the time the agreement was modified of $1.4 million. The amounts were recorded to
research and development expense in the years ended December 31, 2018, 2017, and 2016, respectively.
In February 2016, and amended in July 2017, the Company entered into a license agreement (the “UCLB/UCLA License
Agreement”) with UCL Business PLC (“UCLB”), which is the commercialization company of University College London, and
The Regents of the University of California (“UCLA”), pursuant to which the Company issued nil, 1,224,094, and 3,441,290
ordinary shares in 2018, 2017 and 2016, respectively, to UCLB. The shares were recorded at their fair values as of the time the
agreement was executed or modified, which was an aggregate of $3.8 million. Amounts totaling $1.7 million and $2.1 million
were recorded to research and development expense for the years ended December 31, 2017 and 2016, respectively.
In 2016 and 2017, the Company entered into several license agreements with various academic and health care institutions to
in-license certain intellectual property rights and know-how relevant to its programs. Pursuant to these agreements, the
Company issued 800,380 and 256,096 ordinary shares in 2016 and 2017, respectively. The share commitments were recorded
to research and development expense based on their fair values as of the time the respective agreement was executed or
modified. The amounts were $1.4 million and $0.5 million in 2017 and 2016, respectively.
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230 Orchard Therapeutics plc
As of December 31, 2018, and 2017, the Company had outstanding 85,865,557 and 8,927,121 ordinary shares, respectively.
Convertible preferred shares
As of December 31, 2018, there were no Convertible Preferred Shares outstanding due to our corporate reorganization and
IPO. As of December 31, 2017, the Articles, as further amended and restated (the “Amended Articles”), authorized a total of
33,771,174 convertible preferred shares with a par value of £0.00001 per share, of which 16,806,299 shares have been
designated as Series A convertible preferred shares and 16,964,875 shares have been designated as Series B convertible
preferred shares (the “Series B convertible preferred shares”).
Until September 2017, the Series A and Series B convertible preferred shares (collectively, the “Convertible Preferred Shares”)
were classified in temporary equity as the Convertible Preferred Shares were contingently redeemable. A contingent
redemption feature, which is at the option of the Company, could have been exercised by a holder of the Convertible Preferred
Shares while that holder controlled a majority of the Company’s board of directors. The Convertible Preferred Shares did not
become redeemable as the contingency had not been met or determined to be probable.
In September 2017, the Company’s board of directors was expanded so that the holder of the Convertible Preferred Shares no
longer controlled the Company’s board of directors through a majority of seats. Based on this change, the redemption feature
from September 2017 onward is exercisable only in an event that is within the control of the Company. At that date, the
Convertible Preferred Shares were reclassified to permanent equity within shareholders’ equity on the Company’s consolidated
balance sheets. In August 2018, the Company issued Series C convertible preferred shares, which were classified as permanent
equity within shareholders’ equity on the Company’s consolidated balance sheets.
Preferred share financings
In February 2016, the Company issued 5,335,333 Series A convertible preferred shares at a price of £1.25 per share (the
“Series A Original Issue Price”) of which 4,811,937 Series A convertible preferred shares were issued for net proceeds of $8.5
million and 523,396 Series A convertible preferred shares were issued in settlement of the Notes.
In May 2016, the Company issued and sold 266,767 Series A convertible preferred shares at a price of £1.25 per share for net
proceeds of $0.4 million.
In July 2016, the Company issued and sold 5,335,333 Series A convertible preferred shares at a price of £1.25 per share for net
proceeds of $8.7 million.
In August 2016, the Company issued and sold 266,766 Series A convertible preferred shares at a price of £1.25 per share for
net proceeds of $0.4 million.
In January 2017, the Company issued and sold 5,335,333 Series A convertible preferred shares at a price of £1.25 per share for
net proceeds of $8.2 million.
In February 2017, the Company issued and sold 266,766 Series A convertible preferred shares at a price of £1.25 per share for
net proceeds of $0.4 million.
In March 2017, the Company issued and sold 5,805,376 Series B convertible preferred shares at a price of £5.022 per share
(the “Series B Original Issue Price”) for net proceeds of $36.0 million.
In August 2017, the Company issued and sold 3,285,731 Series B convertible preferred shares at a price of £5.022 per share for
net proceeds of $21.0 million.
In October 2017, the Company issued and sold 4,655,985 Series B convertible preferred shares at a price of £5.022 per share
for net proceeds of $30.8 million.
In December 2017, the Company issued and sold 2,724,288 Series B convertible preferred shares at a price of £5.022 per share
for net proceeds of $18.3 million.
In December 2017, the Company received proceeds of $1.0 million for 150,706 Series B convertible preferred shares, which
were subsequently issued in January 2018.
F-21
Orchard Therapeutics plc 231
In August 2018, the Company issued and sold 13,942,474 Series C convertible preferred shares at a price of $10.76 per share
for net proceeds of $147.1 million.
As of December 31, 2018, there were no Convertible Preferred Shares outstanding due to our corporate reorganization and
IPO. As of December 31, 2017, Convertible Preferred Shares consisted of the following:
December 31, 2017
(in thousands, except share amounts)
Series A convertible preferred shares
Series B convertible preferred shares
Shares
Issued and
Outstanding
Shares
Authorized
Carrying
Value
28,337 16,806,298
16,806,298 16,806,298 $
26,994 $
111,617 16,471,380
16,964,876 16,471,380 107,075
33,771,174 33,277,678 $ 134,069 $ 139,954 33,277,678
Liquidation
Preference(a)
Ordinary shares
Issuable Upon
Conversion
(a) Amounts were translated into United States dollars using the spot rate as of December 31, 2017.
There were no Convertible Preferred Shares outstanding as of December 31, 2018. The holders of the Convertible Preferred
Shares have the following rights and preferences as of December 31, 2017:
Voting
Each Series A and Series B preferred share shall confer one right to vote at all general meetings and to receive and vote on
proposed written resolutions of the Company.
Conversion
Each Series A and Series B preferred share was convertible, at the option of the holder, at any time and from time to time, and
without the payment of additional consideration, into an ordinary share as is determined by dividing the applicable Series A or
Series B Original Issue Price by the respective Series A or Series B Conversion Price.
The Series A Conversion Prices were equal to each applicable Series A Original Issue Price as noted above. The Series B
Conversion Prices were equal to each applicable Series B Original Issue Price as noted above. As of December 31, 2017, each
Preferred Share was convertible into one ordinary share.
As set forth in the Amended Articles, the Series A and B Conversion Prices were adjusted when there is a deemed issuance of
additional convertible preferred shares issued at a price lower than Series A and Series B Original Issue Prices or issuance of
an instrument with rights that could dilute the interest of Series A and B holders. In addition, each Preferred Share would be
automatically converted into an ordinary share at the applicable conversion ratio then in effect for each series of Convertible
Preferred Shares upon the earlier of (i) the closing of a firm commitment underwritten public offering of its ordinary shares
with gross proceeds to the Company of at least $50.0 million and at a price per share of not less than £6.0262, subject to
appropriate adjustment in the event of any share split, share dividend, combination or other similar recapitalization, or (ii) a
date specified vote or written consent of the holders of a majority of Convertible Preferred Shares, voting together as a single
class on an as-if-converted to ordinary shares basis.
Dividends
The holders of the Series A convertible preferred shares, Series B convertible preferred shares, and ordinary shares were
entitled to receive non-cumulative dividends, if and when declared by the Company’s board of directors, subject to shareholder
consent. The Series A convertible preferred shares, Series B convertible preferred shares and ordinary shares ranked equally in
all respects (on an as converted basis) for the purpose of any dividend that is declared or paid. On a distribution of assets on a
liquidation, share sale, asset sale or IPO, the holders of Series A convertible preferred shares, and Series B convertible
preferred shares were entitled to receive any declared but unpaid dividend, in the order of the priority set out in Liquidation
Preference above, on each outstanding Series A convertible preferred share and Series B convertible preferred share. No
dividends were declared or paid during the year ended December 31, 2017 and 2018.
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232 Orchard Therapeutics plc
Liquidation preference
In the event of a distribution of assets on liquidation or a return of capital (other than a conversion, redemption or purchase of
shares), the surplus remaining after settling the Company’s assets and liabilities will be distributed to the individuals holding
ordinary shares, Series A and Series B convertible preferred shares on a pro rata basis (as if the ordinary shares and the
Convertible Preferred Shares constituted one class) as described in the Amended Articles, except if the per share amount for
Series A and Series B convertible preferred shares results in a price per share less than its original issue price. If the price per
share is less than the original issue price for preferred shareholders, the shareholders will be paid an amount equal to the
subscription price and the remainder of the assets will be distributed on a pro rata basis to the remaining ordinary shareholders.
Redemption
The Amended Articles do not provide redemption rights to the holders of Convertible Preferred Shares.
Deferred shares
Deferred shares are a unit of equity in the Company. All deferred shares can be repurchased at any time by the Company at a
purchase price of £0.00001 per share. Deferred shares have no rights attached to them, are not convertible to any other class of
shares and are not redeemable. The entire class of deferred shares is entitled to a total of £1.25 from the distribution of assets
on a liquidation or return of capital event.
In 2016, the Company converted 80,030 ordinary shares of an investor to deferred shares. In March 2017, the Company
repurchased 80,030 deferred shares at £0.00001 per share and simultaneously cancelled them.
There were no deferred shares outstanding as of December 31, 2017 and 2018.
8. Share-based Compensation
In September 2016, the Company adopted the Orchard Therapeutics Limited Employee Share Option Plan with Non-Employee
Sub-Plan and U.S. Sub-Plan (the “2016 Plan”). The 2016 Plan provided for the Company to grant incentive and non-qualified
options to officers, directors, consultants, and advisors to purchase the Company’s ordinary shares prior to the IPO. The board
of directors has determined not to make any further awards under the 2016 plan following the Company’s IPO.
In October 2018, as part of the Company’s reorganization and IPO, the Company adopted the Orchard Therapeutics plc 2018
Share Option and Incentive Plan (the “2018 Plan”). The 2018 Plan provides for grants in the form of incentive and non-
qualified options, share appreciation rights, restricted shares, and restricted share units. The Company issues new ordinary
shares upon exercise of share options. The Company has initially reserved 4,254,741 ordinary shares, or the initial limit, for the
issuance of awards under the 2018 Plan. As of December 31, 2018, 3,953,726 shares remained available for future grant under
the plan. The number of ordinary shares reserved for issuance will automatically increase each January 1, beginning January 1,
2019, by 5% of the outstanding number of ordinary shares on the immediately preceding December 31, or such lesser number
of shares as determined by the board of directors.
In October 2018, the Company adopted the 2018 Employee Share Purchase Plan (the “ESPP”) under which eligible employees
may contribute up to 15% of their base compensation toward bi-annual purchases of the Company’s ordinary shares. The ESPP
initially reserved and authorized the issuance of up to a total of 850,948 ordinary shares to participating employees. The
number of ordinary shares reserved for issuance will automatically increase by the least of (i) 1% of the outstanding number of
ordinary shares on the immediately preceding December 31; (ii) 1,500,000 shares or (iii) such number of shares as determined
by the ESPP administrator. The purchase price for each ordinary share is the lesser of 85% of the market price on the first
business day or last business day of the offering period. Share-based compensation expense related to this plan was $0.1
million for the year ended December 31, 2018.
Prior to the Company’s IPO, the Company typically granted options to United States employees and non-employees at exercise
prices deemed by the board of directors to be equal to the fair value of the ordinary share at the time of grant, and grant options
to United Kingdom employees at an exercise price equal to the par value of the ordinary shares of £0.00001. After the IPO,
options are typically granted at exercise prices equal to the fair value of the Company’s ordinary shares on the grant date. The
vesting period is determined by the board of directors, which is generally four years. An option’s maximum term is ten years.
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Orchard Therapeutics plc 233
Option valuation
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the share options granted to
employees, non-employees, and directors during the year ended December 31, 2018, 2017, and 2016 were as follows:
Risk-free interest rate% - %
Expected term (in years)
Expected volatility% - %
Expected dividend rate%
2018
Year Ended December 31,
2017
2.66% - 3.03%
1.52% - 2.30%
5.00 - 6.08
6.08
64.27 - 68.58% 77.80% - 80.00% 77.80% -79.70%
0.00%
0.00%
0.00%
2016
1.52% - 2.40%
6.08 - 9.75
Expected Term: The expected term for employees represents the period that the options granted are expected to be
outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the
contractual term). The expected term is applied to the share option grant group as a whole, as the Company does not expect
substantially different exercise or post-vesting termination behavior among its employee population. Prior to the adoption of
ASU 2018-07, expected term for non-employee grants was the contractual term of the options. After the adoption of ASU
2018-07, the expected term of share options granted to non-employees is determined in the same manner as share options
granted to employees.
Expected Volatility: The Company used an average historical stock price volatility of comparable public companies within
the biotechnology and pharmaceutical industry that were deemed to be representative of future share price trends as the
Company does not have significant trading history for its ordinary shares.
Risk-Free Interest Rate: The Company based the risk-free interest rate over the expected term of the options on the constant
maturity rate of United States Treasury securities with similar maturities as of the date of the grant.
Expected Dividend Rate: The Company has not paid and does not anticipate paying any dividends in the near future.
Therefore, the expected dividend yield was zero.
Fair value of underlying ordinary shares: Prior to the IPO, the Company determined the fair value of the underlying ordinary
shares based on input from management and approved by the board of directors, as described in Note 2. Subsequent to the IPO,
the Company determined the fair value of the underlying ordinary shares based on the close price of our ordinary shares on the
grant date.
Options
The following table summarizes option activity under the plans for the year ended December 31, 2018:
Options outstanding at December 31, 2017
Granted
Exercised
Cancelled
Options outstanding at December 31, 2018
Vested as of December 31, 2018
Weighted
Average
Shares
Exercise Price
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value
(in thousands, except share and per share amounts)
4,153,196 $
6,303,465
(14,547)
(238,682)
10,203,432
2,022,399
1.20
4.23
1.96
2.55
3.04
1.11
9.28 $
10,483
8.97
8.20
129,551
29,568
The weighted average exercise price of options granted to United Kingdom employees in 2018 was the nominal value of the
underlying shares. The weighted average exercise price of options granted to United States employees in 2018 was $5.74.
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair
value of the Company’s ordinary shares for those options that had exercise prices lower than the fair value of the Company’s
ordinary shares. During 2018, the total intrinsic value of share options exercised was not material. There were no share option
exercises in 2017 or 2016.
The weighted average grant date fair value of the options granted during the years ended December 31, 2018, 2017, and 2016
was $5.23 per share, $2.70 per share and $0.92 per share, respectively.
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234 Orchard Therapeutics plc
Restricted Share Units
In November 2018, the Company issued performance-based restricted share units (“RSUs”) to our Chief Executive Officer
covering a maximum of 219,922 ordinary shares. The performance-based RSUs will vest, if at all, based upon the Company
achieving three specific regulatory and research and development milestones, or one market condition based upon the volume
weighted-average price (“VWAP”) of the Company’s ADSs for a certain period. Upon achievement of any of the
aforementioned milestones, one third of the RSU’s will vest, and the award will become fully vested upon achievement of
three of the four performance conditions.
The maximum aggregate total fair value of the performance-based RSUs is $4.5 million. The fair value associated with the
shares that could vest based on the market-based condition is being recognized as expense over the derived service period of
1.3 years. The fair value associated with the performance-based conditions will be recognized when achievement of the
milestones becomes probable, if at all. The Company determined that, as of December 31, 2018, none of the regulatory and
research development milestones were deemed probable.
The following table summarizes RSU award activity for the year ended December 31, 2018:
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Shares
Weighted Average
Fair Value
— $
219,922
—
—
219,922
—
15.48
—
—
15.48
The amount of compensation cost recognized for the years ended December 31, 2018 and 2017 for the market condition
associated with the performance-based RSUs was $0.1 million and nil, respectively.
Share-based compensation
Share-based compensation expense related to share options, restricted share unit awards, and the employee stock purchase plan
was classified in the consolidated statements of operations and comprehensive loss as follows:
Research and development
Selling, general and administrative
Total
2018
Year Ended December 31,
2017
(in thousands)
2016
$
$
2,740 $
4,026
6,766 $
615 $
404
1,019 $
181
23
204
The Company had 8,181,033 unvested options outstanding as of December 31, 2018. As of December 31, 2018, total
unrecognized compensation cost related to unvested stock option grants was approximately $33.3 million. This amount is
expected to be recognized over a weighted average period of approximately 2.96 years. As of December 31, 2018, the total
unrecognized compensation cost related to performance-based RSUs is a maximum of $4.5 million, depending upon
achievement of the milestones.
9. License and Research Arrangements
GSK asset purchase and license agreement
In April 2018, the Company entered into an asset purchase and license agreement (the “GSK Agreement”) with subsidiaries of
GSK to acquire a portfolio of autologous ex vivo gene therapy assets and licenses, for rare diseases and option rights on three
additional programs in preclinical development from Telethon Foundation and San Raffaele Hospital (“Telethon-OSR”). This
complements and enhances the Company’s current portfolio.
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Orchard Therapeutics plc 235
The portfolio of programs and options acquired consists of:
•
•
•
•
Two late-stage clinical gene therapy programs in ongoing registrational trials for MLD and WAS;
One earlier stage clinical gene therapy program for TDBT;
Strimvelis, the first autologous ex vivo gene therapy for ADA-SCID which was approved for marketing by the European
Medicines Agency in 2016; and
Option rights exercisable upon completion of clinical proof of concept studies for three additional earlier-stage
development programs, which such option rights have lapsed as of the date of this Annual Report.
The Company accounted for the GSK Agreement as an asset acquisition, since the asset purchase and licensing arrangement
did not meet the definition of a business pursuant to ASC 805, Business Combinations. Total consideration of £94.2 million
($133.6 million as of date of acquisition), which includes an upfront payment of £10.0 million ($14.2 million at the acquisition
date) and 12,455,252 Series B-2 convertible preferred shares of the Company issued to GSK at £65.8 million ($93.4 million at
the acquisition date), an inventory purchase liability valued at £4.9 million ($6.9 million) and transaction costs of £0.6 million
($0.8 million). The Company allocated £94.2 million ($133.6 million) to in-process research and development expense (based
on the fair value of the underlying programs in development). The Series B-2 convertible preferred shares were converted to
ordinary shares as part of our IPO in November 2018.
The Company is required to use commercially reasonable efforts to obtain a PRV from the United States Food and Drug
Administration for each of the programs for MLD, WAS and TDBT, the first of which GSK retained beneficial ownership.
GSK also has an option to acquire, at a price pursuant to an agreed upon formula, any PRV granted to the Company thereafter
for MLD, WAS and TDBT. If GSK does not exercise this option to purchase any PRV, the Company may sell the PRV to a
third party and must share any proceeds in excess of a specified sale price equally with GSK. For accounting purposes, as of
December 31, 2018, the Company does not consider the attainment of a PRV from the United States Food and Drug
Administration to be probable.
As part of the GSK Agreement the Company is required to use its best endeavors to make Strimvelis commercially available in
the European Union until such time as an alternative gene therapy, such as our OTL-101 product candidate, is commercially
available for patients in Italy, and at all times at the San Raffaele Hospital in Milan, provided that a minimum number of
patients continue to be treated at this site. Strimvelis is not currently expected to generate sufficient cash flows to overcome the
costs of maintaining the product and certain regulatory commitments; therefore, the Company recorded a liability associated
with the loss contract of £12.9 million ($18.4 million at the acquisition date) associated with the loss expected due to this
obligation. This liability is being amortized over the remaining period of expected sales of Strimvelis as a credit to research and
development expenses (Note 2). During the period ended December 31, 2018, the Company amortized $6.3 million as a credit
to research and development expenses associated with the loss provision. The effects of foreign currency translation for the
year-ended December 31, 2018 reduced the liability by $1.7 million. The balance of the liability as of December 31, 2018 was
$10.3 million. The consideration transferred in the asset acquisition was measured at cost, including transaction costs, assets
and equity interests transferred by the acquirer, and liabilities incurred by the acquirer as noted below:
Upfront cash paid for GSK Agreement
Series B-2 convertible preferred shares issued to GSK
Transaction costs
Liabilities:
Strimvelis liability
Inventory purchase liability
Total consideration transferred:
Consideration
(in thousands)
14,186
93,391
780
18,351
6,893
133,601
$
$
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236 Orchard Therapeutics plc
The Company will pay GSK non-refundable royalties and milestone payments in relation to the gene therapy programs
acquired and OTL-101. The Company will pay a flat mid-single digit percentage royalty on the combined annual net sales of
ADA-SCID products, which includes Strimvelis and the Company-developed product candidate, OTL-101. The Company will
also pay tiered royalty rates at a percentage beginning in the mid-teens up to twenty percent for the MLD and WAS products,
upon marketing approval, calculated as percentages of aggregate cumulative net sales of the MLD and WAS products,
respectively. The Company will pay a tiered royalty at percentage from the high single-digits to low double-digit for the TDBT
product, upon marketing approval, calculated as percentages of aggregate annual net sales of the TDBT product. These
royalties owed to GSK are in addition to any royalties owed to other third parties under various license agreements for the GSK
programs. In aggregate, the Company may pay up to £90.0 million in milestone payments upon achievement of certain sales
milestones applicable to GSK. The Company’s royalty obligations with respect to MLD and WAS may be deferred for a
certain period in the interest of prioritizing available capital to develop each product. The Company’s royalty obligations are
subject to reduction on a product-by-product basis in the event of market control by biosimilars and will expire in April 2048.
Other than Strimvelis, these royalty and milestone payments were not determined to be probable and estimable at the date of
the acquisition and are not included as part of consideration.
The Company and GSK also separately executed a Transition Services Agreement (“TSA”) as well as an Inventory Sale
Agreement, both effective April 11, 2018. The TSA outlines several activities that the Company has requested GSK to assist
with during the transition period, including but not limited to utilizing GSK to sell, market and distribute Strimvelis, and assist
with regulatory, clinical and non-clinical activities for the other non-commercialized products which were ongoing at the date
of the GSK Agreement. The TSA expired in December 2018.
In connection with the Company’s entering into the GSK Agreement, GSK assigned rights and obligations to certain contracts,
which include among others, the original license agreement with Telethon/Ospedale San Raffaele and an ongoing
manufacturing agreement.
Telethon-OSR research and development collaboration and license agreement
In connection with the Company’s entering into the GSK Agreement, the Company also acquired and assumed agreements
with Telethon Foundation and San Raffaele Hospital, together referred to as Telethon-OSR, for the research, development and
commercialization of autologous ex vivo gene therapies for ADA-SCID, WAS, MLD, TDBT, as well as options over three
additional earlier-stage development programs. The Company’s options under the agreement with Telethon-OSR with respect
to the earlier-stage programs have lapsed.
As consideration for the licenses and options granted, the Company will be required to make payments to Telethon-OSR upon
achievement of certain product development milestones and pay Telethon-OSR a fee in connection with the exercise of an
option for each collaboration program. Additionally, the Company will be required to pay to Telethon-OSR a tiered mid-single
to low-double digit royalty percentage on annual sales of licensed products covered by patent rights on a country-by-country
basis, as well as a low double-digit percentage of sublicense income received from any certain third-party sublicenses of the
collaboration programs. These royalties are in addition to those payable to GSK under the GSK Agreement. The Company may
pay up to and aggregate of approximately €31.0 million in milestone payments upon achievement of certain product
development milestones and exercises of options under the Telethon-OSR agreements.
UCLB/UCLA License Agreement
In February 2016, and amended in July 2017, the Company entered into the UCLB/UCLA License Agreement, under which
the Company has been granted exclusive and non-exclusive, sublicensable licenses under certain intellectual property rights
controlled by UCLB and UCLA to develop and commercialize gene therapy products in certain fields and territories.
In exchange for these rights, in 2016, the Company made upfront cash payments consisting of $0.8 million for the license to
the joint UCLB/UCLA technology and $1.1 million for the license to the UCLB technology and manufacturing technology.
The Company also issued an aggregate of 4,665,384 ordinary shares to UCLB, of which 1,224,094, and 3,441,290 ordinary
shares were issued in 2017 and 2016, respectively. The Company recorded research and development expense based on the fair
value of the ordinary shares as of the time the agreement was executed or modified. The Company was also obligated to make
an additional cash payment for clinical data. In 2017, the Company paid $0.8 million in relation to clinical data acquired. The
Company recorded the payments to research and development expense.
The Company recorded $0.2 million, $1.8 million, and $4.6 million of research and development costs in respect of UCLB,
which comprise the upfront payments, issuance of ordinary shares and payments for clinical data, for the years ended
December 31, 2018, 2017, and 2016, respectively.
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Orchard Therapeutics plc 237
Under the UCLB/UCLA License Agreement, the Company is also obligated to pay an annual administration fee of $0.1 million
on the first, second and third anniversary of the agreement date. Additionally, the Company is obligated to make payments to
the parties of up to an aggregate of $38.9 million upon the achievement of specified regulatory milestones as well as royalties
ranging from low to mid-single-digit percentage on net sales of the applicable gene therapy product.
In connection with the UCLB/UCLA License Agreement, in February 2016 the Company sold an aggregate of 800,298 Series
A convertible preferred shares at a price of £1.25 per share (Note 14).
Unless terminated earlier by either party, the UCLB/UCLA License Agreement will expire on the 25th anniversary of the
agreement.
Oxford BioMedica license, development and supply agreement
In November 2016, and amended in September 2018, the Company entered into an arrangement with Oxford BioMedica
whereby Oxford BioMedica granted an exclusive intellectual property license to the Company for the purposes of research,
development, and commercialization of collaboration products, and will provide process development services, and
manufacture clinical and commercial GMP-grade lentiviral vectors for the Company (“Oxford BioMedica Agreement”). As
part of the consideration to rights and licenses granted under the Oxford BioMedica Agreement, the Company issued 588,220
ordinary shares to Oxford BioMedica. The Company is also obligated to make certain development milestone payments in the
form of issuance of additional ordinary shares if the milestones are achieved. In November 2017, the first milestone was
achieved and the Company was committed to issue 150,826 ordinary shares, and issued these shares in 2018. In September
2018, the second and third milestones were achieved, and the Company issued 150,826 ordinary shares. If future milestones are
met, the Company may become obligated to issue more ordinary shares.
The Company recorded $0.5 million to research and development expense upon execution of the Oxford BioMedica
Agreement in 2016 and $0.1 million upon achievement of the first development milestone in 2017. The Company recorded
$1.4 million upon achievement of the second and third development milestones in 2018. The expense recognized in 2016 and
2017 was determined based on the ordinary shares’ fair value as of the time the agreement was executed. The expense
recognized in 2018 was determined based on the ordinary shares’ fair value as of the time the agreement was modified in
September 2018.
The Company may also pay low single-digit percentage royalties on net sales of collaborated product generated under the
Oxford BioMedica Agreement.
UCLA/CIRM research agreement
In January 2017, the Company and UCLA executed a subcontract agreement (“UCLA Research Agreement”), whereby the
Company would provide UCLA certain research and development services related to autologous lentiviral gene therapy in
ADA-SCID as part of UCLA’s existing ADA-SCID research program that is being funded by the California Institute for
Regenerative Medicine (“CIRM”). The original amount of total reimbursement the Company could have received under the
UCLA Research Agreement was $10.4 million. Through June 30, 2018, the Company received and recognized $7.3 million
from this agreement. In July 2018, a transfer of the sponsorship took place and the Company became the awardee under the
program funded by CIRM, and the Company received an award that superseded the previous award noted above. The total
reimbursement the Company may receive under the new award is $8.5 million, of which we may be obligated to reimburse
UCLA for up to $5.5 million for research activities upon achievement of certain milestones. Reimbursement may be received
from CIRM during the period from January 2017 to December 2021. Under the terms of the CIRM grants, the Company is
obligated to pay royalties based on a low single digit royalty percentage on net sales of CIRM-funded product candidates or
CIRM-funded technology. The Company has the option to decline any and all amounts awarded by CIRM. As an alternative to
revenue sharing, the Company has the option to elect to convert the award to a loan, payable within 10 days of election. No
such election has been made as of the date of this Annual Report. The reimbursements are recognized as a reduction in research
and development expense for research activities that have taken place. In the event the reimbursement is received in advance of
research activities, it is recognized within other liabilities. The Company accrues the sales-based royalties associated with
CIRM-funded products when payment becomes probable. To date, no royalties have been accrued.
For the year ended December 31, 2018 and 2017, the Company recorded $3.0 million and $5.0 million as a reduction of
research and development expenses related to the UCLA Research Agreement. As of December 31, 2018, the Company
recorded $1.6 million in accrued expenses for amounts which it is obligated to reimburse to UCLA under the July 2018 grant.
As of December 31, 2017, the Company recorded $2.3 million within accrued expense and other liabilities on the Company’s
consolidated balance sheet related to the advance of reimbursements for research activities.
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238 Orchard Therapeutics plc
Other license and research agreements
In 2016 and 2017, the Company entered into several license agreements with various academic and health care institutions to
in-license certain intellectual property rights and know-how relevant to its programs. As part of the consideration related to
these license agreements, the total share commitment was 1,030,786 and 375,380 ordinary shares, respectively. The Company
made cash payments of nil, $2.7 million and $0.4 million 2018, 2017, and 2016, respectively. The share commitments were
recorded to research and development expense based on their fair values as of the time the respective agreement was executed
or modified. The amounts were nil, $1.4 million and $0.5 million in 2018, 2017 and 2016, respectively. In addition, the
Company also committed to make certain clinical and regulatory milestone payments in the aggregate of $31.8 million as well
as single-digit percentage royalties on net sales of products and services associated with the in-licensed technology.
10. Income Taxes
The components of loss from operations before income taxes for the years ended December 31, 2018, 2017, and 2016 are as
follows:
U.K.
Non-U.K.
Loss before taxes
2018
December 31,
2017
(in thousands)
2016
(230,543)
1,018
(229,525) $
(39,422)
(269)
(39,691) $
(19,105)
40
(19,065)
$
The provision for income taxes for the years ended December 31, 2018, 2017, and 2016 was computed at the United Kingdom
statutory income tax rate. The income tax provision for the years then ended comprised:
Current provision expense
Federal—United States
State—United States
United Kingdom
Total current provision expense
Deferred provision expense
Federal—United States
State—United States
United Kingdom
Total deferred provision expense
Total provision for income taxes
2018
December 31,
2017
(in thousands)
2016
$
$
607 $
444
—
1,051
(31)
(50)
—
(81)
970 $
— $
16
—
16
—
37
—
37
53 $
—
17
—
17
—
3
—
3
20
A reconciliation of income tax expense computed at the United Kingdom statutory income tax rate to income taxes as reflected
in the consolidated financial statements is as follows:
Income taxes at United Kingdom statutory rate
State income taxes
Permanent differences
Tax credits
Foreign rate differential
Change in valuation allowance
Impact of United States tax reform
Other
Total provision expense for income taxes
2018
December 31,
2017
(in thousands)
2016
$
$
(43,526) $
370
293
—
20
43,562
159
92
970 $
(7,640) $
41
115
(286)
(40)
7,827
36
—
53 $
(3,831)
14
75
(99)
6
3,855
—
—
20
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Orchard Therapeutics plc 239
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2018 and 2017 consist of the
following:
Deferred tax assets
Net operating loss carryforwards
Research and development credits
Share-based compensation
Amortization
Accruals
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Depreciation
Other non-current liabilities (net deferred tax assets and liabilities)
December 31,
2018
2017
(in thousands)
$
$
$
$
$
29,436 $
—
1,297
19,451
184
1,946
52,314 $
(51,281)
1,033 $
(991) $
42 $
9,483
356
147
2,156
28
—
12,170
(11,882)
288
(328)
(40)
As of December 31, 2018, the Company had approximately $155.2 million of United Kingdom net operating loss
carryforwards.
As of December 31, 2017, the Company has approximately $48.4 million of United Kingdom net operating loss carryforwards
with an indefinite life (but may be subject to certain utilization restrictions).
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which
primarily comprise net operating loss carryforwards and research and development credits. Management has considered the
Company’s history of cumulative net losses in the United Kingdom, estimated future taxable income and prudent and feasible
tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its
United Kingdom deferred tax assets. Accordingly, a full valuation allowance has been established against these net deferred tax
assets as of December 31, 2018 and 2017, respectively. The Company reevaluates the positive and negative evidence at each
reporting period.
Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2018, 2017, and 2016 related
primarily to the increase in net operating loss carryforwards and were as follows:
Valuation allowance as of beginning of year
Decreases recorded as benefit to income tax provision
Increases recorded to income tax provision
Effect of foreign currency translation
Valuation allowance as of end of year
2018
(11,882) $
604
(44,166)
4,163
(51,281) $
$
$
December 31,
2017
(in thousands)
2016
(3,503)
—
(7,827)
(552)
(11,882) $
—
—
(3,855)
352
(3,503)
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of
business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no
pending tax examinations. The Company's tax years are still open under statute from December 31, 2015, to the present. The
resolution of tax matters is not expected to have a material effect on the Company's consolidated financial statements.
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240 Orchard Therapeutics plc
11. Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share:
Year Ended December 31
2017
(In thousands, except per share and share amounts)
2018
2016
Net loss
Net loss attributable to ordinary shareholders
Weighted average ordinary shares outstanding, basic and diluted
Net loss per share attributable to ordinary shareholders, basic and diluted $
$
$
(230,495) $
(230,495) $
22,559,389
(10.22) $
(39,744) $
(39,744) $
8,872,768
(4.48) $
(19,085)
(19,085)
7,100,528
(2.69)
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per
share for all periods as the inclusion of all shares convertible into ordinary shares outstanding would have been anti-dilutive.
The following securities, presented based on amounts outstanding at each period end, are considered to be ordinary share
equivalents, but were not included in the computation of diluted net loss per ordinary share because to do so would have been
anti-dilutive:
Convertible preferred shares
Share options
Unvested performance-based restricted share units
12. Commitments and Contingencies
Operating lease agreements
2018
—
9,179,247
219,922
9,399,169
December 31,
2017
33,277,678
3,612,288
—
36,889,966
2016
11,204,199
1,809,442
—
13,013,641
In October 2016, the Company entered into a lease agreement for laboratory space in Foster City, California, United States.
The lease has a term of 5 years and expires in October 2021. The annual rental expense approximates $0.2 million. The
Company was provided with one month of free rent.
In November 2017, the Company entered into a lease agreement for laboratory space in Menlo Park, California, United States.
The lease expires in November 2020. The annual rental expense approximates $0.8 million. The Company was provided with
one month of free rent.
In January 2018, the Company entered into a lease agreement for additional office space in London, United Kingdom. The
lease has a term of five years and terminates in January 2023. The annual rental expense approximates $0.8 million.
In March 2018, the Company entered into a lease agreement for office space in Boston, Massachusetts, United States, which
terminates in September 2022. The annual rental expense approximates $0.3 million.
In December 2018, the Company leased additional office space in London, United Kingdom. The lease commenced on
December 7, 2018 and terminates on January 7, 2023. The annual rental expense approximates $0.1 million.
Fremont lease agreement
In December 2018, the Company leased manufacturing and office space in Fremont, California, which terminates in May 2030.
The annual rent expense approximates $2.4 million. The Company was provided with 8 months of free rent. Subject to the
terms of the lease agreement, the Company executed a $3.0 million letter of credit upon signing the lease, which may be
reduced by 25% subject to reduction requirements specified therein. This amount is classified as restricted cash on the
consolidated balance sheet.
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Orchard Therapeutics plc 241
The Company intends to perform non-normal tenant improvements to the property to customize the facility to suit the
Company’s unique manufacturing needs. The Company is responsible for paying directly the costs associated with the
construction project and as such the Company will be deemed for accounting purposes only to be the owner of the construction
project, even though it is not the legal owner. As of December 31, 2018, no construction has begun related to the facility. The
lease provides for approximately $5.0 million in tenant improvement allowances to be reimbursed to the Company by the
landlord, which will be amortized into rental expense over the term of the lease.
Upon the start of construction, the Company is required to deposit $10.0 million in an escrow account. Subject to the terms of
the lease and reduction provisions, this amount may be decreased to nil over time. As of December 31, 2018, no construction
has begun, and the Company has no funds deposited in the escrow account.
Future minimum lease payments
The following table summarizes the future minimum lease payments due under all operating leases as of December 31, 2018:
Due in:
2019
2020
2021
2022
2023
Thereafter
Total
(in thousands)
3,303
4,910
4,135
3,921
2,844
20,386
39,499
$
$
The Company recognizes rent expense on a straight-line basis over the respective lease period and has recorded deferred rent
for rent expense incurred but not yet paid.
The Company recorded rent expense of $2.4 million, $0.7 million and $0.2 million for the years ended December 31, 2018,
2017 and 2016, respectively.
Other funding commitments
The Company has entered into several license agreements (Note 9). In connection with these agreements the Company is
required to make milestone payments and annual license maintenance payments not met at December 31, 2018 and 2017 or
royalties on future sales of specified products. The Company determined that no milestone payments that have not already been
accrued were probable as of December 31, 2018.
Commitment with contract manufacturing organization
The Company has entered into agreements with contract manufacturing organizations relating to the provision of
manufacturing services and purchase of clinical material to be used in clinical trials that include minimum purchase
commitments. As of December 31, 2018, and December 31, 2017, there was $0.8 million and $nil included within prepayments
relates to prepaid instalments against these minimum commitments. The Company is committed to make further payments
totaling $10.1 million between January 2019 and March 2021.
Legal proceedings
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities.
13. Benefit Plans
The Company makes contributions to private defined contribution pension plans on behalf of its employees. The Company
matches its employee contributions up to five percent of each employee’s annual salary based on the jurisdiction the employees
are located. The Company paid $0.6 million, $0.2 million, and $31,000 in matching contributions for the years ended
December 31, 2018, 2017 and 2016, respectively.
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242 Orchard Therapeutics plc
14. Related-party Transactions
UCLB
Subsequent to our Series C preferred share financing in August 2018, UCLB is no longer a principal shareholder, and is no
longer considered an affiliated entity of the Company as of December 31, 2018.
UCL Technology Fund LP (“UCLTF”) is affiliated with UCLB. On February 6, 2016, UCLB through its associate UCLTF,
entered into a Subscription and Shareholders’ Agreement with the Company to purchase an aggregate of 800,298 Series A
shares (Note 9). At the same time, UCLB also entered into the UCLB/UCLA License Agreement (Note 9), through which the
Company was granted licenses to certain intellectual property rights controlled by UCLB and UCLA to develop and
commercialize gene therapy products in certain fields and territories. In 2016, the Company also agreed to sponsor a short-term
research program with UCLB with total program costs of $0.5 million. In 2018, 2017, and 2016 the Company incurred $0.2
million, $0.2 million, and $0.4 million of consulting fees, with an affiliate of UCLB, respectively.
GSK
In April 2018, the Company entered into the GSK Agreement with subsidiaries of GSK to acquire a portfolio of autologous ex
vivo gene therapy assets and licenses, for rare diseases and option rights on three additional programs in preclinical
development from Telethon-OSR (See Note 9). As consideration for the license the Company paid an upfront fee of $14.1
million, incurred an inventory purchase liability of $6.9 million, and issued 12,455,252 Series B convertible preferred shares
valued at $93.4 million. Additionally, as part of the GSK agreement, the Company obtained, and is responsible for maintaining
the commercial availability of Strimvelis. The Company recorded a loss provision of $18.4 million associated with the
contract, as the costs to maintain Strimvelis are expected to significantly exceed revenues.
The issuance of the convertible preferred shares made GSK a principal shareholder in the Company.
The Company and GSK have also separately executed a Transition Services Agreement (“TSA”) as well as an Inventory Sale
Agreement, both effective April 11, 2018. The TSA outlined several activities that the Company requested GSK to assist with
during the transition period, including but not limited to utilizing GSK to sell, market and distribute Strimvelis, and assist with
regulatory, clinical and non-clinical activities for the other non-commercialized products which were ongoing at the date of the
GSK Agreement. The TSA is expired in December 2018. In 2018 the Company paid $14.0 million in pass-through research
and development and royalty costs with GSK associated with the TSA. As of December 31, 2018, the company had $6.0
million in accrued expenses and accounts payable associated with the GSK TSA.
Convertible preferred shares
In February 2016, entities affiliated with F-Prime Capital purchased 16,006,000 Series A convertible preferred shares.
In December 2017, entities affiliated with F-Prime Capital and Scottish Investment Trust purchased 2,400,900 and 3,201,200
Series B convertible preferred shares.
In December 2017, the Company sold to its Chief Executive Officer, Chief Medical Officer and Senior Vice President of
Business Development and Alliance Management 39,825, 9,955 and 3,982 Series B convertible preferred shares.
In August 2018, entities affiliated with Deerfield Management Company and Scottish Mortgage Investment Trust purchased
4,647,500 and 697,125 Series C convertible preferred shares at a price of
In August 2018, the Company sold to its Chief Executive Officer, Chief Financial Officer, and various members of its board of
directors 24,979, 9,294, and 90,158 Series C convertible preferred shares.
All convertible preferred shares were converted to ordinary shares as part of the Company’s IPO.
Initial public offering
In November 2018, entities affiliated with Deerfield Management Company, RA Capital Management LLC, Temasek
Holdings (Private) Limited, and Scottish Mortgage Investment Trust purchased 3,376,100, 2,057,432, 1,000,000 and 925,000
ADSs, respectively, in the IPO. Subsequent to the IPO and as of December 31, 2018, each of these entities holds more than 5%
of the Company’s share capital.
In November 2018, our Chief Executive Officer, Chief Financial Officer, and members of the board of directors purchased
18,500, 5,000, and 13,000 ADRs, respectively, in the IPO.
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Orchard Therapeutics plc 243
15. Subsequent Events
Grants of share options and performance-based restricted share units under the 2018 Plan
On January 2, 2019, the Company granted options to employees for the purchase of an aggregate of 117,280 ordinary shares, at
a weighted average exercise price of $14.98 per share. The aggregate grant-date fair value of these options was $1.1 million,
which will be recognized as share-based compensation expense over the vesting period of four years.
On January 16, 2019, the Company granted options to senior management and employees for the purchase of an aggregate of
2,470,423 ordinary shares, at a weighted average exercise price of $12.54 per share. The aggregate grant-date fair value of
these options was $19.8 million, which will be recognized as share-based compensation expense over the vesting period of
approximately four years. The Company also granted performance-based RSUs to certain of its executives covering a
maximum of 219,500 ordinary shares. These performance-based RSUs will vest, if at all, based upon attainment of certain
regulatory and market-based milestones, but must vest by December 31, 2021 or else be forfeited. The maximum aggregate
total fair value of these RSUs that could be recognized over this period is $3.3 million.
On February 1, 2019, the Company granted options to employees for the purchase of an aggregate of 95,800 ordinary shares, at
a weighted averaged exercise price of $12.86 per share. The aggregate grant-date fair value of these options was $0.8 million,
which will be recognized as share-based compensation expense over the vesting period of four years.
On March 1, 2019, the Company granted options to employees for the purchase of an aggregate of 24,700 ordinary shares, at a
weighted averaged exercise price of $16.89 per share. The aggregate grant-date fair value of these options was $0.3 million,
which will be recognized as share-based compensation expense over the vesting period of four years.
On March 13, 2019, the Company granted performance-based RSUs to certain members of its senior management covering
108,000 ordinary shares. These performance-based RSUs will vest, if at all, based upon attainment of certain regulatory and
market-based milestones, but must vest by December 31, 2021 or else be forfeited. The maximum aggregate total fair value of
these RSUs that could be recognized over this period is estimated to be $1.9 million.
F-34
244 Orchard Therapeutics plc
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