Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2024
☐
TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number: 001-37937
XENETIC BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
45-2952962
(IRS Employer
Identification No.)
945 Concord Street
Framingham, Massachusetts 01701
(Address of principal executive offices and zip code)
781-778-7720
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
XBIO
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2): Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 28, 2024, the last business day of the registrant’s most
recently completely second fiscal quarter, based upon the closing price of the registrant’s common stock on the Nasdaq Capital Market on that date of $4.07, was approximately
$5,301,818. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be
deemed to be an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.
As of March 7, 2025, the number of outstanding shares of the registrant’s common stock was 1,542,139.
DOCUMENTS INCORPORATED BY REFERENCE
Information required in response to Part III of Form 10-K (Items 10, 11, 12, 13 and 14) is hereby incorporated by reference to portions of the registrant's definitive proxy
statement for its 2025 Annual Meeting of Stockholders, information statement or an amendment to this Annual Report on Form 10-K. The registrant intends to file a definitive
proxy statement, information statement or an amendment to this Annual Report on Form 10-K with the Securities and Exchange Commission no later than 120 days after the
end of the registrant's fiscal year ended December 31, 2024.
XENETIC BIOSCIENCES, INC.
2024 ANNUAL REPORT ON FORM 10-K
TABLE CONTENTS
PART I
1
Item 1
Business
1
Item 1A
Risk Factors
20
Item 1B
Unresolved Staff Comments
48
Item 1C
Cybersecurity
48
Item 2
Properties
48
Item 3
Legal Proceedings
49
Item 4
Mine Safety Disclosures
49
PART II
50
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
50
Item 6
[Reserved]
50
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
50
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
55
Item 8
Financial Statements and Supplementary Data
56
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
57
Item 9A
Controls and Procedures
57
Item 9B
Other Information
58
Item 9C
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
58
PART III
59
Item 10
Directors, Executive Officers and Corporate Governance
59
Item 11
Executive Compensation
59
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
59
Item 13
Certain Relationships and Related Transactions, and Director Independence
59
Item 14
Principal Accounting Fees and Services
59
PART IV
60
Item 15
Exhibits and Financial Statement Schedules
60
Item 16
Form 10-K Summary
60
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. All statements contained in this Annual Report other than statements of historical
fact, including statements regarding our future results of operations and financial position, our business strategy and plans, future revenues, projected costs, prospects and our
objectives for future operations, are forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning: anticipated effects of
geopolitical events, including the conflicts in the Ukraine and the Middle East and associated sanctions imposed by the United States (“U.S.”) and other countries in response;
our plans to develop our proposed drug candidates; the uncertainty surrounding government actions, as well as any changes to existing or newly proposed legislation that may
affect the healthcare regulatory space; our expectations regarding the nature, timing and extent of collaboration arrangements; the expected results pursuant to collaboration
arrangements, including the receipts of royalty and other future payments that may arise pursuant to collaboration arrangements; the outcome of our plans to obtain regulatory
approval of our drug candidates; the outcome of our plans for the commercialization of our drug candidates; our plans to advance innovative immune-oncology technologies
addressing difficult to treat oncology indications; expectations regarding our Deoxyribonuclease (“DNase”) technology, such as regarding the DNase technology being in
development for the treatment of solid tumors and being aimed at improving outcomes of existing treatments, including immunotherapies, by targeting neutrophil extracellular
traps (“NETs”); our expectations to focus our efforts and resources on advancing the DNase technology into the clinic as an adjunctive therapy for pancreatic carcinoma and
locally advanced or metastatic solid tumors; our expectations regarding our PolyXen® platform and any partnerships with respect thereto; and all statements under the heading
“Opportunity to Address Multiple Oncology Indications” in Item 1 of Part I to this Form 10-K.
In some cases, these statements may be identified by terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”
“seek,” “approximately,” “intend,” “predict,” “potential,” “projects,” “upcoming”, “opportunity”, “target” or “continue,” or the negative of such terms and other comparable
terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, the
levels of activity, performance or achievements. These statements involve known and unknown risks and uncertainties that may cause our or our industry's results, levels of
activity, performance or achievements to be materially different from those expressed or implied by forward-looking statements.
Some factors that could cause actual results to differ materially include without limitation:
·
uncertainty of the expected financial performance of the Company;
·
failure to realize the anticipated potential of the DNase technology;
·
our ability to implement our business strategy;
·
our failure to maintain compliance with the continued listing requirements of the Nasdaq Stock Market;
·
our need to raise additional working capital in the future for the purpose of further developing our pipeline and to continue as a going concern;
·
our ability to finance our business;
·
our ability to successfully execute, manage and integrate key acquisitions and mergers;
·
product development and commercialization risks, including our ability to successfully develop the DNase technology;
·
the impact of adverse safety outcomes and clinical trial results for our therapies;
·
our ability to secure and maintain a manufacturer for our technologies;
·
the impact of new therapies and new uses of existing therapies on the competitive environment;
·
our ability to successfully commercialize our current and future drug candidates;
·
our ability to achieve milestone and other payments associated with our current and future co-development collaborations and strategic arrangements;
·
our reliance on consultants, advisors, vendors and business partners to conduct work on our behalf;
·
the impact of new technologies on our drug candidates and our competition;
·
changes in laws or regulations of governmental agencies;
·
interruptions or cancellation of existing contracts;
·
impact of competitive products and pricing;
·
product demand and market acceptance and risks;
·
the presence of competitors with greater financial resources;
·
continued availability of supplies or materials used in manufacturing at the current prices;
ii
·
the ability of management to execute plans and motivate personnel in the execution of those plans;
·
our ability to attract and retain key personnel;
·
costs, diversion and other adverse effects of the actions of activist shareholders;
·
adverse publicity related to our products or the Company itself;
·
adverse claims relating to our intellectual property;
·
the adoption of new, or changes in, accounting principles;
·
the costs inherent with complying with statutes and regulations applicable to public reporting companies, such as the Sarbanes-Oxley Act of 2002;
·
other new lines of business that the Company may enter in the future;
·
general economic and business conditions, as well as inflationary trends and financial market instability or disruptions to the banking system due to bank failures;
·
the impact of natural disasters or public health emergencies, such as the COVID-19 global pandemic, and geopolitical events, such as the conflicts in the Ukraine
and the Middle East, and related sanctions and other economic disruptions or concerns, on our financial condition and results of operations; and
·
other factors set forth in the Risk Factors section of our Annual Report on Form 10-K and in subsequent filings with the Securities and Exchange Commission
(“SEC”).
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in the forward-looking statements in this
Annual Report. Other unknown or unpredictable factors also could have material adverse effects on our future results, including, but not limited to, those discussed in the
section titled “Risk Factors.” The forward-looking statements in this Annual Report are made only as of the date of this Annual Report, and we do not undertake any obligation
to publicly update any forward-looking statements to reflect subsequent events or circumstances. We intend that all forward-looking statements be subject to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
As used in this Annual Report, unless otherwise indicated, all references herein to “Xenetic,” the “Company,” “we” or “us” refer to Xenetic Biosciences, Inc. and its wholly-
owned subsidiaries.
Our brand and product names, including but not limited to, XDNASE™, XCART™, OncoHist™, PolyXen®, ErepoXen™ and ImuXen™ contained in this Annual Report are
trademarks, registered trademarks or service marks of Xenetic Biosciences, Inc. and/or its subsidiaries in the United States of America (“USA” or “U.S.”) and certain other
countries. All other company and product names may be trademarks of the respective companies with which they are associated.
Summary Risk Factors
Our business is subject to numerous risks. In addition to the summary below, you should carefully review the “Risk Factors” section of this Annual Report on Form 10-K. We
may be subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. These risks should be read in conjunction with the other
information in this Annual Report on Form 10-K. Some of the principal risks relating to our business include:
·
We have never been profitable and may never achieve or sustain profitability. If we are unable to generate sufficient revenue from our operations to pay expenses
or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations may be materially
and adversely affected.
·
We will require substantial additional funding to achieve our goals. Failure to obtain this necessary capital when needed on acceptable terms, or at all, may force
us to delay, limit or terminate our product development efforts, other operations or commercialization efforts.
·
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or drug candidates.
·
We may not continue to meet the continued listing requirements of the Nasdaq Stock Market (“Nasdaq”), which could result in a delisting of our common shares.
iii
·
Our business is substantially dependent on the success of the DNase technology.
·
We operate in an extremely competitive environment and there can be no assurances that competing technologies would not harm our business development.
·
We are an early-stage company in the business of developing pharmaceutical products including drug candidates and technologies. Given the uncertainty of such
development, our business operations may never fully materialize and create value for investors.
·
If conflicts arise between us and our collaborators or strategic partners, these parties may act in their self-interest, which may limit our ability to implement our
strategies.
·
We expect to rely on third parties to conduct, supervise and monitor our clinical studies, and if these third parties perform in an unsatisfactory manner, it may harm
our business.
·
Our collaborators or strategic partners may decide to adopt alternative technologies or may be unable to develop commercially viable products with our
technology, which would negatively impact our revenues and our strategy to develop these products.
·
We may seek to establish additional collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our
development and commercialization plans.
·
If we enter into one or more collaborations, we may be required to relinquish important rights to and control over the development of our drug candidates or
otherwise be subject to unfavorable terms.
·
We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our pharmaceutical products.
·
We may encounter substantial delays in commencement, enrollment or completion of our clinical trials, or we may fail to demonstrate safety and efficacy to the
satisfaction of applicable regulatory authorities, which could prevent us from commercializing our current and future drug candidates on a timely basis, if at all.
·
If we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a drug candidate,
or the approval may be for a more narrow indication than we expect.
·
If we obtain regulatory approval for a drug candidate, our drug candidate will remain subject to regulatory scrutiny.
·
The commercial success of any current or future pharmaceutical products will depend upon the degree of market acceptance by physicians, patients, third-party
payors and others in the medical community.
·
The commercial potential of a pharmaceutical candidate in development is difficult to predict. If the market size for a new drug candidate or technology is
significantly smaller than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.
·
Failure to obtain or maintain adequate coverage and reimbursement for our drug candidates, if approved, could limit our ability to market those products and
decrease our ability to generate revenue.
·
We may use our financial and human resources to pursue a particular research program or drug candidate and fail to capitalize on programs or drug candidates that
may be more profitable or for which there is a greater likelihood of success.
·
We may not be successful in our efforts to identify or discover additional pharmaceutical products.
·
The market opportunities for our drug candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
iv
·
We have no manufacturing, sales, marketing or distribution capabilities, and we may have to invest a significant amount of resources to develop these capabilities.
·
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.
·
If we fail to adequately protect or enforce our intellectual property rights, we may be unable to operate effectively.
·
Issued patents covering our drug candidates could be found invalid or unenforceable if challenged in court.
·
We may not be able to protect our intellectual property rights throughout the world.
·
If we infringe on the intellectual property rights of others, our business and profitability may be adversely affected.
·
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third-parties or otherwise experience
disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
·
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third
parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
·
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
·
Our inability to protect our confidential information and trade secrets would harm our business and competitive position.
·
Our future success depends on our ability to retain principal members of our executive team, consultants and advisors and to attract, retain and motivate qualified
personnel.
·
We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
·
We are a party to collaboration agreements and other significant agreements which contain complex commercial terms that could result in disputes, litigation or
indemnification liability that could adversely affect our business, results of operations and financial condition.
·
The market price of our securities may be highly volatile, and you may not be able to sell our securities.
·
Actions of activist shareholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business.
·
Our preferred stockholders have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could
result in the interests of our preferred stockholders differing from those of our common stockholders.
v
PART I
ITEM 1 – BUSINESS
Overview
We are a biopharmaceutical company focused on advancing innovative immuno-oncology technologies addressing difficult to treat cancers. Our proprietary DNase technology
is designed to improve outcomes of existing treatments, including immunotherapies, by targeting NETs, which are involved in cancer growth, metastasis and progression, and
contribute to immunotherapy, chemotherapy and radiotherapy resistance.
The DNase technology is designed to target NETs, which are weblike structures composed of extracellular chromatin coated with histones and other proteins. NETs are
expelled by activated neutrophils in response to microbial or pro-inflammatory challenges. However, excessive production or reduced clearance of NETs can lead to aggravated
inflammatory, hypercoagulability and autoimmune pathologies, as well as creation of pro-tumorigenic niches in the case of cancer growth and metastasis.
We are focused on advancing the development of our DNase technology toward a first-in-human, multicenter, dose escalation and dose-expansion study of IV rhDNase I in
subjects with locally advanced or metastatic solid tumors. Our systemic DNase program is initially targeting multi-billion-dollar indications including pancreatic ductal
adenocarcinoma (“PDAC”), colorectal carcinoma (“CRC”) and other gastrointestinal cancers. These are all cancer indications with significant unmet need, and with
opportunities for substantial improvement of the currently available therapeutic options. PDAC has a low rate of early diagnosis, a high mortality rate and a poor five-year
survival prognosis. Symptoms are usually non-specific and as a result, PDAC is often not diagnosed until it reaches an advanced stage. Once the disease has metastasized, or
spread to other organs, it becomes especially difficult to treat. There were about approximately 511,000 new cases of pancreatic cancer globally in 2022 and according to the
American Cancer Society, in 2025, an estimated 67,000 people in the U.S. will be diagnosed with pancreatic cancer, with approximately 52,000 deaths projected from the
disease; this translates to a high mortality rate, as the five-year relative survival rate for pancreatic cancer remains around 13%, which constitutes the highest mortality rate
among solid tumor malignancies; among those diagnosed with metastatic disease, the overall five-year survival rate is only 2%. Recent developments that have improved the
survival in many cancer types have not been effective for pancreatic cancer patients, highlighting the urgent need for the development of newer, more effective therapeutic
options. For those few patients that present with earlier stage PDAC, surgical resection followed by chemotherapy is possible, but for the majority of PDAC patients that
present at diagnosis with advanced disease, chemotherapy is the only option, and has only very limited benefit. Second-line patients that were diagnosed already with metastatic
disease have even fewer therapeutic options. The only approved regimen for second-line patients is Onivyde®, a liposomal irinotecan in combination with 5FU and LV. For
these Stage IV at diagnosis patients reaching second-line therapy, median overall survival is only 4.7 months (Macarulla et al, Pancreas 2020 ).
CRC is the second most common cause of cancer death in the U.S. after lung cancer. CRC is the third most commonly diagnosed cancer in males and the second in females,
globally, according to the World Health Organization GLOBOCAN database. In the U.S., CRC is the second most common cause of cancer death after lung cancer. According
to the American Cancer Society, in 2025, an estimated 154,000 people in the US will be diagnosed with colorectal cancer, with approximately 52,900 deaths expected from the
disease; this translates to around 107,000 new colon cancer cases and 47,000 new rectal cancer cases. CRC is in decline in older patients (>65 years) but that is offset by a
steady increase in CRC diagnoses and deaths in individuals younger than 55 years of age. Despite continued overall declines, CRC is rapidly shifting to diagnosis at a younger
age, at a more advanced stage, and in the left colon/rectum. If CRC is diagnosed at a localized stage, the 5-year survival rate is 91%. However, if the cancer has spread to
surrounding tissues or organs and/or the regional lymph nodes, the 5-year relative survival rate is 72%. There are numerous treatment options for earlier stage CRC patients, but
as they progress to advanced and metastatic disease (“mCRC”), those options become limited. Approximately 22% of CRC cases have metastasis at presentation, and 19% will
develop metastasis after primary tumor removal. Unfortunately, if CRC has spread to distant parts of the body, the 5-year relative survival rate is 13%.
All major guidelines recommend patients with mCRC undergo testing of DNA for high DNA microsatellite instability (MSI-H), a mutation found in approximately 10% of all
CRC, and up to 5% of mCRC. CRC patients that are MSI-H/MMRd (or “mismatch repair deficient”) are candidates for immunotherapy using immune checkpoint inhibitors
(“ICIs”); at present, there are three ICIs approved for MSI-H/MMRd CRC – Keytruda, Opdivo (anti-PD-1 antibodies) and Yervoy (anti-CTLA-4 antibody). While the ICI
response rates in this small subset of CRC are encouraging at around 50%, a significant number of patients are resistant, or become refractory to ICI therapy. However, the vast
majority of mCRC patients (>90%) are microsatellite stable (“MSS”) and mismatch repair proficient (“MMRp”), where ICIs have not been shown to provide benefit. The lack
of ICI response in this subset is due to poor immunogenicity and immunosuppression. Again, this highlights the urgent need for the development of newer, more effective
therapeutic options.
1
A substantial amount of scientific literature has implicated NETs in the context of cancer pathogenesis and resistance to cancer therapies (including chemo, radio, and
immunotherapies such as checkpoint inhibitors and cell therapies). In published reports, elevated levels of NETs have been a biomarker associated with poor prognosis in
patients with a variety of cancers and in particular, in gastrointestinal cancers. In addition, resistance to existing therapeutic agents can involve the release of
immunosuppressive signaling factors from NETs, or physical barriers created by NETs, which can impede the infiltration, activity, and survival of cytotoxic T cells in the tumor
microenvironment. Published preclinical models have demonstrated the effectiveness of systemically administered DNase, alone or in combination with other agents, for the
elimination of NETs and prevention of tumor growth and metastasis. We are currently focused on advancing our systemic DNase program into the clinic as an adjunctive
therapy for pancreatic carcinoma and locally advanced or metastatic solid tumors, including CRC.
Adoptive transfer of Chimeric Antigen Receptor (“CAR”) T cells has emerged as one of the most promising advances in cancer immunotherapy. CAR T cell therapy, while
highly effective against blood cancers, faces significant challenges when applied to solid tumors due to the complex tumor microenvironment which hinders CAR T cell
infiltration, persistence, and efficacy, making it difficult for them to reach and attack cancer cells within the solid tumor mass; this includes barriers like dense connective tissue,
abnormal blood vessels, and immunosuppressive cells that can exhaust the CAR T cells, limiting their anti-tumor activity. To successfully treat solid tumors, CAR T cells must
be able to infiltrate, persist, and maintain anti-tumor function in a hostile tumor microenvironment that is itself immunosuppressive and conducive to tumor cell survival and
metastasis. Published evidence suggests that in addition to immunosuppressive factors, mechanical barriers formed by NETs can impede T-cell penetration and occlude T-cell
contact with tumor cells. Recent approaches to CAR T design include “armored” CAR-T cells, so named because they can express additional factors to resist
immunosuppression or degrade physical components of the tumor’s extracellular matrix, including NETs. We intend to conduct pre-clinical research with the goal of
demonstrating that armoring CAR T cells to secrete DNase can support depth and durability of response against solid tumor indications. Engineered CAR T cells, designed to
recognize cancer-associated antigens, are capable of sustained and selective killing of tumor cells, with substantial reduction of tumor burden. The conduct of several CAR T in
vivo models has been a primary focus of our Scripps collaboration.
Our collaboration with Belgian Volition SARL Limited (“Volition”) is an early exploratory program to evaluate the potential combination of Volition’s Nu.Q® technology and
Xenetic’s DNase-Armored CAR T platform to develop proprietary adoptive cell therapies potentially targeting multiple types of solid cancers for which current CAR T cell
therapies have shown limited or no effect. Under the terms of the collaboration agreement, Volition will fund a research program and the two parties will share proceeds from
commercialization or licensing of any products arising from the collaboration. Epigenetically modified nucleosomes are present on tumor cell surfaces and within the tumor
microenvironment of multiple types of solid cancers, and thus these nucleosomes may represent generalizable tumor antigens that are not limited to a single cancer type.
Volition’s Nu.Q® technology can specifically recognize and target epigenetically modified nucleosomes, while our DNase-Armored CAR T platform is designed to enhance the
function of CAR T cells within solid tumor microenvironments.
Additionally, we have partnered with biotechnology and pharmaceutical companies to develop our proprietary drug delivery platform, PolyXen, and receive royalty payments
under an exclusive license arrangement in the field of blood coagulation disorders. PolyXen is an enabling platform technology for protein and peptide drug delivery. It uses the
biological polymer polysialic acid (“PSA”) to prolong the drug's half-life and potentially improve the stability of therapeutic peptides and proteins. Both the site of attachment
and the length of the PSA chain can influence the properties of the therapeutic by changing the apparent hydrodynamic radius of the molecule, which in turn, can enhance a
number of the biological characteristics of the therapeutic. It can also be used for small molecule drugs.
We incorporate our patented and proprietary technologies into drug candidates currently under development with biotechnology and pharmaceutical industry collaborators to
create what we believe will be the next-generation biologic drugs with improved pharmacological properties over existing therapeutics. Our drug candidates have resulted from
our research activities or that of our collaborators and are in the development stage. As a result, we continue to commit a significant amount of our resources to our research and
development activities and anticipate continuing to do so for the near future. To date, none of our drug candidates have received regulatory marketing authorization or approval
in the U.S. by the Food and Drug Administration (“FDA”) nor in any other countries or territories by any applicable agencies. As noted above, we are receiving ongoing
royalties pursuant to a license of our PolyXen technology to an industry partner. Although we hold a broad patent portfolio, the focus of our internal efforts in 2024 was on the
licensing and advancement of our DNase technology.
We were incorporated under the laws of the State of Nevada in August 2011. We, directly or indirectly, through our wholly-owned subsidiaries, Hesperix S.A. (“Hesperix”) and
Xenetic Biosciences (U.K.) Limited (“Xenetic U.K.”), and the wholly-owned subsidiaries of Xenetic UK, Lipoxen Technologies Limited (“Lipoxen”), Xenetic Bioscience,
Incorporated and SymbioTec, GmbH (“SymbioTec”), own various U.S. federal trademark registrations and applications, along with unregistered trademarks and service marks,
including but not limited to XCART, OncoHist, PolyXen, ErepoXen and ImuXen.
2
Our Strategy
Our primary focus is aimed at advancing the systemic DNase program into the clinic as an adjunctive therapy for pancreatic cancer and other locally advanced or metastatic
solid tumors, including CRC. Our goal is to provide solutions in the treatment of solid tumors by improving response and overcoming resistance to checkpoint inhibitors,
chemotherapy, and other standard of care treatments. We also intend to pursue industry collaborations and potential licenses to develop DNase for other uses and indications.
We intend to pursue orphan drug designations and accelerated approval pathways for relevant oncology indications as appropriate in both the U.S. and Europe. If our orphan
oncology drug candidates are granted orphan drug designation, then we may benefit from certain key advantages of orphan status including certain market exclusivities.
We intend to advance development of our DNase technology primarily through the use of contract manufacturing, contract research organizations (“CROs”) and academic
institutions in order to efficiently manage our resources. Continuous pipeline growth and advancement of out-licensed drug candidates is dependent, in part, on our ability to
raise sufficient capital and to advance our existing co-development collaborations and strategic arrangements as well as enter into new such arrangements.
Business Developments
University of Virginia (“UVA”)
On December 21, 2023, we entered into a Research Funding and Material Transfer Agreement with UVA (the “UVA Agreement”) to advance the development of our systemic
DNase program. Under the terms of the UVA Agreement, in addition to advancing our existing intellectual property, we have an option to acquire an exclusive license to any
new intellectual property arising from the DNase research program. Allan Tsung, MD, a member of the Company’s Scientific Advisory Board and Chair of the Department of
Surgery at the UVA School of Medicine, oversees the research conducted under the UVA Agreement. In November 2024, we entered into an amendment to extend the term of
the UVA Agreement through December 2025. UVA will build on the preclinical and translational data produced to date and continue to investigate combinations of DNase I
with immunotherapies in models of primary and metastatic colorectal cancer.
Scripps Research Institute (“Scripps Research”)
On March 17, 2023, we entered into a Research Funding and Option Agreement (the “Agreement”) with Scripps Research, pursuant to which we agreed to provide Scripps
Research an aggregate of up to $0.9 million to fund research relating to advancing the pre-clinical development of our DNase technology. Under the Agreement, we have the
option to acquire a worldwide exclusive license to Scripps Research’s rights in the Technology or Patent Rights (as defined in the Agreement), as well as a non-exclusive,
royalty-free, non-transferrable license to make and use TSRI Technology (as defined in the Agreement) solely for our internal research purposes during the performance of the
research program contemplated by the Agreement. During the second quarter of 2024, the Company amended the Agreement to extend the term to October 31, 2024 with no
additional funding required.
On November 1, 2024, we entered into a Second Amendment to the Agreement with Scripps Research (the “Second Amendment”) extending the term of the Agreement for an
additional twelve (12) month period and to provide Scripps Research additional funding in an aggregate amount of up to approximately $400,000 to fund continuing research.
The research funding is payable by us to Scripps Research on a monthly basis in accordance with a negotiated budget, which provides for an initial payment of approximately
$65,000 on the date of the Amendment and subsequent monthly payments of approximately $65,000 over a 5-month period. All other terms of the Original Agreement remain
unchanged.
Our Technology and Drug Candidates
Potential Drug Candidates
We incorporate our patented and proprietary technologies into a number of drug candidates which are currently under development internally or with our biotechnology and
pharmaceutical collaborators, with the goal of creating what we believe will be the next generation of biologic drugs and therapeutics. While we primarily focus on researching
and developing oncology drugs, we also have ownership and other economic interests in drugs being developed by our collaborators to treat other conditions.
3
The Technologies
During the year ended December 31, 2024, the focus of our internal development efforts was on the advancement of our DNase technology. We have not been actively pursuing
development efforts for XCART or PolyXen or any of our other technologies.
DNase
The DNase technology is designed to target NETs, which are weblike structures composed of extracellular chromatin coated with histones and other proteins.
NETs are expelled by activated neutrophils, in response to microbial or pro-inflammatory challenges. However, excessive production or reduced clearance of
NETs can lead to aggravated inflammatory and autoimmune pathologies, as well as creation of pro-tumorigenic niches in the case of cancer growth and
metastasis.
Program Highlights:
·
Exclusive license and sublicense agreements with CLS Therapeutics Ltd. (“CLS”) to develop its interventional DNase technology, which is aimed at
improving outcomes of existing treatments, including immunotherapies;
·
Value-driving milestones expected over the next 12 -24 months;
·
Systemic DNase program initially targeting multi-billion-dollar indications including pancreatic carcinoma and other locally advanced or metastatic
solid tumors including CRC;
·
Ongoing collaboration with UVA to advance the development of our systemic DNase program;
·
DNase-armored CAR T program in early pre-clinical development; and
·
Ongoing collaboration with Scripps Research to conduct several CAR T in vivo models and enhance the function of CAR T cells within solid tumor
microenvironments.
Research, Outside Services and Collaborations
Through partner efforts, we are developing our pipeline of next-generation bio-therapeutics and novel oncology drugs based on our DNase proprietary technology. In order to
do this while efficiently managing our overhead, we rely on the services of contract manufacturers, CROs and our strategic collaborations. We currently do not have in-house
research facilities to pursue these initiatives. Accordingly, continuous pipeline growth and advancement of our technologies and drug candidates is dependent on several
important collaborations and strategic arrangements, including our arrangements with:
·
Catalent Pharma Solutions LLC (“Catalent”), a global leader in enabling biopharma, cell, gene and consumer health partners to optimize development, launch, and
supply of better patient treatments across multiple modalities;
·
PJSC Pharmsynthez (“Pharmsynthez”), including its wholly-owned subsidiary SynBio LLC (“SynBio”), a beneficial owner of approximately 3.4% of our
common stock;
·
Scripps Research, one of the world’s largest, private non-profit research organizations; and
·
The University of Virginia, a non-profit, educational, research and healthcare institution.
Accordingly, in addition to pursuing our development of the DNase technology, we also have significant interests in drug candidates being developed by our collaborators to
treat other conditions. We may collect some combination of milestone payments and royalties pursuant to these collaborations to the extent that these drugs are successfully
developed and marketed. However, other than royalty payments under a sublicense with Takeda Pharmaceutical Co. Ltd. (together with its wholly-owned subsidiaries,
“Takeda”) and potential royalty payments under our collaboration agreement with Pharmsynthez, we do not anticipate any milestone or royalty payments in the near term, if at
all. For further detail, please read the section titled “Significant Collaborations and Strategic Arrangements” below.
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Our Drug Candidate Pipeline
Our product pipeline contains drug candidates under development internally and with our biotechnology and pharmaceutical collaborators. The following table summarizes key
information regarding our current drug candidates:
ErepoXen
ErepoXen, or polysialylated erythropoietin (“PSA-EPO”), uses our PolyXen platform technology for the treatment of anemia in chronic kidney disease (“CKD”) patients. It is
designed to reduce the dosing frequency by extending the circulating half-life of the therapeutic in the body. We are not pursuing clinical development of ErepoXen but
continue to entertain out-license opportunities for the drug candidate in our licensed territories.
We have collaboration agreements with Pharmsynthez and Serum Institute to develop and launch ErepoXen in limited markets pursuant to which we will collect royalties if
they are successful in these efforts.
Pharmsynthez received regulatory approval to commence a Phase II(b)/III human clinical trial of ErepoXen (also known as Epolong) in Russia with patient recruitment
completed in 2020. In December 2020, Pharmsynthez reported positive data from this trial of Epolong, a treatment for anemia in patients with chronic kidney disease
leveraging our PolyXen technology. Pharmsynthez filed a registration dossier to obtain approval in Russia and received a response letter indicating certain deficiencies in the
dossier. Pharmsynthez developed a gap mitigation strategy and is currently determining next steps.
Serum Institute conducted Phase I and Phase II clinical trials of ErepoXen in ninety-five human subjects. These safety trials, which had no significant drug-related adverse
events, provided us with the data to commence a Phase II, repeat dosing, International Conference on Harmonisation of Technical Requirements for Pharmaceuticals for Human
Use compliant clinical trial for ErepoXen in Australia, New Zealand and South Africa for CKD patients not on dialysis. We completed three cohorts of this study and then
terminated the study.
In addition, Serum Institute finished Phase I/II clinical trials in India of ErepoXen for in-center-dialysis patients. Serum Institute is not actively pursuing this program but may
seek to leverage Pharmsynthez’ trial data and potential Russian marketing authorization to request a waiver for a Phase III clinical trial in India, subject to local regulatory
authority approval.
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Pipeline Expansion Opportunities
Operating under licenses from us within their home markets, our collaborators can potentially generate preclinical and clinical data related to our technologies across a wide
spectrum of therapeutic areas. Under these agreements, we retain all rights for major markets and co-own the clinical data. We therefore have the opportunity to utilize the data
in our decision-making process regarding development and commercialization in major markets.
Significant Collaborations and Strategic Arrangements
Significant collaborations with UVA and Scripps Research are described above under the “Business Developments” section of this Item 1 to Part I of the Form 10-K.
Takeda
In October 2017, the Company granted to Takeda the right to grant a non-exclusive sublicense to certain patents related to the Company’s PolyXen technology that were
previously exclusively licensed to Takeda in connection with products related to the treatment of blood and bleeding disorders. Royalty payments of approximately $2.5 million
were recorded as revenue for each year by the Company during the years ended December 31, 2024 and 2023 and are based on single digit royalties on net sales of certain
covered products.
Belgian Volition SARL Limited (“Volition”) Collaboration
On August 2, 2022, we announced a research and development collaboration with Volition to develop NETs-targeted adoptive cell therapies for the treatment of cancer. The
collaboration is an early exploratory program to evaluate the potential combination of Volition’s Nu.Q® Technology Test and our DNase-Armored CAR T platform to develop
proprietary adoptive cell therapies potentially targeting multiple types of solid cancers. Under the terms of the collaboration agreement, Volition will fund a research program
and the two parties will share proceeds from commercialization or licensing of any products arising from the collaboration.
Catalent Pharma Solutions LLC (“Catalent”)
On June 30, 2022, we entered into a Statement of Work (the “SOW”) with Catalent to outline the general scope of work, timeline, and pricing pursuant to which Catalent will
provide certain services to the Company to perform current Good Manufacturing Principles (“cGMP”) manufacturing of the Company’s recombinant protein, Human DNase I.
The parties agreed to enter into a Master Services Agreement that will contain terms and conditions to govern the project contemplated by the SOW and that will supersede the
addendum to the SOW containing Catalent’s standard terms and conditions.
Other Agreements
We have also entered into various research, development, license and supply agreements with Serum Institute of India (“Serum Institute”), Pharmsynthez and SynBio, a wholly
owned subsidiary of Pharmsynthez. Our collaborative partners continued to engage in research and development activities with no resultant commercial products through
December 31, 2024. No amounts were recognized as revenue related to the Serum Institute, Pharmsynthez or SynBio agreements during each of the years ended December 31,
2024 and 2023.
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Our Intellectual Property
We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, including seeking, maintaining and
defending patent rights, whether developed internally or licensed from our collaborators or other third parties. Our policy is to seek to protect our proprietary position by,
among other methods, filing patent applications in the U.S. and in jurisdictions outside of the U.S. covering our proprietary technology, inventions, improvements and product
candidates that are important to the development and implementation of our business. We also rely on trade secrets and know-how relating to our proprietary technology and
product candidates, continuing innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of oncology. We also plan to
rely on data exclusivity, market exclusivity and patent term and supplemental patent certificate extensions when available. Our commercial success will depend in part on our
ability to obtain and maintain patent and other proprietary protection for our technology, inventions and improvements; to preserve the confidentiality of our trade secrets; to
obtain and maintain licenses to use intellectual property owned by third parties; to defend and enforce our proprietary rights, including any patents that we may own in the
future; and to operate without infringing on the valid and enforceable patents and other proprietary rights of third parties.
Our drug candidates are in various stages of development, each protected by patent and pending patent applications in the U.S. with the U.S. Patent and Trademark Office
(“USPTO”) and in certain other developed countries. Our first issued patents began to expire in 2021 with the remaining PolyXen technology expiring in 2040. As these
PolyXen related patents approach their expiration, we have not renewed these patents for the last years of their life. Our XCART and XDNASE patent families include patent
applications that were recently filed, with those most recently filed having an expiration date of 2042.
Our patent strategy is to file patent applications on innovations and improvements in those jurisdictions that comprise the major pharmaceutical markets in the world or
locations where a pharmaceutical may be manufactured. These jurisdictions generally include for our key patent portfolios, but are not limited to, the U.S., U.K., Australia,
Japan, Canada, South Korea, China, India, Russia and certain other countries in the European Union (“E.U.”), though we do not necessarily file a patent application in each of
these jurisdictions for every patent family.
As of February 28, 2025, we directly or indirectly own (e.g., through a license with CLS), through our wholly-owned subsidiaries, Hesperix and Xenetic U.K., and Xenetic
U.K.’s wholly-owned subsidiaries, Lipoxen, XTI and SymbioTec, 35 U.S. and international patents and pending patent applications that cover various aspects of our
technologies. This number includes patents and patent applications that we have acquired or filed covering various aspects of our XDNASE and XCART platform technology,
including all rights throughout the world in and to patents and patent applications related to “Articles And Methods Directed To Personalized Therapy Of Cancer,” and our
PolyXen platform technology covering polysialylation and advanced polymer conjugate technologies, respectively, as well as our other product candidates. More specifically,
our patents and patent applications cover cancer treatments, method of use, drug conjugates, formulations, along with methods of administering polymer conjugates.
We have also received patent protection for our XDNASE technology, which covers the use of DNase for the treatment of cancer and amelioration of the side effects associated
with a cancer treatment. The DNase can be administered alone or in combination with a cancer therapeutic. This portfolio and that of the XCART portfolio also provide
coverage for the use of certain types of CAR-T cells, with or without the addition of a DNase to treat a cancer. The portfolio further covers the use of CAR-T cells with or
without DNase that are administered with an immune checkpoint inhibitor or modulator to treat a cancer.
Issued patents can provide protection for varying periods of time, depending upon the date of filing of the patent application, the date of patent issuance and the legal term of
patents in the countries in which they are obtained. In general, patents issued for applications filed in the U.S. can provide exclusionary rights for twenty years from the earliest
effective filing date. In addition, in certain instances, the term of an issued U.S. patent that covers or claims an FDA approved product can be extended to recapture a portion of
the term effectively lost as a result of the FDA regulatory review period, which is called patent term extension in the United States and supplemental patent certificate in Europe
and several other countries. The restoration period cannot be longer than five years, and the total patent term, including the restoration period, must not exceed fourteen years
following FDA approval. The term of patents outside of the U.S. varies in accordance with the laws of the foreign jurisdiction but is typically also twenty years from the earliest
effective filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country-to-country, and depends upon many factors,
including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity
and enforceability of the patent.
7
In certain situations, where we work with drugs covered by one or more patents, our ability to develop and commercialize our technologies may be affected by limitations of
our access to these proprietary drugs. Even if we believe we are free to work with a proprietary drug, we cannot guarantee that we will not be accused of, or be determined to
be, infringing on a third party’s rights and be prohibited from working with the drug or found liable for damages. Any such restriction on access or liability for damages would
have a material adverse effect on our business, results of operations and financial condition.
The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. There can be no assurance that
patents that have been issued will be held valid and enforceable in a court of law. Even for patents that are held valid and enforceable, the legal process associated with
obtaining such a judgment is time consuming and costly. Additionally, issued patents can be subject to opposition or other proceedings that can result in the revocation of the
patent or maintenance of the patent in amended form (and potentially in a form that renders the patent without commercially relevant and/or broad coverage). Further, our
competitors may be able to circumvent and otherwise design around our patents. Even if a patent is issued and enforceable, because development and commercialization of
pharmaceutical products can be subject to substantial delays, patents may expire early and provide only a short period of protection, if any, following the commercialization of
products encompassed by our patent(s). We may have to participate in interference proceedings declared by the USPTO, which could result in a loss of the patent and/or
substantial cost to us. Further, we understand that if any of our pending patent applications do not issue, or are deemed invalid following issuance, we may lose valuable IP
protection.
U.S. and foreign patent rights and other proprietary rights exist that are owned by third parties and relate to pharmaceutical compositions and reagents, medical devices and
equipment and methods for preparation, packaging and delivery of pharmaceutical compositions. We cannot predict with any certainty which, if any, of these rights will be
considered relevant to our technology by authorities in the various jurisdictions where such rights exist, nor can we predict with certainty which, if any, of these rights will or
may be asserted against us by third parties. We could incur substantial costs in defending ourselves and our partners against any such claims. Furthermore, parties making such
claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability to develop or commercialize some or all of our products in the U.S.
and in other countries and could result in the award of substantial damages. In the event of a claim of infringement, we or our partners may be required to obtain one or more
licenses from third parties. There can be no assurance that we can obtain a license to any technology that we determine we require on reasonable terms, if at all, or that we could
develop or otherwise obtain alternative technology. The failure to obtain licenses, if required, may have a material adverse effect on our business, results of operations and
financial condition. Further, we may not be able to obtain IP licenses related to the development of our drug candidates on a commercially reasonable basis, if at all.
It is our policy to require our employees and consultants, outside scientific collaborators, sponsored researchers and other advisors who receive confidential information from
us to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties
except in specific circumstances. The agreements provide that all inventions conceived by an employee shall be our property. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.
Manufacturing and Supply
We do not have the capability to manufacture our own materials necessary to support our drug candidate development programs nor do we intend to acquire such capability as
part of our present business strategy. We currently have the SOW in place with Catalent to produce clinical materials for use in the development of drug candidates involving
our DNase technology.
Government Regulation
General
Government authorities in the U.S. at the federal, state and local level, and other countries, extensively regulate, among other things, the research, development, testing,
manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as
those we are developing. Generally, a new drug must be approved by the FDA through the NDA process and a new biologic must be licensed by the FDA through the biologics
license application (“BLA”) process before it may be legally marketed in the U.S.
8
U.S. Regulation
Drug Development Process
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”), and in the case of biologics, also under the Public Health Service Act
(“PHSA”) and the FDCA, and their implementing regulations. 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. 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 to administrative actions or judicial sanctions. These actions or
sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, required additional studies, license revocation, a clinical hold, warning
letters or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts,
restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Prior to marketing a drug or biologic in the U.S. the drug or biologic sponsor generally must complete the following steps:
·
completion of preclinical laboratory tests, animal studies and formulation studies in accordance with Good Laboratory Practices (“GLP”) regulations and other
applicable regulations;
·
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
·
performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practice (“GCP”) regulations to establish the safety and
efficacy of the proposed drug for its intended use;
·
submission to the FDA of an NDA or BLA;
·
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMPs
requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
·
FDA review and approval of the NDA or BLA.
The drug or biologic manufacturer may also be subject to post-approval regulatory requirements. Once a pharmaceutical candidate is identified for development, it enters the
preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit
the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include a protocol
detailing, among other things, the objectives of the first phase of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated, if
the first phase lends itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective thirty
days after receipt by the FDA, unless the FDA, within the thirty-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Clinical holds may also be imposed by the FDA at any time before or during clinical trials due to safety
concerns about ongoing or proposed clinical trials or noncompliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the
sponsor that the hold has been lifted.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations. They must be conducted under protocols
detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND, and timely safety reports must be submitted to the FDA if any serious and unexpected adverse events occur. An institutional review
board (“IRB”) at each institution participating in the clinical trial (or in some cases an independent IRB) must review and approve each protocol before a clinical trial
commences at that institution. As part of its review, the IRB must also approve the information regarding the trial and the consent form that must be provided to each trial
subject or his or her legal representative, monitor the study until completion and otherwise comply with IRB regulations.
9
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
·
Phase I: The drug candidate is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. In the case of some products for severe or life-threatening diseases, such as cancer, 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 II: This phase involves clinical trials 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 and appropriate dosage.
·
Phase III: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed
clinical study sites. These clinical trials are intended to establish the overall risk-benefit ratio of the drug candidate and provide, if appropriate, an adequate basis
for product labeling.
Post-approval trials, sometimes referred to as Phase IV studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the
treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase IV clinical trials as a condition of approval of
an NDA or BLA.
The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health
risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements
or if the drug has been associated with unexpected serious harm to patients. In addition, some clinical trials are overseen by an independent group of qualified experts organized
by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated
check points based on access to certain data from the trial.
Concurrent with clinical trials, sponsors must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for
manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality
batches of the drug candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. In addition,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration
over its shelf life.
While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must
be submitted at least annually to the FDA by the Sponsor, and written IND safety reports must be submitted to the FDA for serious and unexpected suspected adverse events,
findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in-vitro testing suggesting a significant risk to
humans and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.
There are also requirements governing the reporting of ongoing clinical trials and completed trial results to public registries. Sponsors of certain clinical trials of FDA-regulated
products are required to register and disclose specified clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient
population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to
discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been
approved.
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U.S. Market Approval Process
The results of product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests
conducted on the chemistry of the drug, proposed labeling and other relevant information will be submitted to the FDA as part of an NDA or BLA requesting approval to
market the product. The submission of an NDA or BLA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances. The
FDA reviews all NDAs and BLAs submitted to ensure they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional
information rather than accept an NDA or BLA for filing. In this event, the NDA or BLA must be resubmitted with the additional information. The resubmitted application also
is subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA may refer the NDA or BLA to an advisory committee for review,
evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory
committee, but it generally follows such recommendations. The approval process is lengthy and often difficult, and the FDA may refuse to approve an NDA or BLA if the
applicable regulatory criteria are not satisfied or may require additional clinical or other data and information. Even if such data and information are submitted, the FDA may
ultimately decide that the NDA or BLA does not satisfy the criteria for approval. The FDA reviews an NDA to determine, among other things, whether a product is safe and
effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. The FDA reviews a
BLA to determine, among other things whether the product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards
designed to assure the product’s continued safety, purity and potency. Before approving an NDA or BLA, the FDA will inspect the facility or facilities where the product is
manufactured.
After the FDA evaluates an NDA or BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with
prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be
approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the NDA or BLA identified by the FDA and may require additional
clinical data, such as an additional pivotal Phase III trial or other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If
a Complete Response Letter is issued, the sponsor must resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if
such data and information are submitted, the FDA may decide that the NDA or BLA does not satisfy the criteria for approval.
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, which
could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct Phase IV testing, which involves clinical trials designed to further
assess a drug’s safety and effectiveness after NDA or BLA approval, and may require testing and surveillance programs to monitor the safety of approved products which have
been commercialized. The FDA may also place other conditions on approval including the requirement for a risk evaluation and mitigation strategy (“REMS”) to assure the
safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA or BLA must submit a proposed REMS. The FDA will not approve the NDA or BLA
without an approved REMS, if required. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted
distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion,
distribution, prescription or dispensing of products. Marketing approval may be withdrawn for noncompliance with regulatory requirements or if problems occur following
initial marketing.
Orphan Drug Act
The Orphan Drug Act provides incentives to manufacturers to develop and market drugs or biologics for rare diseases and conditions affecting fewer than 200,000 persons in
the U.S. at the time of application for orphan drug designation or for a patient population greater than 200,000 in the U.S. where there is no reasonable expectation that the cost
of developing the drug or biologic will be recovered from sales in the U.S. The first developer to receive FDA marketing approval for an orphan drug is entitled to a seven-year
exclusive marketing period in the U.S. for that product. However, a drug that the FDA considers to be clinically superior to, or different from, another approved orphan drug,
even though for the same indication, may also obtain approval in the U.S. during the seven-year exclusive marketing period. In addition, holders of exclusivity for orphan drugs
are expected to assure the availability of sufficient quantities of their orphan drugs to meet the needs of patients. Failure to do so could result in the withdrawal of marketing
exclusivity for the drug.
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Pediatric Information
Under the Pediatric Research Equity Act of 2007 (“PREA”), NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness of the
drug for the claimed indication(s) in all relevant pediatric sub-populations and to support dosing and administration for each pediatric sub-population for which the drug 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 drug for an
indication for which orphan drug designation has been granted. The Best Pharmaceuticals for Children Act (“BPCA”) provides sponsors of NDAs with an additional six-month
period of market exclusivity for all unexpired patent or non-patent exclusivity on all forms of the drug containing the active moiety if the sponsor submits results of pediatric
studies specifically requested by the FDA under BPCA within required timeframes. The Biologics Price Competition and Innovation Act provides sponsors of BLAs an
additional six-month extension for all unexpired non-patent market exclusivity on all forms of the biologic containing the active moiety pursuant to the BPCA if the conditions
under the BPCA are met.
The Food and Drug Administration Safety and Innovation Act (“FDASIA”), which was signed into law on July 9, 2012, amended the FDCA. FDASIA requires that a sponsor
who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen
or new route of administration submit an initial Pediatric Study Plan (“PSP”) within sixty days of an end-of-Phase II meeting or as may be agreed between the sponsor and
FDA. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant
endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver
of the requirement to provide data from pediatric studies along with supporting information. FDA and the sponsor must reach agreement on the PSP. A sponsor can submit
amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from nonclinical studies, early phase
clinical trials, and/or other clinical development programs.
Expedited Development and Review Programs
The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet certain criteria. Specifically,
new drugs and biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to
address unmet medical needs for the condition. 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. For
a Fast Track designated product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the
sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is
acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.
Any product submitted to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended to expedite development
and review, such as priority review and accelerated approval. Fast Track designation, priority review and accelerated approval do not change the standards for approval but may
expedite the development or approval process. 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. 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 a
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. If the FDA concludes that a drug shown to be effective
can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions as it deems necessary to assure safe use of the drug, such as (i)
distribution restricted to certain facilities or physicians with special training or experience or (ii) distribution conditioned on the performance of specified medical procedures.
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FDASIA established a new category of drugs and biologics referred to as “breakthrough therapies” that may be eligible to receive Breakthrough Therapy Designation. A
sponsor may seek FDA designation of a drug or biologic candidate as a “breakthrough therapy” if the product is intended, alone or in combination with one or more other
products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over
existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of
the Fast Track program features, as well as more intensive FDA interaction and guidance. The Breakthrough Therapy Designation is a distinct status from both accelerated
approval and priority review, which can also be granted to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will expedite
the development and review of such drug. All requests for breakthrough therapy designation will be reviewed within 60 days of receipt, and the FDA will either grant or deny
the request.
The 21st Century Cures Act, enacted in 2016, established a new expedited approval program for regenerative medicine products, including cell and gene therapies. The
Regenerative Medicine Advanced Therapy (“RMAT”) program established an expedited review program to facilitate development and review of regenerative medicine
therapies intended to address an unmet medical need in patients with serious conditions. An investigational drug is eligible for RMAT designation if: (1) It meets the definition
of regenerative medicine therapy (such as a cell therapy or gene therapy); (2) it is intended to treat, modify, reverse, or cure a serious condition; and (3) preliminary clinical
evidence indicates that the regenerative medicine therapy has the potential to address unmet medical needs for such condition. Advantages of the RMAT designation include all
the benefits of the fast track and breakthrough therapy designation programs, including early interactions with FDA.
Post-Approval Requirements
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements or standards is not maintained or if problems occur after the
product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the
product from the market. After approval, some types of changes to the approved product, such as adding new indications, certain manufacturing changes and additional labeling
claims, are subject to further FDA review and approval. Drug and biologics manufacturers and other entities involved in the manufacture and distribution of approved drugs and
biologics 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 regulations and other laws and regulations.
U.S. Patent Term Restoration and Marketing Exclusivity
The Biologics Price Competition and Innovation Act, or BPCIA, amended the Public Health Service Act to authorize the FDA to approve similar versions of innovative
biologics, commonly known as biosimilars. A competitor seeking approval of a biosimilar must file an application to establish its molecule as highly similar to an approved
innovator biologic, among other requirements. The BPCIA, however, bars the FDA from approving biosimilar applications based on the Company’s data for twelve years after
an innovator biological product receives initial marketing approval. This twelve-year period of data exclusivity may be extended by six months, for a total of twelve and a half
years, if the FDA requests that the innovator company conduct pediatric clinical investigations of the product.
Depending upon the timing, duration and specifics of the FDA approval of our drug candidates, some of our U.S. patents may be eligible for limited patent term extension
under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as 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 extension cannot extend the remaining term of a patent beyond a total of fourteen years from the product’s approval date. The patent term extension period is generally
one-half the time between the effective date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the
approval of that application up to a maximum of five years extension. Only one patent applicable to an approved drug is eligible for the extension, and the application for the
extension must be submitted prior to the expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension
or restoration. In the future, we intend to apply for extension of the patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration
date where reasonably obtainable and depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA.
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Marketing exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA provides a five-year period of
non-patent marketing exclusivity within the U.S. to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has
not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the
exclusivity period, the FDA may not accept for review an abbreviated new drug application (ANDA), or a 505(b)(2) NDA submitted by another company for another drug
based on the same active moiety, regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant
does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of
patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for
an NDA or supplement to an existing NDA if new clinical investigations (other than bioavailability studies) that were conducted or sponsored by the applicant are deemed by
the FDA to be essential to the approval of the application (e.g., new indications, dosages or strengths of an existing drug). This three-year exclusivity covers only the
modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing
the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an
applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials
necessary to demonstrate safety and effectiveness.
Pediatric exclusivity is another type of regulatory market exclusivity in the U.S. under the BPCA. Pediatric exclusivity provides for an additional six months of marketing
exclusivity if a sponsor conducts clinical trials in children as addressed in the section named “Pediatric Information” above. In addition, orphan drug exclusivity, as described
above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.
Foreign Regulation
In addition to regulations in the U.S., we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales
and distribution of our drug candidates.
Whether or not we obtain FDA approval for our drug candidates, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the
commencement of clinical trials or marketing of the drug candidates in those countries. Certain countries outside of the U.S. have a similar process that requires the submission
of a clinical trial application (“CTA”) much like the IND prior to the commencement of human clinical trials. In the European Union, for example, a CTA must be submitted to
each country’s national health authority and an independent ethics committee, much like the FDA and the IRB, respectively. Once the CTA is approved in accordance with a
country’s requirements, clinical study development may proceed.
The requirements and process governing the conduct of clinical trials, product approval and licensing, pricing and reimbursement vary from country to country. In all cases, the
clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational drug or biological product under European Union regulatory systems, we must submit a marketing authorization application.
The application used to file the NDA or BLA in the U.S. is similar to that required in the European Union, with the exception of, among other things, country-specific document
requirements. The European Union also provides opportunities for market exclusivity. For example, in the European Union, upon receiving marketing authorization, new
chemical entities 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 application. During the additional two-year period of market exclusivity, a generic marketing
authorization can be submitted, and the innovator’s data may be referenced, but no generic 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 a new chemical entity, 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 U.S. 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 in 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 marketing authorization application 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. In addition, marketing authorization may be granted to a similar product
for the same indication at any time if:
·
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 products.
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 studies,
product licensing or approval, pricing and reimbursement vary from country to country. In all cases, again, the clinical studies are 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 or withdrawal of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal prosecution.
Other Regulatory Matters
Manufacturing, sales, promotion and other activities following product approval are also potentially subject to regulation by numerous regulatory authorities in addition to the
FDA, including, in the U.S., the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement
Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection
Agency and state and local governments. In the U.S., sales, marketing and scientific/educational programs must also comply with state and federal fraud and abuse laws,
including state and federal anti-kickback, false claims, data privacy and security and physician payment transparency laws. Pricing and rebate programs must comply with the
federal health care program (e.g., Medicaid) rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively the Affordable Care Act, as well as the Inflation Reduction Act
of 2022. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The
handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable
child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to
federal and state consumer protection and unfair competition laws.
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The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security
requirements intended to prevent the unauthorized sale of pharmaceutical products.
The failure to comply with regulatory requirements may subject us to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory
requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal
of product approvals or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other
requirements, new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or
withdrawal of future products marketed by us could materially affect our business in an adverse way.
Changes in regulations, statutes or the interpretation of existing regulations, including those resulting from the new Trump Administration or the Executive Branch’s actions,
could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the
recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of
our business.
Reimbursement
In both domestic and foreign markets, sales and reimbursement of any approved products will depend, in part, on the extent to which the costs of such products will be covered
by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging
the prices charged for medical products and services and imposing controls to manage costs. The containment of healthcare costs has become a priority of federal and state
governments and the prices of drugs have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. For example, in the U.S. there have been several recent Congressional inquiries
and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and
manufacturer patient programs, reduce the cost of drugs under Medicare and reform government program reimbursement methodologies for drugs. Additionally, in May 2018,
the Trump Administration laid out a “Blueprint” to lower drug prices and reduce out-of-pocket costs of drugs that contains additional proposals to increase 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. In December of 2020, the Trump Administration issued interim final rules focused on attempting to lower drug prices,
including permitting the importation of certain drugs from Canada, most-favored nation pricing for certain drug categories under Medicare Part B and modifications to the
Medicare Part D drug rebate program by modifying the U.S. federal Anti-Kickback Statute. The Part B most-favored nation rule was blocked from taking effect on January 4,
2021, by a federal judge stating that the rule was rushed and the public was not provided time to give comment as required by the Administrative Procedures Act. Then, on
December 29, 2021, CMS issued a final rule that formally rescinded the most-favored nation rule. There is also pending litigation to stay the changes to the Medicare Part D
drug rebate program and the Anti-Kickback Statute. On January 30, 2021, the District Court for the District of Columbia granted the parties’ stipulated request to delay the
effective date of the Part D rebate rule to January 1, 2023. On August 7, 2022, Congress passed the Inflation Reduction Act of 2022 which delayed the implementation of the
changes to the Medicare Part D drug rebate program and the U.S. Federal Anti-Kickback Statute until January 2032. As a result of the 2024 presidential election, it is unclear
whether the new Trump Administration will renew, resume, or enact any similar efforts or proposals that may impact drug pricing and/or drug reimbursement in the U.S.
Additionally, the Inflation Reduction Act of 2022 may impact existing Medicare programs that cover prescription drugs. In addition to other relevant provisions, the Inflation
Reduction Act of 2022 allow the Medicare program to directly negotiate the price of certain high-expenditure prescription drugs covered under Medicare Parts B and D, starting
in the year 2028 and 2026, respectively, by setting certain "maximum fair prices." Moreover, the Inflation Reduction Act of 2022 requires manufacturers to pay rebates to the
federal government if prices of certain drugs covered under the Medicare program rise faster than the rate of inflation.
More broadly, in 2024, the U.S. Supreme Court in Loper Bright Enterprises v. Raimondo, overturned the long-standing “Chevron” doctrine, which had accorded deference to an
agency's interpretation of ambiguous laws since 1984. Following the Loper decision, the healthcare space may face increased judicial scrutiny of agency regulations, as courts
are no longer required to defer to federal agencies' interpretations of ambiguous statutes. Although the full impact of this reversal remains to be seen, this change could lead to
significant alterations in how healthcare laws and regulations are applied and enforced.
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At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including
price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, to
encourage importation from other countries and bulk purchasing.
Within the U.S., if we obtain appropriate approval in the future to market any of our product candidates, we may seek approval and coverage for those products under
Medicaid, Medicare and the Public Health Service, or PHS, pharmaceutical pricing program and may also seek to sell the products to federal agencies. Medicaid is a joint
federal and state program that is administered by the states for low-income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, manufacturers are required to
pay a rebate for each unit of product reimbursed by the state Medicaid programs. The amount of the rebate for each product is set by law and may be subject to an additional
discount if certain pricing increases more than inflation. Medicare is a federal program administered by the federal government that covers individuals age 65 and over as well
as those with certain disabilities. Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that do not need to be administered by
a physician). Medicare Part D is administered by private prescription drug plans approved by the U.S. government, and each drug plan and/or pharmacy benefit manager
establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the drug plan and/or pharmacy benefit manager may modify from time-to-
time. Medicare Part B covers most injectable drugs given in an in-patient setting and some drugs administered by a licensed medical provider in hospital outpatient departments
and doctors’ offices. Medicare Part B is administered by Medicare Administrative Contractors, which generally have the responsibility of making coverage decisions. Subject to
certain payment adjustments and limits, Medicare generally pays for Part B covered drugs based on a percentage of manufacturer-reported average sales price. Drug products
are subject to discounted pricing when purchased by federal agencies via the Federal Supply Schedule, or FSS. FSS participation is required for a drug product to be covered
and paid for by certain federal agencies and for coverage under Medicaid, Medicare Part B and the PHS pharmaceutical pricing program. FSS pricing is negotiated periodically
with the Department of Veterans Affairs. FSS pricing is intended to not exceed the price that a manufacturer charges its most-favored non-federal customer for its product. In
addition, prices for drugs purchased by the Veterans Administration, Department of Defense (including drugs purchased by military personnel and dependents through the
TRICARE retail pharmacy program), Coast Guard and PHS are subject to a cap on pricing (known as the “federal ceiling price”) and may be subject to an additional discount if
pricing increases more than inflation. To maintain coverage of drugs under the Medicaid Drug Rebate Program, manufacturers are required to extend discounts to certain
purchasers under the PHS pharmaceutical pricing program. Purchasers eligible for discounts include hospitals that serve a disproportionate share of financially-needy patients,
community health clinics and other entities that receive health services grants from the PHS.
In March 2010, the U.S. Congress enacted the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, or the Affordable Care Act,
which included changes to the coverage and payment for drug products under government health care programs. Since its enactment, there have been judicial and
Congressional challenges to numerous elements of the Affordable Care Act, as well as efforts by both the executive and legislative branches of the federal government to repeal
or replace certain aspects of the Affordable Care Act. For example, President Trump signed Executive Orders designed to delay the implementation of certain provisions of the
Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. In addition, the U.S. Congress has
considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, it has
enacted laws that modify certain provisions of the Affordable Care Act, such as removing penalties, starting January 1, 2019, for not complying with the Affordable Care Act’s
individual mandate to carry health insurance, delaying the implementation of certain mandated fees and increasing the point-of-sale discount that is owed by pharmaceutical
manufacturers who participate in Medicare Part D. In December 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety
because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017, or the Tax Act. Although the Supreme Court ruled the plaintiffs did
not have standing in June of 2021, any other executive, legislative or judicial action to “repeal and replace” all or part of the Affordable Care Act may have the effect of limiting
the amounts that government agencies will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure, or
may lead to significant deregulation, which could make the introduction of competing products and technologies much easier.
Regardless of the future of the Affordable Care Act provisions, the Congress will continue to debate a range of policies that could impact the prices pharmaceutical companies
charge for products or how much they are reimbursed. Moreover, whether and to what extent the new Trump Administration will take actions, whether through new legislation,
changes in regulations, or Executive Orders, that may impact pricing and/or reimbursement for pharmaceutical products remains to be seen.
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Environmental Regulation
In addition to being subject to extensive regulation by the FDA, we must also comply with environmental regulation insofar as such regulation applies to us or our drug
candidates. Our costs of compliance with environmental regulation as applied to similar pharmaceutical companies are minimal, since we do not currently, nor do we intend to,
engage in the manufacturing of any of our drug candidates. We currently use unaffiliated manufacturers to produce all of our drug candidate material and receive final material
from such manufacturer, without any involvement on our part in the manufacturing process at any stage of the process.
Although we believe that our safety procedures for using, handling, storing and disposing of our drug candidate materials comply with the environmental standards required by
state and federal laws and regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. We do not carry a specific insurance
policy to mitigate this risk to us or to the environment.
Employees
At December 31, 2024, we employed two full-time employees. We are not a party to any collective bargaining agreement with our employees, nor are any of our employees a
member of any labor unions.
To complement our own professional staff, we utilize specialists in regulatory affairs, pharmacovigilance, process engineering, manufacturing, quality assurance, preclinical
and clinical development, accounting and business development. These individuals include scientific advisors as well as independent consultants.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products.
While we believe that our technology, development experience and scientific knowledge provide us with competitive advantages, we face potential competition from many
different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private
research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become
available in the future.
Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical
trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and diagnostic industries
may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified
scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or
necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies.
The key competitive factors affecting the success of all our product candidates, if approved, are likely to be their efficacy, safety, side effects, convenience, price, the level of
generic competition, and the availability of reimbursement from government and other third-party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side
effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain FDA 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. In
addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products. There are many generic
products currently on the market for the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years. If
our therapeutic product candidates are approved, we expect that they will be priced at a significant premium over competitive generic products.
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The most common methods of treating patients with cancer are surgery, radiation and drug therapy, including chemotherapy, hormone therapy, immunotherapy, and targeted
drug therapy. There are a variety of available drug therapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. To the extent
our product candidates are ultimately used in combination with or as an adjunct to existing drug or other therapies, our product candidates will not be competitive with them.
Some of the currently approved drug therapies are branded and subject to patent protection, and others are available on a generic basis. Many of these approved drugs are well
established therapies and are widely accepted by physicians, patients and third-party payors. In general, although there has been considerable progress over the past few
decades in the treatment of cancer and the currently marketed therapies provide benefits to many patients, these therapies all are limited to some extent in their efficacy and
frequency of adverse events, and none of them are successful in treating all patients. As a result, the level of morbidity and mortality from cancer remains high.
DNase for pancreatic cancer and solid tumors
In the field of pancreatic cancer, we will compete with the few, currently approved treatments for pancreatic carcinoma, including pancreatic ductal adenocarcinoma (“PDAC”).
In the first line setting, Gemcitabine in combination with Abraxane® or FOLFIRINOX regimen are the current standard of care, although NALIRIFOX, which substitutes
liposomal irinotecan (Onivyde) for irinotecan, recently received FDA approval for first-line treatment of metastatic pancreatic adenocarcinoma. Oncologists have limited
options of existing therapies for second-line metastatic patients. The only FDA-approved second-line treatment is Onivyde® in combination with Fluorouracil (5FU) and
leucovorin (LV) for gemcitabine-treated patients. In addition to chemotherapy, Merck’s KEYTRUDA® was approved for MSI-H cancers (approximately 1% of all cases) and
Lynparza® was approved for maintenance of BRCA (or “BReast CAncer gene”) mutated pancreatic cancer (approximately 7% of all cases).
In the last years there have been a number of late-stage clinical failures of compounds for advanced PDAC. Most of these failed trials have been based on a single promising
endpoint. There are very few compounds in advanced stages of development in PDAC.
With respect to other solid tumors, there are a large number of companies developing treatments intended to be used in combination with approved immunotherapies, including
immune checkpoint inhibitors, to treat a variety of solid tumor indications. In the field of CRC, there are numerous approved treatments for CRC diagnosed at earlier stages.
However, for mCRC, chemotherapy remains the mainstay of systemic treatment for MSS/MMRp mCRC, which at 95%, represent the majority of mCRC patients.
Chemotherapy regimens will typically consist of a fluoropyrimidine (5-FU or capecitabine) paired in a two-drug regimen (doublet) with irinotecan or oxaliplatin. Treatment
regimens can be 5-FU- or capecitabine-based and can be either oxaliplatin-based (FOLFOX or CAPEOX) or irinotecan- based (FOLFIRI or CAPIRI) with no difference in
survival. Regimens with a three-drug (triplet) combination, FOLFIRINOX or FOLFOXIRI, are also available as first-line therapy and are commonly paired with the anti-VEGF
antibody bevacizumab. Second-line therapy is tailored according to previous therapies. In general, patients who receive oxaliplatin-based chemotherapy upfront should be
treated with irinotecan-based chemotherapy and vice versa [20–22]. Biologics such as aflibercept ramucirumab are added based on molecular profiling. After progression on
second-line therapy, patients with RAS/BRAF wild-type disease receive an EGFR inhibitor combined with irinotecan. Alternatively, if they have HER2 mutation, trastuzumab
is typically preferred. Patients with the BRAFV600E mutation typically receive an encorafenib-cetuximab regimen.
For those 5% of patients with MSI-H/dMMR mCRC, immune checkpoint inhibitors are now the preferred first line therapy. However, 50% of those will fail and the therapeutic
options then become very limited. Immunotherapy is so far largely considered ineffective in MSS/MMRp mCRC. We will compete with novel combinations of ICIs with
conventional cancer drugs or immunotherapeutics that have started to expose vulnerabilities in MSS/MMRp mCRC. These include dual immune checkpoint inhibition of both
the PD-1/L1 axis and CTLA-4. Other combinations being explored include immunotherapies combined with anti-EGFR antibodies, small molecule VEGFR inhibitors, small
molecule inhibitors against other targets (for example, KRAS), and novel ICIs targeting lymphocyte activation gene 3 (LAG3). These combination have shown modest benefit
and with the exception of LAG3, do not directly address the main reasons for ICI failure, which are lower mutation and neoantigen loads in MSS/MMRp mCRC compared to
MSI-H/MMRd mCRC, and immunosuppression.
PSA for Drug Delivery
Current competing platforms include PEGylation, Fc-fusion, albumin-fusion, HESylation, PASylation, and CTP-fusion, among others as well as those of academic institutions
and other smaller pharmaceutical companies engaged in drug development. In addition to competing with universities and other research institutions in the development of drug
products, therapies, technologies and processes, we may compete with other companies in acquiring rights to products or technologies from universities.
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Available Information
Our website address is www.xeneticbio.com. The information on, or that can be accessed through, our website is not part of this Annual Report on Form 10-K. Our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports are available, free of charge, on or through our
website as soon as practicable after we electronically file such forms, or furnish them to, the SEC. The SEC maintains an internet site that contains reports, proxy and
information statements and other information regarding our filings at www.sec.gov.
In addition to disclosing current information pursuant to Section 13 or 15(d) of the Exchange Act and for reports of information required to be disclosed by Regulation FD
through our SEC filings, we also intend to disclose such current information through our investor relations website, press releases, public conference calls and webcasts.
ITEM 1A – RISK FACTORS
Our business is subject to numerous risks. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual
Report as well as our other public filings with the Securities and Exchange Commission. Any of the following risks could have a material adverse effect on our business,
financial condition, results of operations and prospects and cause the trading price of our common stock to decline.
Risks Related to Our Financial Condition and Capital Requirements
We have never been profitable and may never achieve or sustain profitability. If we are unable to generate sufficient revenue from our operations to pay expenses or we are
unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations may be materially and adversely
affected.
We are a clinical-stage biopharmaceutical company with a limited operating history. Pharmaceutical product and technology development is a highly speculative undertaking
and involves a substantial degree of risk. We have no products approved for commercial sale and have generated only limited revenue to date. Our primary focus is now on
advancing our DNase technology via partnering opportunities or through regulatory approval and commercialization. We expect to continue to incur significant research and
development and other expenses related to our ongoing operations. As a result, we have never been profitable and we may not achieve profitability in the foreseeable future, if
at all. Our ability to generate profits in the future will depend on a number of factors, including:
·
Funding the costs relating to the research and development, regulatory approval, commercialization and sale and marketing of our drug candidates and
technologies;
·
Market acceptance of our drug candidates and technologies;
·
Costs of acquiring and developing new drug candidates and technologies;
·
Ability to bring our drug candidates to market;
·
General and administrative costs relating to our operations;
·
Increases in our research and development costs;
·
Charges related to purchases of technology or other assets;
·
Establishing, maintaining and protecting our intellectual property rights;
·
Attracting, hiring and retaining qualified personnel; and
·
Our ability to raise additional capital.
As of December 31, 2024, we had an accumulated deficit of approximately $197.2 million. We expect to incur additional significant operating losses as we expand our research
and development activities and our commercialization, marketing and sales efforts. We may also encounter unforeseen expenses, difficulties, complications, delays and other
unknown factors that may adversely affect our business. In addition, because of the numerous risks and uncertainties associated with pharmaceutical product development,
including that our current drug candidates may not achieve the clinical endpoints of applicable trials, we are unable to predict the timing or amount of increased expenses and if
or when we will achieve or maintain profitability. If we are unable to generate sufficient revenue from our operations to pay expenses or we are unable to obtain additional
financing on commercially reasonable terms, our business, financial condition and results of operations may be materially and adversely affected.
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We will require substantial additional funding to achieve our goals. Failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to
delay, limit or terminate our product development efforts, other operations or commercialization efforts.
Developing drug candidates is an expensive, risky and lengthy process, and we expect our expenses to increase in connection with our ongoing activities, particularly as we
continue the research and development of, initiate clinical trials of, and seek marketing approval for, our drug candidates.
As of December 31, 2024, we had cash of approximately $6.2 million. We expect that we will require additional capital to commence and complete clinical trials, obtain
regulatory approval for, and to commercialize, our drug candidates, including our other preclinical drug candidates and our future drug candidates. However, our operating plan
may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned. Additional funding may come through public
or private equity or debt financings, third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances and licensing arrangements (or a
combination of these approaches). In any event, we will require additional capital to pursue preclinical and clinical activities, pursue regulatory approval for, and to
commercialize, our longer term pipeline drug candidates. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if
market conditions are favorable or if we have specific strategic considerations.
Our ability to raise additional funds will depend on financial, economic, political, and market conditions and other factors over which we may have no or limited control.
Market volatility resulting from economic, political or other factors, such as geopolitical tension, including the conflicts in the Ukraine and the Middle East, and any resulting
sanctions, export controls or other restrictive actions, could also adversely impact our ability to access capital as and when needed. Additional funds may not be available when
we need them, on terms and at a cost that are acceptable to us, or at all.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our drug
candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any
financing may negatively impact the holdings or the rights of our stockholders, and the issuance of additional securities (whether equity or debt) by us, or the possibility of such
issuance, may cause the market price of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and we may be required to
agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights
and other operating restrictions that could adversely impact our ability to conduct our business.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue our pre-clinical development program or the
commercialization of any drug candidates. We may also be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could harm
our business, financial condition and results of operations.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or drug candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and debt financings, as well as
selectively continuing to enter into collaborations, strategic alliances and licensing arrangements. We do not currently have any committed external source of funds. To the
extent that we raise additional capital through the sale of equity or convertible debt securities, equity interests will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Such debt financing may also be secured by
all or a portion of our assets.
If we raise funds by selectively continuing to enter into collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish additional
valuable rights to our technologies, future revenue streams, research programs or drug candidates, or we may have to grant licenses on terms that may not be favorable to us. If
we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or
future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. If we are unable to raise
additional funds through collaborations, strategic alliances or licensing arrangements, we may be required to terminate product development or future commercialization efforts
or to cease operations altogether.
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Risks Related to the Discovery and Development of our Pharmaceutical Products
Our business is substantially dependent on the success of the DNase technology.
Our business will substantially depend on the successful clinical development, regulatory approval and commercialization of the DNase technology. It will require substantial
clinical development and regulatory approval efforts before we are permitted to commence its commercialization, if ever. We have, and plan to continue to pursue our clinical
development strategy through academic and strategic collaborations. If we have difficulty maintaining, obtaining, or are unable to obtain these collaborations and additional
academic collaborations as planned, we may need to delay, limit or terminate any ongoing or planned clinical development, which would have an adverse effect on our
business. The clinical trials and manufacturing and marketing of DNase and any other product candidates will be subject to extensive and rigorous review and regulation by
numerous government authorities in the U.S., the European Union and other jurisdictions where we intend to test and, if approved, market our product candidates. Before
obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through preclinical testing and clinical trials that the product candidate is
safe and effective for use in each target indication and potentially in specific patient populations. This process can take many years and may include post-marketing studies and
surveillance, which would require the expenditure of substantial resources beyond the proceeds we have currently raised. Of the large number of drugs in development for
approval in the U.S. and the European Union, only a small percentage successfully complete the FDA or European Medicines Agency regulatory-approval processes, as
applicable, and are commercialized. Accordingly, even if we are able to obtain the requisite financing or identify an academic or strategic collaboration partner to continue to
fund our research, development and clinical programs, we cannot assure you that DNase or any of our other product candidates will be successfully developed or
commercialized.
We are an early stage company in the business of developing pharmaceutical products including drug candidates and technologies. Given the uncertainty of such
development, our business operations may never fully materialize and create value for investors.
We have invested substantially all of our efforts and financial resources in developing our products, and we currently do not have any products that have gained marketing
approval. Our revenues currently consist primarily of royalty revenue from a single partner and not from product sales. Our ability to generate product revenues, which may not
occur for several more years, if ever, will depend on the successful development and eventual commercialization of our drug candidates. We currently generate royalty revenue
under a sub-license agreement but do not have revenue from sales of any drugs, and we may never be able to develop or commercialize a marketable drug. Each of our drug
candidates will require development, management of development and manufacturing activities, marketing approval in multiple jurisdictions, obtaining manufacturing supply,
building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenues from drug sales. We have not yet demonstrated
an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly-evolving fields, particularly in the
pharmaceutical area. For example, to execute our business plan we will need to successfully:
·
Execute development activities for our drug candidates, including successful enrollment in and completion of clinical trials;
·
Obtain required marketing approvals for the development and commercialization of our drug candidates;
·
Obtain and maintain patent and trade secret protection or regulatory exclusivity for our drug candidates;
·
Protect, leverage and expand our intellectual property portfolio;
·
Establish and maintain clinical and commercial manufacturing capabilities or make arrangements with third-party manufacturers for clinical and commercial
manufacturing;
·
Build and maintain robust sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners, if our drug candidates are
approved;
·
Gain acceptance for our drug candidates, if approved, by patients, the medical community and third-party payors;
·
Effectively compete with other therapies;
·
Obtain and maintain healthcare coverages and adequate reimbursement;
·
Maintain a continued acceptable safety profile for our drug candidates following approval;
·
Develop and maintain any strategic relationships we elect to enter into, if any;
·
Enforce and defend intellectual property rights and claims; and
·
Manage our spending as costs and expenses increase due to preclinical development, clinical trials, marketing approvals and commercialization.
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We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our pharmaceutical products.
Identifying and qualifying patients to participate in clinical studies of our pharmaceutical products is critical to our success. The timing of our clinical studies depends on the
speed at which we can recruit patients to participate in testing our pharmaceutical products. We may experience delays. If patients are unwilling to participate in our clinical
studies because of negative publicity from adverse events in the biopharmaceutical industries or for other reasons, including competitive clinical studies for similar patient
populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in
increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical studies altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete our
clinical studies in a timely manner. Patient enrollment is affected by many factors, including:
·
Severity of the disease under investigation;
·
Real or perceived availability of alternative treatments;
·
Size and nature of the patient population;
·
Eligibility criteria for and design of the trial in question;
·
Perceived risks and benefits of the drug candidate under study;
·
Proximity and availability of clinical sites for prospective patients;
·
Ongoing clinical trials of potentially competitive agents;
·
Physicians’ and patients’ perceptions as to the potential advantages of our drug candidates being studied in relation to available therapies or other products under
development;
·
Our CRO’s and our trial sites’ efforts to facilitate timely enrollment in clinical trials;
·
Patient referral practices of physicians; and
·
The need to monitor patients and collect patient data adequately during and after treatment.
We may not be able to initiate or continue clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by the FDA or
other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical study in any foreign country is subject to numerous risks unique to conducting
business in foreign countries, including:
·
Difficulty in establishing or managing relationships with CROs and physicians;
·
Different standards for the conduct of clinical studies;
·
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.
If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit or terminate ongoing or planned clinical
studies, any of which would have an adverse effect on our business.
We may encounter substantial delays in commencement, enrollment or completion of our clinical trials, or we may fail to demonstrate safety and efficacy to the satisfaction
of applicable regulatory authorities, which could prevent us from commercializing our current and future drug candidates on a timely basis, if at all.
Before obtaining marketing approval from regulatory authorities for the sale of our current and future drug candidates, we must conduct extensive clinical trials to demonstrate
the safety and efficacy of the drug candidates. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or
more clinical studies can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
·
Delays in reaching a consensus with regulatory agencies on study design;
·
Delays in reaching agreement on acceptable terms with prospective CROs and clinical study sites;
·
Delays in obtaining required IRB, or Independent Ethics Committee approval at each clinical study site;
·
Delays in recruiting suitable patients to participate in our clinical studies;
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·
Imposition of a clinical hold by regulatory agencies, including after an inspection of our clinical study operations or study sites;
·
Failure by our CROs, other third parties or us to adhere to clinical study requirements;
·
Failure to perform in accordance with the FDA’s GCP or applicable regulatory requirements in other countries;
·
Delays in the testing, validation, manufacturing and delivery of our drug candidates to the clinical sites;
·
Delays in having patients complete participation in a study or return for post-treatment follow-up;
·
Clinical study sites or patients dropping out of a study;
·
Clinical trial results may fail to demonstrate the safety and/or efficacy of the drug candidate;
·
Occurrence of serious adverse events associated with the drug 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 studies and clinical trials could result in additional costs to us or impair our ability to generate revenues from product sales,
regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our drug candidates, we may need to conduct
additional studies to bridge our modified drug candidates to earlier versions. Clinical trial delays also could shorten any periods during which we may have the exclusive right
to commercialize our drug candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our drug
candidates and may harm our business, financial condition, results of operations and prospects.
If the results of our clinical studies are inconclusive or if there are safety concerns or adverse events associated with our pharmaceutical products, we may:
·
Be delayed in obtaining marketing approval or licenses for our drug candidates, if we receive them at all;
·
Obtain approval for indications or patient populations that are not as broad as intended or desired;
·
Obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
·
Be subject to changes with the way the product is administered;
·
Be required to perform additional clinical studies to support 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 modified risk evaluation and
mitigation strategy;
·
Be subject to the addition of labeling statements, such as warnings or contraindications;
·
Be sued; or
·
Experience damage to our reputation.
As described above, any of these events could prevent us from achieving or maintaining market acceptance and approval of our pharmaceutical products and impair our ability
to generate revenues.
If we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a drug candidate, or the
approval may be for a more narrow indication than we expect.
A drug candidate cannot be commercialized until the appropriate regulatory authorities have reviewed and approved the drug candidate. Even if our drug candidates
demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain
regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory advisory group or 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 studies and the review process. Regulatory agencies also may approve a drug candidate for fewer or
more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the
labeling claims that are necessary or desirable for the successful commercialization of our drug candidates. Failure to obtain, or a delay in obtaining, regulatory approval to
commercialize a drug candidate will impair our ability to generate revenues and harm our business prospects.
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If we obtain regulatory approval for a drug candidate, our drug candidate will remain subject to regulatory scrutiny.
If our drug candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling,
record-keeping, reporting, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state
requirements in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturing facilities are required to comply with extensive FDA and comparable foreign regulatory authority requirements, including ensuring that
quality control and manufacturing procedures conform to cGMP regulations. As such, we will be subject to continual review and inspections to assess compliance with cGMP
and adherence to commitments made in any NDA, BLA or marketing authorization application (“MAA”). Accordingly, we and our collaborators and suppliers must continue to
expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we or our collaboration partners receive for our drug candidates may be subject to limitations on the approved indicated uses for which the
product may be marketed or to the conditions of approval or may contain requirements for potentially costly additional clinical trials and surveillance to monitor the safety and
efficacy of the drug candidate. We will be required to report certain adverse reactions, serious adverse events and production problems, if any, to the FDA and comparable
foreign regulatory authorities. Any new legislation addressing drug safety or other issues related to regulatory review and approval could result in delays in product
development or commercialization or increased costs to assure compliance. We will have to comply with requirements concerning advertising and promotion for our products.
Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the
product’s approved label. As such, we are not allowed to promote our products for indications or uses for which they do not have approval. If our drug candidates are approved,
we must submit new or supplemental applications and obtain approval for certain changes to the approved products, product labeling or manufacturing process. We could also
be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. An unsuccessful post-marketing study
or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with an approved product, such as adverse events of unanticipated severity or frequency or problems with our
manufacturing facilities, or if a regulatory agency disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that
product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement
authority may, among other things:
·
Issue inspectional findings;
·
Issue untitled and warning letters;
·
Impose civil or criminal penalties;
·
Suspend or withdraw regulatory approval or revoke a license;
·
Suspend or hold any of our ongoing clinical trials;
·
Require additional clinical trials;
·
Refuse to approve pending applications or supplements to approved applications submitted by us;
·
Impose restrictions on our operations, including closing our manufacturing facilities; or
·
Seize or detain products or require a product recall.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any
failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If
regulatory sanctions are applied or if regulatory approval is withdrawn, the value of the Company and our operating results will be negatively impacted.
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The commercial success of any current or future pharmaceutical products will depend upon the degree of market acceptance by physicians, patients, third-party payors
and others in the medical community.
Even with the requisite approvals, the commercial success of our pharmaceutical products will depend in part on the medical community, patients and third-party payors
accepting our pharmaceutical products as medically useful, cost-effective and safe. Any pharmaceutical product that we, or our partners, bring to the market may not gain
market acceptance by physicians, patients, third-party payors or others in the medical community. The degree of market acceptance of these pharmaceutical products, if
approved for commercial sale, will depend on a number of factors, including:
·
The effectiveness of our approved drug candidates as compared to currently available products;
·
Patient willingness to adopt our approved drug candidates in place of current therapies;
·
Our ability to provide acceptable evidence of safety and efficacy;
·
Relative convenience and ease of administration;
·
The prevalence and severity of any adverse side effects;
·
Restrictions on use in combination with other products;
·
Availability of alternative treatments;
·
Pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements, based on the profile of our drug candidates and target
markets;
·
Effectiveness of our or our partners’ sales and marketing strategy;
·
Our ability to obtain sufficient third-party coverage or reimbursement; and
·
Potential product liability claims.
Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be known until after it is
launched. Our efforts to educate the medical community and third-party payors on the benefits of the pharmaceutical products may require a significant amount of resources
and may never be successful. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable.
The commercial potential of a pharmaceutical candidate in development is difficult to predict. If the market size for a new drug candidate or technology is significantly
smaller than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.
It is very difficult to estimate the commercial potential of pharmaceutical products due to important factors, such as safety and efficacy compared to other available
technologies or treatments, including changing standards of care, third-party payor reimbursement standards, patient and physician preferences, the availability of competitive
alternatives that may emerge either during the long drug development process or after commercial introduction and the availability of generic versions of our successful drug
candidates following approval by government health authorities, based on the expiration of regulatory exclusivity or our inability to prevent generic versions from coming to
market by asserting our patents. If due to these factors, or others, the market potential for a pharmaceutical product is lower than we anticipated, it could significantly and
negatively impact the commercial terms of any collaboration partnership potential for such pharmaceutical product or, if we have already entered into a collaboration for such
pharmaceutical product, the revenue potential from royalty and milestone payments could be significantly diminished, which would negatively impact our business, financial
condition and results of operations.
Failure to obtain or maintain adequate coverage and reimbursement for our drug candidates, if approved, could limit our ability to market those products and decrease our
ability to generate revenue.
The success of our drug candidates, if approved, depends on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our drug
candidates represent new approaches to the treatment of certain diseases, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the
potential revenue from, our drug candidates or assure that coverage and reimbursement will be available for any product that we may develop.
26
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment.
Adequate coverage and reimbursement from federal health care programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, as well as their pharmacy benefit managers decide which
drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including
the third-party payor’s determination that use of a product is:
·
A covered benefit under its health plan;
·
Safe, effective and medically necessary;
·
Appropriate for the specific patient;
·
Cost-effective; and
·
Neither experimental nor investigational.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and their contracted pharmacy benefit managers that
manage prescription benefits for such payors. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-
consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-
payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement
payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors
and their pharmacy benefit managers may not cover, or provide adequate reimbursement for, long-term follow-up evaluations that may be required for our products. Patients are
unlikely to use our drug candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drug candidates and/or if patient
out-of-pocket costs (such as co-pays or co-insurance) are prohibitively high. There is significant uncertainty related to insurance coverage and reimbursement of newly-
approved products. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our drug candidates.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit
both coverage and the level of reimbursement for newly-approved products and, as a result, they may not cover or provide adequate payment for our drug candidates. We
expect to experience pricing pressures in connection with the sale of any of our drug candidates due to the trend toward managed healthcare, value-based pricing, the increasing
influence of health maintenance organizations, cost containment initiatives and additional legislative changes.
We intend to seek approval to market our drug candidates in both the United States and in select foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions
for our drug candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, the pricing of pharmaceutical products is subject to
governmental control and other market regulations which could put pressure on the pricing and usage of our drug candidates. In these countries, pricing negotiations with
governmental authorities can take considerable time after obtaining marketing approval of a drug candidate. In addition, market acceptance and sales of our drug candidates
will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our drug candidates and may be affected by existing and future
health care reform measures. Failure to obtain or maintain adequate coverage and reimbursement for our drug candidates, if approved, could limit our ability to market those
products and decrease our ability to generate revenue.
27
We may use our financial and human resources to pursue a particular research program or drug candidate and fail to capitalize on programs or drug candidates that may
be more profitable or for which there is a greater likelihood of success.
Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs, drug candidates or for indications that later prove to have greater
commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on
current and future research and development programs for drug candidates may not yield any commercially viable products. If we do not accurately evaluate the commercial
potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through strategic collaboration, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate, or we may
allocate internal resources to a drug candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement. Failure to pursue
opportunities with greater commercial potential or relinquishing valuable rights to drug candidates may adversely impact our business, results of operations and prospects.
We may not be successful in our efforts to identify or discover additional pharmaceutical products.
The success of our business depends primarily upon our ability to identify and develop pharmaceutical products. Our research programs may fail to identify potential
pharmaceutical products for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential pharmaceutical products, or
our potential pharmaceutical products may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to
receive marketing approval.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and
could potentially cause us to cease operations. Research programs to identify new pharmaceutical products require substantial technical, financial and human resources. We
may focus our efforts and resources on potential programs or pharmaceutical products that ultimately prove to be unsuccessful. If we are not successful in our efforts to identify
or discover additional pharmaceutical products, it could adversely affect our business, results of operations and prospects.
The market opportunities for our drug candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.
Cancer therapies are sometimes characterized as first line, second line or third line, and the FDA often approves new therapies initially only for third line use. When cancer is
detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever first line therapy, which usually consists of
chemotherapy, hormone therapy, surgery or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more
chemotherapy, radiation, antibody drugs, tumor targeted small molecules or a combination of these. Third line therapies can include bone marrow transplantation, antibody and
small molecule targeted therapies, more invasive forms of surgery and new technologies. In markets with approved therapies, we expect to initially seek approval of our drug
candidates as a later stage therapy for patients who have failed other approved treatments. Subsequently, for those drugs that prove to be sufficiently beneficial, if any, we
would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is no guarantee that our drug candidates, even if approved, would be
approved for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior to gaining approval for second line or first line therapy.
Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers in a position to receive later stage
therapy and who have the potential to benefit from treatment with our drug candidates, are based on our beliefs and estimates. These estimates have been derived from a variety
of sources, including scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect. Further, new studies may change the
estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than expected. In addition, the potentially addressable patient population
for our drug candidates may be limited or may not be amenable to treatment with our drug candidates. Even if we obtain significant market share for our drug candidates, we
may never achieve profitability without obtaining regulatory approval for additional indications, including use as a first or second line therapy, which may adversely affect our
business and results of operations.
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Clinical trials may fail to demonstrate the safety and efficacy of our pharmaceutical drug candidates and could prevent or significantly delay regulatory approval.
Before receiving NDA or BLA approval to commercialize a drug candidate, we must demonstrate to the FDA, with substantial evidence from well-controlled clinical trials, that
the drug candidate is both safe and effective or the biologic is safe, pure and potent. If these trials or future clinical trials are unsuccessful, our business and reputation could be
harmed and our stock price could be adversely affected.
Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of our current and future
collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing. We will be required to demonstrate with substantial evidence
through well-controlled clinical trials that our drug candidates are as safe and effective for use in a specific patient population as the respective reference products before we can
seek regulatory approvals for their commercial sale. Success in early clinical trials does not mean that future larger registration clinical trials will be successful because drug
candidates in later-stage clinical trials may fail to demonstrate equivalent safety and efficacy to the satisfaction of the FDA and foreign regulatory agencies despite having
progressed through initial clinical trials. Drug candidates that have shown promising results in early clinical trials may still fail in subsequent confirmatory clinical trials.
Similarly, the outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not
necessarily predict final results. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant
setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.
In addition, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent
until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support regulatory approval. In some instances, there can be significant
variability in safety or efficacy results between different trials of the same drug candidate due to numerous factors, including but not limited to, changes in trial protocols,
differences in size and type of the patient populations, adherence to the dosing regimen and the rate of dropout among clinical trial participants.
Because of these risks, our research and development efforts, and those of our collaborative partners, may not result in any commercially viable products. If a significant
portion of these development efforts is not successfully completed, or if required regulatory approvals are not obtained by us or our partners, or any approved products are not
commercially successful, we may not generate significant revenues or become profitable.
We may fail to obtain orphan drug designations from the FDA for our drug candidates, and even if we obtain such designations, we may be unable to maintain the benefits
associated with orphan drug designation, including the potential for market exclusivity.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in
a patient population of fewer than 200,000 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 or biologic will be recovered from sales in the United States. In the United States, 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. In addition, if a product that has orphan drug designation subsequently
receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve
any other applications, including a full NDA or BLA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a
showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.
We may seek to obtain orphan drug designation for our active drug candidates for any qualifying indications they may be approved for in the future. Even if we obtain such
designations, we may not be the first to obtain marketing approval of our drug candidate for the orphan-designated indication due to the uncertainties associated with
developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-
designated indication, or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may
not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan product
is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more
effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug
any advantage in the regulatory review or approval process. In addition, even if we seek orphan drug designation for our drug candidates, we may never receive such
designations.
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Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory enactments in recent years that change the healthcare system
in ways that could impact our future ability to sell our drug candidates profitably.
Furthermore, there have been and continue to be a number of initiatives at the federal and state level that seek to reduce healthcare costs. Most significantly, in March 2010, the
Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), was signed into law, which
includes measures that significantly change the way healthcare is financed by both governmental and private insurers. In January 2017, Congress voted to adopt a budget
resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. In addition, on January 20,
2017, President Trump signed an executive order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay
the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers
of pharmaceuticals or medical devices. Further, on October 12, 2017, President Trump issued another executive order requiring the Secretaries of HHA and the Departments of
Labor and Treasury to consider proposing regulations or revising existing guidance to allow more employers to form association health plans that would be allowed to provide
coverage across state lines, increase the availability of short-term, limited-duration health insurance plans, which are generally not subject to the requirements of the ACA, and
increase the availability and permitted use of health reimbursement arrangements. On October 13, 2017, the Department of Justice announced that HHS was immediately
stopping its cost sharing reduction payments to insurance companies based on the determination that those payments had not been appropriated by Congress. Furthermore, on
December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “TCJA”) into law that, in addition to overhauling the federal tax system, also, effective as of
January 1, 2019, repealed the penalties associated with the individual mandate. Congress or the President of the United States also could consider subsequent legislation or
executive action to replace, eliminate or reaffirm elements of the ACA. We will continue to evaluate the effect that the ACA and any future measures to modify, repeal, replace
or reaffirm the ACA have on our business.
Additionally, the Inflation Reduction Act of 2022 may impact existing Medicare programs that cover prescription drugs. In addition to other relevant provisions, the Inflation
Reduction Act of 2022 allows the Medicare program to directly negotiate the price of certain high-expenditure prescription drugs covered under Medicare Parts B and D,
starting in the year 2028 and 2026, respectively, by setting certain "maximum fair prices." Moreover, the Inflation Reduction Act of 2022 requires manufacturers to pay rebates
to the federal government if prices of certain drugs covered under the Medicare program rise faster than the rate of inflation. We will continue to evaluate the effects that the
Inflation Reduction Act of 2022 will have on our business.
In a 2024 U.S. Supreme Court ruling (Loper Bright Enterprises v. Raimondo) (the “Loper decision”), the Supreme Court overturned the long-standing Chevron doctrine, which
had accorded deference to an agency’s interpretation of ambiguous laws since 1984. Following the Loper decision, the healthcare space may face increased judicial scrutiny of
agency regulations, as courts are no longer required to defer to federal agencies’ interpretations of ambiguous statutes. This change could lead to significant alterations in how
healthcare laws and regulations are applied and enforced. While the full impact of this reversal has yet to be examined, the Loper decision could lead to material changes to the
healthcare system, particularly concerning the FDA, CMS, HHS, and other agencies. We will continue to evaluate the effects that the Loper decision will have on our business.
We are not able to provide any assurance that the continued healthcare reform debate will not result in legislation, regulation, litigation or executive action by the President of
the United States that is adverse to our business. Moreover, we are not, at this time, able to evaluate any potential legislative, regulatory or Executive Order actions that the new
presidential administration may take which could have a material impact on our business.
Laws and other reform and cost containment measures that may be proposed and adopted in the future remain uncertain but may contain provisions that restrict our ability to
price our products and/or could result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our future customers
and, accordingly, our ability to generate revenue, attain profitability or commercialize our products.
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Risks Related to Our Reliance on Third-Parties
If conflicts arise between us and our collaborators or strategic partners, these parties may act in their self-interest, which may limit our ability to implement our strategies.
If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in its self-interest, which may limit our ability to
implement our strategies. Some of our academic collaborators and strategic partners are conducting multiple product development efforts within each area that is the subject of
the collaboration with us. Our collaborators or strategic partners, however, may develop, either alone or with others, products in related fields that are competitive with the
products or potential products that are the subject of these collaborations. Competing products, either developed by the collaborators or strategic partners or to which the
collaborators or strategic partners have rights, may result in the withdrawal of partner support for our drug candidates.
Some of our collaborators or strategic partners could also become our competitors in the future. Our collaborators or strategic partners could develop competing products,
preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely, or fail to devote
sufficient resources to the development and commercialization of products. Any of these developments could harm our product development efforts, which may adversely
affect our business, results of operations and prospects.
We expect to rely on third parties to conduct, supervise and monitor our clinical studies, and if these third parties perform in an unsatisfactory manner, it may harm our
business.
We rely on CROs, clinical investigators and clinical study sites to ensure our clinical studies are conducted properly and on time. We will have limited influence over the
performance by CROs, clinical investigators and clinical study sites, and we will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for
ensuring that each of our clinical studies is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance
on the CROs does not relieve us of our regulatory responsibilities. Furthermore, facilities used by these third party CROs, clinical investigators and clinical study sites may be
negatively affected by catastrophic events, such as pandemics, terrorist attacks, wars or other armed conflicts, geopolitical tensions, such as the ongoing conflicts in the
Ukraine and Middle East, and related sanctions and other economic disruptions or concerns, natural disasters, such as floods or fire, or such facilities could face manufacturing
issues, such as contamination or regulatory concerns following a regulatory inspection of such facility. In such instances, we may need to locate an appropriate replacement
third-party facility and establish a contractual relationship, which may not be readily available or on acceptable terms, which would cause additional delay and increased
expense, including as a result of additional required FDA approvals, and may have a material adverse effect on our business.
We, our clinical investigators, and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to assure that the
data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA enforces these GCPs
through periodic inspections of study sponsors, principal investigators and clinical trial sites. If we, our CROs or the clinical investigators fail to comply with applicable GCPs,
the clinical data generated in our clinical trials may be deemed unreliable, and the FDA may require us to perform additional clinical trials before approving any marketing
applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficient number of
test subjects to evaluate the safety and efficacy of our drug candidates. Accordingly, if our CROs or clinical investigators fail to comply with these regulations or fail to recruit a
sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical
programs, which must be conducted in accordance with GCPs and GLPs, respectively. These CROs may also have relationships with other commercial entities, including our
competitors, for whom they may also be conducting clinical studies or other drug development activities that could harm our competitive position. If our CROs do not
successfully carry out their contractual duties or obligations, fail to meet expected deadlines or the quality or accuracy of the clinical data they obtain is compromised due to the
failure to adhere to our clinical protocols or regulatory requirements (or for any other reasons), our clinical studies may be extended, delayed or terminated, and we may not be
able to obtain regulatory approval for, or successfully commercialize, our pharmaceutical products. As a result, our financial results and the commercial prospects for our
pharmaceutical products would be harmed, our costs could increase and our ability to generate revenues could be delayed.
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We may also rely on other third parties to store and distribute our products for any clinical studies that we may conduct. Any performance failure on the part of our distributors
could delay clinical development or marketing approval of our pharmaceutical products or commercialization of our products, if approved, producing additional losses and
depriving us of potential product revenue.
Our collaborators or strategic partners may decide to adopt alternative technologies or may be unable to develop commercially viable products with our technology, which
would negatively impact our revenues and our strategy to develop these products.
Our collaborators or strategic partners may adopt alternative technologies, which could decrease the marketability of our products. Additionally, because our current or future
collaborators or strategic partners are likely to be working on more than one development project, they could choose to shift their resources to projects other than those they are
working on with us. If they do so, this would delay our ability to test our technology and would delay or terminate the development of potential products based on our
platforms. Further, our collaborators and strategic partners may elect not to develop products arising out of our collaborative and strategic partnering arrangements or to devote
sufficient resources to the development, manufacturing, marketing or sale of these products. The failure to develop and commercialize a drug candidate pursuant to our
agreements with our current or future collaborator would prevent us from receiving future milestone and royalty payments, which would negatively impact our revenues.
We may seek to establish additional collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and
commercialization plans.
Our drug candidate development programs and the potential commercialization of our drug candidates will require substantial additional cash to fund expenses. For some of our
drug candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of those drug
candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for any additional collaborations will depend, among other
things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a
number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by FDA or similar regulatory authorities outside the U.S., the
potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential of competing drugs,
the existence of uncertainty with respect to our ownership of technology (which can exist if there is a challenge to such ownership without regard to the merits of the challenge)
and industry and market conditions generally. The collaborator may also consider alternative drug candidates or technologies for similar indications that may be available to
collaborate on and whether such a collaboration could be more attractive than the one with us for our drug candidate. The terms of any additional collaborations or other
arrangements that we may establish may not be favorable to us.
We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are
complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical
companies that have resulted in a reduced number of potential future collaborators.
We may not be able to negotiate additional collaborations on a timely basis on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of
the drug candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential
commercialization or reduce the scope of any sales or marketing activities or increase our expenditures and undertake development or commercialization activities at our own
expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be
available to us on acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop our drug candidates or bring them to market and generate
product revenue.
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We are a party to, and may enter into one or more collaborations in the future, pursuant to which we may be required to relinquish important rights to and control over the
development of our drug candidates or otherwise be subject to unfavorable terms.
Any current and future collaborations we enter into could subject us to a number of risks, including:
·
We may not be able to control the amount and timing of resources that our collaborators devote to the development or commercialization of our drug candidates;
·
Collaborators may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a drug candidate, repeat or conduct new clinical trials or
require a new version of a drug candidate for clinical testing;
·
Collaborators may not pursue further development and commercialization of products resulting from the strategic partnering arrangement or may elect to
discontinue research and development programs;
·
Collaborators may not commit adequate resources to the marketing and distribution of our drug candidates, limiting our potential revenues from these products;
·
Disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our drug
candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;
·
Collaborators may experience financial difficulties;
·
Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could jeopardize or
invalidate our proprietary information or expose us to potential litigation;
·
Business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its
obligations under any arrangement;
·
Collaborators could decide to move forward with a competing drug candidate developed either independently or in collaboration with others, including our
competitors; and
·
Collaborators could terminate the arrangement or allow it to expire, which would delay the development and may increase the cost of developing our drug
candidates.
We have no manufacturing, sales, marketing or distribution capabilities, and we may have to invest a significant amount of resources to develop these capabilities.
We have no internal manufacturing capabilities. As a result, for manufacturing we depend on third-party manufacturers. Our strategy is based on leveraging the ability of
collaboration partners to develop and manufacture our products for commercialization in the pharmaceutical marketplace, and we will be dependent on collaborations with drug
development and manufacturing capabilities. If we are not able to maintain existing collaborative arrangements or establish new arrangements on commercially acceptable
terms, we would be required to undertake product manufacturing and development activities at our own expense. This would increase our capital requirements or require us to
limit the scope of our development activities. Moreover, we have limited or no experience in conducting full-scale bioequivalence or other clinical studies, preparing and
submitting regulatory applications and distributing and marketing pharmaceutical products. As such, we are reliant on contract parties for such efforts. We may not be able to
enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms, or at all.
If any of our developmental collaborators breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities in a timely manner, the
preclinical and/or clinical development and/or commercialization of our pharmaceutical products will be delayed and we would be required to devote additional resources to
product development and commercialization or terminate certain development programs. Also, a license relationship may be terminated at the discretion of our collaborator, or
at the end of contract terms, and in some cases with only limited notice to us. The termination of the collaborative arrangement could have a material adverse effect on our
business, financial condition and results of operations. There also can be no assurance that disputes will not arise with respect to the ownership of rights to any technology
developed with third parties. These and other possible disagreements with collaborators could lead to delays in the development or commercialization of our pharmaceutical
products or could result in litigation or arbitration, which could be time-consuming and expensive and could have a material adverse effect on our business, financial condition
and results of operations. Even if we decide to perform clinical trials, sales, marketing and distribution functions ourselves, we could face a number of additional related risks,
including:
·
We may not be able to attract clinical investigators and build effective clinical trials or a solid marketing department or sales force;
·
The cost of establishing an internal clinical trials program, marketing department or sales force may exceed our available financial resources and the revenue
generated by any of our current product candidates, if approved, or any other pharmaceutical products that we may develop, in-license or acquire; and
·
Our direct sales and marketing efforts may not be successful.
Any failure to perform such activities could have a material adverse effect on our business, financial condition and results of our operations.
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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 rely on third parties to manufacture our pharmaceutical products, and because we collaborate with various organizations and academic institutions on the
development of our pharmaceutical products, 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. The need to share trade secrets and other confidential information when working with third parties
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. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development
partnerships or similar agreements. 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.
Our contract manufacturers are subject to significant regulation with respect to manufacturing our 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 pharmaceutical products. Each supplier may require licenses to manufacture
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 pharmaceutical products for clinical studies or commercial sale, including our existing contract manufacturers for our drug
candidates, are subject to extensive regulation. Components of a finished pharmaceutical product approved for commercial sale or used in late-stage clinical studies must be
manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of
quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of
adventitious agents or other contaminants or to inadvertent changes in the properties or stability of our pharmaceutical products that may not be detectable in final product
testing. Our contract manufacturers must supply all necessary documentation in support of an NDA or BLA on a timely basis and must adhere to the FDA’s GLP and cGMP
regulations enforced by the FDA through its facilities inspection program. The facilities and quality systems of some or all of our third-party contractors must pass a pre-
approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our pharmaceutical products 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 pharmaceutical products or our other
potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval
plant inspection, FDA approval of the products will not be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. 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 study or commercial sales or the temporary or permanent closure of a facility. Any such remedial
measures imposed upon third parties with whom we contract could materially harm our business.
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If our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending
application for a drug candidate or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.
Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. The number of manufacturers with the
necessary manufacturing capabilities is limited. In addition, an alternative manufacturer would need to be qualified through an NDA or BLA supplement which could result in
further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may
involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines, which could materially harm our business and results of operations.
These factors could cause the delay of clinical studies, regulatory submissions, required approvals or commercialization of our pharmaceutical products and/or 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 clinical studies may be delayed or we could lose potential revenue, which could
materially harm our business and results of operations.
Risks Related to Our Intellectual Property
If we fail to adequately protect or enforce our intellectual property rights, we may be unable to operate effectively.
Our success and ability to compete are substantially dependent on our patents, proprietary formulations and trademarks. There can be no assurance that our patents and
associated trademarks and licenses will not be challenged and subsequently invalidated and/or canceled. The invalidation or cancellation of any one or all of the patents or
trademarks would significantly damage our commercial prospects. Further, we may find it necessary to legally challenge parties infringing our patents or trademarks or licensed
trademarks to enforce our rights thereto. There can be no assurance that any of the patents would ultimately be held valid or that efforts to defend any of the patents, trade
secrets, know-how or other IP rights would be successful.
The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. We own numerous U.S. and
foreign patents and a number of pending patent applications that cover various aspects of our drug candidates and technologies. There can be no assurance that patents that have
been issued will be held valid and enforceable in a court of law. Even for patents that are held valid and enforceable, the legal process associated with obtaining such a
judgment is time-consuming and costly. Additionally, issued patents can be subject to opposition or other proceedings that can result in the revocation of the patent or
maintenance of the patent in amended form (and potentially in a form that renders the patent without commercially relevant and/or broad coverage). Further, our competitors
may be able to circumvent and otherwise design around our patents. Even if a patent is issued and enforceable because development and commercialization of pharmaceutical
products can be subject to substantial delays, patents may expire early and provide only a short period of protection, if any, following the commercialization of a product
encompassed by our patents. We may have to participate in interference proceedings declared by the USPTO, which could result in a loss of the patent and/or substantial cost to
us.
We have filed patent applications and plan to file additional patent applications covering various aspects of our drug candidates and technologies. There can be no assurance
that the patent applications for which we apply would actually be issued as patents, or do so with commercially relevant and/or broad coverage. The coverage claimed in a
patent application can be significantly reduced before the patent is issued. The scope of our claim coverage can be critical to our ability to enter into licensing transactions with
third parties and our right to receive royalties from our collaboration partnerships. Since publication of discoveries in scientific or patent literature often lags behind the date of
such discoveries, we cannot be certain that we were the first inventor of inventions covered by our patents or patent applications. In addition, there is no guarantee that we will
be the first to file a patent application directed to an invention.
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An adverse outcome in any judicial proceeding involving IP, including patents, could subject us to significant liabilities to third parties, require disputed rights to be licensed
from or to third parties or require us to cease using the technology in dispute. In those instances where we seek an IP license from another, we may not be able to obtain the
license on a commercially reasonable basis, if at all, thereby raising concerns on our ability to freely commercialize our technologies and/or products. It is also possible that we
or our licensors or licensees will 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. Moreover, 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 or license to third parties. We are reliant on our licensors or licensees. Therefore, these patents and applications
may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors or licensees fail to establish, maintain or
protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors or licensees are not fully cooperative or disagree with us as
to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.
Failure to adequately protect or enforce our intellectual property rights could have a material adverse impact on our business, results of operations and prospects.
Issued patents covering our drug candidates could be found invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiated legal proceedings against a third-party to enforce a patent covering one of our drug candidates, the defendant could counterclaim
that the patent covering our drug candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty,
obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States
or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions (e.g.,
opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our drug candidates. The outcome
following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no
invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on our drug candidates. Such a loss of patent protection would have a material adverse
impact on our business.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on drug candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in
some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property
rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries
outside the United States or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our
inventions in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories
where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products, and our patents or other
intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to
biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights
generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly, could put 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.
Failure to adequately protect our intellectual property rights throughout the world could have a material adverse impact on our business, results of operations and prospects.
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If we infringe on the intellectual property rights of others, our business and profitability may be adversely affected.
Our commercial success will also depend, in part, on us and our collaborative partners not infringing on the patents or proprietary rights of others. There can be no assurance
that the technologies and products used or developed by our collaborative partners and marketed and sold by us will not infringe such rights. If such infringement occurs and
neither we nor our collaborative partner is able to obtain a license from the relevant third party, we will not be able to continue the development, manufacture, use or sale of any
such infringing technology or product. There can be no assurance that necessary licenses to third-party technology will be available at all, or on commercially reasonable terms.
In some cases, litigation or other proceedings may be necessary to defend against or assert claims of infringement or to determine the scope and validity of the proprietary
rights of third parties. Any potential litigation could result in substantial costs to, and diversion of, our resources and could have a material and adverse impact on us. An
adverse outcome in any such litigation or proceeding could subject us to significant liabilities, require us to cease using the subject technology or require us to license the
subject technology from the third party, all of which could have a material adverse effect on our business.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our
business relationships with our licensors, we could lose license rights that are important to our business.
We are a party to a number of intellectual property license agreements that are important to our business, and we expect to enter into additional license agreements in the future.
Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If
we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we
would not be able to market products covered by the license.
We may need to obtain licenses from third parties to advance our research, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable
cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable
to do so, we may be unable to develop the affected drug candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do
not exist which might be enforced against our current drug candidates or future products, resulting in either an injunction prohibiting the sales, or, with respect to the sales, an
obligation on our part to pay royalties and/or other forms of compensation to third parties.
In many cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the
proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors
could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we
breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance
to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise
regarding intellectual property subject to a licensing agreement, including:
·
The scope of rights granted under the license agreement and other interpretation-related issues;
·
The extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
·
The sublicensing of patent and other rights under our collaborative development relationships;
·
Our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
·
The ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and
·
The priority of invention of patented technology.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable
to successfully develop and commercialize the affected drug candidates, which could have a material adverse effect on our business.
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We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that
our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.
We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including
trade secrets or other proprietary information, of any of our employee’s former employers or other third parties. Litigation may be necessary to defend against these claims. If
we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our
business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may
have in the future ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in developing our drug candidates. Litigation
may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a
material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to
management and other employees.
Our inability to protect our confidential information and trade secrets would harm our business and competitive position.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary
information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties
who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties.
We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Any of these parties may breach the agreements and
disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both within and outside the
United States may be less willing or unwilling to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no
right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position and our business.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be
expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not
infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in
any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not
issuing.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications
or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our
business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail
and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors,
misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information
could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or
developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the
biotechnology industry involve both technological and legal complexity and is, therefore, costly, time-consuming and inherently uncertain. In addition, the United States has
enacted and is expected to continue to implement wide-ranging patent reform legislation. Further, certain U.S. Supreme Court rulings have narrowed the scope of patent
protection available in certain circumstances and/or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to
obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S.
Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new
patents or to enforce our existing patents and patents that we might obtain in the future.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement or defense of
our or our licensors’ issued patents. Provisions of the Leahy-Smith America Invents Act (the “Leahy-Smith Act”), adopted in September 2011, made a number of significant
changes to U.S. patent law, the effects of which are still unfolding. The Leahy-Smith Act and its implementation, in addition to any new regulation, could increase the
uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse
effect on our business and financial condition.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by
governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various
governmental patent agencies outside of the U. S. in several stages over the lifetime of the patents and/or applications. The USPTO and various non-U.S. governmental patent
agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Non-compliance may
result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our
competitors might be able to enter the market, and this circumstance would have a material adverse effect on our business.
Risks Related to Our Business Operations
We operate in an extremely competitive environment and there can be no assurances that competing technologies would not harm our business development.
We are engaged in a rapidly-evolving field. Competition from numerous pharmaceutical companies is intense and expected to increase. The large and rapidly-growing market
for oncology treatments is likely to attract new entrants. Numerous biotechnology and pharmaceutical companies are focused on developing cancer treatments and immuno-
oncology technologies. Many, if not all, of these companies have greater financial and other resources and development capabilities than we do. Many of our competitors also
have greater collective experience in undertaking preclinical and clinical testing of products, obtaining regulatory approvals and manufacturing and marketing prescription
pharmaceutical products. There can be no assurance that our under-development drug candidates will be more effective or achieve greater market acceptance than competitive
products or that our competitors will not succeed in developing products and technologies that are more effective than those being developed by us or that would render our
products and technologies less competitive or obsolete. Additionally, there can be no assurance that the development by others of new or improved drugs will not make our
pharmaceutical products superfluous or obsolete.
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Our future success depends on our ability to retain principal members of our executive team, consultants and advisors and to attract, retain and motivate qualified
personnel.
We are highly dependent on principal members of our executive team, the loss of whose services may adversely impact the achievement of our objectives. Recruiting and
retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will also be critical to our success. Competition for
skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous
pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in preclinical or clinical studies may make it more
challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive, consultant or advisor may impede the progress of our
research and development objectives.
We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.
As of December 31, 2024, we had two full-time employees. As we mature, we may need to expand our full-time employee base and to hire more consultants and contractors.
Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these
growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of
business opportunities, loss of employees and reduced productivity among remaining employees, all of which may have a material adverse effect on our business, results of
operations and prospects. Any future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of
additional drug candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow
revenues could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize drug candidates and
compete effectively will depend, in part, on our ability to effectively manage any future growth.
We are a party to collaboration agreements and other significant agreements which contain complex commercial terms that could result in disputes, litigation or
indemnification liability that could adversely affect our business, results of operations and financial condition.
We currently derive, and expect to derive in the foreseeable future, all or much of our revenue from collaboration agreements with biotechnology and pharmaceutical
companies. These collaboration agreements contain complex commercial terms, including:
·
Clinical development and commercialization obligations that are based on certain commercial reasonableness performance standards that can often be difficult to
enforce if disputes arise as to adequacy of our partner’s performance;
·
Research and development performance and reimbursement obligations for our personnel and other resources allocated to partnered drug candidate development
programs;
·
Clinical and commercial manufacturing agreements, some of which are priced on an actual cost basis for products supplied by us to our partners with complicated
cost allocation formulas and methodologies;
·
Intellectual property ownership allocation between us and our partners for improvements and new inventions developed during the course of the collaboration;
·
Royalties on drug sales based on a number of complex variables, including net sales calculations, geography, scope of patent claim coverage, patent life, generic
competitors, bundled pricing and other factors; and
·
Indemnity obligations for intellectual property infringement, product liability and certain other claims.
From time to time, we may have informal dispute resolution discussions with third parties regarding the appropriate interpretation of the complex commercial terms contained
in our agreements. One or more disputes may arise or escalate in the future regarding our collaboration agreements, transaction documents or third-party license agreements
that may ultimately result in costly litigation and unfavorable interpretation of contract terms, which would have a material adverse effect on our business, financial condition
and results of operations.
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Market conditions and changing circumstances, some of which may be beyond our control, could impair our ability to access our existing cash, cash equivalents and
investments and to timely pay collaborators and others.
Market conditions and changing circumstances, some of which may be beyond our control, could impair our ability to access our existing cash, cash equivalents and
investments and to timely pay key vendors and others. If banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in
the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or
otherwise protected by the FDIC. In addition, in such circumstances we might not be able to make timely payments to our collaborators or others. The Company maintains its
primary banking relationship with one large financial institution and all cash on deposit is federally insured. The Company has not experienced any losses on its accounts, and
does not believe it is exposed to any unusual credit risk beyond the normal credit risk currently associated with commercial banking relationships. However, any delay in our
ability to access our cash, cash equivalents and investments or to timely pay our collaborators and others could have a material adverse effect on our operations and cause us to
need to seek additional capital sooner than planned.
Potential new accounting standards or legislative actions may adversely impact our future financial position or results of operations.
Future changes in financial accounting standards may cause adverse, unexpected fluctuations in the timing of the recognition of revenues or expenses, and may affect our
financial position or results of operations. New standards may occur in the future and may cause us to be required to make changes in our accounting policies. Compliance with
changing regulation of corporate governance and public disclosure may result in additional expenses. Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act of 2002 (or the Sarbanes-Oxley Act), new SEC regulations, Public Company Accounting Oversight Board
(or PCAOB) standards and Nasdaq rules, are creating uncertainty for companies such as ours. Insurance, accounting and auditing costs are high as a result of this uncertainty
and other factors.
We have limited capital resources and currently have only one full-time employee in our finance department. We rely on outside consultants to supplement our internal
expertise and are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to
comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities.
Risks Related to Our Common Stock
We may not continue to meet the continued listing requirements of Nasdaq, which could result in a delisting of our common shares.
Our common shares are listed on the Nasdaq. While we are currently in compliance, we have in the past been, and may in the future be, unable to comply with certain listing
standards that we are required to meet to maintain the listing of our common shares on the Nasdaq. For instance, on June 3, 2022, we received written notification from the
Listing Qualifications Department of Nasdaq notifying us that the closing bid price for our common stock had been below $1.00 for 30 consecutive business days and that we,
therefore, were not in compliance with the Nasdaq minimum bid price requirement. After approval from the Company’s Board of Directors, on May 15, 2023, we effected a
reduction, on a 1-for-10 basis, in our authorized common stock, par value $0.001, along with a corresponding and proportional decrease in the number of shares issued and
outstanding(the “Reverse Stock Split”). On May 30, 2023, we received a letter from Nasdaq notifying us that we had regained compliance with the minimum bid price
requirement as a result of the closing bid price of our common stock being at $1.00 per share or greater for the 10 consecutive business days from May 15, 2023 through May
26, 2023 and that this matter was closed.
The market price of our securities may be highly volatile, and you may not be able to sell our securities.
Companies trading in the stock market in general 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 securities, regardless of our actual operating performance.
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The market price of our securities may be volatile. Our securities could be subject to wide fluctuations in price in response to a variety of factors, including the following:
·
Failure to realize the anticipated potential of the DNase technologies;
·
Adverse results, delays, or holds in pre-clinical or clinical studies;
·
Inability to obtain additional funding;
·
Any delay in filing an IND or BLA for any of our drug candidates and any adverse development or perceived adverse development with respect to the FDA’s
review of that IND or BLA;
·
Failure to develop successfully our drug candidates;
·
Failure to maintain our existing strategic collaborations or enter into new collaborations;
·
Failure by us or our licensors and strategic collaboration partners to prosecute, maintain or enforce our intellectual property rights;
·
Changes in laws or regulations applicable to future products;
·
Inability to obtain adequate product supply for our drug candidates or the inability to do so at acceptable prices;
·
Adverse regulatory decisions;
·
Introduction of new products, services or technologies by our competitors;
·
Failure to meet or exceed financial projections we may provide to the public;
·
Failure 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 collaboration 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 stockholder litigation;
·
Changes in the market valuations of similar companies;
·
Sales of our securities by us or our stockholders in the future;
·
Adverse economic conditions, including potential adverse effects of public health issues, such as the coronavirus outbreak, and geopolitical events, such as the
Russian invasion of Ukraine, and related sanctions and other economic disruptions or concerns, on economic activity generally; and
·
Trading volume of our securities.
Actions of activist shareholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business.
We actively engage in discussions with our shareholders regarding further strengthening our Company and creating long-term shareholder value. Some shareholder activism,
including potential proxy contests, could result in substantial costs, such as legal fees and expenses, disrupt our operations, and divert management’s and our Board of
Directors’ attention and resources from our business and strategic plans. Public shareholder activism can create perceived uncertainties as to our future direction, strategy, or
leadership and may result in the loss of potential business opportunities, harm our ability to attract new employees, investors, collaborators and other partners, and cause our
stock price to experience volatility. These risks could adversely affect our financial performance.
Our preferred stockholders have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could result
in the interests of our preferred stockholders differing from those of our common stockholders.
The holders of our preferred stock have the right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders before
any payment may be made to holders of any common stock or any series of preferred stock ranked junior to such class of preferred stock. The existence of a liquidation
preference may reduce the value of our common stock, make it harder for us to sell shares of common stock in offerings in the future or prevent or delay a change of control.
Additionally, each share of Series B Preferred Stock are convertible into shares of our common stock, subject to an issuable maximum and subject to certain adjustments, which
may cause significant dilution to our common stockholders. The preferential rights could result in divergent interests between the holders of shares of preferred stock and
holders of our common stock.
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The issuance of future shares of common stock may result in dilution to our stockholders.
As of March 7, 2025, we had approximately 1.5 million shares of common stock outstanding, excluding approximately 0.3 million of potentially dilutive common stock related
to outstanding preferred stock, warrants and options.
The issuance of these shares of common stock and the sale of these shares of common stock, or even the potential of such issuance and sale, may have a depressive effect on the
market price of our common stock, and the issuance of such common stock will cause dilution to our stockholders.
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 we have experienced significant stock 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.
An active, liquid and orderly market for our common stock may not develop.
Our common stock trades on the Nasdaq Capital Market. An active, liquid trading market for our common stock may never develop or be sustained. If an active, liquid market
for our common stock does not continue to develop or is not sustained, it may be difficult for investors to sell shares or purchase warrants without depressing the market price,
and investors may not be able to sell the shares at all. An inactive or illiquid market may also impair our ability to raise capital by selling common stock and may impair our
ability to acquire other businesses, applications or technologies using our common stock or purchase warrants as consideration, which, in turn, could materially adversely affect
our business.
We have entered into agreements with our stockholders.
We have in the past, and may continue to enter into from time to time, agreements with our stockholders, which may result in conflicts of interest. In addition, these
arrangements may not have been negotiated at arm’s length and may contain terms and conditions that are not in our best interest.
We do not intend to pay dividends on our common stock or preferred stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our common stock or preferred stock. We currently anticipate that we will retain future earnings for the development,
operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to common or preferred
stockholders will therefore be limited to the appreciation of their stock.
Certain provisions of our Articles of Incorporation, Bylaws, and the Nevada Revised States may be deemed to have an anti-takeover effect, which could cause the market
price of our common stock to decline.
Certain provisions of our Articles of Incorporation, Bylaws, and the Nevada Revised States may be deemed to have an anti-takeover effect. Such provisions may delay, deter or
prevent a tender offer or takeover attempt that a stockholder might consider to be in that stockholder’s best interests, including attempts that might result in a premium over the
market price for the shares held by stockholders, which could cause the market price of our common stock to decline.
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General Risk Factors
We face potential product liability claims, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our drug candidates
harms patients, or is perceived to harm patients even when such harm is unrelated to our drug 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 drug candidates in clinical studies and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product
liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products.
There is a risk that our drug 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, among other negative effects:
·
Impairment of our business reputation;
·
Withdrawal of clinical study participants;
·
Costs due to related litigation;
·
Distraction of management’s attention from our primary business;
·
Substantial monetary awards to patients or other claimants;
·
The inability to commercialize our drug candidates; and
·
Decreased demand for our drug candidates, if approved for commercial sale,
all of which may have a material adverse effect on our business, results of operations and prospects.
Our financial condition, results of operations, business and cash flow may be negatively affected by unfavorable U.S. or global economic conditions.
Our financial condition, results of operations, business and cash flow may be negatively affected by general conditions in the global economy and in the global financial
markets and uncertainty about economic stability. The global economy has experienced extreme volatility and disruptions, including as a result of public health epidemics and
pandemics, or other outbreaks of communicable diseases, such as the COVID-19 pandemic, as well as from international conflicts, terrorism or other geopolitical events, such
as the conflicts in the Ukraine and the Middle East, and related sanctions and other economic disruptions or concerns.
Additionally, the global economy and financial markets may also be adversely affected by the current or anticipated impact of military conflict, terrorism or other geopolitical
events, such as the conflicts in Ukraine and the Middle East. Sanctions imposed by the United States and other countries in response to such conflicts, may also adversely
impact the financial markets and the global economy, and the economic countermeasures by the affected countries or others could exacerbate market and economic instability.
For example, in response to the Russian invasion of Ukraine, the United States and certain other countries imposed significant sanctions and trade actions against Russia and
could impose further sanctions, trade restrictions, and other retaliatory actions as the conflict continues or if it worsens. It is not possible to predict the broader consequences of
such conflict or any others, such as the war in the Middle East, including related geo-political tensions, and the measures and retaliatory actions that will be taken by the United
States and other countries in respect thereof, as well as any countermeasures or retaliatory actions Russia or any other country may take in response, are likely to cause regional
instability and geo-political shifts and could materially adversely affect global trade, currency exchange rates, regional economies, and the global economy. While it is difficult
to anticipate the impact of any of the foregoing on our Company in particular, the conflict and actions taken in response to the conflict could increase our costs, disrupt our
supply chain, impair our ability to raise or access additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition,
and results of operations.
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There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. A severe or prolonged economic
downturn could result in a variety of risks to our business, including weakened demand for any product candidates we may develop and our ability to raise additional capital
when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. If the equity and credit markets
deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and
on favorable terms could impair our ability to achieve our growth strategy, could harm our financial performance and stock price and could require us to delay or abandon
clinical development plans. In addition, there is a risk that our current or future service providers, manufacturers or other collaborators may not survive such difficult economic
times, which could directly affect our ability to attain our operating goals on schedule and on budget. We cannot anticipate all of the ways in which the current economic
climate and financial market conditions could adversely impact our business.
Our ability to use potential future operating losses and our federal and state NOL carryforwards to offset taxable income from revenue generated from operations or
corporate collaborations could be limited.
The use of our NOL carryforwards may have limitations resulting from certain future ownership changes or other factors under the Code and other taxing authorities, including
foreign tax regimes. The TCJA changed both the federal deferred tax value of the NOL carryforwards and the rules of utilization of federal NOL carryforwards.
If our NOL carryforwards are limited, and we have taxable income which exceeds the available NOL carryforwards for that period, we would incur an income tax liability even
though NOL carryforwards may be available in future years prior to their expiration. Any such income tax liability may adversely affect our future cash flow, financial position
and financial results.
Tax reform may significantly affect the Company and our stockholders.
Due to the potential for changes to tax laws and regulations or changes to the interpretation thereof, the ambiguity of tax laws and regulations, the subjectivity of factual
interpretations and other factors, our estimates of effective tax rate and income tax assets and liabilities may be incorrect and our financial statements could be adversely
affected. The impact of these factors referenced in the first sentence of this paragraph may be substantially different from period-to-period.
In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If audits result in
payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities and our financial statements could be
adversely affected. Any further significant changes to the tax system in the United States or in other jurisdictions (including changes in the taxation of international income as
further described below) could adversely affect our financial statements.
Governments may impose price controls, which may adversely affect our future profitability.
We intend to seek approval to market our drug candidates in both the United States and in foreign jurisdictions. In some foreign countries and jurisdictions, particularly in the
European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct
clinical trials to compare the cost effectiveness of our drug candidates to other available therapies, which is time-consuming and costly. If reimbursement of our future products
is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
45
Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with
regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could
include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with
healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In
particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks,
self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies,
which could result in regulatory sanctions and cause serious harm to our reputation or could cause regulatory agencies not to approve our drug candidates. 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.
Use of our drug candidates could be associated with adverse side effects.
As with most biopharmaceutical products, use of our drug candidates could be associated with side effects or adverse events which can vary in severity and frequency. Side
effects or adverse events associated with the use of our drug candidates may be observed at any time, including in clinical trials or once a product is commercialized, and any
such side effects or adverse events may negatively affect our ability to obtain regulatory approval or market our drug candidates. Side effects such as toxicity or other safety
issues associated with the use of our drug candidates could require us to perform additional studies or halt development or sale of these drug candidates or expose us to product
liability lawsuits which will harm our business.
The emergence of unforeseen safety issues or adverse events may lead to regulatory agencies requiring us to conduct additional preclinical or clinical trials regarding the safety
and efficacy of our drug candidates, which we have not planned or anticipated. We cannot assure you that we will resolve any issues related to any product-related adverse
events to the satisfaction of the FDA or any regulatory agency in a timely manner or ever, which could harm our business, prospects and financial condition. We may also
inadvertently fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable
adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to
comply with our reporting obligations, the FDA or other foreign regulatory agencies could take action including criminal prosecution, the imposition of civil monetary
penalties, seizure of our products, or delay in approval or clearance of future products.
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.
The workers’ compensation insurance we maintain 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 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, which may have a material adverse effect on our
business and results of operations.
46
Non-cash charges such as share-based payments may adversely impact our results of operations.
We record non-cash charges related to share-based expense, which could fluctuate materially as the Company expects to continue to issue share-based payments awards and
may adversely impact our results of operations.
Varying interpretations of existing accounting standards and rules have occurred with frequency and may cause us to have to restate previously reported result of
operations.
Varying interpretations of existing standards of accounting policies or accounting treatments of existing transactions may cause us to have to restate previously reported result
of operations.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act. 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 due to error or fraud may occur and not be detected, which may have a material adverse effect on our business and results of operations.
Failure in our information technology systems or those of our third-party service providers, including by cybersecurity attacks or other data security incidents, could
significantly disrupt our operations.
Our operations depend, in part, on the continued performance of our information technology systems, which are cloud-based and maintained by third-party service providers.
Our information technology systems are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptions. Failure of our information
technology systems could adversely affect our business, profitability and financial condition.
A successful cybersecurity attack or other data security incident could result in the misappropriation and/or loss of confidential or personal information, create system
interruptions or deploy malicious software that attacks our systems. It is possible that a cybersecurity attack might not be noticed for some period of time. The occurrence of a
cybersecurity attack or incident could result in business interruptions from the disruption of our information technology systems, or negative publicity resulting in reputational
damage with our clinical trial participants, customers, stockholders and other stakeholders and/or increased costs to prevent, respond to or mitigate cybersecurity events. In
addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could expose us or other third parties to regulatory fines or
penalties, litigation and potential liability, or otherwise harm our business.
We are a smaller reporting company, and the reduced reporting requirements applicable to smaller reporting companies may make our common stock less attractive to
investors.
We are a smaller reporting company (“SRC”), which allows us to take advantage of exemptions from various reporting requirements that are applicable to other public
companies that are not SRCs, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended,
reduced disclosure obligations regarding executive compensation in our Annual Report and our periodic reports and proxy statements and providing only two years of audited
financial statements in our Annual Report and our periodic reports. We will remain an SRC until (a) the aggregate market value of our outstanding common stock held by non-
affiliates as of the last business day our most recently completed second fiscal quarter exceeds $250 million or (b) (1) we have over $100 million in annual revenues and (2) the
aggregate market value of our outstanding common stock held by non-affiliates as of the last business day our most recently completed second fiscal quarter exceeds $700
million. We cannot predict whether investors will find our common stock less attractive if we rely on certain or all of these exemptions. If some investors find our common
stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and may decline.
47
ITEM 1B – UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C – CYBERSECURITY
Risk management and strategy
We, through our third-party provider that manages our information technology systems and networks, maintain policies and processes for assessing, identifying, and managing
material risk from cybersecurity threats, and have integrated these processes into our overall risk management systems and processes. Primary responsibility for assessing,
monitoring and managing our cybersecurity risks rests with the Chief Financial Officer, who manages the Company’s overall risk assessment and mitigation process.
In addition to monitoring cybersecurity threats to the Company’s information systems, the Company’s risk management practices are intended to help monitor, mitigate and
prevent cybersecurity risks from external sources. We operate as a virtual company and maintain vital information, including financial and payroll information, on servers
owned and maintained by our vendors. As such, we rely on the internal controls of our third party vendors to protect our vital information. We obtain and review reports on the
internal controls of our vendors on an annual basis to ensure that we believe their cybersecurity procedures are adequate and to confirm that there have been no data breaches
affecting our information.
We engage third party services in connection with our cybersecurity risk assessment processes. These service providers assist us to design and implement our cybersecurity
policies and procedures, as well as to monitor and test our safeguards. Our managed information technology service provider monitors and alerts us of cybersecurity threats and
potential breaches. Our managed information technology service provider has the ability to implement and maintain appropriate security measures, consistent with all
applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report any suspected breach of its security
measures that may affect our company. Employee training and phishing campaigns are conducted every year. The Company’s employees are expected to help safeguard the
Company’s information systems and to assist in the discovery and reporting of cybersecurity incidents.
Although we may face a number of cybersecurity risks in connection with our business, we have not experienced any cybersecurity threats, incidents, or challenges that have
materially affected, or are reasonably likely to materially affect, our business strategy, results of operations, or financial condition. For additional information regarding risks
from cybersecurity threats, please refer to Item 1A, “Risk Factors,” in this annual report on Form 10-K.
Governance
One of the key functions of our board of directors is informed oversight of our risk management process, including risks from cybersecurity threats. Our board of directors is
responsible for monitoring and assessing strategic risk exposure, and our executive officers, with assistance from third-party consultants or advisors as appropriate, are
responsible for the day-to-day management of the material risks we face. Our Chief Financial Officer oversees our cybersecurity risk assessment and mitigation process, and is
responsible for the timely reporting of any material cybersecurity incident or threat, as well as any other cybersecurity related risks, to our board of directors.
ITEM 2 – PROPERTIES
We rent office space at an office share location at 945 Concord Street in Framingham, Massachusetts. The lease agreement is for 6-months through March 31, 2025. We believe
that this space is adequate for our current needs and that if additional space is required, it can be obtained at commercially reasonable terms nearby.
In addition, we leased 360 sq. ft. of office space in Miami, Florida. The lease provided for an initial term of 12 months, which commenced on December 1, 2016, and had been
extended on a year-by-year basis through November 30, 2024. This lease was not renewed in December 2024.
48
ITEM 3 – LEGAL PROCEEDINGS
From time to time, we may be a party to litigation and 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.
There are no matters, as of December 31, 2024, that, in the opinion of management, might have a material adverse effect on our financial position, results of operations or cash
flows.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
49
PART II
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our common stock is listed on the Nasdaq Capital Market under the symbol “XBIO”.
Holders of Record
As of March 7, 2025, there were 425 holders of record of our common stock.
Dividends
We have never previously declared or paid any cash dividends on our common stock. We currently intend to retain earnings and profits, if any, to support our business strategy
and do not intend to pay any cash dividends within the foreseeable future. Any future determination to pay cash dividends will be at the sole discretion of our Board of
Directors and will depend upon the financial condition of the Company, our operating results, capital requirements, general business conditions and any other factors that the
Board of Directors deems relevant.
Equity Compensation Plan Information
The information required by Item 5 with respect to securities authorized for issuance under equity compensation plans is incorporated herein by reference to Part III, Item 12 of
this Form 10-K.
Recent Sales of Unregistered Securities
None.
Repurchases of Equity Securities of the Issuer
During the quarter ended December 31, 2024, we did not repurchase any of our outstanding shares of common stock.
ITEM 6 – [RESERVED]
Reserved.
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
We are a biopharmaceutical company focused on advancing innovative immune-oncology technologies addressing difficult to treat cancers. Our Deoxyribonuclease (“DNase”)
technology is designed to improve outcomes of existing treatments, including immunotherapies, by targeting neutrophil extracellular traps (“NETs”), which are involved in
cancer progression. We are currently focused on advancing our systemic DNase program into the clinic as an adjunctive therapy for pancreatic carcinoma and locally advanced
or metastatic solid tumors.
We incorporate our patented and proprietary technologies into drug candidates currently under development with biotechnology and pharmaceutical industry collaborators to
create what we believe will be the next-generation biologic drugs with improved pharmacological properties over existing therapeutics. Our drug candidates have resulted from
our research activities or that of our collaborators and are in the development stage. As a result, we continue to commit a significant amount of our resources to our research and
development activities and anticipate continuing to do so for the near future. To date, none of our drug candidates have received regulatory marketing authorization or approval
in the United States (“U.S.”) by the Food and Drug Administration (“FDA”) nor in any other countries or territories by any applicable agencies. We are receiving ongoing
royalties pursuant to a license of our legacy PolyXen technology to an industry partner. Although we hold a broad patent portfolio, the focus of our internal efforts during the
year ended December 31, 2024, was on the advancement of our DNase technology.
50
Critical Accounting Estimates
The preparation of our financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue, costs and expenses during the
reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of
expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results and outcomes may differ
materially from our estimates, judgments and assumptions.
Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require
management’s most difficult subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. The following
narrative describes these critical accounting estimates, judgments and assumptions and the effect if actual results differ from these assumptions.
Research and Development Expenses
Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits, facilities expenses,
overhead expenses, pre-clinical development, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations (“CROs”) and contract
manufacturing organizations (“CMOs”) and other outside expenses. We expense research and development costs as incurred. We expense upfront, non-refundable payments
made for research and development services as obligations are incurred, except when deposits are made for specifically identified services. The value ascribed to intangible
assets acquired but which have not met capitalization criteria is expensed as research and development at the time of acquisition. Upfront payments under license agreements
are expensed upon receipt of the license. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the
milestone is determined to be probable of achievement and the related amount is reasonably estimable.
We are required to estimate accrued research and development expenses at each reporting period. This process involves reviewing open contracts and purchase orders,
communicating with our personnel and consultants 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 accrued expenses as of
each balance sheet date in the financial statements based on facts and circumstances known at that time. We periodically confirm the accuracy of the estimates with the service
providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
·
Collaborative partners performing research and development and pre-clinical activities;
·
Program managers in connection with overall program management of clinical trials;
·
CMOs in connection with cGMP manufacturing;
·
CROs in connection with clinical trials; and
·
Investigative sites in connection with clinical trials.
We base our expenses related to research and development, pre-clinical activities, manufacturing and clinical trials on our estimates of the services received and efforts
expended pursuant to quotes and contracts with multiple research institutions, CMOs and CROs that conduct and manage 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
vendors will exceed the level of services provided and result in a prepayment of the expense. 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 prepaid 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.
51
Warrants
In connection with certain financing, consulting and collaboration arrangements, we issued warrants to purchase shares of our common stock. The outstanding warrants are
standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. We measure the fair value of the awards using the
Black-Scholes option pricing model as of the measurement date. Warrants issued to collaboration partners in conjunction with the issuance of common stock are initially
recorded at fair value as a reduction in additional paid-in capital of the common stock issued.
All other warrants are recorded at fair value as expense on a straight-line basis over the requisite service period or at the date of issuance if there is not a service period or if
service has already been rendered. For warrants that contain vesting triggers based on the achievement of certain objectives, we apply judgment to estimate the probability and
timing of the achievement of those objectives. These estimates involve inherent uncertainties, and as a result, if the probability or timing of the achievement of those objectives
change, expense related warrants could be materially different in the future. For warrants issued in connection with financing arrangements we allocate the proceeds based on
the relative fair value of the award and other instrument(s).
Impact of Global Conflicts on Operations
The short and long-term implications of Russia’s invasion of Ukraine and conflict in the Middle East are difficult to predict at this time. The imposition of current and future
sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact our business, financial condition, and results of operations.
Results of Operations
The table below sets forth the comparison of our historical results of operations for the year ended December 31, 2024 to the year ended December 31, 2023.
Description
2024
2023
Increase
(Decrease)
Percentage
Change
Revenue:
Royalty revenue
$
2,500,284 $
2,539,986 $
(39,702)
(1.6)%
Operating costs and expenses:
Research and development
(3,288,332)
(3,494,765)
(206,433)
(5.9)%
General and administrative
(3,416,380)
(3,560,936)
(144,556)
(4.1)%
Total operating costs and expenses
(6,704,712)
(7,055,701)
(350,989)
(5.0)%
Loss from operations
(4,204,428)
(4,515,715)
(311,287)
(6.9)%
Other income (expense):
Other (expense) income
(5,708)
25,380
(31,088)
(122.5)%
Interest income, net
249,861
355,757
(105,896)
(29.8)%
Net loss
$
(3,960,275) $
(4,134,578) $
(174,303)
(4.2)%
Revenue
Revenue for the year ended December 31, 2024 was relatively flat with that of the year ended December 31, 2023.
52
Research and Development Expense
Overall, R&D expenses for the year ended December 31, 2024 decreased by approximately $0.2 million, or 5.9%, to $3.3 million from $3.5 million in the comparable period in
2023 primarily due to decreased spending in connection with our DNase process development efforts. During the year ended December 31, 2024, the Company expensed
approximately $0.7 million related to the impairment of long-lived assets associated with our legacy PSA technology. There was no similar expense in 2023. Excluding the $0.7
million impairment charge from total R&D expense of $3.3 million for the year ended December 31, 2024, adjusted R&D expenses for the year ended December 31, 2024
decreased approximately $0.9 million, or 26.1%, to $2.6 million, from $3.5 million for the year ended December 31, 2023. The table below sets forth the R&D costs incurred
by us, by category of expense, for the years ended December 31, 2024 and 2023:
Year ended December 31,
Category of Expense
2024
2023
Impairment of long-lived assets
$
704,431 $
–
Outside services and contract research organizations
1,898,121
2,886,985
Salaries and wages
562,571
417,952
Share-based expense
11,434
56,112
Other
111,775
133,716
Total research and development expense
$
3,288,332 $
3,494,765
The decrease in outside services and contract research organizations expense was primarily due to the aforementioned decreased spending in connection with our process
development efforts, partially offset by increased third-party pre-clinical development efforts related to our DNase technology. The increase in personnel costs is due to certain
severance and benefits expensed in connection with a separation agreement entered into during the second quarter of 2024 with our former Chief Scientific Officer.
General and Administrative Expense
General and administrative expenses for the year ended December 31, 2024 was $3.4 million, decreasing by approximately $0.1 million, or 4.1%, compared to the same period
in the prior year. The decrease was primarily due to a reduction in legal and accounting costs during the year ended December 31, 2024 compared to the prior year. These
decreases were substantially offset by certain severance and benefits expensed in connection with a separation agreement entered into during the second quarter of 2024 with
our former Chief Executive Officer.
Other (Expense) Income
Other expense was approximately $6,000 for the year ended December 31, 2024 compared to other income of approximately $25,400 for the same period in 2023. This
decrease in other income was primarily related to fees associated with the Pharmsynthez Loan recognized during the year ended December 31, 2023 for which there were no
similar fees received in the same period in 2024.
Interest Income, net
Interest income, net decreased to approximately $250,000 during the year ended December 31, 2024 as compared to approximately $356,000 in the prior year. This decrease is
primarily due to lower average invested funds during the year ended December 31, 2024 compared to the prior year, as well as a decrease in interest income received on the
Pharmsynthez Loan.
Non-GAAP Measures
In our narrative discussion of operations above, we exclude the impact of certain non-cash expenses from R&D expenses, which narrative discussion includes reconciliation of
such adjusted financial measures to the directly comparable GAAP financial measure. We believe these adjusted operating measures may provide investors with useful
information regarding our underlying performance from period to period and allow investors to better understand our results of operations. Management uses these adjusted
measures when assessing the performance of the business.
53
Liquidity and Capital Resources
We incurred a net loss of approximately $4.0 million for the year ended December 31, 2024. We had an accumulated deficit of approximately $197.2 million at December 31,
2024, as compared to an accumulated deficit of approximately $193.2 million at December 31, 2023. Working capital was approximately $5.7 million at December 31, 2024,
and approximately $8.8 million at December 31, 2023, respectively. During the year ended December 31, 2024, our working capital decreased by approximately $3.1 million
primarily due to our net loss for the year ended December 31, 2024.
Our principal source of liquidity consists of cash. At December 31, 2024, we had approximately $6.2 million in cash and approximately $0.9 million in current liabilities. At
December 31, 2023, we had approximately $9.0 million in cash and approximately $0.8 million in current liabilities. We have historically relied upon sales of our equity
securities to fund our operations.
We evaluate whether there are conditions or events, considered in the aggregate that raise substantial doubt about our ability to continue as a going concern within one year
after the date that the financial statements are issued. We have incurred substantial losses since our inception, and we expect to continue to incur operating losses in the near-
term. We believe that our existing resources will be adequate to fund our operations for a period of at least twelve months from the date of the issuance of these financial
statements. However, we anticipate we will need additional capital in the long-term to pursue our business initiatives. While we believe that we have access to capital resources
through possible public or private equity offerings, debt financings, corporate collaborations, related party funding, or other means to continue as a going concern, the terms,
timing and extent of any future financing will depend upon several factors, including the achievement of progress in our clinical development programs, our ability to identify
and enter into licensing or other strategic arrangements, our continued listing on the Nasdaq Stock Market (“Nasdaq”), and factors related to financial, economic, geo-political,
industry and market conditions, many of which are beyond our control. The capital markets for the biotech industry can be highly volatile, which make the terms, timing and
extent of any future financing uncertain.
Cash Flows from Operating Activities
Cash flows used in operating activities for the year ended December 31, 2024 totaled approximately $2.8 million, which was primarily due to our net loss for the period,
partially offset by non-cash charges associated with share-based expense. In addition, prepaid expenses and other decreased approximately $0.2 million, other assets decreased
by approximately $0.7 million due to the impairment of long-lived assets and accounts payable, accrued expenses and other current liabilities increased approximately $0.1
million during the year ended December 31, 2024 compared to the prior year. Cash flows used in operating activities for the year ended December 31, 2023 totaled
approximately $4.1 million, which was primarily due to our net loss for the period, partially offset by non-cash charges associated with share-based expense and, to a lesser
extent, a decrease in accounts payable, accrued expenses and other current liabilities.
Cash Flows from Investing Activities
There were no cash flows from investing activities for each of the years ended December 31, 2024 and 2023.
Cash Flows from Financing Activities
There were no cash flows from financing activities for each of the years ended December 31, 2024 and 2023.
Contractual Obligations
Contractual obligations represent future cash commitments and liabilities under agreements with third-parties and exclude contingent liabilities for which we cannot reasonably
predict future payment. Our contractual obligations result from a property lease for office space. Although we do have obligations for CMO and CRO services, the table below
excludes potential payments we may be required to make under our agreements with CMOs and CROs because timing of payments and actual amounts paid under those
agreements may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations, and those agreements
are cancelable upon written notice by the Company and therefore, not long-term liabilities. The contracts may also contain variable costs that are hard to predict as they are
based on such things as patients enrolled and clinical trial sites, which can vary and, therefore, are also not included in the table below. Additionally, the expected timing of
payment of the obligations presented below is estimated based on current information.
54
The following tables represent our contractual obligations as of December 31, 2024, aggregated by type:
Payments Due by Period
As of December 31, 2024
Total
Less
than
1 year
1-3
years
3-5
years
More
than
5 years
Lease obligations
$
3,036 $
3,036 $
– $
– $
–
Total
$
3,036 $
3,036 $
– $
– $
–
Recent Accounting Standards
Refer to Note 3, Summary of Significant Accounting Policies, of the accompanying financial statements set forth in Item 8.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not required to provide the information required by this Item because we are a “smaller reporting company” (as
defined in Rule 12b-2 of the Exchange Act).
55
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm (PCAOB ID 688)
F-1
Consolidated Balance Sheets as of December 31, 2024 and 2023
F-2
Consolidated Statements of Operations for the years ended December 31, 2024 and 2023
F-3
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024 and 2023
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
F-5
Notes to Consolidated Financial Statements
F-6
56
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Xenetic Biosciences, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Xenetic Biosciences, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as
the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and
2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
We have served as the Company’s auditor since 2015.
Hartford, CT
March 18, 2025
F-1
XENETIC BIOSCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2024
December 31, 2023
ASSETS
Current assets:
Cash
$
6,165,568 $
8,983,046
Prepaid expenses and other
421,954
603,828
Total current assets
6,587,522
9,586,874
Other assets
313,921
1,018,352
Total assets
$
6,901,443 $
10,605,226
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
283,615 $
240,832
Accrued expenses and other current liabilities
610,648
568,753
Total current liabilities
894,263
809,585
Total liabilities
894,263
809,585
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized
Series B, $0.001 par value: 1,804,394 shares issued and outstanding as of December 31, 2024 and December 31,
2023
1,804
1,804
Common stock, $0.001 par value; 10,000,000 shares authorized as of December 31, 2024 and December 31,
2023; 1,544,840 and 1,543,385 shares issued as of December 31, 2024 and December 31, 2023, respectively;
1,542,139 and 1,540,684 shares outstanding as of December 31, 2024 and December 31, 2023, respectively
1,545
1,544
Additional paid in capital
208,225,748
208,053,935
Accumulated deficit
(197,194,471)
(193,234,196)
Accumulated other comprehensive income
253,734
253,734
Treasury stock
(5,281,180)
(5,281,180)
Total stockholders' equity
6,007,180
9,795,641
Total liabilities and stockholders' equity
$
6,901,443 $
10,605,226
The accompanying notes are an integral part of these consolidated financial statements.
F-2
XENETIC BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
2024
2023
Revenue
Royalty revenue
$
2,500,284 $
2,539,986
Total revenue
2,500,284
2,539,986
Operating costs and expenses:
Research and development
(3,288,332)
(3,494,765)
General and administrative
(3,416,380)
(3,560,936)
Total operating costs and expenses
(6,704,712)
(7,055,701)
Loss from operations
(4,204,428)
(4,515,715)
Other income (expense):
Other (expense) income
(5,708)
25,380
Interest income, net
249,861
355,757
Total other income, net
244,153
381,137
Net loss
$
(3,960,275) $
(4,134,578)
Basic and diluted net loss per share
$
(2.57) $
(2.71)
Weighted-average shares of common stock outstanding, basic and diluted
1,541,339
1,528,210
The accompanying notes are an integral part of these consolidated financial statements.
F-3
XENETIC BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock
Common Stock
Accumulated
Number
of
Shares
Par
Value
($0.001)
Number
of
Shares
Par
Value
($0.001)
Additional
Paid in
Capital
Accumulated
Deficit
Other
Comprehensive
Income
Treasury
Stock
Total
Stockholders'
Equity
Balance as of January 1, 2023
2,774,394 $
2,774
1,519,360 $
1,520 $ 207,769,904 $ (189,099,618) $
253,734 $ (5,281,180) $
13,647,134
Issuance of common stock to adjust for reverse split
rounding
–
–
15,941
16
(16)
–
–
–
–
Conversion of Series A preferred stock to shares of
common stock
(970,000)
(970)
8,084
8
962
–
–
–
–
Share-based expense
–
–
–
–
283,085
–
–
–
283,085
Net loss
–
–
–
–
–
(4,134,578)
–
–
(4,134,578)
Balance as of December 31, 2023
1,804,394 $
1,804
1,543,385 $
1,544 $ 208,053,935 $ (193,234,196) $
253,734 $ (5,281,180) $
9,795,641
Issuance of common stock in connection with restricted
stock units
–
–
417
–
–
–
–
–
–
Exercise of purchase warrants
–
–
1,038
1
(1)
–
–
–
–
Share-based expense
–
–
–
–
171,814
–
–
–
171,814
Net loss
–
–
–
–
–
(3,960,275)
–
–
(3,960,275)
Balance as of December 31, 2024
1,804,394 $
1,804
1,544,840 $
1,545 $ 208,225,748 $ (197,194,471) $
253,734 $ (5,281,180) $
6,007,180
The accompanying notes are an integral part of these consolidated financial statements.
F-4
XENETIC BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(3,960,275) $
(4,134,578)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based expense
171,814
283,085
Changes in operating assets and liabilities:
Prepaid expenses and other
181,874
(47,734)
Other long-term assets
704,431
48,579
Accounts payable, accrued expenses and other liabilities
84,678
(263,571)
Net cash used in operating activities
(2,817,478)
(4,114,219)
Net change in cash
(2,817,478)
(4,114,219)
Cash at beginning of period
8,983,046
13,097,265
Cash at end of period
$
6,165,568 $
8,983,046
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
$
– $
–
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock from cashless exercise of purchase warrants
$
1 $
–
Issuance of common stock to adjust for Reverse Stock Split
$
– $
16
Conversion of Series A preferred stock to common stock
$
– $
970
The accompanying notes are an integral part of these consolidated financial statements.
F-5
XENETIC BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
The Company
Background
Xenetic Biosciences, Inc. (“Xenetic” or the “Company”), incorporated in the state of Nevada and based in Framingham, Massachusetts, is a biopharmaceutical company
focused on advancing innovative immune-oncology technologies addressing difficult to treat cancers. The Company’s proprietary Deoxyribonuclease (“DNase”) technology is
designed to improve outcomes of existing treatments, including immunotherapies, by targeting neutrophil extracellular traps (“NETs”), which are involved in cancer
progression. Xenetic is currently focused on advancing its systemic DNase program into the clinic as an adjunctive therapy for pancreatic carcinoma and locally advanced or
metastatic solid tumors.
The Company, directly or indirectly, through its wholly-owned subsidiaries, Hesperix S.A. (“Hesperix”) and Xenetic Biosciences (U.K.) Limited (“Xenetic UK”), and the
wholly-owned subsidiaries of Xenetic UK, Lipoxen Technologies Limited (“Lipoxen”), Xenetic Bioscience, Incorporated and SymbioTec, GmbH (“SymbioTec”), own various
United States (“U.S.”) federal trademark registrations and applications along with unregistered trademarks and service marks, including but not limited to XCART,
OncoHist™, PolyXen®, ErepoXen™, and ImuXen™, which are used throughout this Annual Report. All other company and product names may be trademarks of the
respective companies with which they are associated.
Going Concern and Management’s Plan
Management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going
concern within one year after the date that the financial statements are issued. The Company has incurred substantial losses since its inception and expects to continue to incur
operating losses in the near-term. The Company believes that its existing resources will be adequate to fund the Company’s operations for a period of at least twelve months
from the date of the issuance of these financial statements. However, the Company anticipates it will need additional capital in the long-term to pursue its business initiatives.
While the Company believes that it has access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations, related party
funding, or other means to continue as a going concern, the terms, timing and extent of any future financing will depend upon several factors, including the achievement of
progress in its product development programs, its ability to identify and enter into licensing or other strategic arrangements, its continued listing on the Nasdaq Stock Market
(“Nasdaq”), and factors related to financial, economic, geo-political, industry and market conditions, many of which are beyond its control. The capital markets for the biotech
industry can be highly volatile, which make the terms, timing and extent of any future financing uncertain.
2.
Risks and Uncertainties
Impact of Global Conflicts on Operations
The short and long-term implications of the conflicts in the Ukraine and Middle East are difficult to predict at this time. The imposition of current and future sanctions and
counter sanctions may have an adverse effect on the economic markets generally and could impact our business, financial condition, and results of operations.
F-6
3.
Summary of Significant Accounting Policies
Preparation of Financial Statements
On May 15, 2023, the Company effected a reduction, on a 1-for-10 basis, in its authorized common stock, par value $0.001, along with a corresponding and proportional
decrease in the number of shares issued and outstanding (the “Reverse Stock Split”). On the effective date of the Reverse Stock Split, (i) every 10 shares of common stock were
reduced to one share of common stock, with any fractional amounts rounded up to one share; (ii) the number of shares of common stock into which each outstanding warrant,
restricted stock unit (“RSU”), or option to purchase common stock was convertible into was proportionately reduced on the same basis as the common stock; (iii) the exercise
price of each outstanding warrant or option to purchase common stock was proportionately increased on a 1-to-10 basis; and (iv) the number of shares of common stock into
which each share of preferred stock was convertible into was proportionately reduced on the same basis as the common stock. Unless otherwise indicated, all of the share
numbers, share prices, and exercise prices have been adjusted in this Annual Report, on a retroactive basis, to reflect this 1-for-10 Reverse Stock Split.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of Hesperix, Xenetic UK and Xenetic UK’s wholly-owned subsidiaries: Lipoxen, Xenetic
Bioscience, Incorporated, and SymbioTec. Certain of the Company’s subsidiaries require guarantees of support from Xenetic. While all intercompany balances and transactions
have been eliminated in consolidation, the Company has $0.2 million of cash collateralizing these guarantees.
Use of Estimates
The consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation
of the financial statements in accordance with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and
liabilities, the reported amounts of revenue, costs and expenses in the financial statements and disclosures in the accompanying notes. Actual results and outcomes may differ
materially from management’s estimates, judgments and assumptions.
Functional Currency Change
The functional currency for the Company’s foreign subsidiaries is the U.S. dollar. The functional currency of the Company’s UK-based subsidiaries changed from the British
Pound Sterling to the U.S. dollar when the Company relocated to the U.S. in 2014. The change in functional currency was applied on a prospective basis. Therefore, any gains
and losses that were previously recorded in accumulated other comprehensive income remain unchanged.
Foreign Currency Transactions
Realized and unrealized gains and losses resulting from foreign currency transactions arising from exchange rate fluctuations on balances denominated in currencies other than
the functional currencies are recognized in “Other (expense) income” in the consolidated statements of operations. Monetary assets and liabilities that are denominated in a
currency other than the functional currency are re-measured to the functional currency using the exchange rate at the balance sheet date and gains or losses are recorded in the
consolidated statements of operations.
Fair Value of Financial Instruments
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or be paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs
used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value
measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level
2 utilizes quoted market prices in markets that are not active, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Level 3
inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. As of December 31, 2024
and 2023, the carrying amount of certain of the Company’s financial instruments approximates fair value due to their short maturities. See Note 7, Fair Value Measurements,
for discussion of the Company’s fair value measurements.
F-7
Cash and Concentrations of Credit Risk
The Company considers all highly liquid investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Investments with original
maturities of greater than 90 days from the date of purchase but less than one year from the balance sheet date are classified as short-term investments, while investments with
maturities of one year or beyond from the balance sheet date are classified as long-term investments. Management determines the appropriate classification of its cash
equivalents and investment securities at the time of purchase and re-evaluates such determination as of each balance sheet date. The carrying amount of cash equivalents
approximate their fair value due to the short-term nature of these instruments.
Financial instruments that potentially subject the Company to credit risk consist primarily of cash on deposit with financial institutions, the balances of which may exceed
federally insured limits. The Company 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 currently associated with commercial banking relationships. The Company maintains its primary banking relationship with one large financial institution and all cash on
deposit is covered under federally insured limits.
Indefinite-Lived Intangible Assets
Assets acquired and liabilities assumed in business combinations, licensing and other transactions are generally recognized at the date of acquisition at their respective fair
values. At acquisition, the Company generally determines the fair value of intangible assets, including in-process research and development (“IPR&D”), using the “income
method.” Acquired IPR&D intangible assets are considered indefinite-lived intangible assets and are not amortized until completion or abandonment of the associated research
and development efforts. Substantial additional research and development may be required before the Company’s IPR&D reaches technological feasibility. Upon completion of
the IPR&D project, the IPR&D assets will be amortized over their estimated useful lives.
Indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually or when events or changes in the business environment indicate that it is
more likely than not that the carrying value may be impaired. The Company also has the option to first assess qualitative factors to determine whether the existence of events or
circumstances leads the Company to determine that it is more likely than not (that is, a likelihood of more than 50%) that the acquired indefinite-lived intangible assets are
impaired. If the Company chooses to first assess the qualitative factors and it is determined that it is not more likely than not acquired indefinite-lived intangible assets are
impaired, the Company is not required to take further action to test for impairment. The Company also has the option to bypass the qualitative assessment and perform only the
quantitative impairment test, which the Company may choose to perform in some periods but not in others. The impairment loss, if any, is measured as the excess of the
carrying value of the intangible asset over its fair value.
Intangible assets are highly vulnerable to impairment charges, particularly newly acquired assets for IPR&D. Considering the high risk nature of research and development and
the industry’s success rate of bringing developmental compounds to market, indefinite-lived intangible asset impairment charges are likely to occur in future periods.
Estimating the fair value of indefinite-lived intangible assets for potential impairment is highly sensitive to changes in projections and assumptions and changes to assumptions
could potentially lead to impairment. The Company believes its estimates and assumptions are reasonable and otherwise consistent with assumptions market participants would
use in their estimates of fair value. However, if future results are not consistent with the Company’s estimates and assumptions, then the Company may be exposed to an
impairment charge, which could be material. Use of different estimates and judgments could yield materially different results in the Company’s analysis and could result in
materially different asset values or expense.
Revenue Recognition
The Company enters into supply, license and collaboration arrangements with pharmaceutical and biotechnology partners, some of which include royalty agreements based on
potential net sales of approved commercial pharmaceutical products.
F-8
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). This standard applies to all contracts with
customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an
entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in
exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the
following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue at a point in time, or over time, as it satisfies a performance obligation. The Company
only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the
customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract,
determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the
transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
As part of the accounting for these arrangements, the Company must use judgment to determine: a) the number of performance obligations based on the determination under
step (ii) above; b) the transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of
transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price as
described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes
revenue as or when the performance obligations under the contract are satisfied. In developing the stand-alone price for a performance obligation, the Company considers
applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.
The Company validates the stand-alone selling price for performance obligations by evaluating whether changes in the key assumptions used to determine the stand-alone
selling prices will have a significant effect on the allocation of transaction price between multiple performance obligations. The Company recognizes a contract asset or liability
for the difference between the Company’s performance (i.e., the goods or services transferred to the customer) and the customer’s performance (i.e., the consideration paid by,
and unconditionally due from, the customer).
The terms of the Company’s license agreements may include delivery of an intellectual property license to a collaboration partner. The Company may be compensated under
license arrangements through a combination of non-refundable upfront receipts, development and regulatory objective receipts and royalty receipts on future product sales by
partners. The Company anticipates recognizing non-refundable upfront license payments and development and regulatory milestone payments received by the Company in
license and collaboration arrangements that include future obligations, such as supply obligations, ratably over the Company’s expected performance period under each
respective arrangement. The Company makes its best estimate of the period over which the Company expects to fulfill the Company’s performance obligations, which may
include technology transfer assistance, research activities, clinical development activities, and manufacturing activities from development through the commercialization of the
product. Given the uncertainties of these collaboration arrangements, significant judgment is required to determine the duration of the performance period.
When the Company enters into an arrangement to sublicense some of its patents, it will consider the performance obligations to determine if there is a single element or
multiple elements to the arrangement as it determines the proper method and timing of revenue recognition. The Company considers the terms of the license or sublicense for
such elements as price adjustments or refund clauses in addition to any performance obligations for it to provide such as services, patent defense costs, technology support,
marketing or sales assistance or any other elements to the arrangement that could constitute an additional deliverable to it that could change the timing of the revenue
recognition. Non-refundable upfront license and sublicense fees received, whereby continued performance or future obligations are considered inconsequential or perfunctory
to the relevant licensed technology, are recognized as revenue upon delivery of the technology.
F-9
The Company expects to recognize royalty revenue in the period of sale, based on the underlying contract terms, provided that the reported sales are reliably measurable, the
Company has no remaining performance obligations, and all other revenue recognition criteria are met. The Company anticipates reimbursements for research and development
services completed by the Company related to the collaboration agreements to be recognized in operations as revenue on a gross basis. The Company’s license and
collaboration agreements with certain collaboration partners could also provide for future milestone receipts to the Company based solely upon the performance of the
respective collaboration partner in consideration of deadline extensions or upon the achievement of specified sales volumes of approved drugs. For such receipts, the Company
expects to recognize the receipts as revenue when earned under the applicable contract terms on a performance basis or ratably over the term of the agreement. These receipts
may also be recognized as revenue when continued performance or future obligations by the Company are considered inconsequential or perfunctory.
See also Note 4, Significant Strategic Collaborations.
Research and Development Expenses
Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits, facilities expenses,
overhead expenses, pre-clinical development, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations (“CROs”) and contract
manufacturing organizations (“CMOs”) and other outside expenses. The Company expenses research and development costs as incurred. The Company expenses upfront, non-
refundable payments made for research and development services as obligations are incurred, except when deposits are made for specifically identified future services. The
value ascribed to intangible assets acquired but which have not met capitalization criteria is expensed as research and development at the time of acquisition. Upfront payments
under license agreements are expensed upon receipt of the license. Milestone payments under license agreements are accrued, with a corresponding expense being recognized,
in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
The Company is required to estimate accrued research and development expenses at each reporting period. This process involves reviewing open contracts and purchase orders,
communicating with Company personnel and consultants to identify services that have been performed on its behalf and estimating the level of service performed and the
associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of actual costs. The majority of the Company’s service providers
invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met. However, some require advanced payments. The Company
makes estimates of accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known at that time. The Company periodically
confirms the accuracy of the estimates with the service providers and makes adjustments, if necessary. Examples of estimated accrued research and development expenses
include fees paid to:
·
·
Collaborative partners performing research and development and pre-clinical activities;
Program managers in connection with overall program management of clinical trials;
·
CMOs in connection with cGMP manufacturing;
·
CROs in connection with clinical trials; and
·
Investigative sites in connection with clinical trials.
The Company bases its expenses related to research and development, pre-clinical activities, manufacturing and clinical trials on its estimates of the services received and
efforts expended pursuant to quotes and contracts with multiple research institutions, CMOs and CROs that conduct and manage clinical trials on the Company’s 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 vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, the Company estimates 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, the Company adjusts the accrual or prepaid accordingly. Although it does not expect its estimates to be materially different from amounts actually incurred, the
Company’s 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 the Company’s prior estimates of accrued research and
development expenses. The Company has recorded approximately $0.3 million and $0.5 million of prepayments as a component of prepaid expenses and other current assetsas
of December 31, 2024 and 2023, respectively. In addition, the Company had recorded accrued program expense of approximately $0.2 million and $0.1 million as a component
of accrued expenses as of each of December 31, 2024 and 2023, respectively.
F-10
Share-based Expense
The Company grants share-based payments in the form of options and RSUs to employees and non-employees to purchase shares of the Company’s common stock. In addition,
prior to the Company relocating to the U.S. in 2014, the Company had issued Joint Share Ownership Plan (“JSOP”) awards to employees and entered into agreements to issue
common stock in exchange for services provided by non-employees.
Share-based expense is based on the estimated fair value of the option or calculated using the Black-Scholes option pricing model. Determining the appropriate fair value model
and related assumptions requires judgment, including estimating share price volatility and expected terms of the awards. The expected volatility rates are estimated based on the
historical volatility of the Company. To the extent Company data is not available for the full expected term of the awards the Company uses a weighted-average of the historical
volatility of the Company and of a peer group of comparable publicly traded companies over the expected term of the option. The expected term represents the time that options
are expected to be outstanding. The Company accounts for forfeitures as they occur and not at the time of grant. The Company has not paid dividends and does not anticipate
paying cash dividends in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury
securities with maturities consistent with the estimated expected term of the awards. Upon exercise, stock options are redeemed for newly issued shares of common stock.
RSUs are redeemed for newly issued shares of common stock as the vesting and settlement provisions of the grant are met.
For employee options that vest based solely on service conditions, the fair value measurement date is generally on the date of grant and the related compensation expense is
recognized on a straight-line basis over the requisite vesting period of the awards. For non-employee options issued in exchange for goods or services consumed in the
Company’s operations, the fair value measurement date is the earlier of the date the performance of services is complete or the date the performance commitment has been
reached. The Company generally determines that the fair value of the stock options is more reliably measurable than the fair value of the services received. Compensation
expense related to stock options granted to non-employees is recognized on a straight-line basis over requisite vesting periods of the awards.
Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding
warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of
the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued to collaboration partners in conjunction with the issuance of common
stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value as expense on a
straight-line basis over the requisite service period or at the date of issuance if there is not a service period or if service has already been rendered. Warrant arrangements are
more fully described in Note 9, Stockholders’ Equity.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on temporary
differences resulting from the different treatment of items for tax and financial reporting purposes. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Additionally, the Company must assess the likelihood that
deferred tax assets will be recovered as deductions from future taxable income. The Company evaluates the recoverability of its deferred tax assets on a quarterly basis.
Basic and Diluted Net Loss per Share
The Company computes basic net loss per share by dividing net loss applicable to common stockholders by the weighted-average number of shares of the Company’s common
stock outstanding during the period. The Company computes diluted net loss per share after giving consideration to the dilutive effect of stock options that are outstanding
during the period, except where such non-participating securities would be anti-dilutive. The Company’s JSOP awards, prior to exercise, are considered treasury shares by the
Company and thus do not impact the Company’s net loss per share calculation.
For the years ended December 31, 2024 and 2023, basic and diluted net loss per share are the same for each year due to the Company’s net loss position. Potentially dilutive,
non-participating securities have not been included in the calculations of diluted net loss per share, as their inclusion would be anti-dilutive. As of December 31, 2024 and 2023,
approximately 3,000 and 5,000 potentially dilutive securities were deemed anti-dilutive for each period.
F-11
Segment Information
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, to improve reportable segment disclosure
requirements, primarily through enhanced disclosures about significant expenses. Under this ASU, a company is required to enhance its segment disclosures to include
significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any
additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. This ASU was adopted effective for the Company’s fiscal year
ending December 31, 2024 and the adoption did not have a material impact on the Company’s consolidated financial statements.
The Company is principally engaged in pre-clinical research and development activities to advance its DNase technology. Operating segments are identified as components of
an enterprise about which separate discrete financial information is available for evaluation by the CODM, who is the Company’s Chief Executive Officer, in making decisions
on how to allocate resources and assess performance. The Company views its operations and manages its business as a single operating segment. The Company’s measure of
segment profit or loss is net loss. The CODM manages and allocates to the operations of the Company on a total company basis. Managing and allocating resources on a
consolidated basis enables the CODM to assess the overall level of resources available and how best to deploy these resources across functions, therapeutic areas and research
and development projects that are in line with the Company’s long-term company-wide strategic goals. Consistent with this decision-making process, the CODM uses
consolidated financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources and setting incentive targets. The
following table is representative of the significant expense categories regularly provided to the CODM when managing the Company’s single reporting segment. A
reconciliation to the consolidated net loss for the years ended December 31, 2024 and 2023 is as follows:
Year Ended December 31,
2024
2023
Revenue
$
2,500,284 $
2,539,986
Program expenses(1)
1,898,121
2,886,985
Non-program expenses(2)
2,754,895
2,386,508
Salaries and wages
1,879,882
1,499,123
Other segment items(3)
(72,339)
(98,052)
Net loss
$
(3,960,275) $
(4,134,578)
(1) Includes external research and development.
(2) Includes information technology, legal, intellectual property and other general and administrative expenses.
(3) Includes stock-based compensation expense, interest income and other expense (income).
Leases
The Company leases administrative facilities under operating leases. The Company recognizes a lease liability and a right-of-use asset for all leases, with the exception of short-
term leases, at the commencement date. See Note 12, Commitments and Contingencies for further information.
Recent Accounting Standards
Income Taxes - Improvements to Income Tax Disclosures (Topic 740). In December 2023, the FASB issued ASU No. 2023-09, to improve income tax disclosure requirements,
primarily through enhanced disclosures related to the income tax rate reconciliation and income taxes paid. This ASU is effective for fiscal 2025, with early adoption permitted,
and may be applied retrospectively. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements.
F-12
4.
Significant Strategic Collaborations
Takeda Pharmaceutical Co. Ltd. ( together with its wholly-owned subsidiaries, “Takeda”)
In October 2017, the Company granted to Takeda the right to grant a non-exclusive sublicense to certain patents related to the Company’s PolyXen technology that were
previously exclusively licensed to Takeda in connection with products related to the treatment of blood and bleeding disorders. Royalty payments of approximately $2.5 million
were recorded as revenue for each year by the Company during the years ended December 31, 2024 and 2023 and are based on single digit royalties on net sales of certain
covered products. The Company’s policy is to recognize royalty payments as revenue when they are reliably measurable, which is upon receipt of reports from Takeda. The
Company receives these reports in the quarter subsequent to the actual sublicensee sales. At the time the revenue was received, there were no remaining performance
obligations and all other revenue recognition criteria were met.
Belgian Volition SARL Limited (“Volition”) Collaboration
On August 2, 2022, the Company announced a research and development collaboration with Volition to develop NETs-targeted adoptive cell therapies for the treatment of
cancer. The collaboration is an early exploratory program to evaluate the potential combination of Volition’s Nu.Q® Technology Test and the Company’s DNase-Armored CAR
T platform to develop proprietary adoptive cell therapies potentially targeting multiple types of solid cancers. Under the terms of the collaboration agreement, Volition will fund
a research program and the two parties will share proceeds from commercialization or licensing of any products arising from the collaboration. To date, Volition has funded
$26,000 under this agreement.
Catalent Pharma Solutions LLC (“Catalent”)
On June 30, 2022, the Company entered into a Statement of Work (the “SOW”) with Catalent to outline the general scope of work, timeline, and pricing pursuant to which
Catalent will provide certain services to the Company to perform cGMP manufacturing of the Company’s recombinant protein, Human DNase I. The parties agreed to enter into
a Master Services Agreement that will contain terms and conditions to govern the project contemplated by the SOW and that will supersede the addendum to the SOW
containing Catalent’s standard terms and conditions. The Company has paid Catalent approximately $2.5 million through December 31, 2024, of which $28,000 and $0.1
million has been recognized as an advance payment and is included in prepaid expenses and other current assets as of December 31, 2024 and 2023, respectively, and
approximately $0.1 million has been recognized as a liability and is included in accrued expenses and other current liabilities as of December 31, 2024. There was no accrual as
of December 31, 2023. In addition, approximately $0.3 million has been recognized within other assets as of both December 31, 2024 and 2023.
Scripps Research
On March 17, 2023, the Company and Scripps Research entered into a Research Funding and Option Agreement (the “Agreement”), pursuant to which the Company has agreed
to provide Scripps Research an aggregate of up to $0.9 million to fund research relating to advancing the pre-clinical development of the Company’s DNase technology. Under
the Agreement, the Company has the option to acquire a worldwide exclusive license to Scripps Research’s rights in the Technology or Patent Rights (as defined in the
Agreement), as well as a non-exclusive, royalty-free, non-transferrable license to make and use TSRI Technology (as defined in the Agreement) solely for the Company’s
internal research purposes during the performance of the research program contemplated by the Agreement. During the second quarter of 2024, the Company amended the
Agreement to extend the term to October 31, 2024 with no additional funding required.
On November 1, 2024, the Company and Scripps Research entered into a Second Amendment to the Agreement (the “Second Amendment”) extending the term of the
Agreement for an additional twelve (12) month period and to provide Scripps Research additional funding in an aggregate amount of up to approximately $400,000 to fund
continuing research. The research funding is payable by the Company to Scripps Research on a monthly basis in accordance with a negotiated budget, which provides for an
initial payment of approximately $65,000 on the date of the Amendment and subsequent monthly payments of approximately $65,000 over a 5-month period. All other terms of
the Original Agreement remain unchanged.
The Company paid Scripps Research approximately $0.9 million under the Agreement through December 31, 2024, of which approximately $0.4 million had been recognized
as an advance payment and was included in prepaid expenses and other current assets as of December 31, 2023. There was no amount prepaid as of December 31, 2024.
F-13
University of Virginia (“UVA”)
On December 21, 2023, the Company entered into a Research Funding and Material Transfer Agreement with UVA (the “UVA Agreement”) to advance the development of our
systemic DNase program. Under the terms of the UVA Agreement, in addition to advancing our existing intellectual property, the Company has an option to acquire an
exclusive license to any new intellectual property arising from the DNase research program. Allan Tsung, MD, a member of the Company’s Scientific Advisory Board and
Chair of the Department of Surgery at the UVA School of Medicine, will oversee the research conducted under the UVA Agreement. In November 2024, the Company and UVA
entered into an amendment to extend the UVA Agreement through December 2025. Pursuant to the UVA agreement, as amended, UVA will build on the preclinical and
translational data produced to date and continue to investigate combinations of DNase I with immunotherapies in models of primary and metastatic colorectal cancer. The
Company paid UVA approximately $0.4 million under the UVA Agreement through December 31, 2024, of which $0.1 million has been recognized as an advance payment and
is included within prepaid expenses and other current assets as of December 31, 2024. There were no amounts incurred as of December 31, 2023.
PJSC Pharmsynthez
In November 2009, the Company entered into a collaborative research and development license agreement with Pharmsynthez (the “Pharmsynthez Arrangement”) pursuant to
which the Company granted an exclusive license to Pharmsynthez to develop, commercialize and market six product candidates based on the Company’s PolyXen and ImuXen
technology in certain territories. In exchange, Pharmsynthez granted an exclusive license to the Company to use any preclinical and clinical data developed by Pharmsynthez,
within the scope of the Pharmsynthez Arrangement, and to engage in further research, development and commercialization of drug candidates outside of certain territories at the
Company’s own expense.
Pharmsynthez directly, and indirectly through its wholly-owned subsidiary, SynBio, LLC (“SynBio”), had a share ownership in the Company of approximately 3.4% of the total
outstanding common stock as of both December 31, 2024 and 2023, respectively. In addition to its common stock ownership, Pharmsynthez owns approximately 1.5 million
shares of our outstanding Series B Preferred Stock (as defined in Note 9, Stockholders’ Equity.)
In August 2011, SynBio and the Company entered into a stock subscription and collaborative development agreement (the “Co-Development Agreement”). The Company
granted an exclusive license to SynBio to develop, market and commercialize certain drug candidates utilizing molecules based on SynBio’s technology and the Company’s
proprietary technologies (PolyXen, OncoHist and ImuXen) in Russia and Commonwealth of Independent States, collectively referred to herein as the SynBio Market. In return,
SynBio granted an exclusive license to the Company to use the preclinical and clinical data generated by SynBio in certain agreed products and to engage in the development of
commercial candidates in any territory outside of the SynBio Market.
SynBio is solely responsible for funding and conducting their own research and clinical development activities. There are no milestone or other research-related payments
provided for under the Co-Development Agreement other than fees for the supply of each company’s respective research supplies based on their technology, which, when
provided, are due to mutual convenience and not representative of an ongoing or recurring obligation to supply research supplies. Upon successful commercialization of any
resultant products, the Company is entitled to receive a 10% royalty on sales in certain territories and pay royalties to SynBio for sales outside those certain territories, subject
to the terms of the Co-Development Agreement. Effective December 20, 2021, SynBio assigned the Co-Development Agreement to Pharmsynthez.
Through December 31, 2024, Pharmsynthez continued to engage in research and development activities with no resultant commercial products. In December 2020,
Pharmsynthez reported positive data from its Phase 3 clinical study of Epolong, a treatment for anemia in patients with chronic kidney disease leveraging the Company’s
PolyXen technology. Pharmsynthez filed a registration dossier to obtain approval in Russia and informed the Company that it has received a response letter indicating certain
deficiencies in the dossier. Pharmsynthez further informed the Company that it developed a gap mitigation strategy and is currently determining next steps. The Company did
not recognize revenue in connection with the Co-Development Agreement during the years ended December 31, 2024 and 2023.
F-14
Serum Institute of India Limited
In August 2011, the Company entered into a collaborative research and development agreement with Serum Institute of India Limited (“Serum Institute”) providing Serum
Institute an exclusive license to use the Company’s PolyXen technology to research and develop one potential commercial product, Polysialylated Erythropoietin. Serum
Institute is responsible for conducting all preclinical and clinical trials required to achieve regulatory approvals within the certain predetermined territories at Serum Institute’s
own expense. Royalty payments are payable by Serum Institute to the Company for net sales to certain customers in the Serum Institute sales territory. There are no milestone
or other research-related payments due under the collaborative arrangement. Serum Institute has informed the Company that it is not actively pursuing this program but may
seek to leverage Pharmsynthez’ trial data and potential Russian marketing authorization to request a waiver for a Phase III clinical trial in India, subject to local regulatory
authority approval. Through December 31, 2024, no commercial products were developed and no royalty revenue or expense was recognized by the Company related to the
arrangement. Serum Institute had a share ownership of less than 1% of the total outstanding common stock of the Company as of each of December 31, 2024 and 2023.
5.
Other Assets
In 2016, the Company entered into an agreement with Serum Institute for the prepayment of clinical polysialic acid (“PSA’) supply in exchange for the Company’s common
stock. As of December 31, 2023 the Company had classified $0.7 million of prepaid clinical supply as long-term as it did not anticipate utilizing the majority of the PSA supply
within the next 12 months. No clinical supply was utilized during the years ended December 31, 2024 and 2023. Long-lived assets to be held and used are tested for impairment
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. While the prepayment remains a valid claim for future PSA supply, the
Company concluded that the following factors indicated that the long-lived asset was impaired: the failure to identify potential third-party partners to develop, sell or license the
PSA technology; a change in both the Company’s management and the Board of Directors (the “Board”); and a decision by the Company and the Board to no longer pursue
development of the PSA supply and allow current patent protection for the PSA technology to lapse. During the year ended December 31, 2024, the Company recorded an asset
impairment charge of $0.7 million, which is presented within research and development expenses in the consolidated statements of operations, representing the excess of the
long-lived asset’s carrying value over its estimated fair value. As a result, there was no clinical supply recorded as of December 31, 2024. No long-lived asset impairment was
recorded during the year ended December 31, 2023.
6.
Accrued Expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
December 31,
2024
December 31,
2023
Accrued payroll and benefits
$
243,396 $
216,547
Accrued professional fees
143,661
233,950
Accrued research costs
189,388
70,000
Other
34,203
48,256
$
610,648 $
568,753
On June 19, 2024, the Company entered into a confidential separation agreement and general release with each of Jeffrey F. Eisenberg, the Company’s former Chief Executive
Officer (the “Eisenberg Separation Agreement”), and Curtis Lockshin, the Company’s former Chief Scientific Officer (together, the “Separation Agreements”) pursuant to
which Messrs. Eisenberg and Lockshin were each eligible for certain severance payments and benefits consistent with the terms of their existing employment agreements as
described under “Employment Agreements with our Named Executive Officers” in our Proxy Statement on Schedule 14A filed by the Company with the SEC on October 31,
2024. In addition, the Eisenberg Separation Agreement provided for accelerated vesting of all of the unvested stock options held by Mr. Eisenberg as of May 16, 2024. During
the year ended December 31, 2024, the Company expensed approximately $0.8 million of accrued payroll and benefits related to the Separation Agreements. In addition, the
Company recorded approximately $13,000 of share-based expense for the accelerated vesting of unvested stock options. As of December 31, 2024, approximately $0.2 million
was accrued within accrued expenses and other current liabilities related to these obligations.
F-15
7.
Fair Value Measurements
ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels
and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Level 1 inputs are quoted prices
in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 utilizes quoted market prices in markets that
are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Level 3 inputs are unobservable inputs for the asset or
liability in which there is little, if any, market activity for the asset or liability at the measurement date. As of December 31, 2024 and December 31, 2023, the carrying amounts
of the Company’s financial instruments approximate fair value due to their short maturities. There were no financial instruments classified as Level 3 in the fair value hierarchy
during the years ended December 31, 2024 and 2023.
8.
Income Taxes
Deferred tax assets and liabilities are determined based on temporary differences resulting from the different treatment of items for tax and financial reporting purposes.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to
reverse. Additionally, the Company must assess the likelihood that deferred tax assets will be recovered as deductions from future taxable income. The Company has provided a
full valuation allowance on the Company’s deferred tax assets because the Company believes it is more likely than not that its deferred tax assets will not be realized. The
Company evaluates the recoverability of its deferred tax assets on a quarterly basis. There was no income tax provision (benefit) for the years ended December 31, 2024 and
2023, as the Company has incurred losses to date.
The components of loss before income taxes are as follows:
Year ended December 31,
2024
2023
Domestic (U.S.)
$
(6,251,785) $
(6,424,969)
Foreign (U.K.)
2,460,945
2,440,857
Foreign (Germany)
(153,332)
(136,977)
Foreign (Switzerland)
(16,103)
(13,489)
Loss before income taxes
$
(3,960,275) $
(4,134,578)
The reconciliation of income tax benefit at the U.S. corporation tax rate, being the rate applicable to the country of domicile of the Company to net income tax benefit, is as
follows:
Year ended December 31,
2024
2023
Federal
$
(831,658) $
(868,261)
State
(311,694)
(373,684)
Change in valuation allowance
1,463,230
1,116,036
Permanent differences, net
122,683
271,546
Foreign rate differential
80,187
81,227
Share-based expense, net
6,495
7,213
Enhanced research and development tax credits
(139,259)
(238,631)
Other items
(389,984)
4,554
Net benefit for income taxes
$
– $
–
F-16
Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:
Year ended December 31,
2024
2023
Deferred tax assets:
U.K. net operating loss carryforwards
$
21,938,273 $
14,664,858
U.K. capital loss carryforwards
1,745,821
1,545,934
U.S. federal net operating loss carryforwards
7,518,011
6,573,614
Switzerland net operating loss carryforwards
13,392
23,868
IPR&D
586,746
8,066,098
Share-based expense
1,979,372
2,235,214
Enhanced research and development tax credits
2,165,119
2,038,421
Germany net operating loss carryforwards
700,617
693,007
Capitalized research and experimental expenditure
1,804,979
1,473,049
U.S. state net operating loss carryforwards
2,468,919
2,142,380
Other
208,288
250,669
Total deferred tax assets before valuation allowance
41,129,537
39,707,112
Valuation allowance for deferred tax assets
(41,129,537)
(39,707,112)
Net deferred tax assets
–
–
Deferred tax liabilities:
Total deferred tax liabilities
–
–
Net deferred liability
$
– $
–
For the years ended December 31, 2024 and 2023, the Company had U.K. net operating loss carryforwards of approximately $89.6 million and $61.3 million, respectively, U.S.
federal net operating loss carryforwards of approximately $35.8 million and $31.3 million, respectively, U.S. state net operating loss carryforwards of approximately $39.1
million and $33.9 million, respectively, Germany net operating loss carryforwards of approximately $2.2 million and $2.2 million, respectively, and Switzerland net operating
loss carryforwards of approximately $0.2 million and $0.3 million, respectively. The U.K. and Germany net operating loss carryforwards can be carried forward indefinitely.
$22.4 million of the U.S. federal net operating loss carryforwards can be carried forward indefinitely, and the remaining U.S. federal and state net operating loss carryforwards
begin to expire in 2031. The Switzerland net operating loss carryforwards begin to expire in 2026.
The Company’s ability to use its operating loss carryforwards and tax credits generated in the U.S. to offset future taxable income is subject to restrictions under Section 382 of
the U.S. Internal Revenue Code (the “Code”). These restrictions may limit the future use of the operating loss carryforwards and tax credits if certain ownership changes
described in the Code occur. Future changes in stock ownership may occur that would create further limitations on the Company’s use of the operating loss carryforwards and
tax credits. In such a situation, the Company may be required to pay income taxes, even though significant operating loss carryforwards and tax credits exist.
The Company’s ability to use its operating loss carryforwards and tax credits generated in the U.K. are subject to restrictions under U.K. tax legislation. These regulations may
limit the future use of operating loss carryforwards (i) if there is a change in ownership and a change in the nature or conduct of the business carried on by the Company, and
(ii) in certain circumstances where there is a change in the nature or conduct of the business only. In such cases the carryforwards would cease to be available to set against
future income.
The Company’s ability to use its operating loss carryforwards and tax credits generated in Germany and Switzerland are also subject to restrictions under German and Swiss tax
legislation. These regulations may limit the future use of operating loss carryforwards if there is a change in ownership. In such cases the carryforwards would cease to be
available to set against future income.
As of December 31, 2024 and 2023, the Company did not record any uncertain tax positions.
The Company files income tax returns in the U.S. federal tax jurisdiction, Massachusetts state tax jurisdiction, and certain foreign tax jurisdictions. The Company is subject to
examination by the U.S. federal, state, foreign, and local income tax authorities for calendar tax years through 2024 due to available net operating loss carryforwards and
research and development tax credits arising in those years. The Company has not been notified of any examinations by the Internal Revenue Service or any other tax
authorities as of December 31, 2024. The Company has not recorded any interest or penalties for unrecognized tax benefits since its inception.
F-17
Potential 382 Limitation
The Company’s net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service. The Company’s ability to utilize
its net operating loss (“NOL”) and research and development credit (“R&D”) carryforwards may be substantially limited due to ownership changes that may have occurred or
that could occur in the future, as required by Section 382 of the Code, as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D
credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined in Section 382 of the Code,
results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50% of the outstanding stock of a company by certain
stockholders or public groups.
The Company has not completed a study to assess whether one or more ownership changes have occurred since it became a loss corporation as defined in Section 382 of the
Code, but the Company believes that it is likely that an ownership change has occurred. If the Company has experienced an ownership change, utilization of the NOL and R&D
credit carryforwards would be subject to an annual limitation, which is determined by first multiplying the value of the Company’s common stock at the time of the ownership
change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any such limitation may result in the expiration of a
portion of the NOL or R&D credit carryforwards before utilization. Until a study is completed, and any limitation known, no amounts are being considered as an uncertain tax
position or disclosed as an unrecognized tax benefit. Any carryforwards that expire prior to utilization as a result of such limitations will be removed from deferred tax assets
with a corresponding adjustment to the valuation allowance. Due to the existence of the valuation allowance, it is not expected that any potential limitation will have a material
impact on the Company’s operating results.
From time to time the Company may be assessed interest or penalties by major tax jurisdictions, namely the Commonwealth of Massachusetts. As of December 31, 2024, the
Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. No interest and penalties have been recognized by the
Company to date.
9.
Stockholders’ Equity
Common Stock
Each share of the Company’s common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled
to dividends when and if declared by the Board of Directors. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of
common stock are entitled to share ratably in the assets of the Company available for distribution.
On May 11, 2023, the Company filed a Certificate of Change to the Company’s Articles of Incorporation with the Secretary of State of Nevada to effect the Reverse Stock Split.
The Reverse Stock Split was effective at 12:01 a.m., Eastern Time, on May 15, 2023. No fractional shares were issued as a result of the Reverse Stock Split and any remaining
share fractions were rounded up to the nearest whole share, resulting in 15,941 new shares of common stock being issued to existing holders of the Company’s common stock.
At the Market (“ATM”) Offering
On November 19, 2021, the Company entered into an ATM Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as the exclusive sales agent
(“Wainwright”), pursuant to which the Company may offer and sell, from time to time through Wainwright, shares of its common stock, par value $0.001 per share. The offer
and sale of the shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus, and is limited to a number of securities the Company can
sell pursuant to General Instruction I.B.6 of Form S-3. In October 2024, the Company filed a new shelf registration statement on Form S-3 (the “2024 Shelf Registration”)
replacing the previously filed shelf registration statement. The ATM Offering was not updated in connection the 2024 Shelf Registration and, as a result, is not currently
effective.
No shares were sold under the ATM Agreement during the years ended December 31, 2024 and 2023. The Company incurred approximately $0.2 million of costs associated
with the ATM offering which were expensed during the year ended December 31, 2023.
F-18
Series A Preferred Stock
The Company has designated 1,000,000 shares as Series A preferred stock with each share having a par value of $0.001 and stated value of $4.80 (the “Series A Preferred
Stock”). During 2023, the holder of the Series A Preferred Stock converted all of their shares into 8,084 shares of Company common stock. As a result, there was no Series A
Preferred Stock outstanding as of both December 31, 2024 and 2023.
Series B Preferred Stock
The Company has designated 2,500,000 shares as Series B preferred stock with each share having a stated value of $4.00 per share (the “Series B Preferred Stock”). The
following is a summary of the material terms of the Company’s Series B Preferred Stock.
Liquidation. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series B Preferred Stock will be entitled to receive distributions
out of the Company’s assets of an amount equal to the stated value per share of Series B Preferred Stock (as adjusted for stock splits, combinations, reorganizations and the
like) plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the amended and restated certificate of
designation before any distributions shall be made on the common stock or any series of preferred stock ranked junior to the Series B Preferred Stock. A fundamental
transaction or change of control under the amended and restated certificate of designation shall constitute a liquidation for purposes of this right. Xenetic will give each holder
of Series B Preferred Stock written notice of any liquidation at least 30 days before any meeting of stockholders to approve such liquidation or at least 45 days before the date
of such liquidation if no meeting is to be held.
Dividends. Subject to any preferential rights of any outstanding series of preferred stock created by the Company’s Board from time to time, the holders of shares of the
Company’s Series B Preferred Stock will be entitled to such cash dividends, non-cumulative, as may be declared from time to time by the Company’s Board on shares of the
Company’s common stock (on an as-converted basis) from funds available therefore. The Company shall not directly or indirectly pay or declare any dividend or make any
distribution upon, nor shall any distribution be made in respect of, any junior securities as long as any dividends due on the Series B Preferred Stock remain unpaid, nor shall
any monies be set aside for or applied to the purchase or redemption of any junior securities or shares pari passu with the Series B Preferred Stock.
Conversion. Series B Preferred Stock is convertible, at any time and from time to time at the option of the holder thereof, at a rate of one preferred share to approximately
0.033 common share basis, subject to an issuable maximum and the adjustments described below. There were no Series B Preferred Stock conversions during the years ended
December 31, 2024 and 2023.
Subsequent Equity Sales. The Series B Preferred Stock has ratchet price based anti-dilution protection, subject to customary carve outs, in the event of a down-round
financing at a price per share below the stated value of the Series B Preferred Stock. There is no bifurcation of the embedded conversion option being clearly and closely related
to the host instrument.
The Series B Preferred Stock has additional terms covering stock dividends and splits, voting rights, fractional shares and fundamental transactions. As of December 31, 2024
and 2023, there were approximately 1.8 million shares of Series B Preferred Stock issued and outstanding which are convertible into approximately 60,000 shares of common
stock in each year, which represents the issuable maximum that can be issued upon the conversion of the currently outstanding Series B Preferred Stock.
Warrants Related to Financing Arrangements
The Company has warrants to purchase approximately 462,963 shares of the Company’s common stock (the “Series A Warrants”) outstanding as of both December 31, 2024
and December 31, 2023. The Series A Warrants are immediately exercisable at a price of $33.00 per share of common stock and expire on February 23, 2025. No Series A
Warrants were exercised or forfeited during the year ended December 31, 2024 and 2023.
The Company also has warrants to purchase approximately 800 shares of the Company’s common stock outstanding as of both December 31, 2024 and December 31, 2023.
These warrants have an exercise price of $29.09 per share of common stock and expire on July 3, 2026. None of these warrants were exercised or forfeited during the years
ended December 31, 2024 and 2023.
F-19
In addition, the Company had publicly traded warrants to purchase approximately 2,100 shares of common stock outstanding as of December 31, 2023. These warrants had an
exercise price of $130.00 per share of common stock and expired on July 19, 2024. The warrants ceased trading on Nasdaq under the symbol “XBIOW” upon expiration. The
warrants also provided that if the weighted-average price of common stock on any trading day on or after 30 days after issuance is lower than the then-applicable exercise price
per share, each warrant may be exercised, at the option of the holder, on a cashless basis for one share of common stock, as adjusted for the Reverse Stock Split. Warrants to
purchase approximately 1,038 shares of common stock were exercised on a cashless, one-for-one basis during the year ended December 31, 2024. None of these warrants were
exercised or forfeited during the year ended December 31, 2023. All of the remaining public warrants outstanding as of July 19, 2024 expired, and no public warrants were
outstanding at December 31, 2024.
10.
Share-Based Expense
Total share-based expense related to stock options, RSUs and common stock awards was approximately $0.2 million and $0.3 million for the years ended December 31, 2024
and 2023, respectively. Share-based expense is classified in the consolidated statements of operations as follows:
Year Ended December 31,
2024
2023
Research and development expenses
$
11,433 $
56,112
General and administrative expenses
160,381
226,973
$
171,814 $
283,085
Stock Options
The Company grants stock option awards and RSUs to employees and non-employees with varying vesting terms under the Xenetic Biosciences, Inc. Amended and Restated
Equity Incentive Plan. The Company measures the fair value of stock option awards using the Black-Scholes option pricing model, which uses the assumptions noted in the
tables below, including the risk-free interest rate, expected term, share price volatility, dividend yield and forfeiture rate. The risk-free interest rate is based upon the U.S.
Treasury yield curve in effect at the time of grant, with a term that approximates the expected life of the option. For stock options issued in 2024 and 2023 that qualify as “plain
vanilla” stock options, the expected term is based on the simplified method. The Company has a limited history of stock option exercises, which does not provide a reasonable
basis for the Company to estimate the expected term of employee and non-employee stock options. For all other stock options, the Company estimates the expected life using
judgment based on the anticipated research and development milestones of the Company’s clinical projects and behavior of the Company’s employees and non-employees. The
expected life of non-employee options is the contractual life of the option.
Employee Stock Options
During the years ended December 31, 2024 and 2023, 30,000 and 57,500 total stock options to purchase shares of common stock were granted by the Company, respectively.
The weighted average grant date fair value per option was $3.41 and $3.49, respectively. No employee stock options were exercised during the years ended December 31, 2024
and 2023. During the year ended December 31, 2024, 32,535 shares having a weighted average grant date fair value of $40.07 per option were forfeited. No employee stock
options were forfeited or expired during the year ended December 31, 2023.
During the years ended December 31, 2024 and 2023, 53,750 and 33,333 total stock options vested, respectively, with total fair values of approximately $0.3 million in both
periods. As of December 31, 2024, there was approximately $0.1 million of unrecognized share-based payments related to employee stock options that are expected to vest. The
Company expects to recognize this expense over a weighted-average period of approximately 2.1 years.
F-20
Key assumptions used in the Black-Scholes option pricing model for options granted to employees during the years ending December 31, 2024 and 2023 are as follows:
Year Ended December 31,
2024
2023
Weighted-average expected dividend yield (%)
–
–
Weighted-average expected volatility (%)
111.50
121.50
Weighted-average risk-free interest rate (%)
4.20
4.21
Weighted-average expected life of option (years)
5.67
5.76
Weighted-average exercise price ($)
4.07
4.00
The following is a summary of employee stock option activity for the years ended December 31, 2024 and 2023:
Number of
shares
Weighted-
average
exercise
price
Weighted-
average
remaining
life
(years)
Aggregate
intrinsic
value
Outstanding as of January 1, 2023
143,888 $
49.43
7.78 $
–
Granted
57,500
4.00
Expired
–
–
Outstanding as of December 31, 2023
201,388 $
36.46
7.69 $
–
Granted
30,000
4.07
Expired
(32,535)
(61.90)
Outstanding as of December 31, 2024
198,853 $
27.41
4.28 $
3,300
Vested or expected to vest as of December 31, 2024
198,853 $
27.41
4.28 $
3,300
Exercisable as of December 31, 2023
133,888 $
52.10
6.69 $
–
Exercisable as of December 31, 2024
166,770 $
31.84
3.28 $
2,567
A summary of the status of the Company’s non-vested employee stock option shares as of December 31, 2024, and the changes during the year ended December 31, 2024, is as
follows:
Number of
shares
Weighted-
average
grant date
fair value
Balance as of January 1, 2024
67,500 $
4.77
Granted
30,000
3.41
Forfeited
(11,667)
(4.32)
Vested
(53,750)
(4.87)
Balance as of December 31, 2024
32,083 $
3.49
Restricted Stock Units
There were 417 RSUs outstanding as of December 31, 2023. The RSUs were fully vested and had a grant date fair value of $253.70 per share. No RSUs were granted or
expired during the years ended December 31, 2024 and 2023. During the year ended December 31, 2024, the Company issued 417 shares of common stock representing the
exercise of all outstanding RSUs. As a result, no RSUs were outstanding at December 31, 2024.
F-21
Non-Employee Stock Options
Share-based expense related to stock options granted to non-employees is recognized as the services are rendered on a straight-line basis. The Company determined that the fair
value of the stock options is more reliably measurable than the fair value of the services received. No non-employee stock options to purchase shares of common stock were
granted or exercised during the years ended December 31, 2024 and 2023. No compensation expense related to non-employee options during the years ended December 31,
2024 and December 31, 2023 as all non-employee stock options were fully vested as of December 31, 2020.
The following is a summary of non-employee stock option activity for the years ended December 31, 2024 and 2023:
Number of
shares
Weighted-
average
exercise
price
Weighted-
average
remaining
life
(years)
Aggregate
intrinsic
value
Outstanding as of January 1, 2023
2,009 $
120.83
1.83 $
–
Granted
–
–
Expired
(84)
231.60
Outstanding as of December 31, 2023
1,925
115.99
0.91
–
Granted
–
–
Expired
(1,672)
50.20
Outstanding as of December 31, 2024
253 $
550.80
0.68 $
–
Vested or expected to vest as of December 31, 2024
253 $
550.80
0.68 $
–
Exercisable as of December 31, 2023
1,925 $
115.99
0.91 $
–
Exercisable as of December 31, 2024
253 $
550.80
0.68 $
–
Common Stock Awards
The Company has granted common stock awards to non-employees in exchange for services provided. The Company measures the fair value of these awards using the fair
value of the services provided or the fair value of the awards granted, whichever is more reliably measurable. The fair value measurement date of these awards is generally the
date the performance of services is complete. The fair value of the awards is recognized as services are rendered on a straight-line basis. No common stock awards were granted
or issued during the years ended December 31, 2024 and 2023.
Joint Share Ownership Plan
As of December 31, 2024 and 2023, there were approximately 2,701 JSOP awards issued and outstanding to two former senior executives. Under the JSOP, shares in the
Company are jointly purchased at fair market value by the participating executives and the trustees of the JSOP trust, with such shares held in the JSOP trust. For U.S. GAAP
purposes the awards were valued as employee options and recorded as a reduction in equity as treasury shares until they are exercised by the employee. The JSOP awards are
fully vested and have no expiration date. There were no compensation charges during the years ended December 31, 2024 and 2023.
11.
Employee Benefit Plans
The Company has a defined contribution 401(k) savings plan (the “401(k) Plan”). The 401(k) Plan covers substantially all U.S. employees, and allows participants to defer a
portion of their annual compensation on a pre-tax basis or make post-tax contributions. Company contributions to the 401(k) Plan may be made at the discretion of the Board of
Directors. During the years ended December 31, 2024 and 2023, the Company made contributions of approximately $31,000 and $41,000 to the 401(k) Plan, respectively.
F-22
12.
Commitments and Contingencies
Leases
The Company determines whether an arrangement is a lease at inception. The Company leases office space in a shared office location in Framingham, Massachusetts. As this
lease had a term of 6 months at inception, the Company did not apply the provisions of ASU 2016-02 and will account for it as an operating lease. As of December 31, 2024,
total minimum lease payments on this lease were approximately $3,000.
The Company did not apply the provisions of ASU 2016-02 to the lease of its office space in Miami, Florida as this lease had a term of 12 months at inception. As a result, the
Company accounts for it as an operating lease. This lease was terminated in November 2024 and no further minimum lease payments are due.
Letter of Credit
As of December 31, 2024, the Company has an outstanding letter of credit of approximately $0.1 million in support of an intercompany loan with its Hesperix subsidiary. As
the intercompany loan is eliminated in consolidation, the letter of credit has no effect on the consolidated financial statements.
13.
Related Party Transactions
The Company has entered into various research, development, license and supply agreements with Serum Institute and Pharmsynthez, each a related party whose relationship,
ownership, and nature of transactions is disclosed within other sections of these footnotes. Please refer to Note 4, Significant Strategic Collaborations, and Note 5, Other
Assets, for details on arrangements with collaboration partners that are also related parties.
During the fourth quarter of 2019, the Company entered into a loan agreement with Pharmsynthez (the “Pharmsynthez Loan”), pursuant to which the Company advanced
Pharmsynthez an aggregate principal amount of up to $500,000 to be used for the development of a specific product under the Company’s Co-Development Agreement with
Pharmsynthez. The Pharmsynthez Loan had an initial term of 15-months and accrued interest at a rate of 10% per annum. The Pharmsynthez Loan was guaranteed by all of the
operating subsidiaries of Pharmsynthez, including SynBio and AS Kevelt, and was secured by all of the common and preferred stock of the Company owned by Pharmsynthez
and SynBio.
Pharmsynthez paid all obligations due under the Pharmsynthez Loan in May 2023, and no further amounts are due under the Pharmsynthez Loan. As a result, no amounts were
outstanding as of December 31, 2024 and December 31, 2023. The Company did not recognize any interest income related to the Pharmsynthez Loan during the year ended
December 31, 2024. The Company recognized approximately $65,000 of income related to interest and fees associated with the Pharmsynthez Loan including approximately
$40,000 related to interest income during the twelve months ended December 31, 2023.
During the fourth quarter of 2024, the Company entered into a clinical trial services agreement with PeriNess Ltd. (“PeriNess”) to advance the Company’s development
program for its systemic DNase I technology in Israeli medical centers. One of our directors, Dr. Dmitry Genkin, is a significant shareholder of PeriNess and another of our
directors, Mr. Moshe Mizrahy, is a majority shareholder and director of PeriNess. The Company expensed approximately $50,000 related to this agreement during the year
ended December 31, 2024. As of December 31, 2024, approximately $45,000 was recorded as an advanced payment and included in Prepaid expenses and other on the
December 31, 2024 consolidated balance sheet.
14.
Subsequent Events
The Company performed a review of events subsequent to the balance sheet date through the date the financial statements were issued and determined that there were no such
events requiring recognition or disclosure in the financial statements.
F-23
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by
this Annual Report on Form 10-K.
Based on this evaluation our management, including our Interim Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2024, our disclosure
controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports
that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions,
as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. Management, under the supervision and with the participation of our Interim Chief Executive Officer and Chief Financial Officer, conducted an assessment of the design
and effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form 10-K. In making its assessment of internal
control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal
Control — Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of the end of the period covered by this Annual Report on
Form 10-K, our internal control over financial reporting was effective based on the criteria set forth by COSO of the Treadway Commission in Internal Control — Integrated
Framework.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was
not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarterly period covered by this Annual Report on Form 10-K that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives. The Company’s internal control over financial reporting includes those policies and procedures
that:
(1)
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;
(2)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and
directors; and
(3)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a
material effect on the financial statements.
57
Management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, does not expect that the Company’s
internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control
issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls
may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ITEM 9B – OTHER INFORMATION
During the quarter ended December 31, 2024, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as
each term is defined in Item 408(a) of Regulation S-K.
ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
58
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be set forth in the Company’s definitive proxy statement or information statement to be filed with the SEC in connection with the
Company’s 2025 Annual Meeting of Stockholders within 120 days of the end of the Company’s fiscal year ended December 31, 2024 and is incorporated herein by reference,
or will be included in an amendment to this Annual Report on Form 10-K.
ITEM 11 – EXECUTIVE COMPENSATION
The information required by this Item will be set forth in the Company’s definitive proxy statement or information statement to be filed with the SEC in connection with the
Company’s 2025 Annual Meeting of Stockholders within 120 days of the end of the Company’s fiscal year ended December 31, 2024 and is incorporated herein by reference,
or will be included in an amendment to this Annual Report on Form 10-K.
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be set forth in the Company’s definitive proxy statement or information statement to be filed with the SEC in connection with the
Company’s 2025 Annual Meeting of Stockholders within 120 days of the end of the Company’s fiscal year ended December 31, 2024 and is incorporated herein by reference,
or will be included in an amendment to this Annual Report on Form 10-K.
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be set forth in the Company’s definitive proxy statement or information statement to be filed with the SEC in connection with the
Company’s 2025 Annual Meeting of Stockholders within 120 days of the end of the Company’s fiscal year ended December 31, 2024 and is incorporated herein by reference,
or will be included in an amendment to this Annual Report on Form 10-K.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be set forth in the Company’s definitive proxy statement or information statement to be filed with the SEC in connection with the
Company’s 2025 Annual Meeting of Stockholders within 120 days of the end of the Company’s fiscal year ended December 31, 2024 and is incorporated herein by reference,
or will be included in an amendment to this Annual Report on Form 10-K.
59
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following is filed as part of this Annual Report on Form 10-K:
·
Consolidated Financial Statements: The consolidated financial statements and report of independent registered public accounting firm required by this item are
included in Part II, Item 8;
·
Financial Statement Schedules: All schedules are omitted because they are not applicable or not required, or because the required information is shown either in
the consolidated financial statements or in the notes thereto.
(b)
Exhibits: The exhibits which are filed or furnished with this Annual Report on Form 10-K or which are incorporated herein by reference are set forth in the Exhibit
Index beginning on page 60 which is incorporated herein by reference.
ITEM 16 – FORM 10-K SUMMARY
Not applicable.
EXHIBIT INDEX
Exhibit
No.
Exhibit Index
Form
Filing Date
Exhibit
Number
Filed
Herewith
3.1
Articles of Incorporation
S-1
11/21/2011
3.1
3.2
Certificate of Amendment to Articles of Incorporation
8-K
02/12/2013
3.1
3.3
Certificate of Amendment to Articles of Incorporation
8-K
02/27/2013
3.1
3.4
Certificate of Amendment to Articles of Incorporation
10-Q
01/10/2014
3.1
3.5
Certificate of Change Pursuant to NRS 78.209
10-Q
01/10/2014
3.2
3.6
Certificate of Amendment to Articles of Incorporation
8-K
09/30/2015
3.1
3.7
Amended and Restated Bylaws
8-K
02/27/2017
3.1
3.9
Second Amended and Restated Certificate of Designation of Preferences, Rights and
Limitations of Series B Preferred Stock
S-1/A
10/31/2016
3.9
3.10
Certificate of Change Pursuant to NRS 78.209
8-K
06/24/2019
3.1
3.11
Certificate of Amendment to Articles of Incorporation
8-K
06/24/2019
3.2
3.12
Certificate of Amendment to Articles of Incorporation
10-K
03/16/2021
3.12
3.13
Certificate of Amendment to Articles of Incorporation
10-K
03/16/2021
3.13
3.14
Certificate of Amendment to Articles of Incorporation
10-K
03/22/2023
3.14
3.15
Certificate of Change to Articles of Incorporation
8-K
05/12/2023
3.1
4.1
Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
X
4.2
Form of Common Stock Certificate of the Registrant
S-1/A
07/14/2016
4.1
4.3
Form of Common Stock Purchase Warrant
8-K
06/25/2019
4.1
4.5
Form of Series A Warrant
8-K
07/28/2021
4.1
60
Exhibit
No.
Exhibit Index
Form
Filing Date
Exhibit
Number
Filed
Herewith
10.1†
Form of Amended and Restated Xenetic Biosciences, Inc. Equity Incentive Plan, as
amended, effective as of December 7, 2021
DEF14A
10/15/2021
Appendix A
10.2#
Agreement on Co-Development and the Terms of Exclusive License dated August 4,
2011 between Lipoxen plc, Lipoxen Technologies LTD and SynBio LLC
10-K/A
02/18/2015
10.18
10.3
Novation of Agreement on Co-Development and the Terms of Exclusive License, dated
December 17, 2021, between Xenetic Biosciences (UK) Limited (formerly Lipoxen plc),
Lipoxen Technologies Limited, SynBio LLC and Public Joint-Stock Company
Pharmsynthez
10-K
03/22/2022
10.3
10.4##
Exclusive License Agreement, dated December 20, 2021, between Lipoxen Technologies
Limited and Public Joint-Stock Company Pharmsynthez
10-K
03/22/2022
10.4
10.5#
Subscription Agreement in respect of ordinary shares in the capital of Lipoxen plc dated
August 4, 2011 between SynBio LLC and Lipoxen plc
10-K/A
02/18/2015
10.19
10.6#
Collaboration, License and Development Agreement, dated November 11, 2009, between
Pharmsynthez ZAO and Lipoxen Technologies Ltd.
10-K/A
02/18/2015
10.20
10.7#
Exclusive Patent and Know How License and Manufacturing Agreement, dated August 4,
2011, between Lipoxen plc, Lipoxen Technologies Ltd and Serum Institute of India
Limited
10-K/A
02/18/2015
10.21
10.8
Intellectual Property Assignment between Dmitry Genkin, FDS Pharma, Lipoxen
Technologies Limited and Xenetic Biosciences Inc.
10-K
04/15/2015
10.1
10.9†
Employment Agreement, dated March 23, 2017 between Xenetic Biosciences, Inc. and
James F. Parslow
8-K
04/04/2017
10.1
10.10†
Amendment to Employment Agreement, dated June 18, 2024, between James F. Parslow
and Xenetic Biosciences, Inc.
10-Q
08/13/2024
10.3
10.11†
Form of Indemnity Agreement by and between Xenetic Biosciences, Inc. and each of its
directors and executive officers
10-Q
08/14/2017
10.1
10.12†
Confidential Separation Agreement and General Release, dated June 19, 2024, between
Jeffrey Eisenberg and Xenetic Biosciences, Inc.
10-Q
08/13/2024
10.1
10.13†
Confidential Separation Agreement and General Release, dated June 19, 2024, between
Curtis Lockshin and Xenetic Biosciences, Inc.
10-Q
08/13/2024
10.2
10.14#
Right to Sublicense Agreement, dated October 27, 2017, by and among Xenetic
Biosciences, Inc., Baxalta Incorporated, Baxalta US Inc., and Baxalta GmbH
10-K
03/30/2018
10.46
10.15
Assignment Agreement between Xenetic Biosciences, Inc. and OPKO Pharmaceuticals,
LLC, dated March 1, 2019
8-K/A
05/20/2019
10.1
10.16
First Amendment to Assignment Agreement dated June 7, 2019
8-K
06/13/2019
10.1
10.17
Second Amendment to Assignment Agreement dated June 24, 2019
8-K
06/24/2019
10.1
10.18
Third Amendment to Assignment Agreement dated July 15, 2019
8-K
07/16/2019
10.1
10.19
Form of Consent Agreement by and among Xenetic Biosciences, Inc. and certain
purchasers dated June 24, 2019
8-K
06/25/2019
10.1
10.20
Consent Agreement by and among Xenetic Biosciences, Inc. and certain purchasers dated
July 16, 2019
8-K
07/16/2019
10.1
10.21†
Form of Letter Agreement re. Appointment of Non – Employee, Independent Director of
Xenetic Biosciences, Inc.
10-K
03/26/2020
10.51
10.22†
Form of Xenetic Biosciences, Inc. Stock Option Grant Notice
10-K
03/26/2020
10.52
10.23†
Xenetic Biosciences, Inc. Stock Option Grant Notice, dated December 4, 2019, between
Jeffrey Eisenberg and Xenetic Biosciences, Inc.
10-K
03/26/2020
10.53
61
Exhibit
No.
Exhibit Index
Form
Filing Date
Exhibit
Number
Filed
Herewith
10.24##
Exclusive Sublicense Agreement, dated April 26, 2022, between Xenetic Biosciences, Inc.
and CLS Therapeutics LTD
10-Q
8/11/2022
10.1
10.25##
Exclusive License Agreement, dated April 26, 2022, between Xenetic Biosciences, Inc. and
CLS Therapeutics LTD
10-Q
8/11/2022
10.2
10.26
Form of Subscription Agreement, dated April 26, 2022, between Xenetic Biosciences, Inc.
and CLS Therapeutics LTD
10-Q
8/11/2022
10.3
10.27##
Statement of Work, dated June 30, 2022, between Xenetic Biosciences, Inc. and Catalent
Pharma Solutions, LLC
10-Q
8/11/2022
10.4
10.28##
Research Funding and Option Agreement, dated March 17, 2023, between the Company
and the Scripps Research Institute
10-Q
5/11/2023
10.1
10.29
First Amendment to Research Funding and Option Agreement, dated June 1, 2024, between
Xenetic Biosciences, Inc. and the Scripps Research Institute
X
10.30##
Second Amendment to Research Funding and Option Agreement, dated November 1, 2024,
between Xenetic Biosciences, Inc. and the Scripps Research Institute
X
10.31##
Consulting Agreement, dated January 1, 2025, between Xenetic Biosciences, Inc. and
Dmitry Genkin
X
19.1
Insider Trading Policy and Procedures
X
21.1
List of Subsidiaries
X
23.1
Consent of Marcum LLP
X
24.1
Power of Attorney (included on signature page)
X
31.1
Certification of Principal Executive Officer, as required by Rule 13a-14(a) or Rule 15d-
14(a)
X
31.2
Certification of Principal Financial Officer, as required by Rule 13a-14(a) or Rule 15d-
14(a)
X
32.1*
Certification of Principal Executive Officer and Principal Financial Officer, as required by
Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the United
States Code (18 U.S.C. §1350)
X
97.1
Policy Regarding the Mandatory Recovery of Compensation
10-K
3/21/2024
97.1
101.INS
Inline XBRL Instance Document.
X
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
X
101.PRE
Inline XRBL Taxonomy Extension Presentation Linkbase Document.
X
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
X
†
#
##
Indicates a management contract or any compensatory plan, contract or arrangement.
Application has been made with the Securities and Exchange Commission to seek confidential treatment of certain confidential material contained in this document.
Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.
Portions of this exhibit, marked by brackets and asterisks, have been omitted pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act of 1933, as amended,
because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. The registrant undertakes to promptly provide an
unredacted copy of the exhibit on a supplemental basis, if requested by the Commission or its staff.
*
This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor
shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
XENETIC BIOSCIENCES, INC.
Date: March 18, 2025
By:
/s/ JAMES PARSLOW
James Parslow
Interim Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Xenetic Biosciences, Inc., hereby severally constitute and appoint James Parslow, our true and lawful attorney, with full
power to him, to sign for us in our names in the capacities indicated below, all amendments to this report, and generally to do all things in our names and on our behalf in such
capacities to enable Xenetic Biosciences, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities indicated below on the 18th day of March, 2025.
Signature
Title(s)
/s/ JAMES PARSLOW
Interim Chief Executive Officer and Chief Financial Officer
James Parslow
(Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer)
Date: March 18, 2025
/s/ GRIGORY BORISENKO
Director
Grigory Borisenko
Date: March 18, 2025
/s/ FIRDAUS JAL DASTOOR
Director
Firdaus Jal Dastoor
Date: March 18, 2025
/s/ DMITRY GENKIN
Director
Dmitry Genkin
Date: March 18, 2025
/s/ ROGER KORNBERG
Director
Roger Kornberg
Date: March 18, 2025
/s/ MOSHE MIZRAHY
Director
Moshe Mizrahy
Date: March 18, 2025
/s/ ALEXEY VINOGRADOV
Director
Alexey Vinogradov
Date: March 18, 2025
63
Exhibit 4.1
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12
OF THE SECURITIES EXCHANGE ACT OF 1934
When used herein, the terms the “Company”, “we,” “our,” and “us” refer to Xenetic Biosciences, Inc.
The following summary describes our capital stock and the material provisions of our articles of incorporation, as amended, and our amended and restated bylaws. Because the
following is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our articles of
incorporation, as amended, and our amended and restated bylaws, copies of which are incorporated by reference as exhibits to our Annual Report on Form 10-K.
DESCRIPTION OF CAPITAL STOCK
Our charter provides that we may issue up to 10,000,000 shares of common stock, $0.001 par value per share (the “Common Stock”), and 10,000,000 shares of preferred stock,
$0.001 par value per share, 1,000,000 of which are designated as Series A Preferred Stock, 2,500,000 of which are designated as Series B Preferred Stock, and 6,500,000 of
which shares of preferred stock are undesignated. Under Nevada law, stockholders are not generally liable for our debts or obligations.
DESCRIPTION OF COMMON STOCK
Voting Rights
Common Stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or
provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our Common Stock will possess all voting power.
Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all
shares of our Common Stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Our stockholders do not
have cumulative voting rights in the election of directors. Holders of our Common Stock representing 50% of our capital stock issued, outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is
required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our charter.
Dividends
Subject to the preferential rights of any other class or series of shares of stock created from time to time by our board of directors from time to time, the holders of shares of our
Common Stock will be entitled to such cash dividends, non-cumulative, as may be declared from time to time by our board of directors from funds available therefore. We will
not pay any dividends on shares of Common Stock (other than dividends in the form of Common Stock) unless and until such time as we pay dividends on our preferred stock
on an as-converted basis.
Liquidation
Subject to the preferential rights of any other class or series of shares of stock created from time to time by our board of directors, upon liquidation, dissolution or winding up,
the holders of shares of our Common Stock will be entitled to share ratably in the assets of the Company available for distribution to such holders.
1
Rights and Preferences
In the event of any merger or consolidation with or into another company in connection with which shares of our Common Stock are converted into or exchangeable for shares
of stock, other securities or property (including cash), all holders of our Common Stock will be entitled to receive the same kind and amount of shares of stock and other
securities and property (including cash). Holders of our Common Stock have no pre-emptive, conversion, subscription or other rights and there are no redemption or sinking
fund provisions applicable to our Common Stock. The rights, preferences and privileges of the holders of our Common Stock are subject to and may be adversely affected by
the rights of the holders of shares of any series of our preferred stock that we may designate in the future.
Fully Paid and Nonassessable
All of our outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable.
Exchange Listing
Our Common Stock is traded on the Nasdaq Capital Market under the trading symbol “XBIO.”
ANTI-TAKEOVER EFFECTS
Certain provisions of the Company’s articles of incorporation, as amended, the Company’s amended and restated bylaws, and the Nevada Revised Statutes (the “NRS”) may be
deemed to have an anti-takeover effect. Such provisions may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in that
stockholder’s best interests, including attempts that might result in a premium over the market price for the shares held by stockholders.
The NRS permits, if authorized by the Company’s articles of incorporation, as amended, the issuance of blank check preferred stock with preferences, limitations and relative
rights determined by a corporation’s board of directors without stockholder approval.
The Company’s articles of incorporation, as amended, currently authorizes the issuance of blank check preferred stock, of which 6,500,000 preferred shares are available for
future issuance in one or more series to be issued from time to time.
The Company has opted out of NRS 78.411 to 78.444, which prohibits Nevada corporations from engaging in any “combination” with an “interested stockholder” for a period
of two years following the date that the stockholder became an “interested stockholder” unless prior to that time the Board of Directors of the corporation approved either the
“combination” or the transaction which resulted in the stockholder becoming an “interested stockholder.”
Each of the foregoing may have the effect of preventing or rendering more difficult or costly, the completion of a takeover transaction that stockholders might view as being in
their best interests.
2
Exhibit 10.29
FIRST AMENDMENT to RESEARCH FUNDING AND OPTION AGREEMENT
THIS FIRST AMENDMENT (the “Amendment”), effective as of June 1st, 2024 (“Amendment Effective Date”), is by and between the THE SCRIPPS RESEARCH
INSTITUTE, a California nonprofit public benefit corporation with offices at 10550 North Torrey Pines Road, La Jolla, California 92037 (“TSRI”), and XENETIC
BIOSCIENCES INC., a for-profit entity with offices at 945 Concord Street, Framingham, Massachusetts 01701 (“Sponsor”). Each of TSRI and Sponsor shall also herein be
referred to as a “Party” and together as the “Parties”.
RECITALS
WHEREAS, the Parties entered into a research funding and option agreement for the laboratory of Dr. Alexey Stepanov effective March 10, 2023 (the “Agreement”)
covering “the use of CAR-T cells and/or DNase with or without a therapeutic agent or targeting agent for the treatment of a disease or syndrome”;
WHEREAS, the Parties desire to amend the Agreement to extend the Term until October 31, 2024;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises made herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree to amend the Agreement as follows:
1.
Section 7.1 (“Term”) in the Agreement is hereby deleted in its entirety and replaced with the following:
“Term. This Agreement shall expire on October 31, 2024.”
2.
No other amendment. Except as expressly amended hereby, the provisions of the Agreement shall remain in full force and effect. Any terms defined in the Agreement
shall have the same meanings in this Amendment.
3.
Counterparts. This Amendment may be signed in multiple counterparts, each of which shall be deemed to be an original, and all of which taken together shall
constitute one and the same instrument. The Parties may sign and deliver this Amendment by electronic mail in portable document format (PDF) form, and a
reproduction of this Amendment made by PDF will have the same effect as a signed and delivered original version.
1
IN WITNESS WHEREOF, TSRI and Sponsor have caused this first Amendment to be executed by their respective duly authorized officers.
XENETIC BIOSCIENCES INC.
THE SCRIPPS RESEARCH INSTITUTE
By: /s/ James Parslow
By: /s/ William Marrs
Name: James Parslow
Name: William Marrs
Title: Chief Financial Officer
Title: Director of Licensing
Date: May 29, 2024
Date: 5/31/2024
2
Exhibit 10.30
CERTAIN INFORMATION IDENTIFIED IN THIS DOCUMENT, MARKED BY BRACKETS AND ASTERISKS (“[***]”), HAS BEEN EXCLUDED PURSUANT
TO ITEM 601(B)(10) OF REGULATION S-K UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BECAUSE IT IS (I) NOT MATERIAL AND (II) WOULD
LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.
SECOND AMENDMENT TO
RESEARCH FUNDING AND OPTION AGREEMENT
This Second Amendment to that certain Research Funding and Option Agreement (the “Second Amendment”) is entered into as of November 1st, 2024 (the “Second
Amendment Effective Date”) by and between The Scripps Research Institute, a California nonprofit public benefit corporation located at 10550 North Torrey Pines Road,
La Jolla, California 92037 (“TSRI”), and Xenetic Biosciences Inc., a for-profit entity with offices located at 945 Concord Street, Framingham, Massachusetts 01701
(“Sponsor”).
Recitals
Whereas, TSRI and Sponsor entered into that certain Research Funding and Option Agreement dated March 10, 2023, and that certain First Amendment dated June
1st, 2024, (together the “Agreement”);
Whereas, TSRI and Sponsor wish to amend the Agreement in the manner set forth in this Second Amendment.
Agreement
Now Therefore, in consideration of the mutual promises set forth, the parties hereto agree as follows:
1.
Term. The term of the Agreement shall be extended by twelve (12) months from the Second Amendment Effective Date.
2.
Payments. The following payments shall be added to Section 2.4(a):
13th payment: $65,000.00 Due: Second Amendment Effective Date
14th payment: $65,000.00 Due: 1 month after Second Amendment Effective Date
15th payment: $65,000.00 Due: 2 months after Second Amendment Effective Date
16th payment: $65,000.00 Due: 3 months after Second Amendment Effective Date
17th payment: $65,000.00 Due: 4 months after Second Amendment Effective Date
18th payment: $65,000.00 Due: 5 months after Second Amendment Effective Date
The Parties agree and understand that this Second Amendment provides for a total of six payments to TSRI by Sponsor and that no other payments shall be due during the
twelve months term of this Agreement as set forth in the Statement of Work (“SOW”) attached hereto as Exhibit A.
3.
Full Force and Effect. Except as specifically amended by this Second Amendment, the terms and conditions of the Agreement shall remain in full force and effect.
4.
Counterparts. This Second Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
In Witness Whereof, the parties have executed this Second Amendment as of the Second Amendment Effective Date.
The Scripps Research Institute
Xenetic Biosciences Inc.
By: /s/ Will Marrs
By: /s/ Jim Parslow
Name: Will Marrs
Name: Jim Parslow
Title: Director of Licensing
Title: Chief Executive Officer
1
Exhibit A
Statement of Work
Month
1
2
3
4
5
6
7
8
9
10
11
12
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
Payments
$65,000 $65,000 $65,000 $65,000 $65,000 $65,000
$0
$0
$0
$0
$0
$0
2
Exhibit 10.31
CERTAIN INFORMATION IDENTIFIED IN THIS DOCUMENT, MARKED BY BRACKETS AND ASTERISKS (“[***]”), HAS BEEN EXCLUDED PURSUANT
TO ITEM 601(B)(10) OF REGULATION S-K UNDER THE SECURITIES ACT OF 1933, AS AMENDED, BECAUSE IT IS (I) NOT MATERIAL AND (II) WOULD
LIKELY CAUSE COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.
CONFIDENTIAL
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the “Agreement”), made this 1st day of January, 2025 (the “Engagement Date”) is entered into by Xenetic Biosciences, Inc., a
Nevada Corporation (the “Company”), with an address of 945 Concord Street, Framingham, MA 01701, and Dmitry Genkin, an individual with an address of [***], hereafter
referred to (“Consultant”).
INTRODUCTION
The Company desires to retain the services of Consultant as a consultant to the Company, and Consultant desires to serve as a consultant to the Company. For good
and valuable consideration, the parties agree as follows:
1. Services.
(a) Consultant agrees to provide consulting services relating to the Company’s DNase-based oncology therapeutic programs, as more particularly
described in Exhibit A attached hereto and to assist the Company in completing the Key Performance Indicators (KPI’s) as set forth in Exhibit B. The services set forth in
Exhibit A and the KPI’s set forth in Exhibit B shall constitute obligations to be completed by Consultant (the “Services”). In carrying out the Services, Consultant shall work at
and under the direction of the Company’s Chief Executive Officer. Consultant shall provide additional services and advice to the Company as reasonably requested from time to
time by the Company’s CEO relating to Consultant’s areas of experience or expertise, in particular with respect to the DNase technology for use in cancer (which shall also be
included as “Services”). Consultant shall report to the Company’s Scientific Steering Committee at each regularly scheduled meeting of said committee. In addition, the
Consultant will provide an update on the services delivered and progress toward the KPI’s on a quarterly basis to the Company’s Audit Committee.
(b) If Consultant has a conflict of interest, or potential conflict of interest, with respect to any matter put forth to him as part of his consultancy,
Consultant shall identify to the Company the area where he has a conflict of interest and if requested by the Company, Consultant shall recuse himself from working on such
matters on behalf of the Company and shall recuse himself from the discussion of such matters with any representative of the Company. Further, Consultant shall provide the
Company with written notice related to any potential future engagement which Consultant is interested in pursuing to the extent such engagement results in a potential conflict
of interest with the work of Consultant on behalf of the Company and if such engagement is determined by the Company as resulting in a conflict of interest with the Company,
Consultant shall not enter into the engagement without the prior written consent of the Company.
(c) Consultant agrees to use commercially reasonable efforts to perform the Services. The delivery by Consultant of the Services shall be at such
times and such locations as Consultant and the Company agree is necessary.
2. Term; Termination. This Agreement shall commence on the Engagement Date and shall terminate one (1) year thereafter (the “Consultation Period”), with
the Consultation Period extendable by the written agreement of Consultant and the Company. Either party to this Agreement may at any time, with or without cause, and
without prejudice to any right or remedy he or it may have due to any failure of the other party to perform his or its obligations under this Agreement, terminate the
Consultation Period upon thirty (30) days prior written notice to the other party. The provisions of Sections 6 through 9 of this Agreement shall survive the expiration or
termination of this Agreement.
3. Compensation and Expenses.
(a) Consultant’s compensation for the Services shall be at a rate of $500/hour for up to sixty (60) hours billable work in any month, with a maximum
monthly payment to Consultant not to exceed the amount of thirty thousand dollars ($30,000).
1
(b) Consultant shall provide to Company an invoice for the amount owed for the Services provided by Consultant for the prior month within five (5)
business days of the end of the prior month and Company shall pay such invoice within thirty (30) days following receipt of the invoice. Payment shall be made by wire, ACH
or check at the convenience of the Company.
(c) In accordance with and subject to the Company’s normal group expense reimbursement policies and subject in each case to the Company’s prior
written approval, Consultant shall be reimbursed for all actual, reasonable and direct expenses he has incurred in the performance of his duties hereunder. All expense
reimbursement approvals shall be subject to submission of appropriate documentation as prescribed by the Company’s expense policy.
4. Securities Law Compliance. Consultant shall comply with all applicable federal and state securities laws, including any insider reporting obligations, in
connection with his ownership of shares of the Company.
5. Confidentiality.
(a) Consultant acknowledges that his relationship with the Company is one of high trust and confidence and that in the course of his service to the
Company he will have access to and contact with confidential and proprietary information of the Company (“Proprietary Information”), including inventions, patentable and
otherwise, made by the Company (“Company Inventions”). Consultant agrees that he will not, during the Consultation Period or at any time thereafter, disclose to others, or use
for his benefit or the benefit of himself or others, any Proprietary Information or Company Inventions. This shall include, but not be limited to, all Company data, literature and
information in any form that has been, or will be, shared with Consultant, whether or not it is expressly marked confidential or proprietary. Nothing in this Agreement shall be
construed, by implication, estoppel, or otherwise, as granting Consultant any rights to any such Proprietary Information or Company Inventions (collectively, “Xenetic
Property”), even if such Xenetic Property arises in connection with Consultant’s activities under this Agreement. Any contribution Consultant may make to any research,
technology, formulation, or development of the business of the Company related to Consultant’s activities under this Agreement shall be deemed “Xenetic Property” and
Consultant hereby assigns to the Company all right, title and interest he may have to such contributions.
(b) Upon termination of this Agreement or at any other time upon request by the Company, Consultant shall promptly deliver to the Company all
documents and materials received by Consultant embodying Proprietary Information.
(c) Consultant represents that his retention as a consultant with the Company and his performance under this Agreement does not, and shall not,
breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party or to refrain from
competing, directly or indirectly, with the business of any other party.
(d) Consultant shall not disclose to the Company any trade secrets or confidential or proprietary information of any other party.
(e) Consultant recognizes that the Company has received, and in the future will receive, from third parties their confidential or proprietary
information subject to a duty of the Company to maintain the confidentiality of such information and to use it only for certain limited purposes. Consultant agrees to hold all
confidential or proprietary information that he has received through his consultancy on behalf of the Company in the strictest confidence and he shall not disclose it to any
person, firm, or corporation or to use it except as necessary in carrying out his/her work for the Company consistent with the Company's agreements or other arrangements with
any such third parties.
(f) Consultant agrees that he will not, during his engagement by the Company, improperly use or disclose any confidential or proprietary
information, including, but not limited to the trade secrets of any former or concurrent employer or other person or entity for whom he has worked in the past, for whom he is
now working and for whom he may work during the term of his employment with the Company; that Consultant will not bring onto the premises of the Company or utilize for
the benefit of the Company any unpublished document or confidential or proprietary information or property belonging to any such employer, person or entity unless consented
to in writing by such employer, person or entity; and that Consultant shall not infringe upon the intellectual property rights of any third party while consulting on behalf of the
Company.
2
(g) Consultant is aware of the restrictions imposed by the United States securities laws on the purchase or sale of securities by any person who has
received material, non-public information from the Company and on the communication of such information to any other person when it is reasonably foreseeable that such
other person is likely to purchase or sell such securities in reliance upon such information, and acknowledges that he may be in receipt of material, non-public information in
connection with the performance of the Services.
(h) The obligation of confidentiality shall remain in effect until the date that is ten (10) years from the effective date of termination of this
Agreement.
6. Independent Contractor Status. Consultant shall perform the Services under this Agreement as an “Independent Contractor” and not as an employee or
agent of the Company. Consultant is not authorized to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of, the Company or to
bind the Company in any manner. Consultant is solely responsible for ensuring that the Services provided hereunder will be provided in compliance with applicable laws and
regulations, including laws and regulations relating to employment and taxation. Consultant will be solely responsible for all withholding and payment of taxes and similar
charges related to the compensation paid hereunder, as well as any applicable insurance, including but not limited to any worker’s compensation. The Company will report all
payments to Consultant hereunder via a Form 1099. Consultant acknowledges and agrees, and it is the intent of the parties hereto, that Consultant receives no benefits from the
Company, either as an independent contractor or employee. If Consultant is reclassified by a state or federal agency or court as an employee for tax or other purposes,
Consultant will become a non-benefit employee and will receive no benefits from the Company, except those mandated by state or federal law, even if by the terms of the
benefit plans or programs of the Company in effect at the time of such reclassification Consultant would otherwise be eligible for such benefits.
7. Intellectual Property. Consultant acknowledges that all patents, trademarks, service marks, tradenames, copyrights, trade secrets, licenses, domain names,
information and proprietary rights and processes owned by the Company or any of its affiliates (the “Intellectual Property”) are and will remain the property of the Company or
such affiliate. Consultant shall have no right, title or interest in or to the Intellectual Property except those rights expressly granted to Consultant by the Company or any
affiliate of the Company. Consultant agrees that all Intellectual Property and Xenetic Property, including marketing, operating and training ideas, sourcing data, processes and
materials, including all inventions, discoveries, improvements, enhancements, written materials and development related to the Company, to which Consultant may have access
or that Consultant may develop while providing Services to the Company pursuant to this Agreement shall be considered works made for hire (as defined by the copyright laws
of the United States) for the Company and prepared within the scope of such Services and shall belong exclusively to the Company. Any such materials developed by
Consultant that, under applicable laws, may not be considered works made for hire, are hereby irrevocably assigned to the Company without the need for any further
consideration, along with all right, title and interest in and to such materials and any works based upon, derived from or incorporating such materials, including all causes of
action either in law or in equity for past, present or future infringement based on the copyrights and all rights corresponding to the foregoing throughout the world and
Consultant agrees to take such further action, including executing such instruments and documents as the Company may reasonably request, to evidence such assignment.
8. Miscellaneous.
(a) Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed to have been duly given and
received (i) if mailed by registered or certified mail, three (3) business days after deposit in the United States mail, postage prepaid, return receipt requested, (ii) if hand
delivered, upon delivery against receipt or upon refusal to accept the notice, or (iii) if delivered by a standard overnight courier, one (1) business day after deposit with such
courier, postage prepaid, in each case, addressed to such party at the address set forth in the preamble. Any party may alter the address to which communications or copies are
to be sent by giving notice to such of change of address in conformity with the provisions of this paragraph for the giving of notice.
(b) Entire Agreement. This Agreement constitutes the entire agreement between Consultant and the Company and supersedes all prior agreements
and understandings, whether written or oral, relating to the subject matter of this Agreement.
(c) Amendments. This Agreement may be amended or modified only by a written instrument executed by both the Company and Consultant.
3
(d) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the state of Massachusetts and the
United States and the parties submit to the exclusive jurisdiction of the courts located in Boston, Massachusetts, United States, in relation thereto, provided, however, that the
Company may seek injunctive relief to prevent a violation of this Agreement in any court having jurisdiction.
(e) No Assignment. This Agreement is personal to Consultant. Neither this Agreement, nor any Services or activities contemplated hereunder may be
assigned or sub-contracted, in whole or in part, by Consultant to any third party. This Agreement shall be binding upon, and inure to the benefit of, both parties and their
respective successors and assigns, including any corporation with which, or into which, the Company may be merged or which may succeed to its assets or business.
(f) Representations and Warranties. Consultant represents and warrants that this Agreement and the performance by Consultant of the Services
contemplated hereby are in compliance with all employment, consulting, ownership, conflict of interest, patent and other policies applicable to Consultant.
(g) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument. One or more counterparts of this Agreement may be executed by facsimile, electronic reproductions of signatures or other
electronic means, all of which shall be deemed originals.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above.
XENETIC BIOSCIENCES INC.
CONSULTANT
/s/ James Parslow
/s/ Dmitry Genkin
James Parslow
Dmitry Genkin
Interim Chief Executive Officer
4
Exhibit A
Description of Consulting Services
•
Establish, lead and manage execution of clinical development initiatives (relationships with key external stakeholders: [***]
•
Manage Xenetic Scientific Steering Committee affairs
•
Work hand-in-hand with the VP of Clinical Development (RB) and VP of Cell Therapy (AS) to steer preclinical and clinical strategies and their operationalization.
•
Coordinate translation of XBIO-1015 TTP into clinical strategy. Identify opportunities to explore clinical strategy in Investigator Initiated clinical studies.
•
Search, monitor and explore opportunistic value enhancing transactions
•
Assist XBIO-1015 IP prosecution strategy
5
Exhibit B
KPI
Key performance indicators (KPIs)
EXHIBIT B
KPI
Key performance indicators (KPIs)
DESCRIPTION OF
KPI MEASURE
RESULTS –
PERIOD#6m
RESULTS –
PERIOD#12m
GOAL
KEY RESULT AREA#1: Establish, lead and manage execution of clinical development initiatives
[***] clinical study
Clinical study execution
aligned with established
timelines and budgets
[***]
[***]
[***]
[***] clinical study
Clinical study execution
aligned with established
timelines and budgets
[***]
[***]
[***]
[***] clinical study
Clinical study execution
aligned with established
timelines and budgets
[***]
[***]
[***]
[***] clinical study
Clinical study execution
aligned with established
timelines and budgets
[***]
[***]
[***]
[***] clinical study
Clinical study execution
aligned with established
timelines and budgets
[***]
TBD
[***]
KEY RESULT AREA#2: Steer preclinical and clinical strategies and their operationalization
[***]
Preclinical study
execution aligned with
established timelines and
budgets
[***]
[***]
[***]
[***]
Preclinical study
execution aligned with
established timelines and
budgets
[***]
[***]
[***]
Coordinate Steering Committee affairs
Steer preclinical and clinical activities and their operationalization via Xenetic Scientific Steering Committee
KEY RESULT AREA#3: Search, monitor and explore opportunistic value enhancing transactions
Identify value enhancing transactions
· [***]
[***]
[***]
KEY RESULT AREA#4: Assist XBIO-1015 IP prosecution strategy
[***]
[***]
[***]
[***]
[***]
[***]
[***]
6
Exhibit 19.1
XENETIC BIOSCIENCES, INC.
STATEMENT OF COMPANY POLICY ON
INSIDER TRADING AND DISCLOSURE
This memorandum sets forth the policy of Xenetic Biosciences, Inc. and its subsidiaries which may exist from time to time (collectively, the “Company”) regarding
trading in the Company’s securities as described below and the disclosure of information concerning the Company. This Statement of Company Policy on Insider Trading and
Disclosure (the “Insider Trading Policy”) is designed to prevent insider trading or the appearance of impropriety, to satisfy the Company’s obligation to reasonably supervise
the activities of Company personnel, and to help Company personnel avoid the severe consequences associated with violations of insider trading laws. The Company has
designated James F. Parslow, its Chief Financial Officer, as its insider trading compliance officer (the “Compliance Officer”). It is your obligation to understand and comply
with this Insider Trading Policy. Please contact the Compliance Officer at j.parslow@xeneticbio.com if you have any questions regarding the policy.
A.
To Whom does this Insider Trading Policy Apply?
This Insider Trading Policy is applicable to all of the Company’s directors, officers, employees and certain designated consultants, and continues to apply following
the termination of any such individual’s service to or employment with the Company until any material, nonpublic information possessed by such individual has become public
or is no longer material. The same restrictions that apply to you also apply to your spouse, significant other, child, parent or other family member, in each case, living in the
same household, and to any investment fund, trust, retirement plan, partnership, corporation or other entity over which you have the ability to influence or direct investment
decisions concerning securities. You are responsible for ensuring compliance with this Insider Trading Policy by all such persons affiliated with you.
All members of the Board of Directors, all officers and certain designated employees and consultants also must comply with the Company’s Special Trading
Procedures for Insiders (the “Trading Procedures”), which supplement and shall be deemed a part of this Insider Trading Policy. Generally, the Trading Procedures establish
trading windows outside of which the persons covered by the Trading Procedures will be restricted from trading in the Company’s securities and also require the pre-clearance
of all transactions in the Company’s securities by such persons. You will be notified if you are required to comply with the Company’s Trading Procedures.
B.
What is Prohibited by this Insider Trading Policy?
It is generally illegal for any director, officer, employee or consultant of the Company to trade in the securities of the Company while in the possession of material,
nonpublic information about the Company. It is also generally illegal for any director, officer, employee or consultant of the Company to disclose material, nonpublic
information about the Company to others who may trade on the basis of that information. These illegal activities are commonly referred to as “insider trading.”
Prohibited Activities
When you know or are in possession of material, nonpublic information about the Company, you generally are prohibited from the following activities:
·
trading in the Company’s securities, which includes common stock, options to purchase common stock, any other type of securities that the Company may issue
(such as preferred stock, convertible debentures, warrants, exchange-traded options or other derivative securities), and any derivative securities that provide the
economic equivalent of ownership of any of the Company’s securities or an opportunity, direct or indirect, to profit from any change in the value of the
Company’s securities;
·
having others trade for you in the Company’s securities;
·
giving trading advice of any kind about the Company except that you should, when appropriate, advise others not to trade if doing so might violate the law or this
Insider Trading Policy; and
·
disclosing the material, nonpublic information about the Company to anyone else who might then trade, or recommending to anyone that they purchase or sell the
Company’s securities when you are aware of material, nonpublic information (these practices are known as “tipping”).
As noted above, these prohibitions also apply to your spouse, significant other, child, parent or other family member, in each case, living in the same household; and any
investment fund, trust, retirement plan, partnership, corporation or other entity over which you have the ability to influence or direct investment decisions concerning securities.
1
This Insider Trading Policy does not apply to an exercise of an employee stock option when payment of the exercise price is made in cash. The policy does
apply, however, to the use of outstanding Company securities to constitute part or all of the exercise price of an option, any sale of stock as part of a broker-assisted
cashless exercise of an option, or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option.
These prohibitions continue whenever and for as long as you know or are in possession of material, nonpublic information. Remember, anyone scrutinizing your
transactions will be doing so after the fact, with the benefit of hindsight. As a practical matter, before engaging in any transaction, you should carefully consider how
enforcement authorities and others might view the transaction in hindsight.
Definition of Material, Nonpublic Information
This Insider Trading Policy prohibits you from trading in the Company’s securities if you are in possession of information about the Company that is both “material”
and “nonpublic.”
What is “Material” Information?
Information about the Company is “material” if it could reasonably be expected to affect the investment or voting decisions of a stockholder or investor, or if the
disclosure of the information could reasonably be expected to significantly alter the total mix of information in the marketplace about the Company. In simple terms, material
information is any type of information that could reasonably be expected to affect the market price of the Company’s securities. Both positive and negative information may be
material. While it is not possible to identify all information that would be deemed “material,” the following items are types of information that should be considered carefully to
determine whether they are material:
·
projections of future earnings or losses, or other earnings guidance;
·
results of partnerships or collaborations as well as results of clinical or analytical validation studies;
·
reimbursement rates or coverage decisions received by the Company;
·
earnings or revenue that are inconsistent with the consensus expectations of the investment community;
·
potential restatements of the Company’s financial statements, changes in auditors or auditor notification that the Company may no longer rely on an auditor’s
audit report;
·
pending or proposed mergers, acquisitions, tender offers, joint ventures or dispositions of significant assets;
·
changes in management or the Board of Directors;
·
actual or threatened litigation or governmental investigations or major developments in such matters;
·
developments regarding products, customers, suppliers, orders, contracts or financing sources (e.g., the acquisition or loss of a contract);
·
changes in dividend policy, declarations of stock splits, or public or private sales of additional securities;
·
potential defaults under the Company’s credit agreements or indentures, or the existence of material liquidity deficiencies; and
·
bankruptcies or receiverships.
The Securities and Exchange Commission (the “SEC”) has stated that there is no fixed quantitative threshold amount for determining materiality, and that even very
small quantitative changes can be qualitatively material if they would result in a movement in the price of the Company’s securities.
2
What is “Nonpublic” Information?
Material information is “nonpublic” if it has not been disseminated in a manner making it available to investors generally. To show that information is public, it is
necessary to point to some fact that establishes that the information has become publicly available, such as the filing of a report with the SEC, the distribution of a press release
through a widely disseminated news or wire service, or by other means that are reasonably designed to provide broad public access. Before a person who possesses material,
nonpublic information can trade, there also must be adequate time for the market as a whole to absorb the information that has been disclosed. For the purposes of this Insider
Trading Policy, information will be considered public after the close of trading on the second full trading day following the Company’s public release of the information.
For example, if the Company announces material information of which you are aware before trading begins on a Tuesday, the first time you can buy or sell Company
securities is following the closing of the market on Wednesday. However, if the Company announces this material information after trading begins on that Tuesday, the first
time that you can buy or sell Company securities is following the closing of the market on Thursday.
C.
Are there any Restrictions on the Use of Electronic Bulletin Boards, Internet Chat Rooms or Websites?
While the Company encourages its stockholders and potential investors to obtain as much information as possible about the Company, the Company believes that
information should come from its publicly-filed SEC reports, press releases and external website or from a designated Company spokesperson, rather than from speculation or
unauthorized disclosures by the Company’s directors, officers, employees or consultants. For this reason, the Company has designated certain members of management to
respond to inquiries regarding the Company’s business and prospects. This centralization of communication is designed to ensure that the information the Company discloses is
accurate and considered in light of previous disclosures. Formal announcements are generally reviewed by management and legal counsel before they are made public. Any
communications that do not go through this review process create an increased risk to the Company, as well as to the individual responsible for the communication, of civil and
criminal liability.
In addition, with the advent of the Internet, and the emergence of electronic bulletin boards and chat rooms, and particularly through social media, electronic
discussions about companies and their business prospects have become common. Inappropriate communications disseminated on the Internet may pose an inherently greater
risk due to the size of the audience they can reach. These forums have the potential to move a stock price significantly, and very rapidly – yet the information disseminated
through social media forums, electronic bulletin boards and chat rooms often is unreliable, and in some cases, may be deliberately false. The SEC has investigated and
prosecuted a number of fraudulent schemes involving communications in these forums. You may encounter information about the Company on the Internet that you believe is
harmful or inaccurate, or other information that you believe is true or beneficial for the Company. Although you may have a natural tendency to deny or confirm such
information on social media forums, on an electronic bulletin board or in a chat room, any sort of response, even if it presents accurate information, could be considered
improper disclosure and could result in legal liability to you and/or to the Company.
The Company is committed to preventing inadvertent disclosures of material, nonpublic information, preventing unwitting participation in Internet-based securities
fraud, and avoiding the appearance of impropriety by persons associated with the Company. Accordingly, this Insider Trading Policy prohibits you from discussing material,
nonpublic information about the Company with anyone, including other employees or consultants, except as required in the performance of your duties. You should not under
any circumstances provide information or discuss matters involving the Company with the news media, any broker-dealer, analyst, investment banker, investment advisor,
institutional investment manager, investment company or stockholder, even if you are contacted directly by such persons, without express prior authorization. This restriction
applies whether or not you identify yourself as associated with the Company. You should refer all such contact or inquiries to James F. Parslow, Chief Financial Officer, Xenetic
Biosciences, Inc., 945 Concord Street, Framingham, Massachusetts or at j.parslow@xeneticbio.com.
This Insider Trading Policy also prohibits you from making any comments or postings about the Company on any Internet bulletin boards, via social media, chat
rooms or websites, or responding to comments or postings about the Company’s business made by others. This restriction applies whether or not you identify yourself as
associated with the Company.
3
D.
What are the Penalties for Insider Trading and Noncompliance with this Insider Trading Policy?
Both the SEC and the national securities exchanges, through the Financial Industry Regulatory Authority (FINRA), investigate and are very effective at detecting
insider trading. The SEC, together with the U.S. Attorneys, pursue insider trading violations vigorously. For instance, cases have been successfully prosecuted against trading
by employees in foreign accounts, trading by family members and friends, and trading involving only a small number of shares.
The penalties for violating insider trading or tipping rules can be severe and include:
·
disgorgement of the profit gained or loss avoided by the trading;
·
payment of the loss suffered by the persons who, contemporaneously with the purchase or sale of securities that are subject of such violation, have purchased or
sold, as applicable, securities of the same class;
·
payment of criminal penalties of up to $5,000,000;
·
payment of civil penalties of up to three times the profit made or loss avoided; and
·
imprisonment for up to 20 years.
The Company and/or the supervisors of the person engaged in insider trading may also be required to pay civil penalties of up to the greater of $1,275,000 or three
times the profit made or loss avoided, as well as criminal penalties of up to $25,000,000, and could under certain circumstances be subject to private lawsuits.
Violation of this Insider Trading Policy or any federal or state insider trading laws may subject the person violating such policy or laws to disciplinary action by the
Company up to and including termination. The Company reserves the right to determine, in its own discretion and on the basis of the information available to it, whether this
Insider Trading Policy has been violated. The Company may determine that specific conduct violates this Insider Trading Policy, whether or not the conduct also violates the
law. It is not necessary for the Company to await the filing or conclusion of a civil or criminal action against the alleged violator before taking disciplinary action.
E.
Does the Company have any Other Policies Regarding Confidential Information?
The Company also has strict policies relating to safeguarding the confidentiality of its internal, proprietary information. These policies include procedures regarding
identifying, marking and safeguarding confidential information and employee confidentiality agreements. You should comply with these policies at all times.
F.
How Do You Report a Violation of this Insider Trading Policy?
If you violate this Insider Trading Policy or any federal or state laws governing insider trading, or know of any such violation by any director, officer or employee of
the Company, you must report the violation immediately to the Compliance Officer. However, if the conduct in question involves the Compliance Officer, if you have reported
such conduct to such person and do not believe that he or she has dealt with it properly, or if you do not feel that you can discuss the matter with the Compliance Officer, you
may raise the matter with Jeffrey Eisenberg, Chief Executive Officer.
4
G.
Is This Insider Trading Policy Subject to Modification?
The Company may at any time change this Insider Trading Policy or adopt such other policies or procedures which it considers appropriate to carry out the purposes of
its policies regarding insider trading and the disclosure of Company information. Notice of any such change will be delivered to you by regular or electronic mail (or other
delivery option used by the Company) by the Company. You will be deemed to have received, be bound by and agree to revisions of this Insider Trading Policy when such
revisions have been delivered to you, unless you object to any revision in a written statement received by the Compliance Officer within two (2) business days of such delivery.
H.
Responsibilities Regarding the Nonpublic Information of Other Companies
In the course of providing services to the Company, you may also gain access to material, nonpublic information regarding the Company’s distributors, vendors,
customers, collaborators, suppliers and competitors. In addition to maintaining compliance with this Policy, you are also responsible for not violating insider trading laws with
respect to any such information, including through any unauthorized disclosure or other misuse of any nonpublic information of such companies, as well as insider trading and
tipping based on the material nonpublic information of such other companies.
*****
Your failure to observe this Insider Trading Policy could lead to significant legal problems, including fines and/or imprisonment, and could have other
serious consequences, including the termination of your employment or service relationship with the Company.
Updated as of September of 2019.
5
XENETIC BIOSCIENCES, INC.
SPECIAL TRADING PROCEDURES FOR INSIDERS
To comply with federal and state securities laws governing insider trading, Xenetic Biosciences, Inc. (the “Company”) has adopted these Special Trading Procedures
for Insiders (“Trading Procedures”) as an addendum to the Company’s Statement of Company Policy on Insider Trading and Disclosure (the “Insider Trading Policy”). These
Trading Procedures are in addition to and supplement the Company’s Insider Trading Policy, which is distributed to all directors, officers, employees and certain designated
consultants of the Company.
A.
SCOPE
These Trading Procedures regulate securities trades by all directors and executive officers of the Company and certain designated employees and consultants of the
Company and its subsidiaries which may exist from time to time who in the ordinary course of the performance of their duties have access to material, nonpublic information
regarding the Company (each, an “Insider” and collectively, these persons are referred to as “Insiders”). These Trading Procedures also apply to the following persons
(collectively, these persons and entities are referred to as “Affiliated Persons”):
·
an Insider’s spouse, child, parent, significant other or other family member, in each case, living in the same household;
·
all trusts, family partnerships and other types of entities formed for the benefit of the Insider or the Insider’s family members over which the Insider has the ability
to influence or direct investment decisions concerning securities;
·
all persons who execute trades on behalf of the Insider; and
·
all investment funds, trusts, retirement plans, partnerships, corporations and other types of entities over which the Insider has the ability to influence or direct
investment decisions concerning securities; provided, however, that these Trading Procedures shall not apply to any such entity that engages in the investment of
securities in the ordinary course of its business (e.g., an investment fund or partnership) if such entity has established its own insider trading controls and
procedures in compliance with applicable securities laws and the Insider has included such entity on the Insider’s signed acknowledgment in the attached form.
Insiders are responsible for ensuring compliance with these Trading Procedures and the Insider Trading Policy by all of their Affiliated Persons. Unless the context
otherwise requires, references to “Insiders” in these Trading Procedures refer collectively to Insiders and their Affiliated Persons.
These Trading Procedures apply to any and all transactions in the Company’s securities, including its common stock, options to purchase common stock, any other
type of securities that the Company may issue (such as preferred stock, convertible debentures, warrants, exchange-traded options or other derivative securities), and any
derivative securities that provide the economic equivalent of ownership of any of the Company’s securities or an opportunity, direct or indirect, to profit from any change in the
value of the Company’s securities.
The special trading restrictions set forth in these Trading Procedures continue to apply to Insiders following the termination of any such Insider’s service to or
employment with the Company until any material, nonpublic information possessed by such Insider has become public or is no longer material.
6
B.
SPECIAL TRADING RESTRICTIONS APPLICABLE TO INSIDERS
Please see the Insider Trading Policy for a description of prohibited activities applicable to all directors, executive officers, employees and certain designated
consultants of the Company, including Insiders. In particular, no Insider may trade in any type of securities of the Company if such Insider is in possession of material,
nonpublic information about the Company, unless the trade has been effected in compliance with a pre-approved Rule 10b5-1 Plan (as defined below). This
prohibition applies even if such Insider receives pre-clearance and the transaction would occur during a trading window in accordance with these Trading
Procedures.
Please see the Insider Trading Policy for a discussion of what constitutes “insider trading” as well as “material” and “nonpublic” information. Any Insiders who are
unsure whether the information that they possess is material or nonpublic should consult the Compliance Officer (as defined below) identified below for guidance.
In addition to the restrictions on trading in Company securities set forth in the Insider Trading Policy, Insiders are subject to the following special trading restrictions:
1.
No Trading Except During Trading Windows.
The announcement of the Company’s quarterly financial results almost always has the potential to have a material effect on the market for the Company’s securities.
Although an Insider may not know the financial results prior to public announcement, if an Insider engages in a trade before the financial results are disclosed to the public,
such trades may give an appearance of impropriety that could subject the Insider and the Company to a charge of insider trading. Therefore, subject to limited exceptions,
Insiders may trade in Company securities only during four quarterly trading windows and then only after obtaining pre-clearance from the Compliance Officer in accordance
with the procedures set forth below. Unless otherwise advised, the four trading windows consist of the periods that begin after market close on the second full trading day
following the Company’s issuance of a press release (or other method of broad public dissemination) announcing its quarterly or annual earnings and end at the close of
business on the 15th day before the end of the then-current quarter. Insiders may be allowed to trade outside of a trading window only (a) pursuant to a pre-approved Rule 10b5-
1 Plan as described in Section D of these Trading Procedures or (b) in accordance with the procedure for waivers described in Section E of these Trading Procedures.
2.
No Trading During Special Blackout Periods.
There are times when the Company or certain members of its board of directors or senior management or support staff may be aware of a material, nonpublic
development. Although an Insider may not know the specifics of such development, if an Insider engages in a trade before such development is disclosed to the public or
resolved, such Insider and the Company might be exposed to a charge of insider trading that could be costly and difficult to refute. In addition, a trade by an Insider during such
a period could result in adverse publicity for the Company.
Therefore, Insiders may not trade in Company securities if they are notified by the Compliance Officer that the trading window is closed because of the existence of a
material, nonpublic development. The Compliance Officer will subsequently notify the Insiders once the material, nonpublic development is disclosed to the public or resolved
and that, as a result, the trading window is again open. While the Compliance Officer will undertake reasonable efforts to notify the Insiders that material, nonpublic events
have developed, or are soon likely to develop, it is each Insider’s individual duty to ensure that they do not make any trade in Company securities when material, nonpublic
information exists, regardless of whether such Insider is aware of such development.
7
3.
All Trades Must be Pre-Cleared by the Compliance Officer.
No Insider may trade in Company securities unless the trade has been approved by the Compliance Officer in accordance with the procedures set forth below. The
Company has designated James F. Parslow, Chief Financial Officer, as its insider trading compliance officer (the “Compliance Officer”). The Compliance Officer will review
and either approve or prohibit all proposed trades by Insiders in accordance with the procedures set forth in Section C below. The Compliance Officer may consult with the
Company’s other officers and/or outside legal counsel and will receive approval for his own trades from Jeffrey Eisenberg, Chief Executive Officer. If you are unable to contact
the Compliance Officer, or if you do not feel you can discuss the matter with the Compliance Officer, you may contact Jeffrey Eisenberg, Chief Executive Officer, who shall be
the alternate Compliance Officer (the Compliance Officer and the alternate Compliance Officer are collectively referred to as the “Compliance Officer” in these Trading
Procedures).
4.
No Short Sales.
No Insider may at any time sell any securities of the Company that are not owned by such Insider at the time of the sale (a “short sale”).
5.
No Purchases or Sales of Derivative Securities or Hedging Transactions Without Pre-Approval.
No Insider may buy or sell puts, calls, other derivative securities of the Company or any derivative securities that provide the economic equivalent of ownership of any
of the Company’s securities or an opportunity, direct or indirect, to profit from any change in the value of the Company’s securities or engage in any other hedging transaction
with respect to the Company’s securities, at any time unless such transaction has been approved by the Audit Committee of the Board of Directors. Any request for approval of
such a derivative transaction by an Insider must be submitted to the Audit Committee in writing at least two (2) weeks prior to the proposed execution of documents evidencing
the transaction. Any such request submitted by an Insider will be considered by the Audit Committee on a case-by-case basis and, if permitted, shall be subject to all of the
other restrictions on trading in the Company’s securities set forth in these Trading Procedures.
6.
No Company Securities Subject to Margin Calls.
No Insider may use the Company’s securities as collateral in a margin account.
7.
No Pledges Without Pre-Approval.
No Insider may pledge Company securities as collateral for a loan (or modify an existing pledge) unless the pledge has been approved by the Audit Committee of the
Board of Directors. Any request for approval of such a pledge by an Insider must be submitted to the Audit Committee in writing at least two (2) weeks prior to the proposed
execution of documents evidencing the proposed pledge. Any such request submitted by an Insider will be considered by the Audit Committee on a case-by-case basis and, if
permitted, shall be subject to all of the other restrictions on trading in the Company’s securities set forth in these Trading Procedures.
8.
Transfers Without Consideration Subject to Same Restrictions as All Other Securities Trades.
No Insider may give or make any other transfer of Company securities without consideration (e.g., a gift) during a period when the Insider is not permitted to trade.
8
C.
PRE-CLEARANCE PROCEDURES
Procedures. No Insider may trade in Company securities until:
·
The Insider has notified the Compliance Officer of the amount and nature of the proposed trade(s) using the Stock Transaction Request form attached to these
Trading Procedures. In order to provide adequate time for the preparation of any required reports under Section 16 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), a Stock Transaction Request form should, if practicable, be received by the Compliance Officer at least two (2) business days
prior to the intended trade date;
·
The Insider has certified to the Compliance Officer in writing prior to the proposed trade(s) that the Insider is not in possession of material, nonpublic information
concerning the Company;
·
The Insider has informed the Compliance Officer whether, to the Insider’s best knowledge, (a) the Insider has (or is deemed to have) engaged in any opposite way
transactions within the previous six months that were not exempt from Section 16(b) of the Exchange Act and (b) if the transaction involves a sale by an “affiliate”
of the Company or of “restricted securities” (as such terms are defined under Rule 144 under the Securities Act of 1933, as amended (“Rule 144”)), whether the
transaction meets all of the applicable conditions of Rule 144; and
·
The Compliance Officer or his designee has approved the trade(s) and has certified such approval in writing. Such certification may be made via digitally-signed
electronic mail.
The Compliance Officer does not assume the responsibility for, and approval from the Compliance Officer does not protect the Insider from, the consequences of
prohibited insider trading.
Additional Information. Insiders shall provide to the Compliance Officer any documentation reasonably requested by him or her in furtherance of the foregoing
procedures. Any failure to provide such requested information will be grounds for denial of approval by the Compliance Officer.
No Obligation to Approve Trades. The existence of the foregoing approval procedures does not in any way obligate the Compliance Officer to approve any trade
requested by an Insider. The Compliance Officer may reject any trading request at his or her sole discretion. From time to time, an event may occur that is material to the
Company and is known by only a few directors or executives. So long as the event remains material and nonpublic, the Compliance Officer may determine not to approve any
transactions in the Company’s securities. If an Insider requests clearance to trade in the Company’s securities during the pendency of such an event, the Compliance Officer
may reject the trading request without disclosing the reason.
Completion of Trades. After receiving written clearance to engage in a trade signed by the Compliance Officer, an Insider must complete the proposed trade within
two (2) business days or make a new trading request.
9
Post-Trade Reporting. Any transactions in the Company’s securities by an Insider (including transactions effected pursuant to a Rule 10b5-1 Plan) must be reported to
the Compliance Officer by completing the “Confirmation of Transaction” section of the Stock Transaction Request form attached to these Trading Procedures on the same day
in which such a transaction occurs. Compliance by directors and executive officers with this provision is imperative given the requirement of Section 16 of the Exchange Act
that these persons generally must report changes in ownership of Company securities within two (2) business days. The sanctions for noncompliance with this reporting
deadline include mandatory disclosure in the Company’s proxy statement for the next annual meeting of stockholders, as well as possible civil or criminal sanctions for chronic
or egregious violators.
Each report an Insider makes to the Compliance Officer should include the date of the transaction, quantity of shares, price and broker-dealer through which the
transaction was effected. This reporting requirement may be satisfied by sending (or having such Insider’s broker send) duplicate confirmations of trades to the Compliance
Officer if such information is received by the Compliance Officer on or before the required date. This requirement is in addition to any required notification that the Company
receives from the broker who completes the trade.
D.
EXEMPTIONS
Pre-Approved Rule 10b5-1 Plan. Transactions effected pursuant to a pre-approved Rule 10b5-1 plan will not be subject to the Company’s trading windows or pre-
clearance procedures, and Insiders are not required to complete a Stock Transaction Request form for such transactions. Rule 10b5-1 of the Exchange Act provides an
affirmative defense from insider trading liability under the federal securities laws for trading plans that meet certain requirements. A trading plan, arrangement or instruction
that meets the requirements of Rule 10b5-1 (a “Rule 10b5-1 Plan”) enables Insiders to establish arrangements to trade in Company securities outside of the Company’s trading
windows, even when in possession of material, nonpublic information. If an Insider intends to trade pursuant to a Rule 10b5-1 Plan, such plan must:
·
satisfy the requirements of Rule 10b5-1;
·
be documented in writing;
·
be established during a trading window when such Insider does not possess material, nonpublic information; and
·
be pre-approved by the Compliance Officer.
Any deviation from, or alteration to, the specifications of an approved Rule 10b5-1 Plan (including, without limitation, the amount, price or timing of a purchase or
sale) must be reported immediately to the Compliance Officer.
The Compliance Officer may refuse to approve a Rule 10b5-1 Plan as he or she deems appropriate including, without limitation, if he or she determines that such plan
does not satisfy the requirements of Rule 10b5-1. The Compliance Officer may consult with the Company’s legal counsel before approving a Rule 10b5-1 Plan. If the
Compliance Officer does not approve an Insider’s Rule 10b5-1 Plan, such Insider must adhere to the pre-clearance procedures and trading windows set forth above until such
time as a Rule 10b5-1 Plan is approved.
Any modification of an Insider’s prior Rule 10b5-1 Plan requires pre-approval by the Compliance Officer. A modification must occur during a trading window and
while such Insider is not aware of material, nonpublic information.
10
1.
2.
3.
Employee Benefit Plans.
Exercise of Stock Options or Warrants. The trading prohibitions and restrictions set forth in these Trading Procedures do not apply to the exercise of an
option or warrant to purchase securities of the Company when payment of the exercise price is made in cash. However, the exercise of an option or warrant to purchase
securities of the Company is subject to the current reporting requirements of Section 16 of the Exchange Act and, therefore, Insiders must comply with the post-trade reporting
requirement described in Section C above for any such transaction. In addition, the securities acquired upon the exercise of an option or warrant to purchase Company securities
are subject to all of the requirements of these Trading Procedures and the Insider Trading Policy. Moreover, these Trading Procedures apply to the use of outstanding Company
securities to constitute part or all of the exercise price of an option or warrant, any net option or warrant exercise, any exercise of a stock appreciation right, share withholding,
any sale of stock as part of a broker-assisted cashless exercise of an option or warrant, or any other market sale for the purpose of generating the cash needed to pay the exercise
price of an option or warrant.
Tax Withholding on Restricted Stock/Units. The trading prohibitions and restrictions set forth in these Trading Procedures do not apply to the withholding
by the Company of shares of stock upon vesting of restricted stock or upon settlement of restricted stock units to satisfy applicable tax withholding requirements if (a) such
withholding is required by the applicable plan or award agreement or (b) the election to exercise such tax withholding right was made by the Insider in compliance with these
Trading Procedures.
Employee Stock Purchase Plan. If applicable, the trading prohibitions and restrictions set forth in these Trading Procedures do not apply to periodic wage
withholding contributions by the Company or employees of the Company which are used to purchase the Company’s securities pursuant to the employees’ advance instructions
under any employee stock purchase plan that the Company may adopt from time to time. However, no Insider may: (a) elect to participate in such plan or alter his or her
instructions regarding the level of withholding or purchase by the Insider of Company securities under such plan; or (b) make cash contributions to such plan (other than
through periodic wage withholding) without complying with these Trading Procedures. Any sale of securities acquired under such plan is subject to the prohibitions and
restrictions of these Trading Procedures.
E.
WAIVERS
A waiver of any provision of these Trading Procedures in a specific instance may be authorized in writing by the Compliance Officer or his designee, and any such
waiver shall be reported to the Company’s Board of Directors.
11
F.
ACKNOWLEDGMENT
In addition to the Company’s Insider Trading Policy, these Trading Procedures will be delivered to all current Insiders and to all new Insiders at the start of their
employment or relationship with the Company. Upon first receiving a copy of these Trading Procedures, each Insider must acknowledge that he or she has received a copy and
agrees to comply with the terms of these Trading Procedures and the Insider Trading Policy. Such Insider shall return the acknowledgment attached hereto within ten (10) days
of receipt to:
James F. Parslow
Chief Financial Officer
Xenetic Biosciences, Inc.
945 Concord Street
Framingham, Massachusetts 02421
or via email at:
j.parslow@xeneticbio.com
This acknowledgment will constitute consent for the Company to impose sanctions for violation of the Insider Trading Policy or these Trading Procedures, and to issue
any necessary stop-transfer orders to the Company’s transfer agent to ensure compliance.
Insiders will be required upon the Company’s request to re-acknowledge and agree to comply with these Trading Procedures and the Insider Trading Policy (including
any amendments or modifications). For such purpose, an Insider will be deemed to have acknowledged and agreed to comply with these Trading Procedures and the Insider
Trading Policy when copies of such items have been delivered to the Insider by regular or electronic mail (or other delivery option used by the Company) by the Compliance
Officer or his designee, unless the Insider objects in a written statement received by the Compliance Officer within two (2) business days of such delivery.
____________________
Failure to observe these Trading Procedures and the Insider Trading Policy could lead to significant legal problems, and could have other serious
consequences, including termination of employment. Questions regarding these Trading Procedures or the Insider Trading Policy are encouraged and may be
directed to the Compliance Officer.
Updated as of September of 2019.
12
ACKNOWLEDGMENT
I hereby acknowledge that I have read, that I understand, and that I agree to comply with, the Statement of Company Policy on Insider Trading and Disclosure (the
“Insider Trading Policy”) and the Special Trading Procedures for Insiders (the “Trading Procedures”) of Xenetic Biosciences, Inc. (the “Company”). I further acknowledge and
agree that I am responsible for ensuring compliance with the Insider Trading Policy and the Trading Procedures by all of my “Affiliated Persons” (including such persons listed
below). I also understand and agree that I will be subject to sanctions, including termination of employment, that may be imposed by the Company, in its sole discretion, for
violation of the Insider Trading Policy or the Trading Procedures, and that the Company may give stop-transfer and other instructions to the Company’s transfer agent against
the transfer of any Company securities in a transaction that the Company considers to be in contravention of the Insider Trading Policy or the Trading Procedures.
I hereby designate the following investment funds and partnerships as entities for which the Trading Procedures shall not apply:
__________________________________________. I hereby represent to the Company that such entities: (a) engage in the investment of securities in the ordinary course of
their respective businesses; (b) have established insider trading controls and procedures in compliance with applicable securities laws; and (c) are aware such securities laws
prohibit any person or entity who has material, nonpublic information concerning the Company from purchasing or selling securities of the Company or from communicating
such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities.
Date:
Signature:
Name:
Title:
13
Number of shares:
Number of shares:
Pursuant to Xenetic Biosciences, Inc.’s Special Trading Procedures for Insiders (the “Trading Procedures”), I hereby notify Xenetic Biosciences, Inc. (the “Company”) of my
intent to trade the securities of the Company as indicated below:
REQUESTER INFORMATION
Insider’s Name: _________________________________________
INTENT TO PURCHASE
res:__________________________
Intended trade date: __________________________
Means of acquiring shares:
¨
Acquisition through employee benefit plan (please specify): _____________________________
¨
Purchase through a broker on the open market
¨
Other (please specify): ___________________________________________________________
INTENT TO SELL
res:__________________________
Intended trade date: __________________________
Means of selling shares:
¨
Sale through employee benefit plan (please specify): _____________________________
¨
Sale through a broker on the open market
¨
Other (please specify): ___________________________________________________________
CERTIFICATION
I hereby certify that (1) I am not in possession of any material, nonpublic information concerning the Company, as defined in the Company’s Statement of Company Policy on Insider Trading and Disclosure, (2) to the
best of my knowledge, the proposed trade(s) listed above do(es) not violate the trading restrictions of Section 16 of the Securities Exchange Act of 1934, as amended, or Rule 144 under the Securities Act of 1933, as
amended, and (3) I am not purchasing any securities of the Company on margin in contravention of the Company’s Trading Procedures. I understand that, if I trade while possessing such information or in violation of
such trading restrictions, I may be subject to severe civil and/or criminal penalties, and may be subject to discipline by the Company including termination.
Insider’s Signature
Date
AUTHORIZED APPROVAL
Signature of Compliance Officer (or designee)
Date
CONFIRMATION OF TRANSACTION
I hereby confirm that the transaction(s) requested above was (were) executed as follows:
¨
Purchase of shares: *Number of shares:
_______
Price per share:
_______
Date and approximate time of purchase:
_______
¨
Sale of shares:
*Number of shares:
_______
Price per share:
_______
Date and approximate time of sale:
_______
Insider’s Signature
Date
Signature___________________________________________
Date______________________________________________
*NOTE: Multiple lots must be listed on separate forms or broken out herein.
14
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
Subsidiary
Country / State of Incorporation
Xenetic Biosciences (UK), Ltd.
United Kingdom registered company
Lipoxen Technologies, Ltd.
United Kingdom registered company
Xenetic Bioscience, Inc.
Delaware
SymbioTec, GmbH
German registered company
Hesperix S.A.
Swiss registered company
Exhibit 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statements of Xenetic Biosciences, Inc. on Form S-8 (File Nos. 333-261956, 333-237529, 333-222272 and
333-218024) and on Form S-3 (File Nos. 333-282756, 333-258810, and 333-233769) of our report dated March 18, 2025, with respect to our audits of the consolidated
financial statements of Xenetic Biosciences, Inc. as of December 31, 2024 and 2023, and for each of the two years in the period ended December 31, 2024, which report is
included in this Annual Report on Form 10-K of Xenetic Biosciences, Inc. for the year ended December 31, 2024.
/s/ Marcum LLP
Hartford, CT
March 18, 2025
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Parslow, certify that:
1.
I have reviewed this annual report on Form 10-K of Xenetic Biosciences, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Dated: March 18, 2025
By: /s/ James Parslow
James Parslow
Interim Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Parslow, certify that:
1.
I have reviewed this annual report on Form 10-K of Xenetic Biosciences, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Dated: March 18, 2025
By: /s/ James Parslow
James Parslow
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Xenetic Biosciences, Inc. (the “Company”) for the fiscal year ended December 31, 2024, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), we, the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 18, 2025
/s/ James Parslow
James Parslow
Interim Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)