SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2022, are incorporated herein by reference into Part III of this Annual Report.
Table of Contents
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, or Annual Report, contains forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” “predict,” “potential” and similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these words. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk factors” and elsewhere in this filing. Moreover, we operate in a competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. The forward-looking statements in this Annual Report include, among other things, statements about:
The forward-looking statements made in this filing relate only to events or information as of the date on which the statements are made in this Annual Report. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report to conform these statements to actual results or to changes in our expectations, except as required by law. We intend the forward-looking statements contained in this Annual Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
RISK FACTORS SUMMARY
Our business is subject to a number of risks and uncertainties, including those risks discussed at-length below. These risks include, among others, the following:
Item 1. Business.
We are a biopharmaceutical company leveraging our proprietary technology platform to build a pipeline of novel oral therapeutic candidates to treat chronic diseases in immunology and other therapeutic areas. We are initially focused on developing oral therapeutics against well-validated targets in immunology, with the goal of achieving comparable potency to their systemic biologic counterparts, which have demonstrated the greatest therapeutic benefit to date in these disease areas. Our platform, which we refer to as DELSCAPE, is designed to discover selective oral small molecules with the potential to modulate protein-protein interactions (“PPIs”) as effectively as systemic biologics. We believe there is a significant unmet medical need for convenient oral therapies in chronic immunological diseases that offer the therapeutic benefits of systemic biologics.
Our lead therapeutic candidate, DC-806, is an oral antagonist of the pro-inflammatory signaling molecule, interleukin-17 (“IL-17”), which is a validated drug target implicated in a variety of immunology indications. There are two approved antibody therapeutics, COSENTYX (secukinumab), marketed by Novartis, and TALTZ (ixekizumab), marketed by Eli Lilly, but no oral therapies targeting this pathway. COSENTYX and TALTZ both are approved for the treatment of psoriasis, psoriatic arthritis, ankylosing spondylitis and non-radiographic axial spondyloarthritis, and collectively generated approximately $7.3 billion in worldwide sales in 2022. The Medicines and Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom (“UK”) approved our Clinical Trial Application (“CTA”) for DC-806 in September 2021 and in October 2022, we announced positive topline data from our Phase 1 clinical trial in healthy volunteers and psoriasis patients. The Phase 1 trial was designed to generate safety and pharmacokinetic (“PK”) data, as well as provide early clinical proof-of-concept in psoriasis patients. The trial was conducted in three overlapping cohorts: Phase 1a (single ascending dose) and Phase 1b (multiple ascending dose) in healthy volunteers, and a proof-of-concept Phase 1c in psoriasis patients. Clinical proof-of-concept in psoriasis patients was achieved with a mean percentage reduction in Psoriasis Area and Severity Index (“PASI”) from baseline at 4 weeks of 43.7% in the high dose group compared to 13.3% in the placebo group, with an exploratory p-value of 0.0008. Additionally, DC-806 was well tolerated with a favorable safety profile across all dose groups in healthy volunteers and psoriasis patients, with a robust PK profile and clear pharmacodynamic effects on two distinct biomarkers at both high and low doses of DC-806. Collectively these data support further development of DC-806 as a potential best-in-class oral agent for the treatment of psoriasis. Our investigational new drug (“IND”) application was cleared by the U.S. Food and Drug Administration (“FDA”) in March 2023 and is in effect for DC-806. We plan to advance DC-806 into a global Phase 2b clinical trial in the first half of 2023.
In the second half of 2021, we nominated a development candidate, DC-853, a differentiated fast-follower molecule that in pre-clinical studies has been shown to inhibit IL-17AA and IL-17AF in a manner similar to that of DC-806. The MHRA in the UK approved our CTA for DC-853 in February 2023. We began dosing healthy volunteers in our Phase 1 clinical trial with DC-853 and expect topline data in the second half of 2023. We believe that advancing multiple platform-derived therapeutic candidates unlocks the ability to develop compounds with differentiated properties and has the potential to maximize the value of our IL-17 franchise, and therefore we intend to nominate an additional, structurally differentiated IL-17 inhibitor as a development candidate and progress it through IND-enabling studies.
We also are developing oral therapeutic candidates targeting α4ß7 integrin for the treatment of inflammatory bowel disease (“IBD”) and evaluating oral therapeutic candidates targeting αVß1/αVß6 integrin for the treatment of fibrosis. Additionally, in July 2022, we regained worldwide rights to a previously partnered oral immuno-oncology program, small-molecule PD-L1 inhibitors discovered using our DELSCAPE platform. Leveraging DELSCAPE, we are also evaluating other novel and validated immunology targets, including interleukin-23 (“IL-23”), tumor necrosis factor α (“TNFα”), neonatal Fc receptor (“FcRn”), and thymic stromal lymphopoietin (“TSLP”), among other potential targets, with a view toward advancing one or more programs into clinical development.
Biologics Have Transformed the Inflammatory Disease Landscape, but Are Not Ideally Suited for Chronic Treatment
Some of the most clinically and commercially successful drugs are biologics that modulate extracellular signaling by binding to cellular receptors or their ligands. One such class of biologics is monoclonal antibodies (“mAbs”) which represented an over $150 billion market in 2020. Drugs such as HUMIRA (adalimumab), and REMICADE (infliximab), originally approved in the late 1990s and early 2000s, have transformed the treatment of
inflammatory diseases such as psoriasis, IBD, and psoriatic and rheumatoid arthritis. Although the latest generation of approved biologics demonstrate improved efficacy and dosing intervals, they continue to face the same underlying challenges: (i) requiring administration through subcutaneous injections or intravenous infusions and (ii) regular patient monitoring. Despite generally inferior therapeutic benefit to biologics, there remains a strong preference among many patients and clinicians for orally-administered therapeutics.
Our Proprietary Approach and DELSCAPE Enables the Development of Oral Small Molecules Against Targets Previously Only Druggable with Antibodies
Our approach to drug discovery and development leverages the capabilities of DELSCAPE to determine feasibility, optimize the design of and generate families of specific and potentially potent therapeutic compounds that we consider ideal for advancement to clinical development. We combine this approach with an assessment of attractive, validated market opportunities, informed by our expertise in the field of immunology, to determine our priority targets. We have used this approach to develop therapeutic candidates against the four targets in our current pipeline, and we plan to further pursue this historically difficult class of targets, known as PPIs. The below graphic illustrates our proprietary drug discovery and development strategy.
Opportunity: Target-Validation and Market Opportunity. Central to our process is the identification of targets with strong mechanistic or clinical validation—and in many cases, commercial validation as well. This validation provides us with confidence that modulating the target can provide clinically meaningful benefit in treating human disease, with the goal of reducing the biology risk associated with drug development. In addition, we prioritize programs where the target activity in Phase 1 clinical trials has predicted clinical benefit in subsequent trials for other compounds. Ideal opportunities include indications for which there are only marketed biologics against the target of interest and where we believe that an oral therapy with comparable efficacy would be preferred. There are a number of such opportunities within immunology—approved anti-IL-17 mAbs, for example—in which an oral small molecule capable of blocking the same interaction as its injectable biologic counterpart likely would be a clinically and commercially successful therapeutic. Because the targets of biologics are often PPIs, very few small molecules have been developed against these targets.
Feasibility: PPI-Disruption of Dimeric and Trimeric Targets. We then, based on an assessment of feasibility, prioritize potential targets with structural features that make them ideal candidates for small molecule inhibition using our approach. Inhibition of PPIs by small molecules historically has been challenging because interactions between proteins usually involve large, complementary binding areas that lack features that would allow for small molecules to selectively bind and directly block the PPI. Antibodies can overcome this limitation due to the large nature of their complementary binding areas, but their large size makes them unsuitable for oral administration as they are not absorbed in the gut. We believe that the best opportunities for orally-dosed, small molecule inhibitors of PPIs are presented by targets that are dimeric (having two discrete components) or trimeric (having three discrete components). We have observed that opportunities for potent and selective small molecule binding may be found at the interfaces between the protein components. Importantly, in preclinical studies, we have demonstrated that our small molecule constructs effectively blocked a PPI without directly obscuring the interaction surface. For example, as shown in Figure 1 below, crystal structures show that our IL-17 inhibitors bind in a cleft between the two components of an IL-17 dimer and do not directly block the face that interacts with the IL-17
receptor. Although the bound small molecule (shown in yellow) does not directly block the receptor-binding surface, it potently inhibits the binding of IL-17AA to the receptor.
Figure 1: (a) Receptor-bound structure (PDB: 4HSA) of the homodimer IL-17AA with IL-17 receptor hidden to view surface contacts involved in the PPI. The two IL-17A monomers are colored dark blue and light blue and atoms within 4.0Å of IL-17RA are colored red. (b) Structure IL-17AA with our small molecule inhibitor bound in the cleft between the two monomers. Although the bound small molecule does not directly block the receptor-binding surface, it potently inhibits binding of IL-17AA to the receptor.
Our integrin programs provide additional examples of small molecules that have demonstrated the ability to bind at the interface between dimeric proteins and block interaction with their PPI partners. We have identified additional targets of interest, including IL-23, TNFα, FcRn and TSLP, showing evidence of small molecule binding sites at their dimer and trimer interfaces and we intend to explore these opportunities to expand our pipeline of oral PPI inhibitors.
DELSCAPE Platform: Accelerating Hit-to-Lead Development. Finally, we utilize our proprietary DNA-encoded library (“DEL”) chemistry to accelerate the hit-to-lead phase of compound optimization. We use DEL in a novel way, producing libraries that incorporate known binders—often with poor potency, selectivity or drug-like properties—into the library design, greatly increasing the percentage of hits and thus the depth of structure-activity relationships (“SAR”) we can obtain from a single experiment. With our proprietary approach, we generate smaller, targeted libraries, typically between 100,000 and 1 million discrete compounds, and obtain data that enables both quantitative and qualitative assessment of a landscape of small molecule hits. We therefore do not need to aim for the massive diversity (billion to trillions of compounds) reported by companies that conventionally utilize unbiased DELs for hit-finding and, importantly, not for the hit-to-lead phase of compound optimization. Our approach can extend well beyond binding optimization to further produce insights into functional activity and selectivity. We think of this process as performing medicinal chemistry but on a very large scale, in parallel, and it is what allows us to accelerate this phase of drug discovery against these difficult PPI targets.
We are leveraging our proprietary DELSCAPE platform to design and develop a pipeline of wholly-owned oral therapeutic candidates against validated biologic targets to address chronic diseases in immunology and other therapeutic areas. Our pipeline is shown below:
Our Oral Therapeutic Candidates Targeting IL-17 for Immunology Indications
Our lead therapeutic candidate, DC-806, is an orally-available small molecule antagonist of IL-17 being developed initially for the treatment of psoriasis with the objective of achieving therapeutic benefit similar to that of the injectable biologics, COSENTYX and TALTZ, with potential expansion of development into indications known to be responsive to IL-17 inhibition. COSENTYX and TALTZ are anti-IL-17 mAbs that inhibit both IL-17AA and IL-17AF isoforms, but not the IL-17FF isoform, and have been approved by the FDA and other foreign regulatory authorities, for the treatment of psoriasis and other immunology indications. The global psoriasis drug market was estimated to be $24.2 billion in 2022 according to Evaluate Pharma, and approved anti-IL-17 mAbs comprised an estimated $5.6 billion. The total market opportunity for therapeutics targeting all IL-17 mAb-approved indications, including psoriasis, represented $32.0 billion in 2022, of which anti-IL-17 mAbs captured $7.5 billion.
In psoriasis, results from pivotal trials for COSENTYX and TALTZ show therapeutic benefits that are approximately double those shown in the pivotal trials for apremilast, an oral phosphodiesterase 4 (PDE4) inhibitor marketed as OTEZLA by Amgen. Despite its inferior therapeutic benefit, OTEZLA generated sales of $2.3 billion in 2022, primarily due to the convenience of its oral administration for patients and clinicians. We therefore believe an oral IL-17 small molecule inhibitor with comparable therapeutic benefit to its systemic biologics counterparts represents a significant market opportunity in psoriasis and other immunology indications where IL-17 inhibition is relevant, including non-radiographic axial spondyloarthritis, ankylosing spondylitis, psoriatic arthritis, juvenile idiopathic arthritis and hidradenitis suppurativa.
In preclinical studies, DC-806 was able to selectively inhibit both IL-17AA and IL-17AF isoforms, while sparing the IL-17FF isoform. Furthermore, we have shown that DC-806 matched the anti-inflammatory activity of an anti-IL-17 mAb in a well-established animal model. The MHRA in the UK approved our CTA in September 2021. In October 2022, we announced positive topline data from our Phase 1 clinical trial in healthy volunteers and psoriasis patients. Clinical proof-of-concept in psoriasis patients was achieved with a mean percentage reduction in PASI from baseline at 4 weeks of 43.7% in the high dose group compared to 13.3% in the placebo group, with an exploratory p-value of 0.0008. Additionally, DC-806 was well tolerated with a favorable safety profile across all dose groups in healthy volunteers and psoriasis patients, with a robust PK profile and clear pharmacodynamic effects on two distinct biomarkers at both high and low doses of DC-806. Collectively these data support further development of DC-806 as a potential best-in-class oral agent for the treatment of psoriasis. Our IND application
was cleared by the FDA in March 2023 and is in effect for DC-806. We plan to advance DC-806 into a global Phase 2b clinical trial in the first half of 2023.
Our IL-17 expertise, coupled with DELSCAPE, has enabled us to build what we believe is the most comprehensive and functional DEL for IL-17 small molecule inhibitors in the industry, and has resulted in the generation of multiple potential therapeutic candidates of IL-17 inhibitors with structural classes distinct from that of DC-806. To take advantage of the depth of our IL-17 capabilities, we have adopted a strategy to advance two additional, structurally-distinct therapeutic candidates through IND-enabling studies, and to progress the first of these candidates into clinical trials. In the second half of 2021, we nominated a development candidate, DC-853, a differentiated fast-follower molecule that in pre-clinical studies has been shown to inhibit IL-17AA and IL-17AF in a manner similar to that of DC-806. The MHRA in the UK approved our CTA for DC-853 in February 2023. We began dosing healthy volunteers in our Phase 1 clinical trial with DC-853 and expect topline data in the second half of 2023. Nomination of a second additional, differentiated, novel scaffold development candidate is expected in 2023. We believe that advancing multiple platform-derived therapeutic candidates unlocks the ability to develop compounds with differentiated properties and has the potential to maximize the value of our IL-17 franchise.
Our α4ß7 Integrin Antagonist Program
Alpha 4 beta 7 (“α4ß7”) is a powerful signaling molecule embedded in the cell membranes of immune cells and is an established target for IBD. ENTYVIO (vedolizumab) is an anti-α4ß7 mAb which is approved for the treatment of ulcerative colitis (“UC”) and Crohn’s disease (“CD”). We believe that there is an unmet need for convenient oral therapies for these indications due to their chronic nature. The dimeric nature of integrins (which consist of one alpha protein subunit and one beta protein subunit), as well as the existence of chemical starting points enabled us to apply DELSCAPE to identify potent and highly selective small molecule inhibitors of α4ß7. We believe that the high selectivity for α4ß7 over α4ß1 is a key feature of ENTYVIO and will be critical for the development of a small molecule therapeutic. Our lead compounds demonstrate over 1,000-fold selectivity for α4ß7 over α4ß1. In contrast, TYSABRI (natalizumab) binds to both α4ß7 and α4ß1, and this selectivity for α4ß1 has been linked to progressive multifocal leukoencephalopathy, resulting in the FDA restricting its use in IBD. Our α4ß7 program is in the lead optimization stage and we expect to nominate a therapeutic candidate for this program by the end of 2023.
Our αVß1/αVß6 Integrin Antagonist Program
We are also evaluating antagonists of the alpha V (“αV”) family of integrins for the treatment of fibrosis. Increased expression of the integrins alpha V beta 1 (“αVß1”) and alpha V beta 6 (“αVß6”) has been observed in patients with idiopathic pulmonary fibrosis (“IPF”) and it has been demonstrated that increased levels of αVß1 and αVß6 drive increased activation of TGF-ß, a potent pro-fibrotic mediator. Preclinical data indicates that inhibitors of αVß1 and αVß6 have potential as therapeutics for the treatment of IPF and other fibrotic diseases by reducing TGF-ß activation. DELSCAPE enabled us to identify potentially potent inhibitors of αVß1 and αVß6 with a variety of selectivity profiles ranging from αVß1-selective, to dual-selective, to αVß6-selective. From these hits, we have generated multiple lead series with the potential to provide clinical candidates. We will continue to monitor the evolving αV integrin clinical landscape for additional target validation prior to committing further resources toward advancing the αV integrin antagonist program.
Our Programmed Death-Ligand 1 (“PD-L1”) Program
We previously partnered with Sanofi to apply our DELSCAPE platform outside of our core immunology focus. This partnered program was a small molecule against programmed death-ligand 1 (“PD-L1”), an immuno-oncology target that has been clinically and commercially validated with antibody therapeutics. Through our collaboration with Sanofi, we were able to identify small molecules that disrupt this immuno-oncology target in a manner mechanistically similar to the approach taken in our IL-17 and integrin programs. Although the antibodies directed to this target have been successful, there are two areas where we believe that a small molecule solution could have advantages over a biologic. First, a small molecule may have better tissue and membrane penetration than an antibody, with the potential to deliver increased clinical benefit in solid tumors, and potentially in brain tumors. Second, small molecule drugs, in general, have shorter half-lives than antibody therapeutics. In cases where treatment leads to the development of adverse events, the discontinuation of dosing of a small molecule could lead to elimination of a drug from the body within hours and potentially result in more rapid alleviation of an adverse event than an antibody therapeutic, which could remain active for weeks. In March 2022, Sanofi notified the
Company that it no longer intended to develop therapeutic candidates under the partnered program. Due to this program being outside of our core immunology focus, we intend to re-partner this program.
Given the broad therapeutic potential of our DELSCAPE platform, we have in the past and will continue to opportunistically evaluate partnerships with leading pharmaceutical companies for drug targets outside our core strategic focus in immunology. We presently have a collaboration with Insitro, which is designed to combine our DELSCAPE platform and Insitro’s machine learning-enabled drug discovery capabilities for the discovery and prediction of potential therapeutic candidates.
We are led by a team of executives with extensive experience in small molecule drug discovery and development. J. Kevin Judice, Ph.D., our CEO and co-founder, previously served as Chief Scientific Officer at Cidara Therapeutics, a company he helped found. Earlier in his career, he co-founded Achaogen and served as its CEO and CSO. Scott Robertson, our CFO and CBO, served as Business Development Director for DuPont Pioneer and previously was an investment professional at MPM Capital. Timothy Lu, M.D., Ph.D., our Chief Medical Officer, was a Senior Medical Director at Genentech in inflammatory diseases including IBD. John Jacobsen, Ph.D., Chief Scientific Officer, previously was Senior Director of Medicinal Chemistry at Theravance where he led multiple research programs in respiratory diseases and helped transition six compounds into clinical development.
Our goal is to be an industry leader in PPI disruption biology and drug development. We intend to develop a broad portfolio of oral therapeutic candidates for immunologic diseases with our PPI disruption approach. Our strategies to achieve this goal are:
Our Drug Discovery Approach
DELSCAPE is one part of a larger approach to the selection and prosecution of historically difficult PPI targets. When selecting targets for our internal pipeline, we evaluate a number of parameters in parallel before settling on proteins for investigation in our labs.
Our DELSCAPE Platform
Our DELSCAPE platform leverages a chemical technique known as DELs in a novel way that we believe improves our ability to prosecute historically difficult targets such as PPIs with oral small molecule inhibitors.
Historical Design and Utilization of DNA-Encoded Libraries
DELs were developed to enable the synthesis and screening of vast numbers of small molecule drug candidates at a scale that is not possible to achieve by traditional approaches. By covalently linking each small molecule in a large collection (library) of possible hits to a unique DNA tag, each member of the library then carries a barcode that specifies its structure and the means used to make it. Because each member of the library carries its own unique barcode, the entire collection of molecules in the library can be tested simultaneously for their ability to bind to a specific target. In such an assay, the target is immobilized to a solid support and then a sample of the library is passed over it. Individual members of the library that bind to the target thus stick tight, allowing the other, non-binding components of the mixture to be washed away. In the final step of the process the binders are identified, using a procedure such as polymerase chain reaction (“PCR”) to read their DNA barcodes. This process typically produces a small number of binders, or hits, which can then serve as starting points for a labor-intensive medicinal chemistry process known as hit-to-lead optimization.
Historically, DELs have been used to generate very large libraries of compounds, typically ranging in size from billions to trillions of individual members. It was felt that the large number of compounds would increase the chances of finding hits, or binders to the target. While this is true in some instances, it overlooks an inescapable fact of such a large library, which is that the few hits within it are vastly outnumbered by compounds that do not bind to the target. Thus, there is very little true signal and a great deal of noise, meaning that even using a technique as sensitive as PCR to read the barcodes of hits one must somehow deal with overwhelming amounts of what are known as false positives, or compounds that appear to bind to the target but are really just random noise. As a result, it can be difficult to get much more useful information from a traditional DEL library than a few hits with which to start a long and manually driven hit-to-lead optimization process.
For these reasons, we believe that traditional DELs represent an incremental advance over approaches that precede them, but they do not offer general solutions to the problem of generating useful drugs against historically difficult targets such as PPIs.
DELSCAPE Accelerates Hit-to-Lead Phase of Drug Discovery
We take a fundamentally different approach to the use of DELs. Rather than focus on making ever-larger collections of compounds, we took the counterintuitive path of making ours smaller. Our libraries are instead designed to have greater focus, with a lower number of distinct compounds than libraries generated for broad screening. They typically have between 100,000 and 8 million discrete compounds, which greatly increases the signal to noise ratio—positive binders—by reducing the noise of non-binders by between a thousand- and a million-fold. As a result, we can elucidate quantitative information on entire families of structurally related compounds in a single experiment, rather than just identifying a few hits. This concept is shown in Figure 3 below.
Figure 3: Our focused libraries are designed to provide the ability to conduct high-throughput medicinal chemistry due to a higher signal-to-noise ratio. In this figure, each bar represents an individual compound
where the height of the bar represents its potency. Our focused libraries have multiple structurally related compounds allowing us to gain insight into the impact of series of small chemical modifications on potency. This rich collection of information about the potency of SARs can then inform the design of additional compounds with other drug-like properties such as stability, and therefore contributes to an overall acceleration of the hit-to-lead phase of small molecule drug discovery. This is particularly important when attempting to tackle historically difficult targets such as PPIs.
In the figure above on the left, we are illustrating what we call a SAR landscape. In such a figure, one can envision the three-dimensional plot with the X- and Y-axes describing structural features of the molecules under study, while the Z-axis (or vertical axis) describes the relative binding affinity of a given molecule for its target. Each vertical spike in the figure on the left thus represents an individual molecule, while the height of the spike reflects the relative binding affinity of that molecule, with higher spikes corresponding to tighter binders to the target in question.
As illustrated in the plot on the left, there are many spikes arising from the analysis of this large library. However, the ratio of true signal to random noise, described above, will limit the investigator’s ability to elucidate all of the information that would otherwise be available from such an experiment. We envision this limitation graphically as a signal to noise floor, below which no useful information can be gleaned and represented here as a transparent gray plane. In this illustration, one can see that only a few spikes protrude above the signal-to-noise floor, thus providing only a few bona-fide hits despite the large number of compounds in the original library.
A DELSCAPE experiment is illustrated conceptually on the right side of Figure 3. In this graphic it is clear that the overall size of the library is smaller, as indicated by the smaller area described in the X- and Y-planes; however, as articulated above, this reduction in overall compound number, when combined with the biased design approach described below, significantly improves the signal-to-noise ratio, indicated graphically here as a lower transparent gray plane. As a result, more spikes protrude above the signal-to-noise threshold and a more comprehensive data set can be derived from this experiment. We have found that libraries constructed and analyzed in this fashion give us numbers of bone fide hits against difficult PPI targets ranging from hundreds to tens of thousands, with rank orders of potency attached to each individual hit. This type of experiment can also identify discrete structural families, shown as differently colored groups of spikes on the right side of Figure 3. The information as to identities of richly populated families of hits, when combined with the detailed rank order of potency shown as spikes of varying heights, can facilitate expedited progress through the hit-to-lead phase as other essential properties of candidate drugs are built in to the molecules.
To summarize, the advantages of DELSCAPE for targeting PPIs over conventional approaches, including more typical and much larger DELs, are as follows:
Our IL-17 Programs
Our lead therapeutic candidate, DC-806, is an orally-available small molecule antagonist of IL-17 being developed initially for the treatment of psoriasis with the objective of achieving therapeutic benefit similar to that of the injectable biologics, COSENTYX and TALTZ, with potential expansion of development into indications where IL-17 inhibition has shown therapeutic benefit.
DC-806 was designed precisely to target the most inflammatory members of the IL-17 family, notably the AA and AF isoforms, with the goal of providing the greatest therapeutic potential and a reduced likelihood of off-target side effects. In preclinical studies, DC-806 was able to selectively inhibit both IL-17AA and IL-17AF isoforms, while sparing the IL-17FF isoform. In clinical trials conducted by third parties, the simultaneous inhibition of all three isoforms has been linked to increased adverse events compared to simultaneous inhibition of IL-17AA and IL-17AF only.
The MHRA in the UK approved our CTA in September 2021 and in October 2022, we announced positive topline data from our Phase 1 clinical trial in healthy volunteers and psoriasis patients. Clinical proof-of-concept in psoriasis patients was achieved with a mean percentage reduction in PASI from baseline at 4 weeks of 43.7% in the high dose group compared to 13.3% in the placebo group, with an exploratory p-value of 0.0008. Additionally, DC-806 was well tolerated with a favorable safety profile across all dose groups in healthy volunteers and psoriasis patients, with a robust PK profile and clear pharmacodynamic effects on two distinct biomarkers at both high and low doses of DC-806. Collectively these data support further development of DC-806 as a potential best-in-class oral agent for the treatment of psoriasis. Our IND application was cleared by the FDA in March 2023 and is in effect for DC-806. We plan to advance DC-806 into a global Phase 2b clinical trial in the first half of 2023.
To take advantage of the depth of our IL-17 capabilities, we have adopted a strategy to advance two additional, structurally-distinct therapeutic candidates through IND-enabling studies, and to progress the first of these candidates into clinical trials. In the second half of 2021, we nominated a development candidate, DC-853, a differentiated fast-follower molecule that in pre-clinical studies has been shown to inhibit IL-17AA and IL-17AF in a manner similar to that of DC-806. The MHRA in the UK approved our CTA for DC-853 in February 2023. We began dosing healthy volunteers in our Phase 1 clinical trial with DC-853 and expect topline data in the second half of 2023. Nomination of a second additional, differentiated, novel scaffold development candidate is expected in 2023. We believe that advancing multiple platform-derived therapeutic candidates unlocks the ability to develop compounds with differentiated properties and has the potential to maximize the value of our IL-17 franchise.
Psoriasis Disease Background
Psoriasis is a chronic, inflammatory skin disease characterized by rapid turnover, excessive proliferation and lack of differentiation of skin cells (keratinocytes). Psoriasis is estimated to affect more than 125 million people worldwide and more than 8 million people in the United States. According to Evaluate Pharma, the global psoriasis market was estimated to be $24.2 billion in 2022. In plaque psoriasis, the most common type of psoriasis, patches of skin called lesions or plaques become red and inflamed and are covered by a white scale. The extent of inflammation can be limited to a few lesions or can involve moderate to large areas of the skin and scalp. A standard measure of disease is the PASI score, which takes into account the percent of body surface area affected and the severity of the lesions. Psoriasis is not simply a cosmetic problem; it is associated with many comorbidities including psoriatic arthritis, CD, psychological and psychiatric disorders, uveitis, metabolic syndrome, cardiovascular, celiac disease, nonalcoholic fatty liver disease and erectile dysfunction. In a recent survey, nearly 60% of people with psoriasis reported missing an average of 26 days of work a year attributable to their illness.
The Role of IL-17 Signaling in Psoriasis
One of the primary drivers of the inflammatory response in psoriasis is IL-17. IL-17 regulates the proliferation of keratinocytes and down-regulates their differentiation. It also induces keratinocytes to secrete other signaling molecules, called chemokines, that drive the influx of immune cells, including neutrophils and dendritic cells. Skin inflammation is driven by the production of inflammatory molecules such as TNFα and nitric oxide from these immune cells.
IL-17 consists of a family of related cytokines, of which IL-17A and IL-17F are the most well-characterized. Both are expressed by a subset of T cells termed Th17 cells. These proteins naturally assemble into a trio of biologically-active dimeric proteins: IL-17AA, IL-17AF and IL-17FF. IL-17AA is the most potent version of the three and acts as a pro-inflammatory signal in diseases such as psoriasis. The structures of these three isoforms are shown in the figure below.
Figure 4. Structure of the IL-17 isoforms and their relative contributions toward inflammatory signaling. IL-17 is also important in mediating host resistance to extracellular bacterial and fungal infections.
In some patients, excessive secretion of IL-17 by Th17 cells leads to the development of autoimmune disorders. IL-17AF and IL-17FF play lesser but still significant roles in these diseases. Because of its central role in driving psoriasis, IL-17 is an attractive target for therapeutic development. Approved biologics such as COSENTYX and TALTZ inhibit both IL-17AA and IL-17AF, but not IL-17FF.
Current Treatments for Psoriasis
There is no cure for psoriasis; patients and clinicians instead manage the symptoms of the disease with chronic therapeutic treatment. Initial treatments are typically topical therapies including keratolytics, or skin softening agents such as salicylic acid, benzoyl peroxide and glycolic acid, that serve to loosen dry skin and help reduce inflammation. Patients who do not respond are treated with topical anti-inflammatory and immunosuppressant drugs including corticosteroids and calcineurin inhibitors. The drawbacks of topical treatments include poor adherence, skin irritation, the need for continuous use and the lack of efficacy in treating systemic inflammation.
Approved Oral Systemic Therapies
Patients with more extensive psoriasis, typically covering more than five percent of their body surface area, or psoriasis in areas which are more difficult to treat with topical therapies, such as the scalp, are typically treated with systemic drugs. The first line of systemic therapy after topical therapies are orally administered therapies, but their use is limited by weak long-term efficacy and adverse events.
Methotrexate, used to treat psoriasis since 1971, remains the most widely used systemic therapy, although its use continues to decline due to concerns about side effects including hepatotoxicity and bone marrow suppression that require mandatory routine monitoring. Cyclosporine, a potent immunosuppressant, is another oral option, however, it is associated with a number of adverse events and its use in psoriasis carries a boxed warning for renal toxicity requiring chronic monitoring and limiting long term use. OTEZLA (apremilast), first approved in 2014, is an oral PDE4 inhibitor. In two pivotal clinical trials, 29-33% of patients treated with OTEZLA achieved a PASI 75 response after 16 weeks of therapy, meaning that their PASI score declined by 75% or more following treatment. In the placebo groups, this response rate was only 5-6%. In these trials, patients treated with OTEZLA experienced on average a 30-40% reduction from baseline in their PASI scores at four weeks with an average placebo response of 13-15% reduction. Of the patients who discontinue treatment with OTEZLA, 71% do so because of lack of efficacy. Although safety concerns are considered lower with OTEZLA than with biologic therapies or methotrexate, approximately nine percent of patients treated with OTEZLA experience diarrhea or nausea. Despite these limitations, worldwide sales of OTEZLA totaled $2.3 billion in 2022. SOTYKTU (deucravacitinib), approved in September of 2022, is an allosteric inhibitor of tyrosine kinase 2 (TYK2). In two pivotal clinical trials, 54-59% of patients treated with SOTYKTU achieved a PASI 75 response after 16 weeks of therapy. In the placebo groups, this response rate was 9-13%. In these trials, patients treated with SOTYKTU experienced a 40-43% reduction from baseline in their PASI scores at four weeks with an average placebo response of 17-18% reduction. SOTYKTU’s long-term safety profile remains unknown, and will be further evaluated in an FDA mandated post-marketing safety study.
A 30-milligram dose of OTEZLA, administered twice daily, was evaluated in two pivotal trials (ESTEEM-1 and ESTEEM-2) with 844 and 413 patients, respectively. A 6-milligram dose of SOTYKTU, administered once daily, was evaluated in two pivotal trials (POETYK PSO-1 and POETYK PSO-2) with 666 and 1020 patients, respectively.
Approved Injectable Biologic Therapies
If oral therapies fail, injectable biologic therapies are then used. These therapies target inflammatory molecules such as TNFα, IL-17, IL-23 and IL-12/IL-23. Approved biologic therapies typically are able to induce PASI 75 response in 60-90% of patients within 12 to 16 weeks in clinical trials. Two approved anti-IL-17 mAbs, TALTZ and COSENTYX, have some of the highest reported rates of PASI 75 responses achieved within twelve weeks. For TALTZ in its three pivotal trials, this figure was 87-90% (placebo was 2-7%) of patients and for COSENTYX, this figure was 77-82% (placebo was 5%) in its two pivotal trials. By comparison, anti-TNFα, anti-IL-23 and anti-IL-12/23 mAbs have demonstrated PASI 75 responses in 71-80% (placebo was 7-19%), 64-91% (placebo was 6-10%) and 66-76% (placebo was 3-4%) of patients, respectively.
In these clinical trials, patients treated with anti-TNFα mAbs or COSENTYX achieved an average reduction in PASI scores from baseline at four weeks of 52-57% (placebo was 9-15%) and 50-65% (placebo not reported), respectively.
COSENTYX was evaluated in two pivotal trials (ERASURE and FIXTURE) with 738 and 1,306 patients, respectively. In each trial, COSENTYX was administered 150- or 300-milligrams weekly for four weeks, followed by 150- or 300-milligrams monthly, respectively. TALTZ was evaluated in three pivotal trials (UNCOVER-1, UNCOVER-2, and UNCOVER-3) with 1,296 and 1,224 and 1,346 patients, respectively. In each trial, TALTZ was administered with a starting dose of 160-milligrams followed by 80-milligrams either every 2 weeks or every 4 weeks. Anti-TNFα biologics were evaluated in two pivotal trials (REVEAL and CHAMPION) with 1,212 and 271 patients, respectively. In each trial, 40-milligrams of anti-TNFα biologics were administered every other week.
Despite the high efficacy of biologics, their use for the treatment of psoriasis remains relatively low compared to the population of patients who could potentially benefit. In the United States, an analysis of Medicare claims found that only 10% of moderate-to-severe psoriasis Medicare patients were being treated with biologics. The uptake of biologics has remained limited due to multiple factors including: (i) the fact that biologics are indicated only for use in moderate to severe patients; (ii) their high cost and chronic dosing requirement, which can be as much as $180,000 per year; (iii) reimbursement and access restrictions; (iv) high patient co-pays; (v) a perceived risk of side effects by clinicians; and (vi) the inconvenience of injectable administration.
The Unmet Medical Need in Psoriasis
While there are now numerous approved therapies for psoriasis, we believe there remains a significant unmet medical need for patients and clinicians to effectively and conveniently manage this chronic disease. Although the latest generation of approved biologics are considered to be highly efficacious and are generally able to control disease more effectively, there remains a strong preference among many patients and clinicians for orally-administered therapies, which are commercially successful today despite their limitations. For example, more than twice as many psoriasis patients treated with COSENTYX achieve a PASI 75 response within 12 weeks as compared with those treated with orally-available OTEZLA at 16 weeks, as shown in the figure below. Even after extended dosing, the percentage of patients achieving PASI 75 response with OTEZLA does not approach that of COSENTYX. Despite this inferior efficacy, OTEZLA generated $2.3 billion in global sales in 2022, driven in part by a preference for oral therapies within the psoriasis community.
Figure 5. PASI 75 response rates for COSENTYX (secukinumab) and OTEZLA (apremilast) in their registrational clinical trials.
Accordingly, we believe the prospect of an orally-administered therapy with comparable efficacy to injectable biologics in psoriasis would be a commercially successful therapeutic. In particular, oral therapies that address targets such as IL-17 represent highly attractive opportunities due to the strong clinical validation, known efficacy and low risks of adverse events associated with approved drugs against these targets.
Our Solution: Small Molecule Inhibitors of IL-17 and Our Lead Molecule, DC-806
Our lead therapeutic candidate, DC-806, is an orally-available small molecule antagonist of IL-17 being developed initially for the treatment of psoriasis with the objective of achieving therapeutic benefit similar to that of the injectable biologics, COSENTYX and TALTZ. The MHRA in the UK approved our CTA in September 2021 and in October 2022, we announced positive topline data from our Phase 1 clinical trial in healthy volunteers and psoriasis patients. Clinical proof-of-concept in psoriasis patients was achieved with a mean percentage reduction in PASI from baseline at 4 weeks of 43.7% in the high dose group compared to 13.3% in the placebo group, with an exploratory p-value of 0.0008. Additionally, DC-806 was well tolerated with a favorable safety profile across all dose groups in healthy volunteers and psoriasis patients, with a robust PK profile and clear pharmacodynamic effects on two distinct biomarkers at both high and low doses of DC-806. Collectively these data support further development of DC-806 as a potential best-in-class oral agent for the treatment of psoriasis. Our IND application was cleared by the FDA in March 2023 and is in effect for DC-806. We plan to advance DC-806 into a global Phase 2b clinical trial in the first half of 2023.
To take advantage of the depth of our IL-17 capabilities, we have adopted a strategy to advance two additional, structurally-distinct therapeutic candidates through IND-enabling studies, and to progress the first of these candidates into clinical trials. In the second half of 2021, we nominated a development candidate, DC-853, a differentiated fast-follower molecule that in pre-clinical studies has been shown to inhibit IL-17AA and IL-17AF in a manner similar to that of DC-806. The MHRA in the UK approved our CTA for DC-853 in February 2023. We began dosing healthy volunteers in our Phase 1 clinical trial with DC-853 and expect topline data in the second half of 2023. Nomination of a second additional, differentiated, novel scaffold development candidate is expected in 2023. We believe that advancing multiple platform-derived therapeutic candidates unlocks the ability to develop compounds with differentiated properties and has the potential to maximize the value of our IL-17 franchise.
Our Approach to Identifying Small Molecule IL-17AA and IL-17AF Antagonists Using DELSCAPE
We based our drug discovery efforts on structural information from small molecules in the literature that are known to bind to IL-17AA. We used this structural information to generate DELs and synthesized and then screened millions of compounds for binding to this site. We were specifically interested in those molecules that bound to IL-17AA but were unable to bind to the IL-17AA plus receptor complex. The results of our screening identified two broad classes of compounds: those that bound with equal potency to the receptor complex and to IL-17AA alone; and those with the desired property that they bound potently to IL-17AA but had weak binding to the receptor complex. Compounds of the latter type are desired because selective binding to IL-17AA alone is consistent with a compound that can inhibit IL-17AA from binding to its receptor as illustrated in Figure 6 below.
Figure 6: Binding of compounds in a specific pocket in IL-17 can prevent a conformational change required for IL-17 to bind to its receptor, thereby inactivating it.
Through a single screen, we were able to identify compounds that met our initial design objectives and, because of the richness of the number of active compounds, this screen also provided us with a wealth of information about the impact of specific chemical modifications we had made on the binding potency and selectivity of our early candidates. The results from this screen led us to the identification of DC-806 and its structural class, which selectively inhibit both IL-17AA and IL-17AF isoforms. Further, the results steered us away from working on compounds that were unlikely to ever meet our objective of inhibiting IL-17AA and IL-17AF as shown in Figure 7 below.
Figure 7: A DNA-encoded custom library for IL-17 binders led to the identification of two classes of molecules, one of which led to our lead therapeutic candidate.
Mechanism of Action of DC-806
We designed DC-806 and our other small molecule inhibitors of IL-17 to bind to a pocket on IL-17AA, the member of the IL-17 family believed to be the primary driver of psoriasis. We have shown that a compound binding to this pocket prevents IL-17AA binding to its receptor, and our preclinical data demonstrated that DC-806 binds to a similar pocket in IL-17AF and prevents its binding to the receptor as well. The net effect is that DC-806 and our other molecules that bind to this site inhibited IL-17AA and IL-17AF signaling to the same extent as anti-IL-17A antibodies, while sparing IL-17FF, as shown in the figure below.
Figure 8. Structure of the three IL-17 isoforms and their relative contributions toward inflammatory signaling.
Head-to-head comparison of DC-806 to COSENTYX (secukinumab) in a cell-based assay
To assess the ability of DC-806 to block signaling via IL-17 produced by primary human T- cells, we cultured Th17 cells and used the culture media containing cytokines secreted from these cells to stimulate HEK reporter cells expressing the IL-17 receptor. We determined that the cytokine mixture secreted by these Th17 cells contains IL-17AA, IL-17AF and IL-17FF. As shown in the figure below, DC-806 (blue line, solid blue circles) achieved the same maximal level of inhibition as a high dose of COSENTYX (dotted line). In addition, we observed that compound DX-891126 achieved less overall inhibition than either COSENTYX or DC-806. In a separate experiment, we determined the activity of all three of these molecules against the individual isoforms of IL-17AA and IL-17AF. COSENTYX inhibited IL-17AA and IL-17AF (IC50 values of 0.5 and 8.2 nM, respectively); DC-806 also inhibited IL-17AA and IL-17AF (IC50 values of 12 and 139 nM, respectively); and DX-891126 inhibited IL-17AA (IC50 value of 28 nM) and did not inhibit IL-17AF to any meaningful extent (IC50 value > 10,000 nM). None of the three molecules under evaluation here showed inhibition of IL-17FF at biologically relevant concentrations.
Figure 9. Comparison of inhibition of IL-17 mediated signaling by COSENTYX, DC-806, and DX-891126.
We believe that the ability of DC-806 to spare the blockade of IL-17FF signaling may be beneficial, as IL-17FF has been implicated in preventing mucosal infections based on mouse knockout experiments. Consistent with this finding, published results from a Phase 3 trial of bimekizumab, an antibody that blocks all three isoforms of IL-17, indicate that treatment was associated with approximately 19% of patients developing oral candidiasis compared with 3% of patients treated with COSENYTX.
We tested the in vivo activity of DC-806 in a rat collagen-induced arthritis (“CIA”) model. In this model, immune-driven arthritis was induced by injection of collagen into an ankle joint. Ten days after the initial administration of collagen, rats were treated with orally administered DC-806 or a rat-surrogate for secukinumab that inhibited IL-17AA and IL-17AF signaling. This is a robust model of inflammation that is known to have a significant IL-17-driven component. The 20 mg/kg dose provides the maximal anti-inflammatory effect achievable by the antibody control. DC-806 matches this level of inhibition, indicating that this small molecule inhibitor can suppress the inflammation driven by IL-17A in a disease model to an equivalent degree as antibody-based therapy, as shown in the figure below.
Figure 10: DC-806 and an IL-17 antibody led to similar levels of anti-inflammatory activity in a rat CIA model, as demonstrated by reduced ankle swelling.
Clinical Development of DC-806
Our CTA was approved in September 2021 and in October 2022, we announced positive topline data from our Phase 1 clinical trial in healthy volunteers and psoriasis patients. The trial was a first-in-human, randomized, double-blind, placebo-controlled study designed to generate safety and PK data in healthy volunteers as well as provide early clinical proof of concept in psoriasis patients. The trial was conducted in three overlapping parts: Phase 1a single ascending dose (“SAD”) (n=40); Phase 1b multiple ascending dose (“MAD”) (n=32); and Phase 1c proof-of-concept in psoriasis patients (n=32).
DC-806 was well tolerated with a favorable safety profile across all dose groups in healthy volunteers and psoriasis patients at all dose levels evaluated with no serious adverse events, no dose-limiting adverse events, no treatment-related discontinuations, and no clinically-significant changes in clinical and safety lab parameters (including liver enzymes). All treatment emergent adverse events (“TEAEs”) were classified as mild or moderate with no dose-dependent trend in the frequency, severity, or type of TEAEs observed. Additionally, DC-806 showed a favorable PK profile with dose-proportional increases in serum concentrations throughout the study. Analysis of the MAD and Phase 1c data showed achievement of IC50 and IC90 coverage at trough with doses of 175 mg QD and 400 mg BID, respectively.
Figure 11: PK profile of DC-806: Target coverage of IL-17AA (hours) at steady state.
The Phase 1c, placebo-controlled psoriasis portion enrolled a total of eight patients in the high dose group (800 mg BID), 13 patients in the low dose group (200 mg BID), and 11 patients in the placebo group. Following four weeks of treatment, the mean percentage reduction in PASI from baseline was 43.7% in the high dose group compared to 13.3% in the placebo group, with an exploratory p-value of 0.0008. Reduction in PASI was an exploratory endpoint with no correction for multiplicity.
Figure 12: Efficacy results of the Phase 1c study in psoriasis patients with DC-806.
Exploratory biomarker data demonstrated dose-dependent IL-17 target engagement, rapid onset of action, and pharmacodynamic effects consistent with direct inhibition of IL-17 signaling. DC-806 demonstrated a dose-dependent increase in serum IL-17A levels, a measure of target engagement, and reductions in beta defensin-2 (BD-2), a microbial peptide secreted by inflamed keratinocytes in psoriasis patients. The 200 mg BID and 800 mg BID
cohorts of DC-806 demonstrated serum IL-17A level increases comparable to the approved doses of IL-17 receptor antagonist brodalumab and similar BD-2 reductions as secukinumab.
Figure 13: Serum IL-17 and Beta defensin-2 biomarker data for DC-806.
We have also performed additional biomarker analysis from our completed Phase 1c trial studying DC-806 in a cohort of psoriasis patients. Results from a third-party study of psoriasis patients treated with TALTZ (ixekizumab) and other psoriasis therapies show a correlation, following start of treatment, between the reduction of IL-19 levels below the upper limit of normal within two weeks and subsequent attainment of clinical endpoints such as PASI 90 and PASI 100 at 16 weeks. In our Phase 1c trial, patients treated with DC-806 demonstrated dose-proportional decreases in IL-19 levels within two weeks comparable to those seen with TALTZ (ixekizumab) in the third-party study.
In the Phase 1c portion of the trial, mild-to-moderate psoriasis patients were enrolled with baseline PASI scores between 6 and 7 for the three trial cohorts. These cohorts demonstrated a PASI improvement from baseline of 13.3%, 15.1% and 43.7% for the placebo cohort, 200 mg BID cohort, and 800 mg BID cohort, respectively. Since subsequent clinical trials evaluating DC-806 will enroll moderate-to-severe psoriasis patients, a subgroup analysis examining psoriasis patients with baseline PASI scores of greater than or equal to 6 was conducted. In this subgroup analysis, PASI improvements from baseline of 11.0%, 31.4%, and 47.0% were observed in the placebo cohort, 200 mg BID cohort, and 800 mg BID cohort, respectively.
Figure 14: DC-806 efficacy data by individual patient in the total enrolled population and the PASI ≥ 6 subgroup analysis.
We believe that the results of the Phase 1 trial demonstrate a favorable safety and tolerability profile, clear efficacy signal, robust PK profile, and clear pharmacodynamic effects on two distinct biomarkers at both high and low doses of DC-806. Our IND application was cleared by the FDA in March 2023 and is in effect for DC-806. We plan to advance DC-806 into a global Phase 2b clinical trial in the first half of 2023.
Our Oral IL-17 Franchise
Our IL-17 expertise, coupled with DELSCAPE, has enabled us to build what we believe is the most comprehensive and functional DEL for IL-17 small molecule inhibitors in the industry, and has resulted in the generation of multiple potential therapeutic candidates of IL-17 inhibitors with structural classes distinct from that of
DC-806. Given IL-17 is a well-validated clinical target, we believe that the primary risks associated with DC-806 are those common to small molecule drugs: getting sufficient drug exposure to see PK with a convenient dosing schedule, and safety. To take advantage of the depth of our IL-17 capabilities, we intend to advance two additional, structurally-distinct therapeutic candidates through IND-enabling studies, and to progress the first of these candidates into clinical trials. We believe that advancing multiple platform-derived therapeutic candidates unlocks the ability to develop compounds with differentiated properties and maximizes the value of our IL-17 franchise.
We believe that there will be the potential to develop both DC-806 and other molecules emerging from our IL-17 program in a number of indications in which IL-17 antibodies have demonstrated clinical efficacy including psoriasis, hidradenitis suppurativa, non-radiographic axial spondyloarthritis, ankylosing spondylitis and psoriatic arthritis.
Executing on our stated oral IL-17 franchise strategy, we nominated a development candidate, DC-853, in the second half of 2021. DC-853 is a differentiated fast-follower molecule that, in pre-clinical studies, has been shown to inhibit IL-17AA and IL-17AF with a mechanism of action similar to that of DC-806. In in vitro assays, DC-853 appears to be more potent against the IL-17AA and IL-17AF isoforms when compared to DC-806.
Figure 15: DC-806 and DC-853 in vitro potency against IL-17AA and IL-17AF isoforms
In the rat CIA model, DC-853 matches the level of IL-17 inhibition exhibited by both an anti-IL-17 antibody and DC-806. DC-853 was able to match this inhibitory effect despite utilizing lower doses than DC-806.
Figure 16: DC-853, DC-806 and an IL-17 antibody led to similar levels of anti-inflammatory activity in a rat CIA model, as demonstrated by reduced ankle swelling.
The MHRA in the UK approved our CTA for DC-853 in February 2023. We began dosing healthy volunteers in our Phase 1 clinical trial with DC-853 and expect topline data in the second half of 2023.
Novel Scaffold Program
Executing on our oral IL-17 franchise strategy, we intend to advance our novel scaffold program through IND-enabling studies. This program aims to identify an additional IL-17 inhibitor with the same mechanism of action as DC-806, but which is significantly differentiated from DC-806 in terms of chemical structure. Our novel scaffold program is in the lead optimization stage and we expect to nominate a therapeutic candidate for this program by the end of 2023.
Our Alpha 4 Beta 7 Integrin Program
α4ß7 is a powerful signaling molecule embedded in the cell membranes of immune cells and is an established target for IBD. ENTYVIO (vedolizumab), marketed by Takeda, is an injectable anti-α4ß7 mAb which is approved for the treatment of UC and CD. We are developing our orally-available α4ß7 integrin antagonist in a manner designed to mimic the anti-inflammatory actions of ENTYVIO, specifically its high selectivity for α4ß7 over α4ß1. Our lead compounds demonstrated over 1,000-fold selectivity for α4ß7 over α4ß1. In contrast, TYSABRI (natalizumab), marketed by Biogen, binds to both α4ß7 and α4ß1, and this selectivity for α4ß1 has been linked to progressive multifocal leukoencephalopathy, resulting in the FDA restricting its use in IBD. Our α4ß7 program is in the lead optimization stage and we expect to nominate a therapeutic candidate for this program by the end of 2023.
Ulcerative Colitis Disease Background
UC is a form of IBD characterized by inflammation and ulcers in the large intestine. The clinical symptoms of UC are diarrhea and bloody stool. Its clinical course is marked by exacerbations and remissions, which may occur spontaneously or in response to dietary changes, alterations in treatment regimens, or other illnesses or stress.
UC can be debilitating and can sometimes lead to life-threatening complications. Frequent diarrhea and bloody stools can lead to weight loss, dehydration and anemia. Persistent UC is associated with an increased risk of developing colon cancer. The Centers for Disease Control estimates that there are three million individuals in the United States with IBD, of which roughly half have UC. A similar number of individuals in Europe are estimated to have UC.
UC is typically treated with anti-inflammatory drugs starting with more moderate and locally-delivered drugs, and progressing to systemic immunosuppressive drugs for patients with refractory disease. First line therapy for patients with mild disease consists of 5-aminosalicylates such as mesalamine and sulfasalazine. Patients with more severe disease are treated with systemic corticosteroids, with the intent of inducing remission and transitioning patients to better-tolerated drugs such as 5-aminosalicylates for maintenance. Some patients may be treated with systemic immunomodulatory drugs such as azathioprine, cyclosporine and XELJANZ (tofacitinib). Anti-inflammatory biologics such as TNFα antagonists REMICADE (infliximab), HUMIRA (adalimumab) and SIMPONI (golimumab) and the IL-12/IL-23 antagonist STELARA (ustekinumab) are effective in inducing remission in patients with moderate to severe UC.
ENTYVIO (vedolizumab) was first approved by the FDA to treat UC and CD in 2014. In clinical trials, approximately 30% of patients receiving ENTYVIO achieved remission at the end of one year of treatment. ENTYVIO is administered as a 30-minute intravenous infusion at zero, two and six weeks, then every eight weeks thereafter. Long term therapy is generally well-tolerated in patients, but frequent dose adjustments have been reported to be required to maintain efficacy. Despite this inconvenience, Entyvio sales in 2022 are anticipated to be approximately $5.5 billion per Evaluate Pharma.
Crohn’s Disease Background
CD is a chronic inflammatory disease that most commonly affects the end of the small intestine and the beginning of the large intestine, although it may involve any part of the gastrointestinal tract. Both CD and UC are types of IBD and many of the symptoms and demographics overlap. In addition to the potential of CD developing in other segments of the intestine, CD differs from UC in that there can be normal healthy tissue in between patches of diseased tissue in CD, unlike UC where the inflammation is continuous. CD can also occur in all layers of the intestinal wall unlike UC which is limited to the inner most layer. It is estimated that there are 1.5 million individuals in the United States and 1.1 million individuals in Europe with CD.
The treatment paradigm for CD is very similar to that of UC with currently approved therapies focused on anti-inflammatory agents. Nearly 60% of CD patients will require surgery within twenty years of diagnosis to treat complications such as fistulas, or abnormal connections between body parts, life-threatening bleeding and intestinal obstructions.
While there are numerous approved therapeutics for UC and CD, we believe there remains a significant unmet medical need for patients and clinicians to effectively and conveniently manage these chronic diseases, which we believe could be facilitated by effective oral therapies.
Role of the α4ß7 Integrin in IBD
Integrins are the principal receptors used by cells to bind to the extracellular matrix. They are heterodimers consisting of one of 24 alpha subunits and one of nine beta subunits, with the 24 different combinations that have been observed involved in a variety of biological roles. Specific combinations of alpha and beta heterodimers have distinct biological functions. The alpha 4 subunit can form heterodimers with beta 1 and beta 7 subunits. In the gut, α4ß7 integrin has been shown to drive trafficking of lymphocytes to mucosal tissues leading to disease pathogenesis in IBD. On the other hand, α4ß1 is associated with other inflammatory diseases such as multiple sclerosis (“MS”). Antibodies with activity towards α4ß1, such as TYSABRI, have been approved for the treatment of MS, but carry a boxed warning due to the risk of progressive multifocal leukoencephalopathy leading to death or severe disability, driven in part by its activity towards α4ß1. ENTYVIO, which binds only to α4ß7 integrin and not α4ß1, does not carry this warning.
Integrin Antagonists: Challenges of Small Molecule Development
Two integrins of interest in immunologic disease, the integrins α4ß7 and α4ß1, have significant structural similarities, sharing a common alpha subunit. In order to develop a small molecule that provides a comparable therapeutic effect to the mAb ENTYVIO, high selectivity for α4ß7 over α4ß1 is required. Distinguishing between these integrins is a significant challenge with small molecule drugs. We believe our approach gives us an advantage in discovering integrin inhibitors because we can deploy DELSCAPE to assess the potency and selectivity of millions of candidate molecules in parallel. The resulting information relating biological activity to chemical structure can greatly accelerate the process of identifying highly selective candidate molecules for clinical development.
Our Solution: A Selective α4ß7 Integrin Antagonist
Leveraging DELSCAPE, we have identified selective oral small molecule antagonists of α4ß7 integrin that spare α4ß1 integrin. We believe that there is a substantial clinical need and commercial opportunity for an oral α4ß7 antagonist that can deliver the anti-inflammatory activity of ENTYVIO without the burden associated with injectable administration. An additional potential advantage of an oral α4ß7 agonist dosed daily is the ability to rapidly adjust dosing to maintain clinical efficacy in patients, a process that can take some time with an intravenous drug that is administered at eight-week intervals.
In an integrin-specific cell adhesion assay, DX-819511, one of our lead molecules, was shown to inhibit α4ß7 while sparing α4ß1, as shown in Figure 17 below. Specifically, DX-819511 had a potency of 2.2 nM against α4ß7 and 2,300 nM against α4ß1, a selectivity ratio of approximately 1,000-fold. We are continuing to optimize molecules related to DX-819511 for potency and physiochemical properties. We anticipate nominating a therapeutic candidate in this program by the end of 2023.
Figure 17: DX-819511 was approximately 1,000-fold more potent in inhibiting cell adhesion through α4ß7 integrin than α4ß1 integrin.
Our Alpha V Integrin Program
Alpha V (“αV”) integrins have been implicated in a number of fibrotic diseases in tissues such as the lungs, liver and kidney. These integrins are heterodimers with the αV subunit paired with different beta subunits in different integrins. There are a number of drug candidates targeting αV integrins in clinical development and the safety and efficacy of various beta subunit selectivity profiles remain to be established.
Utilizing DELSCAPE, we have generated libraries containing millions of compounds that have αV antagonist activity. By profiling these compounds against various αV heterodimers, we have identified structural features that have led to the generation of compounds that have higher, equal, or lower potency between αVß1 and αVß6. In some cases, this selectivity is over 100-fold. Our DELs have enabled us to perform medicinal chemistry at a scale at least 1,000-fold the throughput of more traditional synthetic approaches, allowing us to rapidly generate and assess chemical variants, as shown in the figure below.
Figure 18: DELSCAPE led to the identification of chemical structural features that drive selectivity between αVß1 and αVß6.
We will continue to monitor the evolving αV integrin clinical landscape for additional target validation prior to committing further resources toward advancing the αV integrin antagonist program.
Our Programmed Death-Ligand 1 (“PD-L1”) Program
We previously partnered with Sanofi to apply our DELSCAPE platform outside of our core immunology focus. This partnered program was a small molecule against PD-L1, an immuno-oncology target that has been clinically and commercially validated with antibody therapeutics. Through our collaboration with Sanofi, we were able to identify small molecules that disrupt this immuno-oncology target in a manner mechanistically similar to the approach taken in our IL-17 and integrin programs. Although the antibodies directed to this target have been successful, there are two areas where we believe that a small molecule solution could have advantages over a biologic. First, a small molecule may have better tissue and membrane penetration than an antibody, with the potential to deliver increased clinical benefit in solid tumors, and potentially in brain tumors. Second, small molecule drugs, in general, have shorter half-lives than antibody therapeutics. In cases where treatment leads to the development of adverse events, the discontinuation of dosing of a small molecule could lead to elimination of a drug from the body within hours and potentially result in more rapid alleviation of an adverse event than an antibody therapeutic, which could remain active for weeks. In March 2022, Sanofi notified the Company that it no longer intended to develop therapeutic candidates under the partnered program. Due to this program being outside of our core immunology focus, we intend to re-partner this program.
Our approach to drug discovery and development leverages the capabilities of DELSCAPE to determine feasibility, optimize the design of and generate families of specific and potentially potent therapeutic compounds that we consider ideal for advancement to clinical development. We combine this approach with an assessment of attractive, validated market opportunities, informed by our expertise in the field of immunology, to determine our priority targets. This differentiated approach to discovery underpins the demonstrated power of DELSCAPE to generate potential clinical candidates against conventionally difficult-to-drug PPI targets and we believe significantly expands the number of biologic targets that can be modulated with oral small molecules. We are continuing to invest in our computational chemistry capabilities to accelerate our library design and data analysis as we identify and interrogate new targets using DELSCAPE. We have identified additional targets relevant and validated in immunology, such as FcRn, TSLP, TNFα and IL-23, among others, that meet our target selection criteria, and we expect to identify additional targets in the future. We plan to dedicate a portion of our drug
discovery efforts toward at least one of these promising targets with the goal of expanding our portfolio of immunology therapeutic candidates.
The biotechnology and pharmaceutical industries are characterized by rapid evolution of technologies, fierce competition and strong defense of intellectual property. While we believe that DELSCAPE and our knowledge, experience and scientific resources provide us with competitive advantages, we face competition from well-established pharmaceutical and molecule biotechnology companies, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others.
Although we believe that DELSCAPE and our lead therapeutic candidate address different therapeutic needs, any therapeutic candidates that we successfully develop and commercialize in the future, will compete with currently approved therapies or new therapies that may become available in the future. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of and pricing, levels of promotional activity and reimbursement levels for our therapeutics.
We are advancing our lead program, DC-806, an antagonist of IL-17 being developed initially for the treatment of psoriasis, with the objective of achieving therapeutic benefit similar to that of the injectable biologics. There are currently three approved antibody therapeutics targeting the IL-17 pathway: COSENTYX, marketed by Novartis; TALTZ, marketed by Eli Lilly; and SILIQ, marketed by Bausch Health. UCB SA is also developing an anti-IL-17 mAb, bimekizumab, and has submitted an NDA to the FDA for its use in psoriasis. Other classes of injectable biologics approved for use in indications for which IL-17 therapeutics are also approved include anti-IL-12/23 and anti TNFα mAbs, marketed by Abbvie, Sun Pharmaceutical Industries and Janssen Pharmaceuticals, among others. Furthermore, the oral PDE4 inhibitor, OTEZLA, marketed by Amgen, and oral TYK2 inhibitor, SOTYKTU, marketed by Bristol Myers Squibb, are approved for the treatment of psoriasis. In addition, we are aware of other oral therapeutic candidates including TYK2 inhibitors, oral IL-17 inhibitors, and oral IL-23 inhibitors being developed by Janssen Pharmaceuticals, Takeda Pharmaceutical Company, Ventyx Biosciences, and LEO Pharma, among others.
We are also developing oral therapeutics targeting α4ß7 integrin and αVß1/αVß6 integrin for the treatment of IBD and IPF, respectively. Approved integrin antagonists include TYSABRI marketed by Biogen for the treatment of CD and MS and ENTYVIO marketed by Takeda for the treatment of UC and CD. In addition, we are aware of IBD treatments either approved or in development by Abbvie, Bristol-Myers Squibb, Janssen Pharmaceuticals, Arena Pharmaceuticals and Morphic Therapeutic, among others, and IPF treatments either approved or in development by Boehringer Ingelheim, Roche and Abbvie, among others. Many of our competitors have significantly greater financial resources and expertise than we do in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products. 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 that might be complementary to, or necessary for, our current or future programs.
Currently, all of our preclinical and clinical drug manufacturing, storage, distribution or quality testing are outsourced to third-party manufacturers. As our development programs progress and we build new process efficiencies, we expect to continually evaluate this strategy with the objective of satisfying demand for registration trials and, if approved, the manufacture, sale and distribution of commercial products.
As of December 31, 2022, we had 71 full-time employees, approximately 72% of whom are primarily engaged in research and development activities. Of these full-time employees, 28 have an M.D. and/or a Ph.D. None of our employees are represented by a labor union or party to a collective bargaining agreement. We consider our relationship with our employees to be good.
From time to time, we retain independent contractors to support our organization, and we continually evaluate our business needs and opportunities, striving to balance in-house expertise and capacity with outsourced expertise and capacity. Currently, we outsource all clinical trial work and all manufacturing work to clinical research organizations and to contract manufacturers, respectively.
Diversity & Inclusion
We are committed to creating and maintaining a workplace free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any other status protected by applicable law. Our management team and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and we have implemented specific policies designed to prevent, identify, report and stop any type of discrimination and harassment. Our recruitment, hiring, development, training, compensation and advancement at our company is based on qualifications, performance, skills and experience without regard to gender, race and ethnicity.
Competitive Pay & Benefits and Pay Equity
We strive to provide competitive and robust compensation and benefits programs that help meet the varying needs of our employees, and we are committed to pay equity, without regard for gender or race/ethnicity. Our benefits program includes a choice of medical plans, vision and dental coverage, flexible spending accounts for health and dependent day care needs, and income protection through life, short-term and long-term disability coverage, sick leave, paid family leave, and generous paid time off. Our employees enjoy flexible work schedules along with access to a partially subsidized cafeteria and access to a fitness center at no cost. In addition, we offer every full-time employee, both exempt and non-exempt, the benefit of equity ownership in the company through stock option grants. We offer a 401(k) plan and in 2022, we announced a company match for the 401(k) plan starting January 1, 2023.
Our success depends in part on our ability to obtain and maintain proprietary protection for our therapeutic candidates and other discoveries, inventions, trade secrets and know-how that are critical to our business operations. Our success also depends in part on our ability to operate without infringing the proprietary rights of others, and in part on our ability to prevent others from infringing our proprietary rights. A comprehensive discussion on risks relating to intellectual property is provided under the section titled “Risk Factors—Risks Related to Intellectual Property.”
For our IL-17 program, as of March 8, 2023, we own one issued U.S. patent, U.S. Patent No. 11, 274,094, covering our lead clinical candidate (DC-806) and follow-on development candidate (DC-853), which is expected to expire in 2040, not including any patent term adjustments and extensions that may be available. DiCE Alpha Inc. further owns several patent applications covering DC-806, both inside and outside the United States, including: one issued U.S. patent, four pending U.S. patent applications, one issued foreign patent, and seventeen pending foreign patent applications, any of which, if issued, are expected to expire in 2040, not including any patent term adjustments and extensions that may be available. DiCE Alpha Inc. further owns five pending U.S. provisional patent applications, two pending foreign patent applications, and two pending Patent Cooperation Treaty patent applications, which are expected to expire from 2042 to 2044, if issued from future non-provisional applications that we file, not including any patent term adjustments and extensions that may be available. We intend to strengthen the patent protection of our programs through additional patent application filings.
For our Alpha 4 Beta 7 program, as of March 8, 2023, we have two pending U.S. provisional patent applications, which are filed in the name of DiCE Molecules SV, Inc. These provisional applications are directed to compositions of matter and methods of inhibiting α4ß7 integrin. Any patents, issuing from patent applications in these families are projected to expire in 2043, notwithstanding any patent term adjustments and extensions that may be available.
For our Alpha V program, as of March 8, 2023, we have one pending Patent Cooperation Treaty patent application, which is filed in the name of DiCE Molecules SV, Inc. This Patent Cooperation Treaty application is directed to compositions of matter and methods of inhibiting αVß1 or αVß6 integrins. Any patents, issuing from
patent applications in these families are projected to expire in 2042, notwithstanding any patent term adjustments and extensions that may be available.
In addition to patent protection, we also rely on trade secrets, know-how, trademarks, other proprietary information and continuing technological innovation to develop and maintain our competitive position. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. However, such confidentiality agreements can be breached, and we may not have adequate remedies for any such breach. For more information regarding the risks related to our intellectual property, see the section titled “Risk Factors—Risks Related to Intellectual Property.”
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by FDA. The Federal Food, Drug, and Cosmetic Act (“FD&C Act”) and other federal and state statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the U.S. typically involves preclinical laboratory and animal tests, the submission to FDA of an IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice (“GCP”) an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to FDA as part of the IND.
FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board (“IRB”) and ethics committee for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence of effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a drug demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial may be sufficient in rare instances, including: (i) where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible; or (ii) when in conjunction with other confirmatory evidence.
The manufacturer of an investigational drug in a Phase 2 or 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access.
After completion of the required clinical testing, an NDA is prepared and submitted to FDA. FDA approval of the NDA is required before marketing of the product may begin in the U.S. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the applicant under an approved NDA is also subject to an annual program fee for each prescription product. These fees are typically increased annually.
FDA has 60 days from its receipt of an NDA to determine whether the application will be filed based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is filed, FDA begins an in-depth review. FDA has agreed to certain performance goals in the review of NDAs to encourage timeliness. Most applications for standard review drug products are reviewed within ten to twelve months of the date of submission of the NDA to FDA; most applications for priority review drugs are reviewed in six to eight months of the date of submission of the NDA to FDA. Priority review can be applied to drugs that FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. The review process for both standard and priority review may be extended by FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.
FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an outside advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation and a recommendation as to whether the application should be approved. FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Before approving an NDA, FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, FDA will inspect the facility or the facilities at which the drug is manufactured. FDA will not approve the product unless compliance with current good manufacturing practices (“cGMPs”) is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for FDA to reconsider the application. If, or when, those
deficiencies have been addressed to FDA’s satisfaction in a resubmission of the NDA, FDA will issue an approval letter. FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, FDA may require a risk evaluation and mitigation strategy (“REMS”), to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use (“ETASU”). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study 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 in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
Under the Pediatric Research Equity Act (“PREA”), NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. FDA may grant full or partial waivers, or deferrals, for submission of data. With certain exceptions, PREA does not apply to any drug for an indication for which orphan designation has been granted.
The Best Pharmaceuticals for Children Act (“BPCA”) provides NDA holders a six-month extension of any exclusivity—patent or nonpatent—for a drug if certain conditions are met. Conditions for exclusivity include FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic reports are required following FDA approval of an NDA. FDA also may require post-marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of an approved product, or FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with FDA subjects entities to periodic unannounced inspections by FDA, during which the Agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production
and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
The Hatch-Waxman Act
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application (“ANDA”). An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug pursuant to each state’s laws on drug substitution.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carve out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Upon NDA approval of a new chemical entity (“NCE”), which is a drug that contains no active moiety that has been approved by FDA in any other NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that drug. An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the exclusivity period. Certain changes to a drug, such as the addition of a new indication to the package insert, can be the subject of a three-year period of exclusivity if the application contains reports of new clinical investigations (other than bioavailability studies) conducted or sponsored by the sponsor that were essential to the approval of the application. FDA cannot approve an ANDA for a generic drug that includes the change during the exclusivity period.
Patent Term Extension
After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA submission and approval up to a maximum of five years). The time can be shortened if FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years, and only one patent can be
extended. For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the United States Patent and Trademark Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Other Healthcare Laws
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain general business and marketing practices in the pharmaceutical industry. These laws include anti-kickback, false claims, transparency and health information privacy laws and other healthcare laws and regulations.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act (“ACA”) amended the intent element of the federal Anti-Kickback Statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to commit a violation. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers, among others, on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Additionally, the ACA amended the federal Anti-Kickback Statute such that a violation of that statute can serve as a basis for liability under the federal civil False Claims Act.
Federal civil and criminal false claims laws, including the federal civil False Claims Act, prohibit any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicare and Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Most states also have statutes or regulations similar to the federal Anti-Kickback Statute and civil False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
Other federal statutes pertaining to healthcare fraud and abuse include the Civil Monetary Penalties Law statute, which prohibits, among other things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror or payor knows or should know is likely to influence the beneficiary to order or receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutes created by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which prohibit, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items or services.
In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, impose obligations on certain healthcare providers, health plans and healthcare clearinghouses, known as covered entities, as well as their business associates and their subcontractors that perform certain services involving the storage, use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of
security of individually identifiable health information. HITECH increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, and often are not pre-empted by HIPAA.
Further, pursuant to the ACA, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule that requires certain manufacturers of prescription drugs to collect and annually report information on certain payments or transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), physician assistants, certain types of advance practice nurses and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. The reported data is made available in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties.
Analogous state and foreign anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non- governmental third-party payors, including private insurers, or that apply regardless of payor. In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals. Further, certain states require the posting of information relating to clinical studies and their outcomes. Some states require the reporting of certain drug pricing information, including information pertaining to and justifying price increases. In addition, certain states require pharmaceutical companies to implement compliance programs and/or marketing codes. Several additional states are considering similar proposals. Certain states and local jurisdictions also require the registration of pharmaceutical sales representatives. Additionally, we may also be subject to state and foreign laws governing the privacy and security of health information in some circumstances, such as California’s CCPA or Europe’s General Data Protection Regulation, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that business arrangements with third parties comply with applicable state, federal and foreign healthcare laws and regulations involve substantial costs. If a drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other federal or state government healthcare programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment and reputational harm. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action for an alleged or suspected violation can cause a drug company to incur significant legal expenses and divert management’s attention from the operation of the business, even if such action is successfully defended.
U.S. Healthcare Reform
In the United States there have been, and continue to be, proposals by the federal government, state governments, regulators and third-party payors to control or manage the increased costs of health care and, more generally, to reform the U.S. healthcare system. The pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the ACA was enacted, which intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry.
Recently, healthcare reform initiatives culminated in the enactment of the Inflation Reduction Act (the “IRA”), in August 2022, which will, among other things, allow U.S. Department of Health and Human Services (“HHS”) to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although only high-expenditure single-source drugs that have been approved for at least 7 years (11 years for biologics) can be selected by CMS for negotiation, with the negotiated price taking effect two years after
the selection year. The negotiated prices, which will first become effective in 2026, will be capped at a statutory ceiling price. Beginning in January 2023 for Medicare Part B and October 2022 for Medicare Part D, the IRA will also penalize drug manufacturers that increase prices of Medicare Part B and Part D drugs at a rate greater than the rate of inflation. The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. These provisions will take effect progressively starting in 2023, although they may be subject to legal challenges.
Third-Party Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any therapeutic candidates for which obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage, and establish adequate reimbursement levels for such drug products. In the United States, third-party payors include federal and state healthcare programs, government authorities, private managed care providers, private health insurers and other organizations.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the MHRA, FDA, EMA or similar foreign regulatory authorities. Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover our costs and may not be made permanent. Reimbursement rates may be based on payments allowed for lower cost drugs that are already reimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Third-party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical drug products and medical services, in addition to questioning their safety and efficacy. Such payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. We may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Nonetheless, our therapeutic candidates may not be considered medically necessary or cost-effective. Moreover, the process for determining whether a third-party payor will provide coverage for a drug product may be separate from the process for setting the price of a drug product or for establishing the reimbursement rate that such a payor will pay for the drug product. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product. As a result, obtaining coverage and reimbursement approval of a drug from a 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. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
The marketability of any therapeutic candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Corporate Information and Trademarks
We were formed as corporation under the laws of the State of Delaware on August 14, 2013, under the name DiCE Molecules Corporation. In November 2014, we formed DiCE Molecules Holdings, LLC and completed a corporate reorganization pursuant to which DiCE Molecules Corporation was effectively succeeded by DiCE Molecules Holdings, LLC. In September 2021, DiCE Molecules Holdings, LLC converted into a Delaware
corporation and changed its name to DICE Therapeutics, Inc. Our principal executive offices are located at 400 East Jamie Court, Suite 300, South San Francisco, CA 94080, and our telephone number is (650) 566-1402.
We use various trademarks and trade names in our business, including, without limitation, our corporate name and logo. All other service marks, trademarks and trade names appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks and tradenames referred to in this Annual Report on Form 10-K appear without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames.
Our Internet website address is www.dicetherapeutics.com. On our website, we make available, free of charge, our annual, quarterly and current reports, including amendments to such reports, as soon as reasonably practicable after the company electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (“SEC”). The SEC maintains a website at www.sec.gov that contains reports as well as other information regarding us and other companies that file materials with the SEC electronically.
Also available on our website is information relating to our corporate governance and our board of directors, including our corporate governance guidelines; our code of business conduct (for our directors, officers and employees); and our board committee charters. We will provide any of the foregoing information without charge upon written request to our Corporate Secretary, DICE Therapeutics, Inc., 400 East Jamie Court, Suite 300, South San Francisco, CA 94080.
We use our Investor Relations website (https://investors.dicetherapeutics.com) as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation Fair Disclosure promulgated by the SEC. These disclosures are included in the “News Releases” and “Events and Presentations” sections of our website. Accordingly, investors should monitor these portions of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
The information contained on our website does not constitute, and shall not be deemed to constitute, a part of this Annual Report on Form 10-K, or any other report we file with, or furnish to, the SEC. Our references to the URLs for websites are intended to be inactive textual references only.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider the risks described below, together with the other information contained in this Annual Report on Form 10-K, including in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We cannot assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. If that were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.
Risks Related to Our Financial Position and Need for Capital
We are a clinical stage biopharmaceutical company with a limited operating history and no therapeutics approved for commercial sale.
We are a clinical stage biopharmaceutical company with a limited operating history on which to base your investment decision. We have no therapeutics approved for commercial sale and have not generated any revenue from commercial therapeutic sales. Biopharmaceutical therapeutic development is a highly speculative undertaking because it entails substantial upfront capital expenditures and significant risk that any potential therapeutic candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable.
We have identified DC-806 as our lead therapeutic candidate for our IL-17 program, which is now in the clinical development stage. We will continue to incur significant research and development and other expenses related to our clinical development and ongoing operations. For the years ended December 31, 2022 and December 31, 2021, our net losses were approximately $83.9 million and $49.0 million, respectively. As of December 31, 2022, we had an accumulated deficit of approximately $187.6 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of our therapeutic candidates.
We anticipate that our expenses will increase substantially if, and as, we:
Even if we succeed in commercializing one or more therapeutic candidates, we may continue to incur substantial research and development and other expenditures to develop and market additional therapeutic candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We have never generated revenue from therapeutic sales and may never be profitable.
Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue, if any, unless and until we, either alone or with a collaborator, are able to obtain regulatory approval for, and successfully commercialize, our lead therapeutic candidate, fast follower therapeutic candidate or any other therapeutic candidates we may develop. Successful commercialization will require achievement of many key milestones, including demonstrating safety and efficacy in clinical trials, obtaining regulatory, including marketing, approval for these therapeutic candidates, manufacturing, marketing and selling those therapeutics for which we, or any of our current or future collaborators, may obtain regulatory approval, satisfying any post-marketing requirements and obtaining reimbursement for our current or future therapeutics from private insurance or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately and precisely predict the timing and amount of revenue, the extent of any further losses or if or when we might achieve profitability. We and any current or future collaborators may never succeed in these activities and, even if we do, or any collaborators do, we may never generate revenue that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Additionally, our expenses could increase if we are required by the U.S. Food and Drug Administration (“FDA”), the UK’s Medicines and Healthcare products Regulatory Agency (“MHRA”), or any comparable foreign regulatory authority to perform clinical trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our current or future therapeutic candidates.
Our failure to become and remain profitable may depress the market price of our common stock and could impair our ability to raise capital, expand our business or continue our operations. If we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their entire investment.
We will require substantial additional funds to advance development of our current or future therapeutic candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our therapeutic development programs, commercialization efforts or other operations.
The development of biopharmaceutical therapeutic candidates, including conducting preclinical studies and clinical trials, is a very time-consuming, capital-intensive and uncertain process that takes years to complete. As our therapeutic candidates enter and advance through preclinical studies and clinical trials, we will need substantial additional funds to expand or create our development, regulatory, manufacturing, marketing and sales capabilities. We have used substantial funds to develop our technology and our therapeutic candidates and will require significant funds to conduct further research and development and preclinical testing and clinical trials of our therapeutic candidates, to seek regulatory approvals for our therapeutic candidates and to manufacture and market products, if any, which are approved for commercial sale. In addition, we expect to incur additional costs associated with operating as a public company.
Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities for our therapeutic candidates from the IL-17 program. Conducting preclinical studies and clinical trials for our therapeutic candidates will require substantial funds to complete. As of December 31, 2022, we had $574.2 million in cash, cash equivalents, and marketable securities. We expect to incur substantial expenditures in the foreseeable future as we seek to advance our lead therapeutic candidate and fast follower candidate from the
IL-17 program, and any future therapeutic candidates through preclinical and clinical development, the regulatory approval process and, if approved, commercial launch activities. Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our anticipated operating expenses and capital expenditure requirements through at least the next 12 months from the filing of this Annual Report on Form 10-K. However, our future capital requirements and the period for which we expect our existing resources to support our operations, fund expansion, develop new or enhanced therapeutics, or otherwise respond to competitive pressures, may vary significantly from what we expect and we may need to seek additional funds sooner than planned. Our monthly spending levels vary based on new and ongoing research and development and other corporate activities. Because the length of time and activities associated with successful research and development of our therapeutic candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any marketing and commercialization activities for approved therapeutics. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
If we are unable to obtain funding on a timely basis or on acceptable terms, we may have to delay, reduce or terminate our research and development programs and preclinical studies or clinical trials, limit strategic opportunities or undergo reductions in our workforce or other corporate restructuring activities. We do not expect to realize revenue from sales of commercial therapeutics or royalties from licensed therapeutics in the foreseeable future, if at all, and, in no event, before our therapeutic candidates are clinically tested, approved for commercialization and successfully marketed. To date, we have primarily financed our operations through the issuance and sale of common stock, convertible preferred units and warrants, as well as payments received under our collaboration agreements.
We will be required to seek additional funding in the future and currently intend to do so through additional collaborations and/or licensing agreements, public or private equity offerings or debt financings, credit or loan facilities, or a combination of one or more of these funding sources. In addition, our Loan and Security Agreement, as amended by that certain Joinder and First Amendment to Loan and Security Agreement, with Silicon Valley Bank (as amended, the “SVB Loan and Security Agreement”) contains restrictive covenants that would prevent us from, among other things, incurring additional indebtedness without SVB’s consent. Such restrictive covenants include affirmative covenants requiring, among other things, that we maintain our legal existence and good standing and obtain all government approvals, deliver certain financial reports and maintain certain intellectual property rights. Such restrictive covenants also include certain negative covenants including, among other things, certain restrictions on asset dispositions, changing our business, engaging in mergers and acquisitions, paying dividends or making certain other distributions, and creating other liens on our assets. If we default under the SVB Loan and Security Agreement, SVB will be able to declare any obligations immediately due and payable and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately
cease operations. Further, if we are liquidated, SVB’s rights to repayment would be senior to the rights of the holders of our common units to receive any proceeds from the liquidation. SVB could declare a default under the Loan and Security Agreement upon the occurrence of any event that SVB interprets as a material adverse change as defined under the SVB Loan and Security Agreement, thereby requiring us to repay the loan immediately or to attempt to reverse the declaration of default through negotiation or litigation. Any declaration by SVB of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline. Additionally, the interest rate under the SVB Loan and Security Agreement fluctuates with the WSJ prime rate. While we currently have no debt outstanding under this agreement, should we incur indebtedness in the future under this agreement, rising interest rates would make the cost of such debt more expensive. With the closure of SVB and appointment of the FDIC as receiver on March 10, 2023, we are aware that there can be no assurance that this credit facility pursuant to the SVB Loan and Security Agreement will be available to us for borrowing. For additional details, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Our future debt financings, if available, are likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets. If we raise additional funds through licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to our therapeutic candidates, or grant licenses on terms that are not favorable to us. We also could be required to seek collaborators for a therapeutic candidate at an earlier stage than otherwise would be desirable or relinquish our rights to therapeutic candidates or technologies that we otherwise would seek to develop or commercialize ourselves. Failure to obtain capital when needed on acceptable terms may force us to delay, limit or terminate our therapeutic development and commercialization of our current or future therapeutic candidates, which could have a material and adverse effect on our business, financial condition, results of operations and prospects.
We have incurred significant losses since our inception and we anticipate that we will continue to incur significant losses for the foreseeable future, which could harm our future business prospects.
We have historically incurred substantial net losses, including net losses of $83.9 million and $49.0 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $187.6 million. We expect our losses to continue as we continue to devote a substantial portion of our resources to our research and development efforts. These losses have had, and will continue to have, an adverse effect on our working capital, total assets, and members deficit/stockholders’ equity. Because of the numerous risks and uncertainties associated with our research and development, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations, and cash flows.
Risks Related to Discovery, Development and Commercialization
Our therapeutic candidates are in early stages of development and may fail in development or suffer delays that materially and adversely affect their commercial viability. If we or our collaborators are unable to complete development of, or commercialize our therapeutic candidates, or experience significant delays in doing so, our business will be materially harmed.
We have no therapeutics on the market and all of our therapeutic candidates are in early stages of development. Our Clinical Trial Application (“CTA”), with respect to DC-806, our lead therapeutic candidate from our IL-17 program, was approved by the MHRA in the UK in September 2021. We began dosing for our clinical Phase 1 trial in October 2021 and announced positive topline data in October 2022. Our investigational new drug (“IND”) application was cleared by the FDA in March 2023 and is in effect for DC-806, and we expect to advance into a global Phase 2b clinical trial in the first half of 2023. Additionally, we have a portfolio of targets and programs that are in earlier stages of discovery or preclinical development and may never advance to clinical-stage development. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for, and successfully commercializing our therapeutic candidates, either alone or with third parties, and we cannot guarantee you that we will ever obtain regulatory approval for any of our therapeutic candidates. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals including approval by the MHRA and the FDA. Before obtaining regulatory approval for the commercial distribution of our therapeutic candidates, we or an
existing or future collaborator must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our therapeutic candidates.
We may not have the financial resources to continue development of, or to modify existing or enter into new collaborations for, a therapeutic candidate if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, therapeutic candidates, including:
We or our collaborators’ inability to complete development of, or commercialize our therapeutic candidates, or significant delays in doing so due to one or more of these factors, could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Our business is heavily dependent on the success of our lead therapeutic candidate, DC-806, fast follower therapeutic candidate DC-853, and related compounds in our IL-17 program. Existing and future preclinical studies and clinical trials of our therapeutic candidates may not be successful, and if we are unable to commercialize our therapeutic candidates or experience significant delays in doing so, our business will be materially harmed.
We have invested a significant portion of our efforts and financial resources in the development of our lead therapeutic candidate, DC-806, fast follower therapeutic candidate DC-853, and related compounds in our IL-17 program. Our ability to generate commercial product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our lead therapeutic candidate. In September 2021, the MHRA approved our CTA for DC-806, our lead therapeutic candidate from our IL-17 program. In October 2021, we commenced our Phase 1 clinical trial, and in October 2022, we announced positive topline data. Our IND application was cleared by the FDA in March 2023 and is in effect for DC-806, and we expect to advance into a global Phase 2b clinical trial in the first half of 2023. We have not previously submitted a new drug application (“NDA”) to the FDA, or any other similar regulatory approval filings to the MHRA or comparable foreign authorities, for therapeutic candidates, and we cannot be certain that our therapeutic candidates will be successful in clinical trials or receive regulatory approval. Further, our therapeutic candidates may not receive regulatory approval even if they are successful in clinical trials. In addition, regulatory authorities may not complete their review processes in a timely manner, or additional delays may result if an FDA Advisory Committee, the MHRA or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process. Regulatory authorities also may approve a therapeutic candidate for more limited indications than requested or with labeling that includes warnings, contraindications or precautions with respect to conditions of use. Regulatory authorities may also require Risk Evaluation and Mitigation Strategies (“REMS”) or the performance of costly post-marketing clinical trials. If we do not receive regulatory approvals for our therapeutic candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market our therapeutic candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenue from sales of such therapeutics, if approved.
We plan to seek regulatory approval to commercialize our therapeutic candidates in the UK, the United States, the European Union (“EU”) and in other selected countries. In order to obtain separate regulatory approvals in other countries, we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy. Other countries also have their own regulations governing, among other things, clinical trials and commercial sales, as well as pricing and distribution of our therapeutic candidates, and we may be required to expend significant resources to obtain regulatory approval, which may not be successful, and to comply with ongoing regulations in these jurisdictions.
The success of our lead therapeutic candidate, DC-806, fast follower therapeutic candidate DC-853, and related compounds in the IL-17 program, and our other therapeutic candidates will depend on many factors, including the following:
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our therapeutic candidates, which would materially harm our business.
If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our therapeutics may be delayed and, as a result, our stock price may decline.
From time to time, we estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other therapeutic development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones are and will be based on numerous assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, or at all, the commercialization of our therapeutics may be delayed or never achieved and, as a result, our stock price may decline.
Our approach to the discovery and development of our therapeutic treatments is based on novel technologies that are unproven and may not result in marketable therapeutics.
We are developing a pipeline of therapeutic candidates using our DELSCAPE platform. Historically, dozens of IL-17 small molecule candidates of other companies that entered late-stage clinical trials have failed to result in FDA, MHRA or the European Medicines Agency (“EMA”) approved medicines. We are aware of certain companies currently exploring oral approaches to integrins. Certain development efforts and clinical results of these other companies have in the past, and may be in the future, mixed or unsuccessful, which could result in a negative perception of oral integrins and negatively impact the regulatory approval process of our therapeutic candidates, which would have a material and adverse effect on our business. We believe that therapeutic candidates identified with our platform may offer an optimized therapeutic approach by taking advantage of conformational targeting next-generation physics-based technologies augmented with machine learning and artificial intelligence, which allow us to design, iterate and optimize leads in our discovery process. However, the scientific research that forms the basis of our efforts to develop therapeutic candidates using our platform is ongoing and may not result in viable therapeutic candidates.
To date, we are conducting clinical testing of DC-806 but have not tested any of our other therapeutic candidates in any clinical studies. We may ultimately discover that our DELSCAPE platform and any therapeutic candidates resulting therefrom do not possess certain properties required for therapeutic effectiveness, including the ability to lock specific integrin conformations. Our therapeutic candidates may also be unable to remain stable in the human body for the period of time required for the drug to reach the target tissue or they may trigger immune responses that inhibit the ability of the therapeutic candidate to reach the target tissue or that cause adverse side effects in humans. We currently have only preclinical data regarding oral bioavailability of our therapeutic candidates. We may spend substantial funds attempting to introduce these properties and may never succeed in doing so. In addition, therapeutic candidates based on our platform may demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Our platform and any therapeutic candidates resulting therefrom may not demonstrate the same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective or harmful ways.
The regulatory approval process for novel therapeutic candidates such as ours can be more expensive and take longer than for other, better known or extensively studied therapeutic candidates. To our knowledge, no regulatory authority has granted approval for an oral small-molecule integrin inhibitor. We believe the FDA and the MHRA have limited experience with oral integrin-based therapeutics, which may increase the complexity, uncertainty and
length of the regulatory approval process for our therapeutic candidates. We and our existing or future collaborators may never receive approval to market and commercialize any therapeutic candidate. Even if we or an existing or future collaborator obtains regulatory approval, the approval may be for targets, disease indications or patient populations that are not as broad as we intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We or an existing or future collaborator may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to post-marketing testing requirements to maintain regulatory approval. If the therapeutics resulting from our DELSCAPE platform and research programs prove to be ineffective, unsafe or commercially unviable, our platform and pipeline would have little, if any, value, which would have a material and adverse effect on our business, financial condition, results of operations and prospects.
Preclinical and clinical development involve a lengthy and expensive process, with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current therapeutic candidates or any future therapeutic candidates.
We have not begun our Phase 2 clinical trial for our lead therapeutic candidate, DC-806, and all of our other therapeutic candidates are in preclinical development and their risk of failure is high. It is impossible to predict when or if any of our therapeutic candidates, including DC-806, will receive regulatory approval. To obtain the requisite regulatory approvals to commercialize any therapeutic candidates, we must demonstrate through extensive preclinical studies and lengthy, complex and expensive clinical trials that our therapeutic candidates are safe and effective in humans. Clinical testing can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our therapeutic candidates may not be predictive of the results of later-stage clinical trials. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a clinical trial can fail at any stage of testing. Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their therapeutic candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their therapeutics. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or to unfavorable safety profiles, notwithstanding promising results in earlier trials. There is typically a high rate of failure of therapeutic candidates proceeding through clinical trials. Most therapeutic candidates that commence clinical trials are never approved as therapeutics and there can be no assurance that any of our current or future clinical trials will ultimately be successful or support clinical development of our current or any of our future therapeutic candidates.
Our lead program targets the IL-17 pathway. Our IND application was cleared by the FDA in March 2023 and is in effect for DC-806. We intend to advance DC-806 into a global Phase 2b clinical trial in the first half of 2023 and to advance related compounds in the IL-17 program toward CTA submissions in the future. Commencing our future clinical trials is subject to finalizing the trial design and submitting a CTA to the MHRA or a similar submission to the FDA or a similar foreign regulatory authority. Even after we submit our CTA or comparable submissions in other jurisdictions, the MHRA, the FDA or other regulatory authorities could disagree that we have satisfied their requirements to commence our clinical trials or disagree with our study design, which may require us to complete additional preclinical studies or amend our protocols or impose stricter conditions on the commencement of clinical trials.
We or our collaborators may experience delays in initiating or completing clinical trials. We or our collaborators also may experience numerous unforeseen events during, or as a result of, any current or future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval or commercialize our lead therapeutic candidate, DC-806, fast follower therapeutic candidate, DC-853, and related compounds in the IL-17 program or any future therapeutic candidates, including:
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the number and location of clinical sites we enroll, the proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the inability to obtain and maintain patient consents, the risk that enrolled participants will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the therapeutic candidate being studied in relation to other available therapies, including any new drugs or therapeutic biologics that may be approved for the indications being investigated by us. Furthermore, we expect to rely on our collaborators, CROs and clinical trial sites to ensure the proper and timely conduct of our current and future clinical trials, including the patient enrollment process, and we have limited influence over their performance. Additionally, we could encounter delays if treating clinicians encounter unresolved ethical issues associated with enrolling patients in current or future clinical trials of our therapeutic candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles.
We could also encounter delays if a clinical trial is suspended, put on clinical hold or terminated by us, the IRBs of the institutions in which such trials are being conducted, or the MHRA, FDA, EMA or other regulatory authorities, or if a clinical trial is recommended for suspension or termination by the Data Safety Monitoring Board, or the DSMB, for such trial. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the MHRA, FDA, EMA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Clinical studies may also be delayed or terminated as a result of ambiguous or negative interim results. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our therapeutic candidates. Further, the MHRA, FDA, EMA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may
change the requirements for approval even after they have reviewed and commented on the design for our clinical trials.
Our therapeutic development costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our therapeutic candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our therapeutic candidates and harming our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition and results of operations significantly.
The COVID-19 pandemic could adversely impact our business, including our ongoing and anticipated future clinical trials, supply chain and business development activities.
As the COVID-19 pandemic continues around the globe, and if new COVID-19 variants emerge, we may experience disruptions that could severely impact our business and clinical trials, including but not limited to:
These and other disruptions in our operations and the global economy could negatively impact our business, operating results and financial condition.
The spread of COVID-19 and its variants and actions taken to reduce its spread may also materially affect us economically. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position. In addition, the trading prices for other biopharmaceutical companies have been highly volatile as a result of the COVID-19
pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms.
COVID-19 and actions taken to reduce its spread continue to rapidly evolve. The extent to which COVID-19 may impede the development of our therapeutic candidates, reduce the productivity of our employees, disrupt our supply chains, delay our clinical trials, reduce our access to capital or limit our business development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence. To the extent the COVID-19 pandemic or other epidemic diseases adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Results of preclinical studies and early clinical trials on any of our therapeutic candidates may not be predictive of results of future clinical trials.
The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a therapeutic, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their therapeutic candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the therapeutic candidates. Even if we, or future collaborators, believe that the results of clinical trials for our therapeutic candidates warrant marketing approval, the MHRA, FDA, EMA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our therapeutic candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same therapeutic candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial patients. If we fail to receive positive results in clinical trials of our therapeutic candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced therapeutic candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
Preliminary, interim or topline data from our clinical trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary, interim or topline data from our preclinical studies and clinical trials, such as the topline data we recently announced for our Phase 1 clinical trial of DC-806, our lead therapeutic candidate from our IL-17 program. Preliminary, interim and topline data is based on an analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. Further, modifications or improvements to our manufacturing processes for a therapy may result in changes to the characteristics or behavior of the therapeutic candidate that could cause our therapeutic candidates to perform differently and affect the results of our ongoing clinical trials. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available.
From time to time, we may also disclose preliminary data from or data from planned interim analysis of our preclinical studies and clinical trials. Preliminary or interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Additionally, disclosure of preliminary or interim data by us or by our competitors could result in volatility in the price of our common stock. Further, others, including regulatory agencies, may not accept or
agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular therapeutic candidate and our company in general. If the preliminary, interim, or topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, any of our potential therapeutic candidates may be harmed, which could harm our business, operating results, prospects, or financial condition.
Our current and future clinical trials or those of our future collaborators may reveal significant adverse events not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our therapeutic candidates.
If significant adverse events or other side effects are observed in any of our current or future clinical trials, we may have difficulty recruiting patients to such trials, patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of one or more therapeutic candidates altogether. For example, certain drugs targeting the IL-17 pathway have been linked to gastrointestinal distress. We, the MHRA, FDA, EMA or other applicable regulatory authorities, or an IRB may suspend any clinical trials of any therapeutic candidate at any time for various reasons, including a belief that subjects or patients in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the therapeutic candidate from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved therapeutic due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition and prospects.
We may not be successful in our efforts to use our DELSCAPE platform to expand our pipeline of therapeutic candidates and develop marketable therapeutics.
The success of our business depends in part upon our ability to discover, develop and commercialize therapeutics based on our DELSCAPE platform. IL-17 is our lead program and our research program may fail to identify other potential therapeutic candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential therapeutic candidates or our potential therapeutic candidates may be shown to have harmful side effects or may have other characteristics that may make the therapeutics 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 for multiple programs, which would materially harm our business and could potentially cause us to cease operations. Research programs to identify new therapeutic candidates require substantial technical, financial and human resources.
We may expend our limited resources to pursue a particular therapeutic candidate and fail to capitalize on therapeutic candidates that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus our research and development efforts on certain selected therapeutic candidates. For example, we are initially focused on our lead therapeutic candidate, DC-806, fast follower therapeutic candidate, DC-853, and related compounds in the IL-17 program. As a result, we may forgo or delay pursuit of opportunities with other therapeutic candidates that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and therapeutic candidates for specific indications may not yield any commercially viable therapeutic candidates. If we do not accurately evaluate the commercial potential or target market for a particular therapeutic candidate, we may relinquish valuable rights to that therapeutic candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such therapeutic candidate.
We face competition from entities that have developed or may develop therapeutic candidates for the diseases addressed by our therapeutic candidates, including companies developing novel treatments and technology platforms. If these companies develop technologies or therapeutic candidates more rapidly than we do or their technologies are more effective, our ability to develop and successfully commercialize therapeutic candidates may be adversely affected.
The development and commercialization of drugs is highly competitive. Our therapeutic candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant
market penetration. Most of our competitors have significantly greater resources than we do, and we may not be able to successfully compete. We compete with a variety of multinational biopharmaceutical companies, specialized biotechnology companies and emerging biotechnology companies, as well as with technologies and therapeutic candidates being developed at universities and other research institutions. Our competitors have developed, are developing or will develop therapeutic candidates and processes competitive with our therapeutic candidates and processes. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments, including those based on novel technology platforms that enter the market. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which we are trying, or may try, to develop therapeutic candidates. There is intense and rapidly evolving competition in the biotechnology, biopharmaceutical and integrin and immunoregulatory therapeutics fields. Competition from many sources exists or may arise in the future. Our competitors include larger and better funded biopharmaceutical, biotechnological and therapeutics companies, including companies focused on therapeutics for autoimmune, cardiovascular and metabolic diseases, fibrosis and cancer, as well as numerous small companies. Moreover, we also compete with current and future therapeutics developed at universities and other research institutions. Some of these companies are well-capitalized and, in contrast to us, have significant clinical experience, and may include our existing or future collaborators. In addition, these companies compete with us in recruiting scientific and managerial talent.
Our success will depend partially on our ability to develop and commercialize therapeutics that are safer and more effective than competing therapeutics. Our commercial opportunity and success will be reduced or eliminated if competing therapeutics are safer, more effective, or less expensive than the therapeutics we develop.
Our IL-17 program, initially under development for treatment of psoriasis, if approved would face competition from approved psoriasis treatments marketed by Novartis, Amgen, Eli Lilly, and Bristol Myers Squibb, in addition to other major pharmaceutical companies.
Many of these competitors have significantly greater financial, technical, manufacturing, marketing, sales, and supply resources or experience than we have. If we successfully obtain approval for any therapeutic candidate, we will face competition based on many different factors, including the safety and effectiveness of our therapeutics, the ease with which our therapeutics can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these therapeutics, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing therapeutics could present superior treatment alternatives, including by being more effective, safer, less expensive or marketed and sold more effectively than any therapeutics we may develop. Competitive therapeutics may make any therapeutics we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our therapeutic candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan.
Our current therapeutic candidates or any future therapeutic candidates may not achieve adequate market acceptance among clinicians, patients, healthcare third-party payors and others in the medical community necessary for commercial success, if approved, and we may not generate any future revenue from the sale or licensing of therapeutic candidates.
Even if regulatory approval is obtained for a therapeutic candidate, we may not generate or sustain revenue from sales of the therapeutic due to factors such as whether the therapeutic can be sold at a competitive cost and whether it will otherwise be accepted in the market. Historically, several injectable disruptive proteins have been approved by the FDA for treatment of psoriasis. However, our lead therapeutic candidate is a small molecule with the potential to modulate protein-protein interactions as effectively as systemic biologics; to date, no such oral small molecule has been approved by the FDA. Market participants with significant influence over acceptance of new treatments, such as clinicians and third-party payors, may not adopt an orally bioavailable product based on our novel technologies, and we may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable reimbursement for, any therapeutic candidates developed by us or our existing or future collaborators. Market acceptance of our therapeutic candidates will depend on, among other factors:
Sales of medical products also depend on the willingness of clinicians to prescribe the treatment, which is likely to be based on a determination by these clinicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential clinicians can affect the willingness of other clinicians to prescribe the treatment. We cannot predict whether clinicians, clinicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that our therapeutic is safe, therapeutically effective and cost effective as compared with competing treatments. If any current or future therapeutic candidate is approved but does not achieve an adequate level of acceptance by such parties, we may not generate or derive sufficient revenue from that therapeutic candidate and may not become or remain profitable.
Because our therapeutic candidates are based on new technology, we expect that they will require extensive research and development and have substantial manufacturing and processing costs. In addition, our estimates regarding potential market size for any indication may be materially different from what we discover to exist at the time we commence commercialization, if any, for a therapeutic, which could result in significant changes in our business plan and have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if any therapeutic candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effect on our business, financial condition, results of operations and prospects.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may experience difficulties in patient enrollment in our current or future clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. The enrollment of patients in future trials for any of our therapeutic candidates will depend on many factors, including:
Further, timely enrollment in clinical trials is reliant on clinical trial sites which may be adversely affected by global health matters, including, among other things, pandemics. For example, our clinical trial sites have been affected by the COVID-19 pandemic. If patients are unable to follow the trial protocols or if our trial results are otherwise disputed due to the effects of the COVID-19 pandemic or actions taken to mitigate its spread, the integrity of data from our trials may be compromised or not accepted by the FDA or other regulatory authorities, which would represent a significant setback for the applicable program.
If in the future we are unable to establish U.S., UK or global sales and marketing capabilities or enter into agreements with third parties to sell and market our therapeutic candidates, we may not be successful in commercializing our therapeutic candidates if they are approved and we may not be able to generate any revenue.
We currently do not have a marketing or sales team for the marketing, sales and distribution of any of our current or future therapeutic candidates that are able to obtain regulatory approval. To commercialize any therapeutic candidates after approval, we must build on a territory-by-territory basis marketing, sales, distribution, managerial and other non-technical capabilities or arrange with third parties to perform these services, and we may not be successful in doing so. If our therapeutic candidates receive regulatory approval, we may decide to establish an internal sales or marketing team with technical expertise and supporting distribution capabilities to commercialize any of our current or future therapeutic candidates, which will be expensive and time consuming and will require significant attention of our current or future executive officers to manage. For example, some state and local jurisdictions have licensing and continuing education requirements for pharmaceutical sales representatives, which requires time and financial resources. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any of our current or future therapeutic candidates that we obtain approval to market.
With respect to the commercialization of all or certain of our therapeutic candidates, we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements when needed on acceptable terms, or at all, we may not be able to successfully commercialize any of our current or future therapeutic candidates that receive regulatory approval or any such commercialization may experience delays or limitations. If we are not successful in commercializing our current or future therapeutic candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer, and we may incur significant additional losses.
If any of our current or future therapeutic candidates receives marketing approval and we or others later identify undesirable side effects caused by such therapeutic candidate, our ability to market and derive revenue from such therapeutic candidates could be compromised.
Undesirable side effects caused by our therapeutic candidates could cause regulatory authorities to interrupt, delay or halt clinical trials and could result in more restrictive labeling or the delay or denial of regulatory approval by the MHRA, FDA, EMA or other regulatory authorities. Results of current or future clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our current or future clinical trials could be suspended or terminated and the MHRA, FDA, EMA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our therapeutic candidates for any or all targeted indications. Such side effects could also affect patient recruitment or the ability of enrolled patients to initiate or complete the clinical trial or result in potential product liability claims. Any of these occurrences may materially and adversely affect our business, financial condition, results of operations, prospects and our ability to raise capital.
Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of our therapeutic candidates may only be uncovered with a significantly larger number of patients exposed to the therapeutic candidate.
In the event that any of our current or future therapeutic candidates receive regulatory approval and we or others identify undesirable side effects caused by such therapeutic, any of the following adverse events could occur:
Any of these occurrences could have a material and adverse effect on our business, financial condition, results of operations and prospects.
The FDA also may impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product, including the adoption and implementation of REMS. The FDA and other agencies, including the DOJ, closely regulate and monitor the post-approval marketing and promotion of drugs to ensure they are marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and DOJ impose stringent restrictions on manufacturers’ communications regarding off-label use, and if we do not market our products only for their approved indications, we may be subject to enforcement action for off-label marketing. Violations of the FD&C Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations and enforcement actions alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws. Other jurisdictions, including European countries, have similar provisions which may lead to investigations and enforcement actions by national authorities.
We anticipate that some of our current or future therapeutic candidates may be studied in combination with third-party drugs, some of which may still be in development, and we have limited or no control over the supply, regulatory status, or regulatory approval of such drugs.
Some of our current or future therapeutic candidates may be studied in combination with third-party drugs. For example, we may explore the use of our oral disruptive protein-protein therapeutics targeting IL-17 as a combination therapy with other drugs for the treatment of psoriasis. The development of therapeutic candidates for use in combination with another therapeutic candidate may present challenges that are not faced for single agent therapeutic candidates. The MHRA, FDA, EMA or other regulatory authorities may require us to use more complex clinical trial designs in order to evaluate the contribution of each therapeutic candidate to any observed effects. It is possible that the results of these trials could show that any positive previous trial results are attributable to the combination therapy and not our lead therapeutic candidate. Moreover, following product approval, the MHRA, FDA, EMA or other regulatory authorities may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the other product, this may require us to work with a third party to satisfy such a requirement. Moreover, developments related to the other product may impact our future clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments may include changes to the other product’s safety or efficacy profile, changes to the availability of the approved product, and changes to the standard of care.
If we pursue such combination therapies, we cannot be certain that a steady supply of such drugs will be commercially available. Any failure to enter into such commercial relationships, or the expense of purchasing therapies in the market, may delay our development timelines, increase our costs and jeopardize our ability to
develop our therapeutic candidates as commercially viable combination therapies. The occurrence of any of these could adversely affect our business, results of operations and financial condition.
In the event that any future collaborator or supplier cannot continue to supply their products on commercially reasonable terms, we would need to identify alternatives for accessing such products. Additionally, should the supply of products of any collaborator or supplier be interrupted, delayed or otherwise be unavailable to us, our clinical trials may be delayed. In the event we are unable to source a supply of any alternative therapy, or are unable to do so on commercially reasonable terms, our business, results of operations and financial condition may be adversely affected.
Risks Related to Our Reliance on Third Parties
We have historically entered into collaborations and may, in the future, seek to enter into collaborations with third parties for the discovery, development and commercialization of our therapeutic candidates. If our future collaborators cease development efforts under collaboration agreements, or if those agreements are terminated, the collaborations may fail to lead to commercial products, and we may never receive milestone payments or future royalties under the agreements.
We may in the future seek third-party collaborators for research, development and commercialization of other therapeutic technologies or therapeutic candidates. Biopharmaceutical companies are our prior and likely future collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements. If we fail to enter into future collaborations on commercially reasonable terms, or at all, or such collaborations are not successful, we may not be able to execute our strategy to develop certain targets, therapeutic candidates or disease areas that we believe could benefit from the resources of either larger biopharmaceutical companies or those specialized in a particular area of relevance.
With respect to any future collaboration agreements, we expect to have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our current or future therapeutic candidates. Moreover, our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our current or future therapeutic candidates currently pose, and will continue to pose, the following risks to us:
As a result of the foregoing, any future collaboration agreements may not lead to development or commercialization of our therapeutic candidates in the most efficient manner or at all. If a current or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our current or future product development or commercialization program could be delayed, diminished or terminated. Any failure to successfully develop or commercialize our therapeutic candidates pursuant to our current or any future collaboration agreements could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Moreover, to the extent that any future collaborators were to terminate a collaboration agreement, we may be forced to independently develop these therapeutic candidates, including funding preclinical studies or clinical trials, assuming marketing and distribution costs and defending intellectual property rights, or, in certain instances, abandon therapeutic candidates altogether, any of which could result in a change to our business plan and have a material adverse effect on our business, financial condition, results of operations and prospects.
We may have conflicts with future collaborators that could delay or prevent the development or commercialization of our therapeutic candidates.
We may have conflicts with future collaborators, such as conflicts concerning the interpretation of preclinical or clinical data, the achievement of milestones, the interpretation of contractual obligations, payments for services, development obligations or the ownership of intellectual property developed during our collaboration. If any conflicts arise with any of our collaborators, such collaborator may act in a manner that is adverse to our best interests. Any such disagreement could result in one or more of the following, each of which could delay or prevent the development or commercialization of our therapeutic candidates, and in turn prevent us from generating revenue: unwillingness on the part of a collaborator to pay us milestone payments or royalties we believe are due to us under a collaboration, which could require us to raise additional capital; uncertainty regarding ownership of intellectual property rights arising from our collaborative activities, which could prevent us from entering into additional collaborations; unwillingness by the collaborator to cooperate in the development or manufacture of the therapeutic, including providing us with therapeutic data or materials; unwillingness on the part of a collaborator to keep us informed regarding the progress of its development and commercialization activities or to permit public disclosure of the results of those activities; initiating of litigation or alternative dispute resolution options by either party to resolve the dispute; or attempts by either party to terminate the agreement.
We may not successfully engage in strategic transactions, including any collaborations we seek, which could adversely affect our ability to develop and commercialize therapeutic candidates, impact our cash position, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions, such as collaborations, acquisitions of companies, asset purchases and out- or in-licensing of therapeutic candidates or technologies that we believe will complement or augment our existing business. In particular, we will evaluate and, if strategically attractive, seek to enter into collaborations, including with major biotechnology or biopharmaceutical companies. The competition for collaborators is intense, and the negotiation process is time-consuming and complex. Any new collaboration may be on terms that are not optimal for us, and we may not be able to maintain any new collaboration if, for example, development or approval of a therapeutic candidate is delayed, sales of an approved therapeutic candidate do not meet expectations or the collaborator terminates the collaboration. In addition, a significant number of recent business combinations among large pharmaceutical companies has resulted in a reduced number of potential future strategic partners. Our collaborators may consider alternative therapeutic 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 therapeutic candidate. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed strategic partner’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the MHRA, FDA, EMA or similar regulatory authorities outside the United States, the potential market for the subject therapeutic candidate, the costs and complexities of manufacturing and delivering such therapeutic candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can
exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. Moreover, if we acquire assets with promising markets or technologies, we may not be able to realize the benefit of acquiring such assets if we are not able to successfully integrate them with our existing technologies. We may encounter numerous difficulties in developing, testing, manufacturing and marketing any new products resulting from a strategic acquisition that delay or prevent us from realizing their expected benefits or enhancing our business.
We cannot assure you that following any such collaboration, or other strategic transaction, we will achieve the expected synergies to justify the transaction. For example, such transactions may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. These transactions would entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products, therapeutic candidates or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business.
Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks and would have a material and adverse effect on our business, financial condition, results of operations and prospects. Conversely, any failure to enter any additional collaboration or other strategic transaction that would be beneficial to us could delay the development and potential commercialization of our current or future therapeutic candidates and have a negative impact on the competitiveness of any therapeutic candidate that reaches market.
In addition, the anticipated benefit of any strategic alliance, joint venture or acquisition may not materialize or such strategic alliance, joint venture or acquisition may be prohibited. In April 2021, we entered into the SVB Loan and Security Agreement with SVB, which was amended in June 2022 and which restricts our ability to pursue certain mergers and acquisitions, that we may believe to be in our best interest. Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.
We rely and expect to continue to rely on third parties to conduct certain of our preclinical studies or clinical trials. If those third parties do not perform as contractually required, fail to satisfy legal or regulatory requirements, miss expected deadlines or terminate the relationship, our development program could be delayed with potentially material and adverse effects on our business, financial condition, results of operations and prospects.
We rely and intend to rely in the future on third-party clinical investigators, CROs, clinical data management organizations and consultants to assist or provide the design, conduct, supervision and monitoring of preclinical studies and any current or future clinical trials of our current or future therapeutic candidates. Because we currently rely and intend to continue to rely on these third parties and will not have the ability to conduct all preclinical studies or clinical trials independently, we will have less control over the timing, quality and other aspects of preclinical studies and clinical trials than we would have had we conducted them on our own. These investigators, CROs and consultants will not be our employees and we will have limited control over the amount of time and resources that they dedicate to our programs. These third parties may have contractual relationships with other entities, some of which may be our competitors, which may draw time and resources from our programs. The third parties with which we may contract might not be diligent, careful or timely in conducting our preclinical studies or clinical trials, resulting in the preclinical studies or clinical trials being delayed or unsuccessful.
If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, our clinical development programs could be delayed and otherwise adversely affected. In all events, we will be responsible for ensuring that each of our preclinical studies and clinical trials are conducted in accordance with the general investigational plan and protocols for the trial
as well as applicable legal and regulatory requirements. The MHRA and the FDA generally require preclinical studies to be conducted in accordance with good laboratory practices and clinical trials to be conducted in accordance with good clinical practices, including for designing, conducting, recording and reporting the results of preclinical studies and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. Our reliance on third parties that we do not control will not relieve us of these responsibilities and requirements. Any adverse development or delay in our preclinical studies or clinical trials as a result of our reliance on third parties could have a material and adverse effect on our business, financial condition, results of operations and prospects.
If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into arrangements with alternative CROs or other third parties or to do so on commercially reasonable terms. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines.
We rely on third-party manufacturers and suppliers to supply components of our therapeutic candidates. The loss of our third-party manufacturers or suppliers, or their failure to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or prices, or at all, would materially and adversely affect our business.
We do not own or operate facilities for drug manufacturing, storage, distribution or quality testing. We currently rely, and may continue to rely, on third-party contract manufacturers, including in the UK and China, to manufacture bulk drug substances, drug products, raw materials, samples, components, or other materials and reports. Reliance on third-party manufacturers may expose us to different risks than if we were to manufacture therapeutic candidates ourselves. There can be no assurance that our preclinical and clinical development product supplies will not be limited, interrupted, terminated or of satisfactory quality or continue to be available at acceptable prices. For example, rhodium, a reagent we use in our studies, has recently been in short supply, resulting in increased purchasing costs. In addition, any replacement of our manufacturer could require significant effort and expertise because there may be a limited number of qualified replacements.
The manufacturing process for a therapeutic candidate is subject to MHRA, FDA, EMA and foreign regulatory authority review. We, and our suppliers and manufacturers, some of which are currently our sole source of supply, must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards, such as current Good Manufacturing Practices (“cGMPs”). Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the MHRA, FDA, EMA and foreign regulatory authorities. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the MHRA, FDA, EMA comparable foreign regulatory authorities, we may not be able to rely on their manufacturing facilities for the manufacture of elements of our therapeutic candidates. Moreover, we do not control the manufacturing process at our contract manufacturers and are completely dependent on them for compliance with current regulatory requirements. In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills or technology required to manufacture our therapeutic candidates may be unique or proprietary to the original manufacturer and we may have difficulty transferring such to another third party.
These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to enable us, or to have another third party, manufacture our therapeutic candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines; and we may be required to repeat some of the development program. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop therapeutic candidates in a timely manner or within budget.
We expect to continue to rely on third-party manufacturers if we receive regulatory approval for any therapeutic candidate. To the extent that we have existing, or enter into future, manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner consistent with contractual and
regulatory requirements, including those related to quality control and assurance. Any manufacturing facilities used to produce our therapeutics will be subject to periodic review and inspection by the MHRA, or the FDA and foreign regulatory authorities, including for continued compliance with cGMP requirements, quality control, quality assurance and corresponding maintenance of records and documents. If we are unable to obtain or maintain third-party manufacturing for therapeutic candidates, or to do so on commercially reasonable terms, we may not be able to develop and commercialize our therapeutic candidates successfully. Our or a third party’s failure to execute on our manufacturing requirements, comply with cGMPs or maintain a compliance status acceptable to the MHRA, FDA, EMA or foreign regulatory authorities could adversely affect our business in a number of ways, including:
Additionally, our contract manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our contract manufacturers were to encounter any of these difficulties, our ability to provide our therapeutic candidates to patients in preclinical and clinical trials, or to provide product for treatment of patients once approved, would be jeopardized.
For example, the UK formally left the EU on January 31, 2020, often referred to as Brexit, and the transition period ended on December 31, 2020. Brexit has caused uncertainty in the current regulatory framework in Europe. For instance, Brexit has resulted in the European Medicines Agency, or the EMA, moving from the UK to the Netherlands. In the UK, Brexit may cause disruption in the administrative and medical scientific links between the EMA and MHRA. On December 31, 2020, the UK passed legislation giving effect to the trade and cooperation agreement, which the EU ratified in April 2021. The trade and cooperation agreement entered into force in May 2021. The trade and cooperation agreement sets out certain procedures for approval and recognition of medical products in each jurisdiction. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of the trade and cooperation agreement or otherwise, could prevent us from commercializing any therapeutic candidates in the UK and/or the EU and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the UK and/or EU for any therapeutic candidates, which could significantly and materially harm our business. The current lack of detail and resolution with regard to the Brexit implementation may result in a disruption of the manufacturing and supply of components of our therapeutic candidates in the UK and we are unable to confidently predict the effects of such disruption to the regulatory framework in Europe. Any adjustments we make to our business and operations as a result of Brexit could result in significant delays and additional expense. Any of the foregoing factors could have a material adverse effect on our business, results of operations, or financial condition.
Changes in methods of therapeutic candidate manufacturing or formulation may result in additional costs or delay.
As therapeutic candidates progress through preclinical and clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize yield and manufacturing batch size, minimize costs and achieve consistent quality and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our therapeutic candidates to perform differently and affect the results of current or future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our therapeutic candidates and jeopardize our ability to commercialize our therapeutic candidates, if approved, and generate revenue.
The manufacturing of our small molecules is complex, and our third-party manufacturers may encounter difficulties in production. If we or any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our therapeutic candidates for clinical trials, our ability to obtain marketing approval, or our ability to provide supply of our therapeutics for patients, if approved, could be delayed or stopped.
Our therapeutic candidates are biopharmaceuticals and the process of manufacturing biopharmaceuticals is complex, time-consuming, highly regulated and subject to multiple risks. Our contract manufacturers must comply with legal requirements, cGMPs and guidelines for the manufacturing of biopharmaceuticals used in clinical trials and, if approved, marketed therapeutics. Our contract manufacturers may have limited experience in the manufacturing of cGMP batches.
Manufacturing biopharmaceuticals is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered at our third-party manufacturers’ facilities, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm our business.
In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with cGMPs, lot consistency and timely availability of raw materials. Even if our collaborators obtain regulatory approval for any of our therapeutic candidates, there is no assurance that manufacturers will be able to manufacture the approved product to specifications acceptable to the MHRA, FDA, EMA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and prospects.
Scaling up a biopharmaceutical manufacturing process is a difficult and uncertain task, and our third-party manufacturers may not have the necessary capabilities to complete the implementation, manufacturing and development process. If we are unable to adequately validate or scale-up the manufacturing process at our current manufacturers’ facilities, we will need to transfer to another manufacturer and complete the manufacturing validation process, which can be lengthy. If we are able to adequately validate and scale-up the manufacturing process for our therapeutic candidates with a contract manufacturer, we will still need to negotiate with such contract manufacturer an agreement for commercial supply and it is not certain we will be able to come to agreement on terms acceptable to us.
We cannot assure you that any stability or other issues relating to the manufacture of any of our current or future therapeutic candidates or products will not occur in the future. If our third-party manufacturers were to encounter any of these difficulties, our ability to provide any therapeutic candidates to patients in planned clinical trials and products to patients, once approved, would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of planned clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Any adverse developments affecting clinical or commercial manufacturing of our therapeutic candidates or products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our therapeutic candidates or products. We may also have to take inventory write-offs and incur other charges and expenses for therapeutic candidates or products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could adversely affect our business and delay or impede the development and commercialization of any of our therapeutic candidates or products, if approved, and could have an adverse effect on our business, prospects, financial condition and results of operations.
As part of our process development efforts, we also may make changes to the manufacturing processes at various points during development, for various reasons, such as controlling costs, achieving scale, decreasing processing time, increasing manufacturing success rate or other reasons. Such changes carry the risk that they will not achieve their intended objectives, and any of these changes could cause our current or future therapeutic candidates to perform differently and affect the results of our current or future clinical trials. In some circumstances, changes in
the manufacturing process may require us to perform ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. For instance, changes in our process during the course of clinical development may require us to show the comparability of the product used in earlier clinical phases or at earlier portions of a trial to the product used in later clinical phases or later portions of the trial.
Risks Related to Our Business and Operations
We will need to grow our organization, and we may experience difficulties in managing our growth and expanding our operations, which could adversely affect our business.
As of December 31, 2022, we had 71 full-time employees. As our development and commercialization plans and strategies develop, and as we continue to expand our capabilities as a public company, we expect to expand our employee base for managerial, operational, financial and other resources. In addition, we have limited experience in product development. As our therapeutic candidates enter and advance through preclinical studies and clinical trials, we will need to expand our development and regulatory capabilities and contract with other organizations to provide manufacturing and other capabilities for us. In the future, we expect to have to manage additional relationships with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. Our inability to successfully manage our growth and expand our operations could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.
Our success largely depends on the continued service of key management, advisors and other specialized personnel, including J. Kevin Judice, Ph.D., our co-founder and chief executive officer. We currently do not maintain key person insurance on these individuals. The loss of one or more members of our management team or other key employees or advisors could delay our research and development programs and have a material and adverse effect on our business, financial condition, results of operations and prospects. The relationships that our key managers have cultivated within our industry make us particularly dependent upon their continued employment with us. We are dependent on the continued service of our technical personnel, in particular, personnel involved with disrupting protein-protein interactions, because of the highly technical nature of our therapeutic candidates and technologies related to our DELSCAPE platform, and the specialized nature of the regulatory approval process. Because our management team and key employees are not obligated to provide us with continued service, they could terminate their employment with us at any time without penalty.
We conduct our operations at our facility in South San Francisco, California. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. We also face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. Our future success will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation and commercialization. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can discover and develop therapeutic candidates will be limited which could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future growth may depend, in part, on our ability to develop and commercialize our therapeutic candidates in foreign markets for which we may rely on collaboration with third parties. We are not permitted to market or promote any of our therapeutic candidates before we receive regulatory approval from the applicable regulatory authority in that foreign market, and may never receive such regulatory approval for any of our therapeutic candidates. To obtain separate regulatory approval in many other countries, we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our therapeutic candidates, and we cannot predict
success in these jurisdictions. If we fail to comply with the regulatory requirements in international markets and receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our therapeutic candidates will be harmed and our business will be adversely affected. We may not obtain foreign regulatory approvals on a timely basis, if at all. Our failure to obtain approval of any of our therapeutic candidates by regulatory authorities in another country may significantly diminish the commercial prospects of that therapeutic candidate and our business, financial condition, results of operations and prospects could be materially and adversely affected. Moreover, even if we obtain approval of our therapeutic candidates and ultimately commercialize our therapeutic candidates in foreign markets, we would be subject to the risks and uncertainties, including the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements and reduced protection of intellectual property rights in some foreign countries.
Our business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have a material and adverse effect on our business, financial condition, results of operations and prospects.
In conducting clinical trials of our current or future therapeutic candidates, we may be exposed to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments. Product liability claims could delay or prevent completion of our development programs. If we succeed in marketing products, such claims could result in an MHRA, FDA, EMA or the investigation of the safety and effectiveness of our future therapeutics, our manufacturing processes and facilities or our marketing programs and potentially a recall of our therapeutics or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for our therapeutics, termination of clinical trial sites or entire trial programs, withdrawal of clinical trial participants, injury to our reputation and significant negative media attention, significant costs to defend the related litigation, a diversion of management’s time and our resources from our business operations, substantial monetary awards to trial participants or patients, loss of revenue, the inability to commercialize products that we may develop, and a decline in our stock price. We currently maintain general liability insurance with coverage up to $2 million per occurrence. We may, however, need to obtain higher levels of product liability insurance for later stages of clinical development or marketing any of our therapeutic candidates. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and/or negligent conduct that fails to comply with MHRA or FDA, respectively, regulations, provide true, complete and accurate information to the MHRA, FDA, EMA and other similar foreign regulatory bodies, comply with manufacturing standards we may establish, comply with healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. If we obtain FDA approval of any of our therapeutic candidates and begin commercializing those products in the United States, our potential exposure under these laws will increase significantly, and our costs associated with compliance with these laws are likely to increase. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. 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 such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a material and adverse effect on our business, financial condition, results of operations and prospects, including the imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation
in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, integrity oversight and reporting obligations, or reputational harm.
We depend on our information technology systems, and any failure of these systems, or those of our CROs or other third parties with whom we may work, could harm our business. Security breaches, cyber-attacks, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business, results of operations, financial condition and prospects.
We collect and maintain information that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we may collect, store, process and transmit large amounts of proprietary, sensitive and confidential information, including intellectual property, business information and personal information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such information. We have established physical, electronic and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide security for our information technology systems and the processing, transmission and storage of information. We face a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of our being unable to adequately monitor, audit, and modify our controls over our critical information. We have also outsourced elements of our information technology infrastructure, and as a result these risks extend to third parties with whom we work, and those third parties may have access to our information.
Despite the implementation of security measures, given the size, complexity, and increasing amounts of proprietary, sensitive, and confidential information maintained by our internal information technology systems and those of our CROs, contract manufacturing organizations (“CMOs”), vendors, contractors, consultants, and other third party partners, such systems are vulnerable to breach, breakdown, service interruptions, system malfunction, accidents by our personnel or third party partners, natural disasters, terrorism, global pandemics, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our personnel or those of our CROs, CMOs, vendors, contractors, consultants, business partners and/or other third party partners, or from cyber-attacks (including through viruses, phishing attacks, spamming, worms, malicious code, malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and the confidentiality, integrity and availability of information), which may compromise or lead to data leakage of our system infrastructure or data, or that of our third party partners.
The risk of a security breach or disruption or data loss, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices and remote work applications that access confidential information increases the risk of data security breaches, which could lead to the loss of sensitive, proprietary or confidential information or unauthorized access to personal information.
As more companies and individuals work online and work remotely, the risk of a cybersecurity incident potentially occurring, and our investment in risk mitigations against such an incident, is increasing. For example, there has been an increase in phishing and spam emails as well as social engineering attempts from hackers hoping to use the recent COVID-19 pandemic to their advantage. Additionally, ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions, delays, or outages in our operations, disruption of clinical trials, loss of data (including data related to clinical trials), loss of income, significant extra expenses to restore data or systems, reputational loss and the diversion of funds. To alleviate the financial, operational and reputational impact of a ransomware attack it may be necessary to make extortion payments, but we may be unable to do so if applicable laws prohibit such payments.
We have not always been able in the past and may be unable in the future to anticipate all types of security threats, nor may we be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments or agencies. In addition, individuals have in the past and may continue in the future to actively search for and exploit actual and potential vulnerabilities in our or our partners’ information technology and communications. For example, in August 2020 we were subject to a cyber-attack that resulted in
unauthorized access to certain company email accounts and shared drives. The intruders used this access to induce a series of fraudulent transfers to outside bank accounts resulting in an aggregate loss of approximately $0.7 million. Although we have subsequently reviewed and enhanced our security and payment systems, there can be no assurance that we will not be the target of a similar or more sophisticated attack in the future, which could materially adversely affect our business, results of operations, financial condition and prospects.
To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or those of our CROs, CMOs, vendors, contractors, consultants, and other third party partners, or inappropriate disclosure of proprietary, sensitive, personal, or confidential information, we could incur liability and reputational damage, our product development programs could be materially disrupted, and our therapeutic candidates could be delayed. In addition, the loss of clinical trial data for our therapeutic candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Any breach, loss or compromise of proprietary, sensitive, personal or confidential information may also subject us to civil fines and penalties under relevant state and federal privacy laws in the United States. For example, the California Consumer Privacy Act of 2018 (“CCPA”) imposes a private right of action for security breaches that could lead to some form of remedy including regulatory scrutiny, fines, private right of action settlements, and other consequences. In addition, a breach may require notification to governmental agencies, the media or individuals pursuant to various federal and state privacy and security laws, if applicable, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission and state breach notification laws.
We are required to comply with laws, rules and regulations that require us to maintain the security of personal information. Our agreements with certain customers or business partners may require us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us to use industry-standard or reasonable security measures to safeguard personal information. A security breach could lead to claims by our customers, business partners, or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. In addition, our inability to comply with data privacy obligations in our contracts with customers or business partners, or our inability to flow down customer obligations to our CROs, CMOs, vendors, contractors, consultants, and other third party partners may cause us to breach our customer or partner contracts. As a result, we could be subject to legal action or our customers or business partners could end their relationships with us. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages.
Most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities, and others of security breaches involving certain types of data. In addition, our agreements with CROs, CMOs, vendors, contractors, consultants, and other third-party partners may require us to notify them in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach.
The costs to respond to a security breach and/or to mitigate any security vulnerabilities that may be identified could be significant, our efforts to address these issues may not be successful, and these issues could result in interruptions, delays, negative publicity, loss of customer trust, diminished use of our products as well as other harms to our business and our competitive position. Remediation of any potential security breach may involve significant time, resources, and expenses. Any security breach may result in regulatory inquiries, litigation or other investigations, and can affect our financial and operational condition. Litigation resulting from security breaches may adversely affect our business. Unauthorized access to our systems, networks, or physical facilities could result in litigation with our customers or other relevant stakeholders. These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our costs of doing business, or adversely affect our reputation.
We may not have adequate insurance coverage for security breaches, including fines, judgments, settlements, penalties, costs, attorney fees and other impacts that arise out of incidents or breaches. The successful assertion of one or more large claims against us that exceeds available insurance coverage, or results in changes to insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny
coverage as to any future claim. Our risks are likely to increase as we continue to expand, grow our customer base, and process, store, and transmit increasingly large amounts of data.
We are subject to stringent and changing laws, regulations and standards, and contractual obligations relating to privacy, data protection, and data security. The actual or perceived failure to comply with such obligations could lead to government enforcement actions (which could include civil or criminal penalties), fines and sanctions, private litigation and/or adverse publicity and could negatively affect our operating results and business.
We, and third parties who we work with are or may become subject to numerous domestic and foreign laws, regulations, and standards relating to privacy, data protection, and data security, the scope of which is changing, subject to differing applications and interpretations, and may be inconsistent among countries, or conflict with other rules. We are or may become subject to the terms of contractual obligations related to privacy, data protection, and data security. Our obligations may also change or expand as our business grows. The actual or perceived failure by us or third parties related to us to comply with such obligations could increase our compliance and operational costs, expose us to regulatory scrutiny, actions, fines and penalties, result in reputational harm, lead to a loss of customers, result in litigation and liability, and otherwise cause a material adverse effect on our business, financial condition, and results of operations.
In the United States, numerous federal and state laws and regulations govern the collection, use, disclosure and protection of health-related and other personal information and could apply to our operations or the operations of third partners with whom we work. In addition, we may obtain health information from third parties that are subject to privacy and security requirements under HIPAA, as amended by HITECH.
The state of California enacted the CCPA, which creates new individual privacy rights for California consumers and places increased privacy and data security obligations on entities handling personal information of consumers or households. The CCPA went into effect on January 1, 2020 and may impact our business activities and exemplifies the vulnerability of our business to the evolving regulatory environment related to personal information and protected health information. Additionally, the California Privacy Rights Act (“CPRA”), which expands upon the CCPA, is now in effect as of January 1, 2023 with enforcement beginning on July 1, 2023, subject to regulations promulgated through a newly created enforcement agency called the California Privacy Protection Agency (“CPPA”). The CCPA provides California residents expanded privacy rights, including the right to request correction, access, and deletion of their personal information, the right to opt out of certain personal information sharing, and the right to receive detailed information about how their personal information is processed including by California residents’ employers. The CCPA and CPRA provide for civil penalties and a private right of action for data breaches that is expected to increase data breach litigation. The CCPA and CPRA may increase our compliance costs and potential liability. Notably, comparable consumer privacy laws are set to take effect in 2023 in other states including the Virginia Consumer Data Protection Act (effective January 1, 2023), the Colorado Privacy Act and the Connecticut Data Privacy Act (both effective July 1, 2023), and the Utah Consumer Privacy Act (effective December 31, 2023). Compliance with this new privacy legislation adds complexity and may require investment in additional resources for compliance programs, thus potentially result in additional costs and expense of resources to maintain compliance.
Foreign laws and regulations relating to privacy, data protection, and data security, including the General Data Protection Regulation (“GDPR”) may apply to health-related and other personal information obtained outside of the United States. The GDPR imposes strict obligations on businesses, including requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators, requiring limitations on data processing, establishing a legal basis for processing personal information, notification of data processing obligations, notification of security breaches to appropriate data protection authorities or data subjects, protecting the security and confidentiality of the personal information, and establishing means for data subjects to exercise rights in relation to their personal information. The GDPR subjects noncompliant companies to fines of up to the greater of 20 million Euros or 4% of their global annual revenue, potential bans on processing of personal information (including clinical trials), and private litigation. To the extent applicable, the GDPR may increase our responsibility and liability in relation to personal information that we process, and we may be required to put in place additional mechanisms and expend additional time and resources to ensure compliance with the EU data protection rules.
Additionally, the UK’s decision to leave the EU, often referred to as Brexit, and ongoing developments in the UK have created uncertainty regarding data protection regulation in the UK. Following December 31, 2020, and the expiry of transitional arrangements between the UK and EU, the data protection obligations of the GDPR continue
to apply to UK-related processing of personal data in substantially unvaried form under the so-called “UK GDPR” (i.e., the GDPR as it continues to form part of UK law by virtue of section 3 of the EU (Withdrawal) Act 2018, as amended). However, going forward, there is increasing risk for divergence in application, interpretation and enforcement of the data protection laws as between the UK and the rest of Europe. While the European Commission did adopt on June 28, 2021, an adequacy decision for the UK to allow personal data to flow freely from the EU to the UK, the longer term relationship between the UK and the EEA in relation to certain aspects of data protection law remains uncertain.
In addition, European data protection laws prohibit the transfer of personal information to countries outside of the European Economic Area (“EEA”), UK, and Switzerland, such as the United States, which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted similar restrictions. Although there are legal mechanisms to allow for the transfer of personal information from the EEA, UK, and Switzerland to the United States and other countries, they are or may become subject to legal challenges that, if successful, could invalidate these mechanisms, restrict our ability to process personal information of Europeans outside of Europe and adversely impact our business. For example, in July 2020, the European Court of Justice invalidated the EU-U.S. Privacy Shield in a decision that also cast doubt on the validity of the Standard Contractual Clauses, the primary alternative to Privacy Shield. The decision has led to uncertainty regarding the mechanisms for data transfers from Europe to the United States. We may need to implement additional safeguards to further enhance the security of data transferred out of the Europe, which could increase our compliance costs, expose us to further regulatory scrutiny and liability, and adversely affect our business. For example, on June 4, 2021, the European Commission adopted new Standard Contractual Clauses, which impose on companies additional obligations relating to data transfers, including the obligation to conduct a transfer impact assessment and, depending on a party’s role in the transfer, to implement additional security measures and to update internal privacy practices. If we elect to rely on the new Standard Contractual Clauses for data transfers, we may be required to incur significant time and resources to update our contractual arrangements and to comply with new obligations. Additionally, other countries (e.g., Australia and Japan) have adopted certain legal requirements for cross-border transfers of personal information. These obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other requirements or our practices.
Some countries also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of our business operations. For example, Brazil recently enacted the General Data Protection Law (Lei Geral de Proteção de Dados Pessoais or LGPD) (Law No. 13,709/2018), which broadly regulates the processing of personal information and imposes compliance obligations and penalties comparable to those of the GDPR. To comply with storage and processing requirements and as supervisory authorities continue to issue further guidance, we may need to implement additional safeguards to further enhance the security of data transferred out of Europe. We could suffer additional costs, complaints, or regulatory investigations or fines, and, if we are otherwise unable to transfer personal information between and among countries and regions in which we operate, it could affect the manner in which we provide our products and services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
We are or may become subject to the terms of external and internal policies, representations, certifications, publications related to privacy, data protection, and data security.
Compliance with domestic and foreign privacy, data protection, and data security laws, regulations, standards, and contractual and other obligations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. The actual or perceived failure to comply with our obligations related to privacy, data protection, and data security could result in government enforcement actions (which could include civil, criminal, and administrative penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business.
If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be affected adversely.
Our research and development involves the use of hazardous chemicals and materials, including radioactive materials. We maintain quantities of various flammable and toxic chemicals in our facilities in South San Francisco, California that are required for our research and development activities. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous chemicals and materials. We believe our procedures for storing, handling and disposing these materials in our facilities comply
with the relevant guidelines of South San Francisco, California. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by applicable regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of animals and biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.
Unfavorable global economic conditions could adversely affect our business, financial condition, stock price and results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, the global financial crisis of 2007-2008 caused extreme volatility and disruptions in the capital and credit markets. Similarly, the volatility associated with the COVID-19 pandemic caused significant instability and disruptions in the capital and credit markets and, in recent months, the global economy has been impacted by increasing interest rates and inflation, as well as the possibility of a recession or further economic downturn. Likewise, the capital and credit markets may be adversely affected by the recent conflict between Russia and Ukraine, and the possibility of a wider European or global conflict, global sanctions imposed in response thereto or an energy crisis. A severe or prolonged economic downturn, such as the global financial crisis, could result in a variety of risks to our business, including a decrease in the demand for our drug candidates and in our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy also could strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. We cannot anticipate all of the ways in which the foregoing, and the current economic climate and financial market conditions generally, could adversely impact our business. For instance, we are aware of the closure of SVB and appointment of the Federal Deposit Insurance Corporation (the “FDIC”) as receiver on March 10, 2023. As of March 13, 2023 we maintained approximately 1% of total current cash, cash equivalents and marketable securities in deposit accounts at SVB. On March 12, 2023, the FDIC announced that all depositors of the bank would have access to all funds starting on March 13, 2023. The remainder of our cash, cash equivalents and marketable securities resides in a custodial account held by US Bank for which SVB Asset Management is the advisor. We do not believe the investments in this custodial account are directly exposed to risk of loss as a result of the insolvency of SVB. Furthermore, our stock price may decline due in part to the volatility of the stock market and any general economic downturn.
Our current operations are concentrated in one location, and we or the third parties upon whom we depend may be adversely affected by a wildfire and earthquake or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our current operations are located in our facilities in South San Francisco, California. Any unplanned event, such as flood, wildfire, explosion, earthquake, extreme weather condition, medical epidemic including the COVID-19 pandemic, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in us being unable to fully utilize our facilities, or the manufacturing facilities of our third-party contract manufacturers, may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. For example, our operations are concentrated primarily on the west coast of the United States, and any adverse weather event or natural disaster, such as an earthquake, tsunami or wildfire, could have a material adverse effect on a substantial portion of our operations. Loss of access to these facilities may result in increased costs, delays in the development of our therapeutic candidates or interruption of our business operations. Extreme weather conditions or other natural disasters could further disrupt our operations and have a material and adverse effect on our business, financial condition, results of operations and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our research facilities or the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business. In addition, the long-term effects of climate change on general economic conditions and the
pharmaceutical industry in particular are unclear and may heighten or intensify existing risk of natural disasters. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure you that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities, or the manufacturing facilities of our third-party contract manufacturers, are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2022, we had net operating loss carryforwards for federal and California income tax purposes of $77.4 million and $15.7 million, respectively. The federal net operating losses will not be subject to expiration and the California net operating losses begin to expire in 2038. As of December 31, 2022, we also had available tax credit carryforwards for federal and California income tax purposes of $3.5 million and $2.2 million, respectively. The federal tax credits begin to expire in 2038 and the California tax credits will not be subject to expiration. To the extent that our taxable income exceeds any current year operating losses, we plan to use our carryforwards to offset income that would otherwise be taxable. Under the Tax Cuts and Jobs Act of 2017 (as modified by the Coronavirus Aid Relief and Economic Security Act of 2021), federal net operating losses generated after December 31, 2017 will not be subject to expiration. However, utilization of carryforwards generated in tax years beginning after December 31, 2017 are limited to a maximum of 80% of the taxable income for such year determined without regard to such carryforwards. Also, for state income tax purposes, the extent to which states will conform to the federal laws is uncertain and there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. For example, California imposed limits on the usability of California state NOLs and tax credits in tax years beginning after 2019 and before 2022. In addition, under Section 382 of the Code, changes in our ownership may limit the amount of our net operating loss carryforwards and tax credit carryforwards that could be utilized annually to offset our future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. We have not performed an analysis to determine whether there has been an ownership change pursuant to Section 382. Any such limitation may significantly reduce our ability to utilize our net operating loss carryforwards and tax credit carryforwards before they expire. Various transactions that have occurred since our inception may trigger such an ownership change pursuant to Section 382. Any such limitation, whether as the result of prior offerings of securities, future sales of our common stock by our existing stockholders or additional sales of our common stock by us, could have a material adverse effect on our results of operations in future years.
Risks Related to Intellectual Property
If we are unable to obtain and maintain sufficient intellectual property protection for our therapeutic candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our therapeutics may be adversely affected.
We rely upon a combination of patents, know-how and confidentiality agreements to protect the intellectual property related to our therapeutics and technologies and to prevent third parties from copying and surpassing our achievements, thus eroding our competitive position in our market.
Our success depends in large part on our ability to obtain and maintain patent protection for our therapeutic candidates and their uses, as well as our ability to operate without infringing the proprietary rights of others. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel discoveries and technologies that are important to our business. Our pending and future patent applications may not result in patents being issued or that issued patents will afford sufficient protection of our therapeutic candidates or their intended uses against competitors, nor can there be any assurance that the patents issued will not be infringed, designed around, invalidated by third parties, or effectively prevent others from commercializing competitive technologies, products or therapeutic candidates.
Obtaining and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications or maintain and/or enforce patents that may issue based on our patent applications, at a reasonable cost or in a timely manner, including delays as a result of the COVID-19 pandemic
impacting our or our licensors’ operations. It is also possible that we will fail to identify patentable aspects of our research and development results before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach these agreements and disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patent protection.
Composition of matter patents for biological and pharmaceutical therapeutic candidates often provide a strong form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain that the claims in our pending patent applications directed to composition of matter of our therapeutic candidates will be considered patentable by the United States Patent and Trademark Office (“USPTO”) or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered valid and enforceable by courts in the United States or foreign countries. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our therapeutics for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, clinicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.
The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Court decisions, which have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our therapeutic candidates by obtaining and defending patents. For example, we may not be aware of all third-party intellectual property rights potentially relating to our therapeutic candidates or their intended uses, and as a result the impact of such third-party intellectual property rights upon the patentability of our own patents and patent applications, as well as the impact of such third-party intellectual property upon our freedom to operate, is highly uncertain. Patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, inventorship, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending patent applications may be challenged in patent offices in the United States and abroad. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. For example, our pending patent applications may be subject to third-party pre-issuance submissions of prior art to the USPTO or our issued patents may be subject to post-grant review (“PGR”) proceedings, oppositions, derivations, reexaminations, or inter partes review (“IPR”) proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new therapeutic candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Any failure to obtain or maintain patent protection with respect to our therapeutic candidates or their uses could have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. We may also rely on trade secret protection as temporary protection for concepts that may be included in a future patent filing. However, trade secret protection will not protect us from
innovations that a competitor develops independently of our proprietary know how. If a competitor independently develops a technology that we protect as a trade secret and files a patent application on that technology, then we may not be able to patent that technology in the future, may require a license from the competitor to use our own know-how, and if the license is not available on commercially-viable terms, then we may not be able to launch our therapeutic. Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, and this scenario could materially adversely affect our business, financial condition and results of operations.
We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our potential future collaborators will be successful in protecting our therapeutic candidates by obtaining and defending patents. We have pending U.S. and foreign patent applications in our portfolio covering our therapeutic programs. We cannot predict:
We cannot be certain that the claims in our pending patent applications directed to our therapeutic candidates and/or technologies will be considered patentable by the USPTO or by patent offices in foreign countries. There can be no assurance that any such patent applications will issue as granted patents. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our therapeutic candidates is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our therapeutic candidates. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued patents will be considered valid by courts in the United States or foreign countries.
We may not be able to protect our intellectual property rights throughout the world.
Patents are of national or regional effect. Filing, prosecuting and defending patents on all of our research programs and therapeutic candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These competitor products may compete with our therapeutic candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future licensors and the maintenance, enforcement or defense of our issued patents or those of any current or future licensors. For example, the United States and foreign government actions related to Russia’s invasion of Ukraine may limit or prevent filing, prosecution and maintenance of patent applications in Russia. Government actions may also prevent maintenance of issued patents in Russia. These actions could result in abandonment or lapse of our patents or patent applications, resulting in partial or complete loss of patent rights in Russia. If such an event were to occur, it could have a material adverse effect on our business. In addition, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees that have citizenship or nationality in, are registered in, or have predominately primary place of business or profit-making activities in the United States and other countries that Russia has deemed unfriendly without consent or compensation. Consequently, we would not be able to prevent third parties from practicing our inventions in Russia or from selling or importing products made using our inventions in and into Russia. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
Various companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of many countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, 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.
Various countries outside the United States have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. As a result, a patent owner may have limited remedies in certain circumstances, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected. 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.
Further, the standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. As such, we do not know the degree of future protection that we will have on our technologies, products and therapeutic candidates. While we will endeavor to try to protect our technologies, products and therapeutic candidates with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time consuming, expensive and unpredictable.
No earlier than October 1, 2022, European applications will soon have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (“UPC”). This will be a significant change in European patent practice. As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
Should any of these or similar events occur, they could significantly harm our business, results of operations and prospects.
We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop and market our therapeutics.
As the biopharmaceutical industry expands and more patents are issued, the risk increases that our therapeutic candidates may be subject to claims of infringement of the patent rights of third parties. There can be no assurance that our operations do not, or will not in the future, infringe existing or future third-party patents. Identification of third-party patent rights that may be relevant to our operations is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our therapeutic candidates in any jurisdiction.
Numerous U.S. and foreign patents and pending patent applications exist in our market that are owned by third parties. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our therapeutics. We do not always conduct independent reviews of pending patent applications of and patents issued to third parties. Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will not be filed outside the U.S. can remain confidential until patents issue. In addition, patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived. Furthermore, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our therapeutics or the use of our therapeutics. As such, there may be applications of others now pending or recently revived patents of which we are unaware. These patent applications may later result in issued patents, or the revival of previously abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or sell our therapeutics.
The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect. For example, we may incorrectly determine that our therapeutics are not covered by a third-party patent or may incorrectly predict whether a third-party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our therapeutics.
We cannot provide any assurances that third-party patents do not exist which might be enforced against our current technology, including our research programs, therapeutic candidates, their respective methods of use, manufacture and formulations thereof, and could result in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant.
We may not be successful in obtaining or maintaining necessary rights to our therapeutic candidates through acquisitions and in-licenses.
Because our development programs may in the future require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license, or use these third-party proprietary rights. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary for our therapeutic candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the
relevant program or therapeutic candidate, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
While we normally seek to obtain the right to control prosecution, maintenance and enforcement of the patents relating to our therapeutic candidates, there may be times when the filing and prosecution activities for patents and patent applications relating to our therapeutic candidates are controlled by our future licensors or collaboration partners. If any of our future licensors or collaboration partners fail to prosecute, maintain and enforce such patents and patent applications in a manner consistent with the best interests of our business, including by payment of all applicable fees for patents covering our therapeutic candidates, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, our ability to develop and commercialize those therapeutic candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. In addition, even where we have the right to control patent prosecution of patents and patent applications we have licensed to and from third parties, we may still be adversely affected or prejudiced by actions or inactions of our licensees, our future licensors and their counsel that took place prior to the date upon which we assumed control over patent prosecution.
We may enter into license agreements in the future with others to advance our existing or future research or allow commercialization of our existing or future therapeutic candidates. These licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and therapeutics in the future.
In addition, subject to the terms of any such license agreements, we may not have the right to control the preparation, filing, prosecution, maintenance, enforcement, and defense of patents and patent applications covering the technology that we license from third parties. In such an event, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained, enforced, and defended in a manner consistent with the best interests of our business. If our future licensors fail to prosecute, maintain, enforce, and defend such patents or patent applications, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our future therapeutic candidates that are subject of such licensed rights could be adversely affected.
Our future licensors may rely on third-party consultants or collaborators or on funds from third parties such that our future licensors are not the sole and exclusive owners of the patents we in-license. If other third parties have ownership rights to our future in-licensed patents, they may be able to license such patents to our competitors, and our competitors could market competing products and technology. This could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
It is possible that we may be unable to obtain licenses at a reasonable cost or on reasonable terms, if at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to redesign our technology, therapeutic candidates, or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected therapeutic candidates, which could harm our business, financial condition, results of operations, and prospects significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current technology, manufacturing methods, therapeutic candidates, or future methods or products resulting in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant.
Disputes may arise between us and our future licensors regarding intellectual property subject to a license agreement, including:
In addition, the agreements under which we license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we license in the future prevent or impair our ability to maintain our licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected therapeutic candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
In spite of our best efforts, our future licensors might conclude that we materially breached our license agreements and might therefore terminate the license agreements, thereby removing our ability to develop and commercialize therapeutics and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, therapeutics identical to ours. This could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
From time to time, we may be required to license technologies relating to our therapeutic research programs from additional third parties to further develop or commercialize our therapeutic candidates. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our therapeutic candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our therapeutic candidates could cause us to abandon any related efforts, which could seriously harm our business and operations.
Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:
Our technology licensed from various third parties may be subject to retained rights.
Our future licensors may retain certain rights under the relevant agreements with us, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether our licensors limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to our licensed technology in the event of misuse.
In addition, the United States federal government retains certain rights in inventions produced with its financial assistance under the Patent and Trademark Law Amendments Act (“Bayh-Dole Act”). The federal government retains a “nonexclusive, nontransferable, irrevocable, paid-up license” for its own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license itself. We sometimes collaborate with academic institutions to accelerate our preclinical research or development. While it is our policy to avoid engaging university partners in projects in which there is a risk that federal funds may be commingled, we cannot be sure that any co-developed intellectual property will be free from government rights pursuant to the Bayh-Dole Act. If, in the future, we co-own or license in technology which is critical to our business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our therapeutic candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our therapeutic candidates without infringing the intellectual property and other proprietary rights of third parties. Third parties may allege that we have infringed or misappropriated their intellectual property. Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our therapeutic candidates. We cannot be certain that our therapeutic candidates and other proprietary technologies we may develop will not infringe existing or future patents owned by third parties. Third parties may assert infringement claims against us based on existing or future intellectual property rights. In the United States, proving invalidity in court requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing therapeutic candidate or therapeutic. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing
therapeutic candidate or therapeutic. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our investigational products or force us to cease some of our business operations, which could materially harm our business.
We may not be aware of patents that have already been issued and that a third party, for example, a competitor in the fields in which we are developing our therapeutic candidates, might assert are infringed by our future therapeutic candidates, including claims to compositions, formulations, methods of manufacture or methods of use or treatment that cover our therapeutic candidates. It is also possible that patents owned by third parties of which we are aware, but which we do not believe are relevant to our therapeutic candidates and other proprietary technologies we may develop, could be found to be infringed by our therapeutic candidate. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our therapeutic candidates may infringe. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our therapeutic candidates. The pharmaceutical and biotechnology industries have produced a considerable number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our therapeutic candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity may be difficult. For example, in the United States, proving invalidity in court requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents, and there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business and operations. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. In addition, we may not have sufficient resources to bring these actions to a successful