EX-99.2
Exhibit 99.2
Our stockholders or potential investors may be referred to as “you” or “your” in this disclosure and Agenus Inc. is
referred to as “the Company,” “we,” “our,” or “us”.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully review the risks and uncertainties described below,
including, but not limited to, the risks included in our Current Report on Form 8-K filed on February 4, 2013. The risks described in these documents are not the only ones we face, but those that we currently consider to be material. There may be
other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. Past financial performance may not be a reliable indicator of future performance and
historical trends should not be used to anticipate results or trends in future periods.
Risks Related to the Acquisition
We may fail to consummate the Acquisition.
On January 10, 2014, we entered into an agreement to acquire 4-Antibody AG (“4-AB”) pursuant to the terms of a share exchange
agreement (the “Exchange Agreement”). We refer to the pending acquisition of the business of 4-AB as the “Acquisition.” Our ability to consummate the Acquisition is subject to various closing conditions. Changes in the terms of
the Acquisition will have no effect on your rights as a purchaser of our common stock.
The Exchange Agreement contains certain
termination rights for both Agenus and 4-AB, including (i) if the closing does not occur by February 28, 2014 through no fault of the terminating party, (ii) as a result of a governmental or court order preventing the closing,
(iii) by a party if the other party has breached representations, warranties or covenants made in the Exchange Agreement and (iv) by the shareholders of 4-AB in the event of a sale or bankruptcy of Agenus or if our shares are delisted from
trading on the Nasdaq Capital Market prior to closing; and the Exchange Agreement further provides that, upon termination, Agenus and the shareholders of 4-AB shall remain liable for any breaches of the Exchange Agreement occurring prior to such
termination. However, no termination fees will be payable by either party in the event of a termination of the Exchange Agreement. Currently, the transactions contemplated by the Exchange Agreement are expected to be completed in February 2014. If
we fail to close the Acquisition, depending on circumstances, we could be subject to litigation, including claims for damages.
We
have incurred and will continue to incur significant transaction costs in connection with the Acquisition.
We have incurred and
will continue to incur substantial legal, accounting, financial advisory and/or other costs and our management has devoted considerable time and effort in connection with the Acquisition. If the Acquisition is not completed, we will bear certain
fees and expenses associated with the Acquisition without realizing the anticipated benefits of the Acquisition. These and other fees and expenses may be significant and could have an adverse impact on our operating results.
We may fail to realize the benefits we expect to realize as a result of the Acquisition.
The success of the Acquisition will depend, in part, on our ability to realize the anticipated synergies, business opportunities
and growth prospects from combining the businesses of Agenus and 4-AB. We may never realize these anticipated synergies, business opportunities and growth prospects. Integrating operations will be complex and will require significant efforts and
expenditures on the part of both Agenus and 4-AB. Employees might leave or be terminated because of the Acquisition. Our management might have its attention diverted while trying to integrate operations and corporate and administrative
infrastructures. We might experience increased competition that limits our ability to expand our business, and we might not be able to capitalize on expected business opportunities, including maintaining current collaboration relationships and
advancing the development of the 4-AB technologies. We may experience difficulties reconciling 4-AB’s system of financial reporting, which has been based upon International Financial Reporting Standards, or IFRS, for small and medium-sized
entities, to U.S. Generally Accepted Accounting Principles, or U.S. GAAP. Moreover, assumptions underlying estimates of expected cost savings as a result of the Acquisition may be inaccurate, and general industry and business conditions might
deteriorate. If any of these factors limit our ability to integrate the operations of Agenus and 4-AB successfully or on a timely basis, or to develop the business opportunities that we expect to realize from the Acquisition, the expectations of
future results of operations, including certain cost savings and synergies expected to result from the Acquisition, might not be met.
In
addition, Agenus and 4-AB have operated and, until the completion of the Acquisition, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each
company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with
partners, employees or other third parties or our ability to achieve the anticipated benefits of the Acquisition or could reduce our earnings.
The Acquisition could cause disruptions in the business of 4-AB, which could have an adverse effect on our businesses and financial
results.
The announcement and pendency of the Acquisition could cause disruptions in the businesses of 4-AB and Agenus.
Specifically:
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4-AB’s current and prospective employees might experience uncertainty about their future roles with us following completion of the Acquisition, which might adversely affect our ability to retain key managers and
other employees; |
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relationships with 4-AB’s collaboration partners may become uncertain as a result of our acquiring ownership of 4-AB; and |
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the attention of our and 4-AB’s management might be directed toward the completion of the Acquisition. |
4-AB is a privately held company, and is not subject to public reporting requirements, and,
as a result, you may not have the information necessary to evaluate the company’s business and financial results.
4-AB is a
privately held company organized under the laws of Switzerland. As such, it has not been subject to financial reporting requirements applicable to public companies, and is not required to prepare and publish audited financial statements in
accordance with U.S. GAAP. To date, 4-AB’s financial results have been prepared in accordance with IFRS for small and medium-sized entities. Upon closing of the Acquisition, we will be required to reconcile the 4-AB financial statements with
U.S. GAAP, which may result in certain adjustments. Financial statements of 4-AB on either a standalone basis or on a combined pro forma basis with us will not be available for you to evaluate and consider until after the closing of the Acquisition.
As a result, you may not have available to you sufficient information to evaluate the combined business and financial results of the Acquisition.
Although we have conducted a diligence review of 4-AB, there may be aspects of its business or financial results that may not be well
understood by us until we consummate the Acquisition and proceed to integrate 4-AB’s operations. Among other matters, although we do not anticipate that we will incur or assume any liabilities or obligations out of the ordinary course of
business in connection with the Acquisition (other than approximately $1 million of obligations relating to transaction-related payments and certain 4-AB indebtedness totaling approximately $500,000, all of which may be settled in shares of our
common stock), we may determine that unknown or unanticipated material liabilities exist after we have taken ownership of 4-AB.
The
issuance of shares of our common stock in the Acquisition would dilute the interest held by our stockholders prior to the Acquisition.
If the Acquisition is completed, we will issue shares of our common stock to the shareholders of 4-AB at closing having a fair market value of
$10,000,000 (based on the average closing price of our common stock on the Nasdaq Capital Market for the 30 trading days prior to the closing). In addition, we may be obligated in the future to pay certain contingent milestones payments, payable at
our election in cash or shares of our common stock, that may exceed $40 million. The issuance of shares of our common stock in connection with the Acquisition would cause a reduction in the relative percentage interest of our current stockholders in
the ownership of our common stock and could have the effect of depressing the market price of our common stock.
Failure to complete
the Acquisition could adversely affect our stock price, future business, and financial results.
As a public company, we were
required to announce the Acquisition prior to the actual closing of the transaction. As discussed above, completion of the Acquisition is subject to the satisfaction of various conditions on the part of both parties. There is no assurance that
either we or 4-AB will satisfy these conditions. Failure to complete the Acquisition could prevent us from realizing the anticipated benefits that we might derive from our ownership of 4-AB. We would also remain liable for significant transaction
costs, including legal, accounting and related fees.
In addition, the market price of our common stock may reflect various market assumptions as to whether the transaction will occur. Consequently, the completion of, or failure to complete, the
Acquisition could result in a significant change in the market price of our common stock.
Risks Related to our Business
If we incur operating losses for longer than we expect, or we are not able to raise additional capital, we may be unable to continue our
operations, or we may become insolvent.
Our net losses for the nine months ended September 30, 2013, and for the years ended
December 31, 2012, 2011, and 2010, were $24.3 million, $11.3 million, $23.3 million, and $21.9 million, respectively. We expect to incur additional losses over the next several years as we continue research and clinical development of our
technologies and pursue partnering opportunities, regulatory strategies, commercialization, and related activities, and such losses may increase as a result of our acquisition of 4-AB. Furthermore, our ability to generate cash from operations is
dependent on the success of our licensees and collaborative partners, as well as the likelihood and timing of new strategic licensing and partnering relationships and/or successful development and commercialization of vaccines containing QS-21
Stimulon, our Prophage Series vaccines and our other product candidates. From our inception through September 30, 2013, we have incurred net losses totaling $643.3 million.
On September 30, 2013, we had $30.2 million in cash and cash equivalents. We believe that, based on our current plans and activities, our
working capital resources at September 30, 2013, plus anticipated proceeds from equity offerings and potential proceeds from license, supply, and collaborative agreements will be sufficient to satisfy our liquidity requirements through the
first half of 2015. We expect to attempt to raise additional funds in advance of depleting our funds although additional funding may not be available on favorable terms, or at all. For the nine months ended September 30, 2013, our average
monthly cash used in operating activities was approximately $1.6 million.
We have financed our operations primarily through the sale of
equity and debt securities. In order to finance future operations, we will be required to raise additional funds in the capital markets, through arrangements with collaborative partners, or from other sources. Additional financing may not be
available on favorable terms, or at all. If we are unable to raise additional funds when we need them or if we incur operating losses for longer than we expect, we may not be able to continue some or all of our operations, or we may become
insolvent. We also may be forced to license or sell technologies to others under agreements that allocate to third parties substantial portions of the potential value of these technologies.
There are a number of factors that will influence our future capital requirements, including, without limitation, the following:
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the number and characteristics of the product candidates we pursue; |
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the scope, progress, results and costs of researching and developing our future product candidates, and conducting preclinical and clinical trials; |
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the timing of, and the costs involved in, obtaining regulatory approvals for our and our licensees’ product candidates; |
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the cost of manufacturing; |
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our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements; |
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property rights; |
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the costs associated with any successful commercial operations; and |
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the timing, receipt and amount of sales of, or royalties on, our future products, if any. |
General economic conditions in the United States economy and abroad may have a material adverse effect on our liquidity and financial
condition, particularly if our ability to raise additional funds is impaired. The ability of potential patients and/or health care payers to pay for our products could also be adversely impacted, thereby limiting our potential revenue. In addition,
any negative impacts from any deterioration in the credit markets on our collaborative partners could limit potential revenue from our product candidates.
We have significant debt, and we may not be able to make interest or principal payments when due.
In April 2013 we exchanged our 8% senior secured convertible notes due August 2014 (the “2006 Notes”), including accrued and unpaid
interest, for $10.0 million in cash, 2,500,000 shares of our common stock, a revenue interest in certain QS-21 Stimulon partnered programs and a royalty interest in HerpV. The $10.0 million cash payment was financed by entering into a Loan and
Security Agreement with Silicon Valley Bank for a $5.0 million loan that bears interest at 6.75% annually (the “SVB Loan”), and a Note Purchase Agreement with various investors to issue senior subordinated notes in the aggregate principal
amount of $5.0 million with annual interest at 10% (the “Subordinated Notes”). The SVB Loan is payable in equal monthly installments of approximately $278,000 due monthly beginning November 2013 and ending in April 2015. The Subordinated
Notes are due in April 2015.
Our ability to satisfy our obligations under this indebtedness will depend upon our future performance,
which is subject to many factors, including the factors identified in this “Risk Factors” section and other factors beyond our control. If we are not able to generate sufficient cash flow from operations in the future to service our
indebtedness, we may be required, among other things, to:
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seek additional financing in the debt or equity markets; |
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refinance or restructure all or a portion of our indebtedness; |
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sell, out-license, or otherwise dispose of assets; and/or |
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reduce or delay planned expenditures on research and development and/or commercialization activities. |
Such measures might not be sufficient to enable us to make principal and interest payments. In
addition, any such financing, refinancing, or sale of assets might not be available on economically favorable terms, if at all.
Other
than for the year ended December 31, 2012, we have had negative cash flows from operations. The net cash provided by operations of $1.0 million for the year ended December 31, 2012 primarily resulted from one-time payments received under
amended license agreements and therefore our net cash provided by operations for the year ended December 31, 2012 is not indicative of future results. For the nine months ended September 30, 2013 and for the years ended December 31,
2011, and 2010, net cash used in operating activities was $14.0 million, $16.2 million, and $14.8 million, respectively.
Our
outstanding debt instruments contain significant restrictive and affirmative covenants.
The SVB Loan is secured by a lien against
substantially all of our assets as well as the assets of our subsidiary Antigenics Inc., and contains, among other things, a number of restrictions and covenants that limit our ability to:
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incur certain additional indebtedness; |
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make certain investments; |
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pay dividends other than dividends required pursuant to pre-existing commitments; |
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make payments on subordinated indebtedness other than regularly scheduled payments of interest; |
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consolidate, merge, sell or otherwise dispose of our assets; and/or |
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change our line of business. |
The SVB Loan also specifies a number of events of default (some
of which are subject to applicable cure periods), including, among other things:
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other non-payment defaults; |
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certain penalties and judgments from a governmental authority; |
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cross-defaults in respect of indebtedness over $50,000; and |
Additionally, any material adverse change with respect to us or our
subsidiary Antigenics Inc., constitutes an event of default. Upon the occurrence of an event of default under the SVB Loan, subject to cure periods in certain circumstances, the Lender may declare all amounts outstanding to be immediately due and
payable and may foreclose upon our assets that secure the SVB Loan. During the continuance of an event of default which does not accelerate the maturity of the SVB Loan, interest will accrue at a default rate equal to the otherwise applicable rate
plus 5%. We may prepay the SVB Loan at any time, in full, subject to certain notice requirements and a prepayment premium equal to 4% of the outstanding principal amount of the SVB Loan.
The Subordinated Notes also include default provisions which allow for the acceleration of the
principal payment of the Subordinated Notes in the event we become involved in certain bankruptcy proceedings, become insolvent, fail to make a payment of principal or (after a grace period) interest on the Subordinated Notes, default on other
indebtedness with an aggregate principal balance of $5 million or more if such default has the effect of accelerating the maturity of such indebtedness, or become subject to a legal judgment or similar order for the payment of money in an amount
greater than $5 million if such amount will not be covered by third-party insurance.
If we default on the SVB Loan or the Subordinated
Notes and the repayment of such indebtedness is accelerated, our liquidity will be materially and adversely affected.
We may not
receive anticipated QS-21 Stimulon revenues from our licensees.
With the exception of our HerpV program, we currently rely upon
and expect to continue to rely upon third party licensees, particularly GlaxoSmithKline (“GSK”) and JANSSEN Alzheimer Immunotherapy (“JANSSEN AI”), to develop, test, market and manufacture vaccines that utilize our QS-21 Stimulon
adjuvant. We expect that we will rely on similar relationships if we develop new adjuvants in our Saponin Platform.
In return for rights
to use QS-21 Stimulon, our licensees have generally agreed to pay us license fees, milestone payments and royalties on product sales for a minimum of 10 years after commercial launch, with some exceptions. As each licensee controls its own product
development process, we cannot predict our licensees’ requirements for QS-21 Stimulon in the future or to what extent, if any, they will develop vaccines that use QS-21 Stimulon as an adjuvant. Our licensees may initiate or terminate programs
containing QS-21 Stimulon at any time. Clinical trials being conducted by our licensees, including those being conducted by GSK and JANSSEN AI, may not be successful. The results of these trials and other factors may cause our licensees to terminate
programs containing QS-21 Stimulon. In the event that our licensees develop vaccines using QS-21 Stimulon, there is no guarantee that these products will obtain regulatory approval or, if so approved, will generate significant royalties, if any, or
that we will be able to collect royalties in the future. In addition, where we had previously supplied GSK and JANSSEN AI with all their requirements of QS-21 Stimulon, we have amended our agreements so that they are permitted to manufacture their
own QS-21 Stimulon. We are unable to predict what amount of QS-21 Stimulon, if any, will be purchased from us by other licensees or collaborators in the future. Any inability to receive anticipated QS-21 Stimulon revenues would have a material
adverse effect on our business, financial condition and results of operations.
In connection with the exchange of our 2006 Notes, we
entered into a Revenue Interests Assignment Agreement with the holders of the 2006 Notes. This agreement granted these holders a contractual right to the proceeds of 20% of our revenue interests from QS-21 Stimulon partnered programs and a 0.5%
royalty on net sales of HerpV. Due to uncertainties surrounding the future revenue stream generated from our licensees, we are unable to predict the precise dollar value reduction in revenue that will result from this agreement to pay the 2006 Note
holders their share of the proceeds from QS-21 Stimulon and HerpV programs. Any reduction in revenues generated from QS-21 Stimulon could have a material adverse effect on our business, financial condition and results of operations.
Our HerpV therapeutic vaccine candidate is in early stage development and we may not be
able to successfully develop this candidate.
Based on the results of our Phase 1 clinical trial of HerpV, which includes QS-21
Stimulon, we advanced this product candidate into a Phase 2 trial that measured the effect of vaccination on viral shedding in individuals infected with HSV-2 (genital herpes). In November 2013, we announced that the Phase 2 trial met its primary
endpoint, a statistically significant reduction in viral shedding. Final study results, including booster and immune response data, are expected during the first half of 2014. While our clinical trials to date have yielded positive findings, they
were limited in size and scope. There is no guarantee that future clinical trials will be successful or that a reduction in viral shedding will translate into clinical benefit. In addition, we may not have the resources required to advance the
vaccine further and even if we do have such resources, the success of future clinical trials will be dependent on, upon other things, maintaining sufficient supply of the required investigational materials, enrolling sufficient patients and the
adherence of these patients to the study protocol. Our HerpV development program in general may not be successful or yield a partnering opportunity for us. Furthermore, it is possible that research and discoveries by others will render our product
candidate obsolete or noncompetitive.
We may not be able to market and sell vaccines from our Prophage Series.
The probability and timing of submissions and/or approval of Prophage Series vaccines is uncertain.
A Phase 2 trial testing the Prophage Series G-100 vaccine candidate in newly diagnosed glioma has been fully enrolled and patient follow up is
ongoing. While early data from this study have been encouraging, these data may not be supported in later follow-up of patients or in subsequent clinical trials. Separately, the Cancer Therapy Evaluation Program of the National Cancer Institute
opened patient enrollment in a randomized Phase 2 trial of the Prophage Series G-200 vaccine in combination with Avastin® (bevacizumab) in patients with surgically resectable recurrent glioma.
This trial may not be successful, and even if it is successful, the trial is not intended to provide the necessary evidence of efficacy and/or safety to support biologics license application (“BLA”) filings.
Due to our lack of resources, our ability to perform additional studies may be limited. In addition, studies may take years to complete and
may fail to support regulatory filings for many reasons. Our Prophage Series vaccines are a novel class of patient-specific (derived from the patient’s own tumor) oncology therapies, and the U.S. Food and Drug Administration (“FDA”)
and foreign regulatory agencies, including the European Medicines Agency, which is responsible for product approvals in Europe, and Health Canada, which is responsible for product approvals in Canada, have limited experience in reviewing these types
of therapies. Therefore, product candidates derived from the Prophage Series vaccines may experience high development costs and a long regulatory review process, either of which could delay or prevent commercialization efforts.
If we or our licensee are unable to purify heat shock proteins we may have difficulty
successfully initiating or completing clinical trials or supporting commercial sales. Even if we or our licensees do successfully complete ongoing or future clinical trials or are successful manufacturing any approved products, we may have
difficulty generating a sizable market or commercial sales.
Our ability to successfully develop and commercialize the Prophage
Series vaccines for a particular cancer depends in part on our, and following successful technology transfer to NewVac LLC (“NewVac”), our licensee for Oncophage in the Russian Federation and certain other CIS countries, its, ability to
purify heat shock proteins from that type of cancer. If we or NewVac experience difficulties in purifying heat shock proteins for a sufficiently large number of patients in our clinical trials, we may face delays in enrolling sufficient patients and
subsequently utilize more internal resources to satisfy enrollment requirements. Manufacturing failures may also lower the probability of a successful analysis of the data from clinical trials and, ultimately, the ability to obtain regulatory
approvals and generate commercial sales. Manufacturing difficulties may also adversely affect NewVac’s ability to commercialize Oncophage in its licensed territory. We have successfully manufactured product across many different cancer types,
however, the success rate per indication has varied. We have evolved our manufacturing processes to better accommodate a wider range of tumor types. Our current manufacturing technologies have been successful in manufacturing product from
approximately 92% of the RCC tumors received and approximately 85% of the tumors received from patients enrolled in Phase 2 clinical trials in glioma. In addition, we may encounter problems with other types of cancer or patients as we expand our
research. If we cannot overcome these problems, the number of patients or cancer types that our heat shock protein product candidates could treat would be limited. In addition, if we commercialize our heat shock protein product candidates, we may
not be able to replicate past manufacturing success rates and we may face claims from patients for whom we are unable to produce a vaccine.
Manufacturing problems or increased demand may cause delays, unanticipated costs, or loss of revenue streams.
If the future clinical or commercial demand for our products or product candidates is substantially greater than we anticipate, our capacity
may not be able to meet product demand. In addition, higher manufacturing loads may result in higher manufacturing failure rates as the operation becomes more complex. We currently manufacture our Prophage Series vaccines in our Lexington, MA
facility. While we believe we will be able to cover demand in the near term, there is no guarantee that we will be able to meet all future or unanticipated increases in demand, and a failure to do so could adversely affect our business. Such demand
may also limit our ability to manufacture product in support of clinical trials, and this could cause a delay or failure in our Prophage Series vaccine development programs. Manufacturing of Prophage Series vaccines is complex, and various factors
could cause delays or an inability to supply vaccine. Deviations in the processes controlling manufacture could result in production failures. Furthermore, we have limited manufacturing resources and there is no assurance that we will be able to
obtain the necessary resources, timely or at all, to meet any increased demand.
Regulatory bodies may require us to make our
manufacturing facility a single product facility. In such an instance, we would no longer have the ability to manufacture products other than Prophage Series vaccines in our current facility.
Except in the case of GSK and JANSSEN AI, we have retained worldwide manufacturing rights for QS-21 Stimulon. We have the right to subcontract
manufacturing for QS-21 Stimulon
for our other existing and future QS-21 Stimulon manufacturing and supply needs, and we have a supply agreement with a contract manufacturer for the production of QS-21 Stimulon through September
2014. If we are not able to renew this agreement we may not be able to supply QS-21 Stimulon to meet future supply obligations on favorable terms or at all. For example, although GSK is a source of QS-21 Stimulon supply for us, their
obligation to supply is for a limited duration, and various factors could impact our decision to exercise this right. In addition, we or our currently contracted suppliers may not have the ability to manufacture commercial grade QS-21 Stimulon.
We currently rely upon and expect to continue to rely upon third parties, potentially including our collaborators or licensees, to
produce materials required to support our product candidates, preclinical studies, clinical trials, and commercial efforts. A number of factors could cause production interruptions at our manufacturing facility or at our contract manufacturers or
suppliers, including equipment malfunctions, labor or employment retention problems, natural disasters, power outages, terrorist activities, or disruptions in the operations of our suppliers. Alternatively, there is the possibility we may have
excess manufacturing capacity if product candidates do not progress as planned.
There are a limited number of contract manufacturers or
suppliers that are capable of manufacturing our product candidates or the materials used in their manufacture. If we are unable to do so ourselves or to arrange for third-party manufacturing or supply of these product candidates or materials, or to
do so on commercially reasonable terms, we may not be able to complete development of these product candidates or commercialize them ourselves or through our collaborative partners or licensees. Reliance on third-party manufacturers entails risks to
which we would not be subject if we manufactured products ourselves, including reliance on the third party for regulatory compliance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control,
and the possibility of termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.
Biopharmaceutical manufacturing is also subject to extensive government regulation. Components of a finished therapeutic product approved for
commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to
control and assure the quality of investigational products and products approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third party contractors must pass a pre-approval inspection
for compliance with the applicable regulations as a condition of regulatory approval of product candidates. In addition, facilities are subject to ongoing inspections, and minor changes in manufacturing processes may require additional regulatory
approvals, either of which could cause us to incur significant additional costs and lose revenue.
Risks associated with doing
business internationally could negatively affect our business.
We have in the past, and may continue to seek, marketing and
regulatory approvals of our product candidates in non-U.S. jurisdictions. For example, our Oncophage vaccine is approved for sale in Russia for the treatment of kidney cancer patients at intermediate risk for disease
recurrence, and we have partnered with NewVac to commercialize this product in the Russian Federation. In addition, should we complete the Acquisition, we will commence research and development
operations in Switzerland and Germany. Various risks associated with foreign operations may impact our success. Possible risks include fluctuations in the value of foreign and domestic currencies, disruptions in the import, export, and
transportation of patient tumors and our product, the product and service needs of foreign customers, difficulties in building and managing foreign relationships, the performance of our licensees or collaborators, geopolitical instability, and
unexpected regulatory, economic, or political changes in foreign markets. See “Risk Factors- Even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or withdrawals. Regulatory
requirements are subject to change.”
If we, or our licensees, fail to obtain adequate levels of reimbursement for our product
candidates there may be no commercially viable market for these products, or the commercial potential of these products may be significantly limited.
Public and private insurance programs may determine that they will not cover our product candidates or the product candidates of our licensees.
Government-sponsored health care systems typically pay a substantial share of health care costs, and they may regulate reimbursement levels of products to control costs. If we or our licensees are unsuccessful in obtaining substantial reimbursement
for our product candidates from national or regional funds, we will have to rely on private-pay, which may delay or prevent our launch efforts, because the ability and willingness of patients to pay for our products is unclear.
We, or our licensees, may not be able to obtain health insurance coverage of our product candidates, and if coverage is obtained, it may be
substantially delayed, or there may be significant restrictions on the circumstances in which the products would be reimbursed. We are unable to predict what impact any future regulation or third-party payer initiatives relating to reimbursement
will have on our sales.
Our competitors in the biotechnology and pharmaceutical industries may have superior products,
manufacturing capability, selling and marketing expertise and/or financial and other resources.
Our product candidates and the
product candidates in development by our collaborative partners may fail because of competition from major pharmaceutical companies and specialized biotechnology companies that market products, or that are engaged in the development of product
candidates, directed at cancer, infectious diseases and degenerative disorders. Many of our competitors, including large pharmaceutical companies, have greater financial and human resources and more experience than we do. Our competitors may:
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commercialize their product candidates sooner than we commercialize our own; |
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develop safer or more effective therapeutic drugs or preventive vaccines and other therapeutic products; |
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implement more effective approaches to sales and marketing and capture some of our potential market share; |
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establish superior intellectual property positions; |
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discover technologies that may result in medical insights or breakthroughs, which render our drugs or vaccines obsolete, possibly before they generate any revenue; or |
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adversely affect our ability to recruit patients for our clinical trials. |
There is no
guarantee that our products or product candidates will be able to compete with potential future products being developed by our competitors.
Competitive products in our HerpV program include Valtrex (GSK) and Famvir (Novartis), which are small molecule drugs marketed for treatment
of genital herpes. Other companies are engaged in research and/or clinical development for vaccines for treatment of genital herpes including Genocea and Vical. AiCuris Gmbh is engaged in clinical research of a small molecule drug for treatment of
genital herpes and has completed a Phase 2 trial.
We are aware of compounds that claim to be comparable to QS-21 Stimulon that are being
used in clinical trials. Several other vaccine adjuvants are in development and could compete with QS-21 Stimulon for inclusion in vaccines in development. These adjuvants include, but are not limited to, oligonucleotides, under development by
Pfizer, Idera, Colby, and Dynavax, MF59 under development by Novartis, IC31, under development by Intercell, and MPL, under development by GSK. In the past, we have provided QS-21 Stimulon to other entities under materials transfer arrangements. In
at least one instance, it is possible that this material was used unlawfully to develop synthetic formulations and/or derivatives of QS-21. In addition, companies such as Adjuvance Technologies, Inc. CSL Limited, and Novavax, Inc., as well as
academic institutions and manufacturers of saponin extracts, are developing saponin adjuvants, including derivatives and synthetic formulations. These sources may be competitive with our ability to do future partnering and licensing deals with QS-21
Stimulon.
We are also aware of a third party that manufactures pre-clinical material purporting to be comparable to QS-21 Stimulon. The
claims being made by this third party may create marketplace confusion and have an adverse effect on the goodwill generated by us and our partners with respect to QS-21 Stimulon. Any diminution of this goodwill may have an adverse effect on our
ability to commercialize this technology, either alone or with a third party.
In competition with our Prophage Series product candidates,
Genentech markets Avastin® and Eisai and Arbor Pharmaceuticals market Gliadel, both for treatment of recurrent glioma. In addition, TVAX Biomedical and Stemline Therapeutics are developing
immunotherapy candidates (TVI-Brain-1 and SL-701, respectively) for recurrent glioma. Schering Corporation, a subsidiary of Merck, markets Temodar for treatment of patients with newly diagnosed glioma. Other companies are developing vaccine
candidates for the treatment of patients with newly diagnosed glioma, such as Innocell Corp (Immuncell-LC), ImmunoCellular Therapeutics (ICT-107), Northwest Biotherapeutics (DC-Vax), Immatics (IMA-950), Activartis Biotech (GBM-Vax) and Celldex
(CDX-110). Celldex is also currently developing a vaccine candidate for recurrent glioma. Other companies may begin such development as well.
As vaccines from our Prophage Series are potentially developed in other indications, they could face additional competition in those
indications. In addition, and prior to regulatory approval, our Prophage Series vaccines and all of our other product candidates may compete for access to patients with other products in clinical development, with products approved for use in
the indications we are studying, or with off-label use of products in the indications we are studying. We anticipate that we will face increased competition in the future as new companies enter
markets we seek to address and scientific developments surrounding immunotherapy and other traditional cancer therapies continue to accelerate.
If we complete the Acquisition, we will have six preclinical checkpoint antibody programs that have been commenced by 4-AB. We are aware of
several large companies that have antibody-based products on the market or in clinical development that are directed to the same biological target as some of these programs, including Bristol-Myers Squibb, which markets ipilimumab, an anti-CTLA-4
antibody, and has an anti-PD1 antibody in development, Medimmune, which has anti-CTLA-4, OX-40 and PD1 antibodies in development, Merck and Curetech, which each has an anti-PDI antibody in development, and Pfizer, which has an anti-CTLA-4 antibody
in development.
Our future growth depends on our ability to successfully identify, develop, acquire or in-license products and
product candidates; otherwise, we may have limited growth opportunities.
An important part of our business strategy is to continue
to develop a pipeline of product candidates by developing, acquiring or in-licensing products, businesses or technologies that we believe are a strategic fit with our existing business. However, these business activities may entail numerous
operational and financial risks, including:
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difficulty or inability to secure financing to fund development activities for such development, acquisition or in-licensed products or technologies; |
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incurrence of substantial debt or dilutive issuances of securities to pay for development, acquisition or in-licensing of new products; |
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disruption of our business and diversion of our management’s time and attention; |
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higher than expected development, acquisition or in-license and integration costs; |
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exposure to unknown liabilities; |
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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; |
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inability to retain key employees of any acquired businesses; |
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difficulty in managing multiple product development programs; and |
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inability to successfully develop new products or clinical failure. |
We have limited resources
to identify and execute the development, acquisition or in-licensing of products, businesses and technologies and integrate them into our current infrastructure. We may compete with larger pharmaceutical companies and other competitors in our
efforts to establish new collaborations, and/or acquire, in-license, and/or advance new
product candidates. These competitors likely will have access to greater financial resources than us and may have greater expertise in identifying and evaluating new opportunities. Moreover, we
may devote resources to potential development, acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.
Failure to enter into and/or maintain significant licensing, distribution and/or collaboration agreements on favorable terms to us may
hinder our efforts to develop and commercialize our product candidates and could increase our development timelines as well as our need to rely on other financing mechanisms, such as sales of debt or equity securities, to fund our operations.
We have been engaged in efforts to enter into licensing, distribution and/or collaborative agreements with one or more
pharmaceutical or biotechnology companies to assist us with development and/or commercialization of our product candidates. If we are successful in entering into such agreements, we may not be able to negotiate agreements with economic terms similar
to those negotiated by other companies. We may not, for example, obtain significant upfront payments, substantial royalty rates or milestones. If we fail to enter into any such agreements, our efforts to develop and/or commercialize our products or
product candidates may be undermined. In addition, if we do not raise funds through any such agreements, we will need to rely on other financing mechanisms, such as sales of debt or equity securities, to fund our operations. Such financing
mechanisms, if available, may not be sufficient or timely enough to advance our programs forward in a meaningful way in the short-term.
While we have been pursuing these business development efforts for several years, we have not entered into a substantial agreement relating to
the potential development or commercialization of any of our Prophage Series vaccines other than the agreement with NewVac giving them an exclusive license to manufacture, market and sell Oncophage as well as pursue a development program in the
Russian Federation and certain other CIS countries. To date, the NewVac arrangement has not provided substantial benefit to us, and there is no guarantee that it will. In addition, other companies may not be interested in pursuing patient-specific
vaccines like our Prophage Series vaccines, and many other companies have been and may continue to be unwilling to commit to an agreement prior to receipt of additional clinical data, if at all.
In addition, we would consider license and/or co-development opportunities to advance HerpV and, if we complete the Acquisition, antibody
candidates derived from the Retrocyte Display technology platform of 4-AB. However, collaborative partners or licensees may defer discussions until these assets are further developed, or they may not engage in such discussions on terms acceptable to
us or at all.
Because we rely on collaborators and licensees for the development and commercialization of most of our product
candidate programs, these programs may not prove successful, and/or we may not receive significant payments from such parties.
Part of our strategy is to develop and commercialize a majority of our product candidates by continuing or entering into arrangements with
academic, government, or corporate collaborators and licensees. Our success depends on our ability to negotiate such agreements and on the success of the other parties in performing research, preclinical and clinical testing,
completing regulatory applications, and commercializing product candidates. For example, the development of candidates from the Prophage G Series is currently dependent in a large part on the
efforts of our institutional collaborators, such as the Brain Tumor Research Center at the University of California, San Francisco, which has conducted or is in the process of conducting Phase 2 clinical trials of Prophage Series vaccines G-100 and
G-200 for the treatment of glioma and the Alliance for Clinical Trials in Oncology, a National Cancer Institute cooperative group, which is sponsoring a Phase 2 clinical trial of G-200 in patients with surgically resectable recurrent glioma. When
our licensees or third party collaborators sponsor clinical trials using our product candidates, we cannot control the timing or quality of such trials or related activities. In addition, substantially all product candidates containing QS-21
Stimulon, other than HerpV, depend on the success of our collaborative partners or licensees, and our relationships with these third parties. Such product candidates depend on our collaborators and licensees successfully enrolling patients and
completing clinical trials, being committed to dedicating the resources to advance these product candidates, obtaining regulatory approvals, and successfully commercializing product candidates. We have granted NewVac an exclusive license to
manufacture, market and sell Oncophage in the Russian Federation and certain other CIS countries. NewVac has faced challenges establishing manufacturing capabilities and securing government reimbursement, which has impacted its ability to
commercialize the product in the licensed territory. NewVac may terminate this agreement at any time without cause. We do not expect to receive financial or other benefits, if any, from our relationship with NewVac or the sale of Oncophage in the
Russian Federation or CIS countries.
In addition, if we complete the Acquisition, our research, development, and commercialization
efforts with respect to antibody candidates from the Retrocyte Display technology platform will include the participation of institutional and corporate collaborators. For example, 4-AB has collaborative arrangements with the Ludwig Institute and
Memorial Sloan Kettering Cancer Center, and Brazil-based Recepta Biopharma S.A., among others. If we are not able to preserve these arrangements, as well as advance additional collaborations, on terms favorable to us, this may diminish the value of
the Acquisition to us and could have a negative impact on our operations.
Development activities for our collaborative programs may fail
to produce marketable products due to unsuccessful results or abandonment of these programs, failure to enter into future collaborations or license agreements, or the inability to manufacture product supply requirements for our collaborators and
licensees. Several of our agreements also require us to transfer important rights and regulatory compliance responsibilities to our collaborators and licensees. As a result of these collaborative agreements, we will not control the nature, timing,
or cost of bringing these product candidates to market. Our collaborators and licensees could choose not to devote resources to these arrangements or, under certain circumstances, may terminate these arrangements early. They may cease pursuing
product candidates or elect to collaborate with different companies. In addition, these collaborators and licensees, outside of their arrangements with us, may develop technologies or products that are competitive with those that we are developing.
From time to time, we may also become involved in disputes with our collaborators or licensees. Such disputes could result in the incurrence of significant expense, or the termination of collaborations. We may be unable to fulfill all of our
obligations to our collaborators, which may result in the termination of collaborations. As a result of these factors, our strategic collaborations may not yield revenue. Furthermore, we may be unable to enter into
new collaborations or enter into new collaborations on favorable terms. Failure to generate significant revenue from collaborations would increase our need to fund our operations through sales of
debt or equity securities and would negatively affect our business prospects.
We are highly reliant on our Chief Executive Officer
and other members of our management team. In addition, we have limited internal resources and if we fail to recruit and/or retain the services of key employees and external consultants as needed, we may not be able to achieve our strategic and
operational objectives.
Garo H. Armen, Ph.D., the Chairman of our Board of Directors and our Chief Executive Officer, co-founded
the Company in 1994, and has been, and continues to be, integral to building our company and developing our technology. If Dr. Armen is unable or unwilling to continue his relationship with Agenus, our business may be adversely impacted.
Effective December 1, 2005, we entered into an employment agreement with Dr. Armen. Subject to the earlier termination as provided
in the agreement, the agreement had an original term of one year and is automatically extended thereafter for successive terms of one year each, unless either party provides notice to the other at least ninety days prior to the expiration of the
original or any extension term. Dr. Armen plays an important role in our day-to-day activities. We do not carry key employee insurance policies for Dr. Armen or any other employee.
We also rely on a small staff of highly trained and experienced senior management and scientific, administrative and operations personnel and
consultants to conduct our business. Reductions in our staffing levels have eliminated redundancies in key capabilities and skill sets among our full time staff and required us to rely more heavily on outside consultants and third parties. In
addition, if in the future we need to perform sales, marketing and distribution functions for commercial and/or international operations, we will need to recruit experienced personnel and/or engage external consultants incurring significant
expenditures.
Reduction in expenses and resulting changes to our compensation and benefit programs have reduced the competitiveness of
these programs and thereby increased employee retention risk. The competition for qualified personnel in the biotechnology field is intense, and if we are not able to continue to attract and retain qualified personnel and/or maintain positive
relationships with our outside consultants, we may not be able to achieve our strategic and operational objectives.
Risks Related to Regulation of the
Biopharmaceutical Industry
The drug development and approval process is uncertain, time-consuming, and expensive.
Clinical development, including preclinical testing and the process of obtaining and maintaining regulatory approvals for new therapeutic
products, is lengthy, expensive, and uncertain. As of September 30, 2013, we have spent approximately 19 years and $301.8 million on our research and development program in heat shock proteins for cancer. It also can vary substantially based on
the type, complexity, and novelty of the product. We must provide regulatory authorities with manufacturing, product characterization, and preclinical and clinical data demonstrating that our product candidates are safe and effective before they can
be approved for commercial sale. It may take us many years to complete our testing, and failure can occur at any stage of testing. Interim results of preclinical studies or clinical trials do not
necessarily predict their final results, and acceptable results in early studies might not be seen in later studies. Any preclinical or clinical test may fail to produce results satisfactory to
regulatory authorities for many reasons, including but not limited to insufficient product characterization, poor study structure conduct or statistical analysis planning, failure to enroll a sufficient number of patients or failure to prospectively
identify the most appropriate patient eligibility criteria, and collectability of data. Preclinical and clinical data can be interpreted in different ways, which could delay, limit, or prevent regulatory approval. Negative or inconclusive results
from a preclinical study or clinical trial, adverse medical events during a clinical trial, or safety issues resulting from products of the same class of drug could require a preclinical study or clinical trial to be repeated or cause a program to
be terminated, even if other studies or trials relating to the program are successful. We or the FDA, other regulatory agencies, or an institutional review board may suspend or terminate human clinical trials at any time on various grounds.
The timing and success of a clinical trial is dependent on obtaining and maintaining sufficient cash resources, successful production of
clinical trial material, enrolling sufficient patients in a timely manner, avoiding serious or significant adverse patient reactions, and demonstrating efficacy of the product candidate in order to support a favorable risk versus benefit profile,
among other considerations. The timing and success of our clinical trials, in particular, are also dependent on clinical sites and regulatory authorities accepting each trial’s protocol, statistical analysis plan, product characterization
tests, and clinical data. In addition, regulatory authorities may request additional information or data that is not readily available. Delays in our ability to respond to such requests would delay, and failure to adequately address concerns would
prevent, our commercialization efforts. We have encountered in the past, and may encounter in the future, delays in initiating trial sites and enrolling patients into our clinical trials. Future enrollment delays will postpone the dates by which we
expect to complete the impacted trials and the potential receipt of regulatory approval. There is no guarantee we will successfully initiate and/or complete our clinical trials.
Delays or difficulties in obtaining regulatory approvals or clearances for our product candidates may:
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adversely affect the marketing of any products we or our licensees or collaborators develop; |
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impose significant additional costs on us or our licensees or collaborators; |
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diminish any competitive advantages that we or our licensees or collaborators may attain; |
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limit our ability to receive royalties and generate revenue and profits; and |
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adversely affect our business prospects and ability to obtain financing. |
Delays or failures in our receiving regulatory approval for our product candidates in a timely
manner may result in us having to incur additional development expense and subject us to having to secure additional financing. As a result, we may not be able to commercialize them in the time frame anticipated, and our business will suffer.
Even if we receive marketing approval for our product candidates, such product approvals could be subject to restrictions or
withdrawals. Regulatory requirements are subject to change.
Regulatory authorities generally approve products for particular
indications. If an approval is for a limited indication, this limitation reduces the size of the potential market for that product. Product approvals, once granted, are subject to continual review and periodic inspections by regulatory authorities.
Our operations and practices are subject to regulation and scrutiny by the United States government, as well as governments of any other countries in which we do business or conduct activities. Later discovery of previously unknown problems or
safety issues, and/or failure to comply with domestic or foreign laws, knowingly or unknowingly, can result in various adverse consequences, including, among other things, possible delay in approval or refusal to approve a product, warning letters,
fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspension of production, refusal of the government to renew marketing applications, complete withdrawal of a marketing application, and/or criminal prosecution,
withdrawal of an approved product from the market, and/or exclusion from government health care programs. Such regulatory enforcement could have a direct and negative impact on the product for which approval is granted, but also could have a
negative impact on the approval of any pending applications for marketing approval of new drugs or supplements to approved applications.
Because we are a company operating in a highly regulated industry, regulatory authorities could take enforcement action against us in
connection with our, or our licensees or collaborators, business and marketing activities for various reasons. For example, the Foreign Corrupt Practices Act prohibits U.S. companies and their representatives from offering, promising, authorizing,
or making payments to foreign officials for the purpose of obtaining or retaining business abroad.
From time to time, new legislation is
passed into law that could significantly change the statutory provisions governing the approval, manufacturing, and marketing of products regulated by the FDA and other foreign health authorities. Additionally, regulations and guidance are often
revised or reinterpreted by health agencies in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted, or whether regulations, guidance, or interpretations
will change, and what the impact of such changes, if any, may be. For example, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”), enacted in
March 2010, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the pharmaceutical industry. With regard to pharmaceutical products, among other things, ACA is expected to expand
and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare D program. We expect both government and private health plans to continue to require healthcare providers,
including healthcare providers that may one day purchase our products, to contain costs and demonstrate the value of the therapies they provide.
New data from our research and development activities, and/or resource considerations could
modify our strategy and result in the need to adjust our projections of timelines and costs of programs.
Because we are focused on
novel technologies, our research and development activities, including our nonclinical studies and clinical trials, involve the ongoing discovery of new facts and the generation of new data, based on which we determine next steps for a relevant
program. These developments can occur with varying frequency and constitute the basis on which our business is conducted. We need to make determinations on an ongoing basis as to which of these facts or data will influence timelines and costs of
programs. We may not always be able to make such judgments accurately, which may increase the costs we incur attempting to commercialize our product candidates. We monitor the likelihood of success of our initiatives and we may need to discontinue
funding of such activities if they do not prove to be commercially feasible, due to our limited resources.
We may need to successfully
address a number of technological challenges in order to complete development of our product candidates. Moreover, these product candidates may not be effective in treating any disease or may prove to have undesirable or unintended side effects,
toxicities, or other characteristics that may preclude our obtaining regulatory approvals or prevent or limit commercial use.
Risks Related to
Intellectual Property Rights
If we are unable to obtain and enforce patent protection for our product candidates and related
technology, our business could be materially harmed.
Issued patents may be challenged, narrowed, invalidated or circumvented. In
addition, court decisions may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign
countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after
filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in our issued patents or pending patent
applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. Therefore, the enforceability
and scope of our patents in the United States and in foreign countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or
maintain patent protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of
insufficient scope to achieve our business objectives.
Furthermore, the product development timeline for biotechnology products is lengthy and it is
possible that our issued patents covering our product candidates in the United States and other jurisdictions may expire prior to commercial launch. In addition, because our patent on QS-21 Stimulon composition of matter has already expired, our
patent rights are limited to protecting certain combinations of QS-21 Stimulon with other adjuvants or formulations of QS-21 Stimulon with other agents, such as excipients that improve performance of the compound. However, there is no guarantee that
a third party would necessarily choose to use QS-21 Stimulon in combination with such adjuvants or formulate it with the other agents covered by our patents. We are aware of other companies that claim to produce material comparable to QS-21
Stimulon. At least one other party has also developed derivatives of QS-21 that have shown biological activity.
Our strategy depends on
our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely
manner or in all jurisdictions where protection may be commercially advantageous. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. The issuance of a
patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to practice the patented invention.
Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology.
The patent landscape in the field of therapeutic antibody development, manufacture and commercialization is crowded. For example, we are aware
of third party patents directed to methods for identifying and producing therapeutic antibodies, as well as third party patents directed to antibodies to numerous targets for which 4-AB also seeks to identify, develop, and commercialize antibodies.
These third party patents may have relevance to the technology platforms utilized by 4-AB, including Retrocyte Display, as well as to development and commercialization of antibodies identified by 4-AB as therapeutic candidates. If we complete the
Acquisition, we will continue to conduct analyses of these third party patents to determine whether we believe they are valid and enforceable and, if so, whether we believe we might infringe them and would be required to seek a license. If we
determine that a license for a given patent or family of patents is necessary or desirable, there can be no guarantee that a license would be available on favorable terms, or at all.
Third parties may also seek to market biosimilar versions of any approved products. Alternatively, third parties may seek approval to market
their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a
court or agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our
business objectives.
We have exclusive rights to approximately 59 issued United States patents and approximately 82 issued foreign
patents. We also have exclusive rights to approximately six pending United States patent applications and approximately 15 pending foreign patent
applications. However, our patents may not protect us against our competitors. Our patent positions, and those of other pharmaceutical and biotechnology companies, are generally uncertain and
involve complex legal, scientific, and factual questions. The standards which the United States Patent and Trademark Office, or USPTO, uses to grant patents, and the standards which courts use to interpret patents, are not always applied predictably
or uniformly and can change, particularly as new technologies develop. Consequently, the level of protection, if any, that will be provided by our patents if we attempt to enforce them, and they are challenged, is uncertain. In addition, the type
and extent of patent claims that will be issued to us in the future is uncertain. Any patents that are issued may not contain claims that permit us to stop competitors from using similar technology.
The issued patents that cover the Prophage Series vaccines expire at various dates between 2015 and 2024. The issued patents related to HerpV
expire at various dates between 2014 and 2029. Our patent to purified QS-21 Stimulon expired in 2008. Additional protection for QS-21 Stimulon in combination with other agents is provided by our other issued patents which expire between 2017 and
2022. We continue to explore means of extending the life cycle of our patent portfolio.
If we complete the Acquisition, we will own,
co-own, or become licensed under a number of patents and patent applications directed to various methods and compositions, including methods for identifying therapeutic antibodies and product candidates arising out of 4-AB’s technology
platforms. We can provide no assurance that any patents we will control following completion of the Acquisition will have commercial value, or that any patent applications we will control will result in the issuance of valid and enforceable patents.
The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and
factual considerations. The standards which the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope
of claims granted or allowable in pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant
problems and costs in protecting their proprietary information in these foreign countries. Outside the United States, patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate
patent protection outside of the United States. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in foreign jurisdictions, or whether any patents that do issue will have claims of
adequate scope to provide competitive advantage. Moreover, we cannot predict whether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader claims may increase the incidence and cost of
patent interference proceedings, opposition proceedings, post-grant review, inter partes review, and/or reexamination proceedings, the risk of infringement litigation, and the vulnerability of the claims to challenge. On the other hand, the
allowance of narrower claims does not eliminate the potential for adversarial proceedings, and may fail to provide a competitive advantage. Our issued patents may not contain claims sufficiently broad to protect us against third parties with similar
technologies or products, or provide us with any competitive advantage.
Our patent on QS-21 Stimulon composition of matter has expired and we rely primarily on
unpatented technology and know-how to protect our rights to QS-21 Stimulon.
Our patent on QS-21 Stimulon composition of matter has
expired, and our patent rights are limited to protecting certain combinations of QS-21 Stimulon with other adjuvants or formulations of QS-21 Stimulon with other agents. Although our licenses also rely on unpatented technology, know-how, and
confidential information, these intellectual property rights may not be enforceable in certain jurisdictions and, we may not be able to collect anticipated revenue from our licensees. Any such inability would have a material adverse effect on our
business, financial condition and results of operations.
We may become involved in lawsuits to protect or enforce our patents,
which could be expensive, time consuming and unsuccessful.
Even after they have been issued, our patents and any patents which we
license may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able to develop products
that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition.
The
following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents licensed to us:
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we or our collaborators may initiate litigation or other proceedings against third parties to enforce our patent rights; |
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third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or
patents licensed to us; |
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third parties may initiate opposition proceedings, post-grant review, inter partes review, or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our collaborators and/or
licensors to participate in such proceedings to defend the validity and scope of our patents; |
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there may be a challenge or dispute regarding inventorship or ownership of patents currently identified as being owned by or licensed to us; |
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the USPTO may initiate an interference or derivation proceeding between patents or patent applications owned by or licensed to us and those of our competitors, requiring us or our collaborators and/or licensors to
participate in an interference or derivation proceeding to determine the priority of invention, which could jeopardize our patent rights; or |
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third parties may seek approval to market biosimilar versions of our future approved products prior to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing
lawsuits alleging patent infringement. |
These lawsuits and proceedings would be costly and could affect our results of
operations and divert the attention of our managerial and scientific personnel. There is a risk that a court or administrative body could decide that our patents are invalid or not infringed by a third party’s activities, or that the scope of
certain issued claims must be further limited. An adverse outcome
in a litigation or proceeding involving our own patents could limit our ability to assert our patents against these or other competitors, affect our ability to receive royalties or other
licensing consideration from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business
position, business prospects and financial condition.
The degree of future protection for our proprietary rights is uncertain because
legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents; |
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others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents; |
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we might not have been the first to make the inventions covered by patents or pending patent applications; |
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we might not have been the first to file patent applications for these inventions; |
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any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable; or |
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we may not develop additional proprietary technologies that are patentable. |
Our
commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have
or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our future approved products or impair our competitive position. In particular, if we complete the Acquisition, we will have six
preclinical checkpoint antibody programs, and the patent landscape around the discovery, development, manufacture and commercial use of therapeutic antibodies is crowded.
Patents that we may ultimately be found to infringe could be issued to third parties. Third parties may have or obtain valid and enforceable
patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of
operations. Moreover, our failure to maintain a license to any technology that we require may also materially harm our business, financial condition, and results of operations. Furthermore, we would be exposed to a threat of litigation.
In the biopharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other
intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:
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we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not
infringe those third parties’ patents; |
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if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or other proceedings to determine the
priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position; |
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if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; and
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if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that
we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings. |
These lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific personnel.
There is a risk that a court would decide that we or our collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may
not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us or our
collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the
technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.
The biopharmaceutical industry has produced a significant 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 or predictable. If we are sued for patent infringement,
we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the
United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert
management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement
action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or
obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and
be precluded from manufacturing or selling our product candidates.
The cost of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation and
proceedings more effectively than we can because of their substantially greater resources. 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. Patent litigation and other proceedings may also absorb significant management time.
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that
are important to our business.
We are currently party to various intellectual property license agreements and we will become a
party to additional such agreements if we complete the Acquisition. These license agreements impose, and we expect that future license agreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. These
licenses typically include an obligation to pay an upfront payment, yearly maintenance payments and royalties on sales. If we fail to comply with our obligations under the licenses, the licensors may have the right to terminate their respective
license agreements, in which event we might not be able to market any product that is covered by the agreements. Termination of the license agreements or reduction or elimination of our licensed rights may result in our having to negotiate new or
reinstated licenses with less favorable terms, which could adversely affect our competitive business position and harm our business.
If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be
adversely affected.
In addition to patent protection, we also rely on other proprietary rights, including protection of trade
secrets, and other proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the commencement of
their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not
disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain
these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. Thus, despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or
disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees,
consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to
assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s
assignee. Such assignment or license may not be available on commercially reasonable terms or at all.
Adequate remedies may not exist in
the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive
position and may materially harm our business, financial condition and results of operations. Costly and time consuming litigation could be necessary to enforce and determine the scope of our
proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence
of our own trade secrets affords no protection against such independent discovery.
As is common in the biopharmaceutical industry, we
employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or
we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or
more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management.
Obtaining and maintaining our patent protection depends on compliance with
various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the
USPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel to pay these fees when due. Additionally,
the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help
us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in
abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. In addition, we
are responsible for the payment of patent fees for patent rights that we have licensed from other parties. If any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to the licensor for any
costs and consequences of any resulting loss of patent rights.
