Form 8-K/A

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0001193125-17-311797.txt : 20171017 0001193125-17-311797.hdr.sgml : 20171017 20171017161258 ACCESSION NUMBER: 0001193125-17-311797 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20170801 ITEM INFORMATION: Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers: Compensatory Arrangements of Certain Officers ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20171017 DATE AS OF CHANGE: 20171017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Molecular Templates, Inc. CENTRAL INDEX KEY: 0001183765 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943409596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-32979 FILM NUMBER: 171140836 BUSINESS ADDRESS: STREET 1: 9301 AMBERGLEN BLVD STREET 2: SUITE 100 CITY: AUSTIN STATE: TX ZIP: 78729 BUSINESS PHONE: 512 896 1555 MAIL ADDRESS: STREET 1: 9301 AMBERGLEN BLVD STREET 2: SUITE 100 CITY: AUSTIN STATE: TX ZIP: 78729 FORMER COMPANY: FORMER CONFORMED NAME: THRESHOLD PHARMACEUTICALS INC DATE OF NAME CHANGE: 20020828 8-K/A 1 d266142d8ka.htm FORM 8-K/A Form 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 1, 2017

Molecular Templates, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-32979

94-3409596

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

Molecular Templates, Inc.

9302 Amberglen Blvd, Suite 100

Austin, Texas 78726

(Address of principal executive offices)

Registrant’s telephone number, including area code: (512) 869-1555

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Explanatory Note

On August 1, 2017, Threshold Pharmaceuticals, Inc. a Delaware corporation now known as Molecular Templates, Inc. (the “Company”), completed its business combination with Molecular Templates OpCo, Inc. (formerly known as Molecular Templates, Inc.), a privately held Delaware corporation (“Molecular Templates OpCo”), in accordance with the terms of an Agreement and Plan of Merger and Reorganization, dated as of March 16, 2017 (the “Merger Agreement”). Pursuant to the Merger Agreement, the Company formed a wholly owned subsidiary that merged with and into Molecular Templates OpCo, with Molecular Templates OpCo surviving the merger and becoming the Company’s wholly owned subsidiary (the “Merger”). Upon the consummation of the Merger, the Company changed its name from “Threshold Pharmaceuticals, Inc.” to “Molecular Templates, Inc.”

On August 1, 2017, the Company, entered into a Securities Purchase Agreement with Longitude Venture Partners III, L.P. (“Longitude”) and certain other accredited investors following the completion of the Merger, pursuant to which the Company sold an aggregate of 5,793,063 units (the “Units”) having an aggregate purchase price of $40.0 million, each such Unit consisting of (i) one (1) share (the “Shares”) of the common stock, $0.001 par value per share, of the Company (“Common Stock”) and (ii) a warrant (the “Warrants”) to purchase 0.50 shares of Common Stock (the “Concurrent Financing”). In connection with the execution of a collaboration and license agreement between Molecular Templates OpCo and Millennium Pharmaceuticals, Inc., a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd. (“Takeda”), on June 23, 2017, Takeda entered into a stock purchase agreement (the “Takeda Securities Purchase Agreement”) with the Company and Molecular Templates OpCo, pursuant to which Takeda agreed to purchase shares of Common Stock to occur following the consummation of the Merger and the Concurrent Financing. Pursuant to the Takeda Securities Purchase Agreement, on August 1, 2017, following the consummation of the Merger and the Concurrent Financing, the Company sold 2,922,993 shares of Common Stock to Takeda at a price per share of $6.8423 (the “Takeda Equity Financing”)

On August 7, 2017, the Company filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting, among other items, the consummation of the Merger, the Concurrent Financing and the Takeda Equity Financing. This Amendment No. 1 to Current Report on Form 8-K amends the Original Form 8-K to include, among other items, the historical audited and unaudited financial statements of Molecular Templates OpCo and the pro forma condensed combined financial information required by Items 9.01(a) and 9.01(b) of Current Report on Form 8-K that were excluded from the Original Form 8-K in reliance on the instructions to such Items.

Item 5.02

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

(e)

On August 1, 2017, pursuant to the terms of the Merger Agreement, the Company assumed Molecular Templates OpCo’s 2009 Stock Plan (the “Molecular Plan”). Please see the section of the Registration Statement (defined below) entitled “Molecular Executive Compensation – Employee Benefits Plan – Molecular’s 2009 Stock Plan” for information regarding the Molecular Plan, which such information is incorporated by reference.

Item 8.01

Other Events

For the general information of investors, the Company is filing herewith information that was previously disclosed as part of the prospectus contained in the Form S-4 registration statement (File No. 333-217993) relating to the Merger, as declared effective by the Securities and Exchange Commission on June 30, 2017 (the “Registration Statement”). Specifically, filed herewith as Exhibits 99.1 and 99.2, respectively, are excerpts of the “Molecular Templates Business” and “Risk Factors” sections thereof, which are incorporated by reference herein. Such information is as of June 30, 2017 (unless an earlier date is indicated).

Item 9.01

Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The audited financial statements of Molecular Templates OpCo as of and for the years ended December 31, 2016 and 2015, are filed herewith as Exhibit 99.3. The unaudited financial statements of Molecular Templates OpCo as of June 30, 2017 and for the three and six months ended June 30, 2017 and 2016, are filed herewith as Exhibit 99.4. The consent of BDO USA, LLP, Molecular Templates OpCo’s independent registered public accounting firm, is attached as Exhibit 23.1 to this Amendment No. 1 to Current Report on Form 8-K.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial information of the Company and Molecular Templates OpCo as of and for the year ended December 31, 2016 and as of and for the six months ended June 30, 2017 are filed herewith as Exhibit 99.5.

(d) Exhibits

Reference is made to the Exhibit Index included with this Current Report on Form 8-K.


Exhibit No.		Description
10.1+		Molecular Templates OpCo 2009 Stock Plan, as amended on March 9, 2010, September 14, 2010, March 28, 2011, August 22, 2012 and September 19, 2013. (incorporated by reference to Exhibit 10.34 to the Company’s Registration Statement on Form S-4, as filed with the SEC on May 15, 2017)

10.2+		Form of Option Agreement of Molecular Templates OpCo (incorporated by reference to Exhibit 10.40 to the Company’s Registration Statement on Form S-4, as filed with the SEC on May 15, 2017)

10.3*		Multi-License Collaboration and License Agreement, dated June 23, 2017, between Molecular Templates OpCo and Millennium Pharmaceuticals, Inc. (a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd.)

23.1		Consent of BDO USA, LLP, Molecular Templates OpCo’s independent registered public accounting firm

99.1		“Molecular Templates Business” section excerpt from Registration Statement

99.2		“Risk Factors” section excerpt from Registration Statement

99.3		Audited financial statements of Molecular Templates OpCo as of and for the years ended December 31, 2016 and 2015

99.4		Unaudited financial statements of Molecular Templates OpCo as of June 30, 2017 and for the three and six months ended June 30, 2017 and 2016

99.5		Unaudited pro forma condensed combined financial information of the Company and Molecular Templates OpCo, Inc. for the year ended December 31, 2016 and as of and for the six months ended June 30, 2017

+	Indicates a management contract or compensatory plan or arrangement.

*	Confidential treatment has been requested or granted as to certain portions, which portion have been omitted and filed separately with the SEC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EX-10.3 2 d266142dex103.htm EX-10.3 EX-10.3

Exhibit 10.3

MULTI-TARGET COLLABORATION AND

LICENSE AGREEMENT

Between

MOLECULAR TEMPLATES, INC.

and

MILLENNIUM PHARMACEUTICALS, INC.

Portions of this Exhibit, indicated by the mark “[***],” were omitted and have been filed separately with the Securities and Exchange Commission pursuant to the Registrant’s application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

TABLE OF CONTENTS


		Page
ARTICLE I DEFINITIONS AND INTERPRETATION			4

Section 1.1	Definitions		4

Section 1.2	Certain Rules of Interpretation in this Agreement and the Schedules		20

ARTICLE II RESEARCH PROGRAM			21

Section 2.1	Objective and Conduct of the Programs		21

Section 2.2	Program Plans		21

Section 2.3	Term of the Programs		23

Section 2.4	Use of Materials		23

Section 2.5	Availability of Targets; Approval of New Program Plans		24

Section 2.6	Governance of Programs		25

ARTICLE III LICENSE GRANTS AND EXCLUSIVE OPTION			26

Section 3.1	Program License Grants		26

Section 3.2	Other License Grants		27

Section 3.3	Grant of Options		27

Section 3.4	Exclusive License Grants and Rights of Reference		28

Section 3.5	Rights to Sublicense		28

Section 3.6	Use and Licensing of Third Party Technologies		29

ARTICLE IV REGULATORY, DEVELOPMENT AND COMMERCIALIZATION			30

ARTICLE V MANUFACTURING AND SUPPLY			32

Section 5.1	Responsibility for Manufacturing During Program Term		32

Section 5.2	Technology Transfer		33

Section 5.3	Responsibility for Manufacturing After Option Exercise		34

Section 5.4	Joint Manufacturing Committee		34

Section 5.5	Quality Agreement		35

ARTICLE VI PAYMENTS AND RECORDS			35

Section 6.1	Upfront Fees		35

Section 6.2	Equity		35

Section 6.3	Preclinical Development Milestone Payments		35

Section 6.4	Replacement Target Fees		36

Section 6.5	Option Exercise Fee		36

Section 6.6	Development Milestone Payments		36

Section 6.7	Sales Milestone Payments		37



Section 6.8	Royalties Payable by Takeda	38

Section 6.9	Payment Terms	40

Section 6.11	Payment Method	40

Section 6.12	Late Payments	41

Section 6.13	Exchange Control	41

Section 6.14	Taxes; Withholding Taxes	41

Section 6.15	Reports; Exchange Rates	41

Section 6.16	Audits	42

Section 6.18	Confidential Financial Information	42

ARTICLE VII CONFIDENTIALITY		43

Section 7.1	Non-Disclosure Obligations	43

Section 7.2	Permitted Disclosures	43

Section 7.3	Press Releases and Other Disclosures to Third Parties	45

Section 7.4	Use of Name	45

Section 7.5	Publications Regarding Results of the Programs	46

Section 7.6	Return of Confidential Information	46

ARTICLE VIII INTELLECTUAL PROPERTY OWNERSHIP		47

Section 8.1	Disclosure of Inventions	47

Section 8.2	Ownership of Intellectual Property	47

Section 8.3	Patent Prosecution and Maintenance	48

Section 8.4	Enforcement of Patent Rights	51

Section 8.5	Separate Representation	52

Section 8.6	Trademarks	52

Section 8.7	Third Party Actions	52

Section 8.8	Invalidity or Unenforceability Defenses or Actions	53

Section 8.9	Third Party Rights	54

ARTICLE IX REPRESENTATIONS AND WARRANTIES; COVENANTS		54

Section 9.1	Mutual Representations, Warranties and Covenants	54

Section 9.2	Additional Representations, Warranties and Covenants of MTEM	55

Section 9.3	Additional Covenants of MTEM	58

Section 9.4	DISCLAIMER OF WARRANTIES	59

ARTICLE X INDEMNITY; LIMITATION OF LIABILITY		59

Section 10.1	Indemnity	59

Section 10.2	Procedure	60

Page 2



Section 10.3	Limitation of Liability	61

Section 10.4	Insurance	61

ARTICLE XI TERM AND TERMINATION		61

Section 11.1	Term	61

Section 11.2	Termination by Takeda	61

Section 11.3	Termination for Material Breach	62

Section 11.4	License Survival Upon Insolvency	63

Section 11.5	Effect of Expiration and Termination	63

ARTICLE XII MISCELLANEOUS		65

Section 12.1	Notices	65

Section 12.2	Applicable Law; Jurisdiction	66

Section 12.3	Dispute Resolution	66

Section 12.4	Entire Agreement	67

Section 12.5	Severability	67

Section 12.6	Force Majeure	68

Section 12.7	Assignment	68

Section 12.8	Independent Contractors	68

Section 12.9	Waiver and Non-Exclusion of Remedies	69

Section 12.10	Further Assurances	69

Section 12.11	No Benefit to Third Parties	69

Section 12.12	Equitable Relief	69

Section 12.13	Counterparts	69


Exhibit A		Stock Purchase Agreement
Schedule 1.1.899		MTEM Targets
Schedule 1.1.1377		Existing SLT-As
Schedule 1.1.1422		SLT-A Technology
Schedule 2.2.1		Form of Program Plan
Schedule 2.5.4		Minimum Data Set
Schedule 9.2.5		MTEM Background Patent Rights
Schedule 9.2.6		Future MTEM In-Licenses
Schedule 9.2.9		MTEM Owned SLT-As

Page 3

MULTI-TARGET COLLABORATION AND LICENSE AGREEMENT

This Multi-Target Collaboration and License Agreement (this “Agreement”) is entered into as of June 23, 2017 (the “Effective Date”) by and between MOLECULAR TEMPLATES, INC., a Delaware corporation, having its principal place of business at 9301 Amberglen Boulevard, Suite 100, Austin, TX 78729 (“MTEM”) and MILLENNIUM PHARMACEUTICALS, INC., a Delaware corporation, a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited, having its principal place of business at 40 Landsdowne Street, Cambridge, MA 02139 (“Takeda”). MTEM and Takeda may sometimes individually be referred to hereafter as a “Party” or collectively as the “Parties.”

RECITALS

WHEREAS, MTEM owns or controls certain intellectual property rights relating to technology useful for generating SLT-A Fusion Proteins and covering SLT-A Fusion Proteins (as defined below) capable of directing SLT-As to specific tissues or cells;

WHEREAS, MTEM and Takeda wish to collaborate on a research program to Develop SLT-A Fusion Proteins Directed to certain Targets;

WHEREAS, in connection with such research program, MTEM wishes to allow Takeda to evaluate the SLT-A Technology (as defined below) for use with certain Takeda Antibodies (as defined below) on the terms set forth in this Agreement; and

WHEREAS, Takeda wishes to acquire from MTEM, and MTEM wishes to grant to Takeda, the exclusive option to obtain an exclusive worldwide license under such intellectual property rights with respect to the Targets studied under the research program for use in conjunction with Takeda’s Exploitation of Licensed Products (as such terms are defined below).

NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth herein, the Parties hereto, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1 Definitions. For the purposes of this Agreement the following words and phrases shall have the following meanings:

1.1.1 “Acceptance” means (a) with respect to a BLA or NDA, the acceptance by FDA of such BLA or NDA for substantive review, which can be evidenced by Takeda’s receipt of notice from FDA of such acceptance or other evidence that FDA has commenced its substantive review, (b) with respect to a Drug Approval Application filed with the EMA, the receipt by Takeda of a letter from the EMA with respect to such Drug Approval Application indicating that there has been a positive outcome of the EMA’s validation of such Drug Approval Application and (c) with respect to a Drug Approval Application filed with the PDMA in Japan, the acceptance by PDMA of such Drug Approval Application for substantive review, which can be evidenced by Takeda’s receipt of notice from PDMA of such acceptance or other evidence that PDMA has commenced its substantive review.

Page 4

1.1.2 “Accounting Standards” means International Financial Reporting Standards, with respect to Takeda, and Generally Accepted Accounting Standards in the U.S. with respect to MTEM, in each case, consistently applied.

1.1.3 “Affiliate” of a Party means any corporation or other business entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Party for so long as such Party controls, is controlled by or is under common control with such corporation or other business entity. As used herein, the term “control” means the direct or indirect ownership of fifty percent (50%) or more of the stock having the right to vote for directors thereof or the ability to otherwise control the management thereof.

1.1.4 “Agreement” has the meaning set forth in the preamble hereto.

1.1.5 “Antibody” means an unconjugated polyclonal or monoclonal antibody (whether (a) fully human, fully mouse, humanized, fully synthetic, bivalent, monovalent, phage display, in vitro display, ribosome-display, RNA display, DNA display, cell-display, chimeric, polyclonal, polyclonal mixes or any other type of antibody, (b) multiple or single chain, recombinant, in vivo, in vitro or naturally occurring or a combination of the foregoing in any species or (c) monospecific or bi-specific) or any analog, derivative, fragment or modification thereof (including a full antibody, single chain antibody, single domain antibody (sdAb (e.g., VHH))), scFv, scFvFc, Fab, or minibody).

1.1.6 “Applicable Law” means any law or statute, any rule or regulation (including written governmental interpretations thereof, the guidance related thereto, or the application thereof) issued by a Governmental Authority or Regulatory Authority and any judicial, governmental, or administrative order, judgment, decree, or ruling, in each case as applicable to the subject matter and the parties at issue.

1.1.7 “Available” has the meaning set forth in Section 2.5.4(a).

1.1.8 “Background IP means, with respect to a Party, any Know-How, inventions, Patent Rights and other intellectual property rights that are owned or otherwise Controlled (other than pursuant to the license grants set forth in Article III) by such Party or any of its Affiliates prior to the Effective Date or thereafter but through activities outside of this Agreement.

1.1.9 “Bankruptcy Code” has the meaning set forth in Section 11.4.

1.1.10 “Biosimilar Product” means, with respect to a Licensed Product in a country or jurisdiction, any product sold by a Third Party that (a) is subject to a license under Section 351(a) or 351(k) of the PHSA and (i) contains an active ingredient that is highly similar to the active ingredient of such Licensed Product, or (ii) is authorized by the FDA as being a “biosimilar” (as defined in Section 351(i)(2) of the PHSA) regardless of whether such product has been found to be “interchangeable” (as defined in Section 351(i)(3) of the PHSA) to such Licensed Product, (b) has been granted a marketing authorization by the European Commission as a similar biological medicinal product pursuant to Article 10 of Directive 2001/83/EC, as may be amended, or any subsequent or superseding law, stature or regulation or (c) has otherwise received Regulatory Approval as a generic, biosimilar or interchangeable product from another applicable Regulatory Authority in such country or jurisdiction, including by referencing or otherwise relying on Regulatory Approvals (or data therein) of such Licensed Product.

Page 5

1.1.11 “BLA” means Biologics License Application as described in 21 C.F.R § 601.2, or equivalent FDA application.

1.1.12 “Breaching Party” has the meaning set forth in Section 11.3.1.

1.1.13 “Business Day” means a day on which national banks located in the Commonwealth of Massachusetts are open for commercial banking business other than a Saturday or Sunday.

1.1.14 “Calendar Quarter” means any of the three (3)-month periods beginning on January 1, April 1, July 1 or October 1 of any Calendar Year, except that the first Calendar Quarter of the Term shall commence on the Effective Date and end on June 30, 2017 and the last Calendar Quarter shall end on the last day of the Term.

1.1.15 “Calendar Year” means (a) for the first Calendar Year, the period commencing on the Effective Date and ending on December 31 of the year during which the Effective Date occurs, (b) for the last Calendar Year, the period commencing on January 1 of the last year of the Term, and ending on the last day of the Term, and (c) each interim period of twelve (12) months commencing on January 1 and ending on December 31.

1.1.16 “Certification Date” has the meaning set forth in Section 9.2.

1.1.17 “Change in Control” means with respect to a Party, (a) a merger or consolidation in which (i) such Party is a constituent party, or (ii) a subsidiary of such Party is a constituent party, and such entity in clause (i) or (ii) issues shares of its capital stock pursuant to such merger or consolidation, except in the case of either clause (i) or (ii) any such merger or consolidation involving such Party or a subsidiary of such Party in which the shares of capital stock of such entity outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or are exchanged for shares of capital stock which represent, immediately following such merger or consolidation 50% or more by voting power of the capital stock of (A) the surviving or resulting corporation or (B) the parent corporation of such surviving or resulting corporation, in the case that the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation; (b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by such Party or a subsidiary of such Party of all or substantially all of the assets of such Party or such subsidiary of such Party taken as a whole (except where such sale, lease, transfer, exclusive license or other disposition is only to a wholly owned subsidiary of such Party or a subsidiary of such Party); or (c) any “person” or “group,” as such terms are defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder (collectively, the “Exchange Act”) in a single transaction or series of related transactions, becomes the beneficial owner as defined under the Exchange Act, directly or indirectly, whether by purchase or acquisition or agreement to act in concert or otherwise, of 50% or more by voting power of the then-outstanding capital stock or other equity interests of such Party or a subsidiary of such Party, other than pursuant to a bona fide financing. Notwithstanding the foregoing, the consummation of the proposed acquisition of MTEM by a subsidiary of Threshold Pharmaceuticals, Inc., (“Threshold”), pursuant to the Agreement and Plan of Reorganization, dated March 16, 2017, between MTEM and Threshold (as such may be amended from time to time) shall not constitute a Change in Control.

1.1.18 “Claim” has the meaning set forth in Section 10.1.1.

Page 6

1.1.19 “Clinical Trial” means any clinical study conducted on human subjects. Without limiting the foregoing, Clinical Trials includes any Phase I Clinical Trial, Phase II Clinical Trial or Phase III Clinical Trial.

1.1.20 “Combination Product” means a Licensed Product that contains an SLT-A Fusion Protein as an active ingredient together with one (1) or more other active ingredients and is sold together for a single invoiced price.

1.1.21 “Commercialize” or “Commercializing” means to market, promote, distribute, offer for sale, sell, have sold, import, have imported, export, have exported or otherwise commercialize a compound or product. When used as a noun, “Commercialization” means any and all activities involved in Commercializing.

1.1.22 “Commercially Reasonable Efforts” means, with respect to the efforts to be expended, by a Party or its Affiliate with respect to any objective to be undertaken hereunder, reasonable, good faith efforts to accomplish such objective as such Party would normally use to accomplish a similar objective under similar circumstances, it being understood and agreed that with respect to applicable activities, such efforts and resources shall be consistent with those efforts and resources commonly used by such Party under similar circumstances for similar products owned by it or to which it has similar rights that are at a similar stage in their development or product life and are of similar market potential as the Licensed Product taking into account: (a) issues of efficacy, safety and expected and actual approved labeling, (b) the expected and actual competitiveness of alternative products sold by Third Parties in the marketplace, (c) the expected and actual product profile, (d) the expected and actual patent and other proprietary position, (e) the likelihood of regulatory approval given the regulatory structure involved, including regulatory or data exclusivity, (f) the expected and actual profitability and return on investment of the Licensed Product, or other products in a Party’s portfolio of products, taking into consideration, among other factors, the expected or actual (i) Third Party costs and expenses, (ii) royalty, milestone and other payments payable to Third Parties and to MTEM, and (iii) pricing and reimbursement. Commercially Reasonable Efforts shall be determined on a country-by-country and indication-by-indication basis for each Licensed Product, as applicable, and it is anticipated that the level of effort and resources that constitute “Commercially Reasonable Efforts” with respect to a particular country or indication will change over time, reflecting changes in the status of the Licensed Product, as applicable, and the country(ies) involved. Notwithstanding the foregoing, neither Party shall be obligated to Develop, seek Regulatory Approval for, or Commercialize a Licensed Product: (A) that, in its reasonable opinion after discussion with the other Party, caused or is likely to cause a fatal, life-threatening or other adverse safety event that is reasonably expected, based upon then available data, to preclude obtaining Regulatory Approval for such Licensed Product, or, if Regulatory Approval of such Licensed Product has already been obtained, to preclude continued marketing of such Licensed Product; or (B) in a manner inconsistent with Applicable Law.

1.1.23 “Component” means any intermediate, component or unfinished form, element or ingredient of a SLT-A Fusion Protein Directed to a Designated Target or of a Licensed Product.

1.1.24 “Confidential Information” has the meaning set forth in Section 7.1.

1.1.25 “Control” means, with respect to any information, Regulatory Documentation or intellectual property right, possession, whether directly or indirectly, by a Party or its Affiliates (including, except as described below, a Future Acquirer) of the ability (whether by sole, joint or other ownership interest, license or otherwise, other than pursuant to the grants set forth in this Agreement) to grant the right to access or use, or to grant a license or a sublicense to, such information, Regulatory

Page 7

Documentation or intellectual property right as provided for herein without violating the terms of any agreement or other arrangement with any Third Party. Notwithstanding the foregoing, any information or intellectual property right Controlled by a Future Acquirer of MTEM shall not be treated as “Controlled” by MTEM or its Affiliates for purposes of this Agreement to the extent, but only to the extent, that such intellectual property (a) is Controlled by such Future Acquirer of MTEM immediately prior to the time such Future Acquirer qualifies as such, other than pursuant to a license or other grant of rights (whether directly or indirectly) by MTEM or its Affiliates, or (b) is Controlled by such Future Acquirer subsequent to the time that such Future Acquirer qualifies as such but (i) was not Controlled by MTEM or any of its existing Affiliates prior to the time such Future Acquirer qualifies as such and (ii) did not come under the Control of such Future Acquirer due to any license or other grant of rights by MTEM or its Affiliates or any reference or access to any Program IP or MTEM Background IP, Takeda Background IP, Product Confidential Information or any other Confidential Information of Takeda or information, Regulatory Documentation or intellectual property right Controlled by MTEM or any of its Affiliates (other than information, Regulatory Documentation or intellectual property Controlled by a Future Acquirer that would be excluded by clause (a) or (b)(i) of this definition).

1.1.26 “Designated Target” means any Target designated by Takeda, including the Program 1 Target, and, with respect to the Program 2 Target and any Replacement Target, confirmed to be Available against the register of unavailable Targets maintained by the Gatekeeper pursuant to the procedures set forth in Section 2.5.4. For clarity, each Designated Target shall include any naturally occurring variants or isoforms thereof as well as any fragment or peptide of such Target, variants or isoforms.

1.1.27 “Develop” or “Developing” means to discover, research or develop a process, compound or product, including conducting non-clinical and clinical research and development activities, including any activities necessary or useful to obtain or maintain Regulatory Approval with respect to any product. When used as a noun, “Development” means any and all activities involved in Developing.

1.1.28 “Directed” means, with respect to a Target, that an Antibody, SLT-A Fusion Protein or other Targeting Moiety is selected, generated or optimized to preferentially bind to such Target.

1.1.29 “Distributor” means any Person(s) appointed by Takeda or any of its Affiliates or its or their Sublicensees to distribute, market or sell product(s), with or without packaging rights, in one or more countries or jurisdictions, in circumstances where such Person purchases its requirements of the Product(s) from Takeda or its Affiliates or its or their Sublicensees but does not otherwise make any royalty or other payment to any of Takeda or its Affiliates or its or their Sublicensees with respect to its intellectual property rights with respect to the Product(s).

1.1.30 “Drug Approval Application” means a BLA, an NDA or any corresponding foreign application in the Territory, including, with respect to a country in Europe, a marketing authorization application filed with the EMA pursuant to the centralized approval procedure and, with respect to Japan, a marketing authorization application filed with the PDMA.

1.1.31 “Drug Master File” means a voluntary submission to the FDA or other applicable Regulatory Authority outside the U.S. that may be used to provide confidential, detailed information about an SLT-A Fusion Protein, Licensed Product, SLT-A or any other MTEM Background IP or SLT-A Program IP used to create an SLT-A Fusion Protein or a Licensed Product, and Manufacturing (including the facilities used therefor) any of the foregoing or any corresponding foreign submission in the Territory.

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1.1.32 “Effective Date” has the meaning set forth in the preamble hereto.

1.1.33 “EMA” means the European Medicines Agency, or any successor agency thereto.

1.1.34 “European Union” means the economic, scientific and political organization of member states as it may be constituted from time to time, specifically including any territory that was a member state as of the Effective Date whether or not such territory is a participating member state as of the applicable time.

1.1.35 “Evaluation” has the meaning set forth in Section 2.2.1.

1.1.36 “Event of Force Majeure” has the meaning set forth in Section 12.6.

1.1.37 “Exchange Act” has the meaning set forth in the definition of Change in Control.

1.1.38 “Excluded Lists” means the United States Department of Health and Human Service’s List of Excluded Individuals/Entities and the United States General Services Administration’s Lists of Parties Excluded from Federal Procurement and Non-Procurement Programs, and any analogous lists pursuant to Applicable Law outside the United States.

1.1.39 “Excluded Target” has the meaning set forth in Section 2.5.4(a).

1.1.40 “Exclusive License” has the meaning set forth in Section 3.4.1.

1.1.41 “Expert Panel” has the meaning set forth in Section 12.3.3.

1.1.42 “Exploit” means make, have made, import, use, sell or offer for sale, including to research, Develop, Commercialize, register, Manufacture, have Manufactured, hold or keep (whether for disposal or otherwise), have used, export, transport, distribute, promote, market or have sold or otherwise dispose of.

1.1.43 “Exploitation” means the act of Exploiting a compound, product or process.

1.1.44 “Extensions” has the meaning set forth in Section 8.3.4.

1.1.45 “Facility” means MTEM’s facility located at 9301 Amberglen Blvd., Suite 100 Austin TX 78729.

1.1.46 “FDA” means the United States Food and Drug Administration, and any successor agency thereto.

1.1.47 “FFDCA” means the United States Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 301, et. seq., as it may be amended from time to time, and the rules, regulations, guidances, guidelines, and requirements promulgated or issued thereunder.

1.1.48 “Field” means diagnosis, prevention, control or treatment of any and all human and animal conditions, diseases or disorders.

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1.1.49 “First Commercial Sale” means, with respect to any Licensed Product and with respect to any country or jurisdiction in the Territory, the first commercial sale of such Licensed Product by Takeda, its Affiliates, Sublicensees or Distributors to a Third Party for monetary value after all Regulatory Approvals for such Licensed Product have been obtained in such country or jurisdiction, in each case for use or consumption of such Licensed Product in such country or jurisdiction by the general public; provided, that sales for clinical study purposes or compassionate, named patient (paid or unpaid) or similar use shall not constitute a First Commercial Sale.

1.1.50 “Fusion Protein Materials” has the meaning set forth in Section 2.2.1.

1.1.51 “Future Acquirer” means a Third Party to any Change in Control transaction involving MTEM and such Third Party or any of such Third Party’s Affiliates existing immediately prior to such Change in Control.

1.1.52 “Future MTEM In-License” means any agreement with a Third Party entered into by MTEM or any of its Affiliates after the Effective Date and during the Term of this Agreement pursuant to which MTEM obtains rights to Patent Rights or Know-How that would reasonably be expected to constitute MTEM Background IP or SLT-A Program IP.

1.1.53 “Gatekeeper” shall be such Third Party as may be agreed by the Parties in writing from time to time.

1.1.54 “Generic Product” means, with respect to a Licensed Product in a country or jurisdiction, any product commercialized by a Third Party (excluding Licensed Products sold by Takeda or its Affiliates) that comprises or incorporates an SLT-A Fusion Protein and that is sold under a Regulatory Approval of any Regulatory Authority that references clinical data filed for such Licensed Product, such as an application under Section 505(b)(2) or Section 505(j) of the FFDCA in the U.S. or equivalent thereof in any other country or jurisdiction that is necessary in order to commercially distribute, sell or market such product in such country or jurisdiction.

1.1.55 “GLP Toxicology Studies” means, with respect to a Licensed Product, animal studies conducted in accordance with GLP and intended to support an IND for such Licensed Product.

1.1.56 “Good Laboratory Practices” or “GLP” means the then current standards for good laboratory practices for pharmaceuticals, as set forth in the FFDCA and applicable regulations and guidances promulgated thereunder, including the Code of Federal Regulations, as amended from time to time.

1.1.57 “Governmental Authority” means any applicable multi-national, federal, state, local, municipal or other government authority of any nature (including any governmental division, prefecture, subdivision, department, agency, bureau, branch, office, commission, council, court or other tribunal).

1.1.58 “Improvement” means all patentable and non-patentable inventions, discoveries, developments, enhancements, modifications or other know-how or improvements that derive from or relate to a Takeda Targeting Moiety, an SLT-A or any Patent Rights or Know-How of a Party, whether made by a Party, its Affiliate or a Third Party acting on a Party’s behalf or jointly by both Parties or their Affiliates or Third Parties acting on their behalf.

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1.1.59 “IND” means (a) in the United States, an Investigational New Drug Application, as defined in the FFDCA, filed with the FDA that is required to be filed with the FDA before conducting a Clinical Trial (including all supplements and amendments that may be filed with respect to the foregoing); and (b) any foreign counterpart of the foregoing.

1.1.60 “Indemnitee” has the meaning set forth in 0.

1.1.61 “Indemnitor” has the meaning set forth in 0.

1.1.62 “Indication” means, with respect to a Licensed Product in a country or jurisdiction, an indication for which a separate Regulatory Approval is obtained in such country or jurisdiction for such Licensed Product. A single Indication includes (a) any other indications for which additional Clinical Trials are not required for any subsequent Regulatory Approval with respect to such Licensed Product, (b) any label expansion for such Indication, whether or not requiring additional Clinical Trials or (c) the use of such Licensed Product for use as a first-, second- or third-line therapy, or as an adjuvant therapy, for the same tumor type, whether or not requiring additional Clinical Trials.

1.1.63 “Infringement Notice” has the meaning set forth in Section 8.4.1.

1.1.64 “Initiation” means, with respect to a Clinical Trial, the dosing of the first patient with a Licensed Product pursuant to the clinical protocol for the specified Clinical Trial.

1.1.65 “Inquiry” has the meaning set forth in Section 2.5.4(a).

1.1.66 “Joint Manufacturing Committee” has the meaning set forth in Section 5.4.1.

1.1.67 “Joint Other Program IP” means the Joint Other Program Know-How and the Joint Other Program Patent Rights.

1.1.68 “Joint Other Program Know-How” means any Other Program Know-How that is conceived, discovered, developed or otherwise made by or on behalf of both Parties’ (or their Affiliates’ or (sub)contractors) employees or Third Parties acting on such Parties’ behalf, in each case, in the course of such Party’s or Affiliates’ or (sub)contractors’ performance of a Program, but that does not otherwise constitute SLT-A Program Know-How or Target Program Know-How.

1.1.69 “Joint Other Program Patent Rights” means any Patent Rights that claims Joint Other Program Know-How, but that, for clarity, does not constitute SLT-A Program Patent Rights or Target Program Patent Rights.

1.1.70 “Joint Patent Committee” has the meaning set forth in Section 8.3.7(a).

1.1.71 “Joint Scientific Committee” has the meaning set forth in Section 2.6.2(a).

1.1.72 “Know-How” means all proprietary technical information, processes, formulae, data, results, developments, materials, specifications, inventions, improvements, uses, methods, techniques, conceptions, knowledge, discoveries, know-how, trade secrets and other information, whether or not patentable, but that is not generally known, including any tangible embodiments and all intellectual property rights, excluding Patent Rights, in and to any of the foregoing.

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1.1.73 “Liabilities” has the meaning set forth in Section 10.1.1.

1.1.74 “Licensed Product” means any product that incorporates or is comprised of one or more SLT-A Fusion Proteins Directed to a Licensed Target.

1.1.75 “Licensed Targets” means, collectively, each Designated Target with respect to which Takeda exercises its Option and does not rescind such Option exercise pursuant to Section 9.2 for so long as such Designated Target has not been replaced pursuant to Section 2.5.13.

1.1.76 “Major Market Country” means each of the United States, Japan, France, Germany, Italy, Spain and the United Kingdom.

1.1.77 “Manufacture” or “Manufacturing” means to make, have made, produce, manufacture, process, fill, finish, package, label, perform quality control and assurance testing, release, ship or store a compound or product or any intermediate or component thereof. When used as a noun, “Manufacture” or “Manufacturing” means any and all activities involved in Manufacturing a compound or product or any intermediate or component thereof.

1.1.78 “Mono Product” has the meaning set forth in the definition of Net Sales.

1.1.79 “MTEM” has the meaning set forth in the preamble hereto.

1.1.80 “MTEM Background IP” means the MTEM Background Patent Rights and the MTEM Background Know-How.

1.1.81 “MTEM Background Know-How” means any and all Know-How that (a) is Controlled by MTEM or any Affiliate of MTEM as of the Effective Date or, subject to Section 3.6, at any time during the Term and (b) relates to, comprises or consists of an SLT-A, SLT-A Fusion Protein or a Licensed Product or the Exploitation of any of the foregoing and is necessary or useful to Develop, Manufacture, Commercialize or otherwise Exploit SLT-A Fusion Proteins or Licensed Products. MTEM Background Know-How includes the SLT-A Technology.

1.1.82 “MTEM Background Patent Right” means any Patent Right that claims any MTEM Background Know-How.

1.1.83 “MTEM Indemnitees” has the meaning set forth in Section 10.1.2.

1.1.84 “MTEM Licensee” has the meaning set forth in Section 3.8.

1.1.85 “MTEM Program Activities” has the meaning set forth in Section 2.1.

1.1.86 “MTEM Prosecution Patent Rights” has the meaning set forth in Section 9.2.3.

1.1.87 “MTEM Regulatory Documentation” means Regulatory Documentation owned or Controlled by MTEM or any of its Affiliates on or after the Effective Date relating to any of the following: SLT-As, SLT-A Fusion Proteins, MTEM Background IP or SLT-A Program IP, which Regulatory Documentation is necessary or useful to Develop an SLT-A Fusion Protein or Exploit a Licensed Product.

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1.1.88 “MTEM Study Materials” has the meaning set forth in Section 2.2.1.

1.1.89 “MTEM Target” means any Target set forth on Schedule 1.1.89, each being an Excluded Target at the Effective Date.

1.1.90 “NDA” means a New Drug Application filed with the FDA in conformance with Applicable Law, or the foreign equivalent of any such application in any other country filed with a Regulatory Authority to obtain marketing approval for a pharmaceutical product.

1.1.91 “Net Sales” means the [***] invoiced amounts for all Licensed Products sold by or for Takeda, its Affiliates and Sublicensees to Third Parties (including wholesalers or Distributors but not any Affiliate or Sublicensee of Takeda), after deduction (if not already deducted in the amount invoiced) of the following items paid by Takeda, its Affiliates and Sublicensees, provided and to the extent that such items are incurred or allowed and do not exceed reasonable and customary amounts in the market in which such sales occurred and are not inconsistent with other similar products of Takeda:

(a) Any [***], including [***];

(b) any [***];

(c) any [***], including [***], as applicable;

(d) any charges for [***] to the extent borne by Takeda, or its Affiliates or Sublicensees; and

(e) any [***] given or made with respect to [***].

In the event a Licensed Product is a Combination Product, the Net Sales attributable to such Combination Product for a given country shall be calculated as follows:

If Takeda, its Affiliate or Sublicensee separately sells in such country, (i) a product containing as its sole active ingredient an SLT-A Fusion Protein (the “Mono Product”) and (ii) the other active ingredient in the Licensed Product, then for purposes of the royalties and sales milestones set forth herein, Net Sales for such Combination Product shall be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/(A+B) where: “A” is Takeda’s (or its Affiliate’s or Sublicensee’s, as applicable) average Net Sales price during the period to which the Net Sales calculation applies for the Mono Product in such country or other jurisdiction and “B” is Takeda’s (or its Affiliate’s or Sublicensee’s, as applicable) average Net Sales price during the period to which the Net Sales calculation applies in such country or other jurisdiction, for products that contain as their sole active ingredients the other active ingredients in such Combination Product.

If Takeda, its Affiliate or Sublicensee separately sells in such country or other jurisdiction the Mono Product but does not separately sell in such country or other jurisdiction products containing as their sole active ingredients the other active ingredients in such Combination Product, then for purposes of the royalties and sales milestones set forth herein, Net Sales for such Combination Product shall be calculated by multiplying the Net Sales of such Combination Product by the fraction A/C where: “A” is Takeda’s (or its Affiliate’s Sublicensee’s, as applicable) average Net Sales price during the period to which the Net Sales calculation applies for the Mono Product in such country or other jurisdiction, and “C” is Takeda’s (or its Affiliate’s or Sublicensee’s, as applicable) average Net Sales price in such country or other jurisdiction during the period to which the Net Sales calculation applies for such Combination Product.

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If Takeda, its Affiliates and Sublicensees do not separately sell in such country or other jurisdiction both the Mono Product and the other active ingredients in such Combination Product, then the Net Sales attributable to such Combination Product shall be determined by the Parties in good faith taking into account the medical contribution to such Combination Product of the SLT-A Fusion Protein on the one hand, and all of the other active ingredients, as applicable, collectively, on the other hand; provided, that if the Parties cannot agree on such relative value, the Dispute shall be resolved pursuant to Section 12.3.

All of the foregoing deductions from the gross invoiced sales prices of Licensed Products shall be determined in accordance with the applicable Accounting Standards. In the event that Takeda, its Affiliates or Sublicensees make any adjustments to such deductions after the associated Net Sales have been reported pursuant to this Agreement, the adjustments shall be reported and reconciled in the next report and payment of any royalties due.

1.1.92 “Notice of Dispute” has the meaning set forth in Section 12.3.1.

1.1.93 “Notice Period” has the meaning set forth in Section 11.3.1.

1.1.94 “Opt-In” means the withdrawal under Article 83(4) of the Agreement on a Unified Patent Court between the participating Member States of the European Union (2013/C 175/01) of the Opt-Out of a Patent Right.

1.1.95 “Opt-Out” means the opt-out of a Patent Right from the exclusive competence of the Unified Patent Court under Article 83(3) of the Agreement on a Unified Patent Court between the participating Member States of the European Union (2013/C 175/01).

1.1.96 “Option” has the meaning set forth in Section 3.3.1.

1.1.97 “Option Exercise Date” has the meaning set forth in Section 3.3.2.

1.1.98 “Option Exercise Fee” has the meaning set forth in Section 6.5.

1.1.99 “Option Period” means, with respect to a Designated Target, the period commencing on (a) the Effective Date, in the case of the Program 1 Target and (b) the date on which Takeda nominates such Target pursuant to Section 2.5.1, in the case of each other Designated Target, and ending on the earliest of (x) the date on which Takeda exercises its Option with respect to such Designated Target, (y) the date on which Takeda nominates a Replacement Target with respect to such Designated Target, and (z) the date that is three (3) months after the completion of the Evaluation for such Designated Target.

1.1.100 “Other Program IP” means the Other Program Know-How and the Other Program Patent Rights.

1.1.101 “Other Program Know-How” means any Program Know-How that is not SLT-A Program Know-How or Target Program Know-How.

1.1.102 “Other Program Patent Rights” means any Patent Rights that claim Other Program Know-How.

1.1.103 “Party” and “Parties” are defined in the preamble hereto.

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1.1.104 “Patent Right” means any and all national, regional and international (a) issued patents and pending patent applications (including provisional patent applications), (b) patent applications filed either from the foregoing or from an application claiming priority to the foregoing, including all converted provisionals, substitutions, continuations, continuations-in-part, divisions, renewals and continued prosecution applications, and all patents granted thereon, (c) patents-of-addition, revalidations, reissues, reexaminations and extensions or restorations (including any supplementary protection certificates and the like) by existing or future extension or restoration mechanisms, including patent term adjustments, patent term extensions, supplementary protection certificates or the equivalent thereof, (d) inventor’s certificates, utility models, petty patents, innovation patents and design patents, (e) other forms of government-issued rights substantially similar to any of the foregoing, including so-called pipeline protection or any importation, revalidation, confirmation or introduction patent or registration patent or patent of additions to any of such foregoing and (f) United States and foreign counterparts of any of the foregoing.

1.1.105 “Person” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other similar entity or organization, including a government or political subdivision, department or agency of a government.

1.1.106 “Phase I Clinical Trial” means a Clinical Trial of a Licensed Product conducted by or on behalf of Takeda, its Affiliates or Sublicensees that generally provides for the first introduction into humans of a such Licensed Product with, the primary purpose of determining metabolism and pharmacokinetic properties and side effects of such product, in a manner that is generally consistent with 21 C.F.R. § 312.21(a), as amended (or its successor regulation), excluding, for clarity any investigator-initiated Clinical Trials.

1.1.107 “Phase II Clinical Trial” means a Clinical Trial of a Licensed Product conducted by or on behalf of Takeda, its Affiliates or Sublicensees on a sufficient number of subjects for making (and the principal purpose of which is to make) a preliminary determination as to whether a pharmaceutical product is safe for its intended use and obtaining (and to obtain) sufficient information about such product’s efficacy, in a manner that is generally consistent with 21 C.F.R. § 312.21(b), as amended (or its successor regulation), or a similar clinical study prescribed by the Regulatory Authorities in a country or jurisdiction outside the United States, to permit the design of further clinical trials of such Licensed Product, excluding, for clarity any investigator-initiated Clinical Trials.

1.1.108 “Phase III Clinical Trial” means a Clinical Trial of a Licensed Product with a defined dose or a set of defined doses of such Licensed Product and conducted by or on behalf of Takeda, its Affiliates or Sublicensees on a sufficient number of subjects for ascertaining (and that is designed to ascertain) the overall risk-benefit relationship of the Licensed Product for its intended use and determining (and to determine) warnings, precautions, and adverse reactions that are associated with such Licensed Product in the dosage range to be prescribed, in a manner that is generally consistent with 21 C.F.R. § 312.21(c), as amended (or its successor regulation), or a similar clinical study prescribed by the Regulatory Authorities in a country or jurisdiction outside the United States, which trial is necessary to support Regulatory Approval of such Licensed Product, excluding, for clarity any investigator-initiated Clinical Trials.

1.1.109 “PHSA” means the United States Public Health Service Act, as may be amended, or any subsequent or superseding law, statute or regulation.

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1.1.110 “PMDA” means the Pharmaceuticals and Medical Devices Agency in Japan, or any successor agency thereto.

1.1.111 “Product Information” has the meaning set forth in Section 7.1.

1.1.112 “Product Trademarks” has the meaning set forth in Section 8.6.

1.1.113 “Program” means Program 1, Program 2 and any Replacement Target Program.

1.1.114 “Program 1” means the research program directed toward the Program 1 Target conducted pursuant to Article II.

1.1.115 “Program 1 Target” means the Target selected by Takeda in accordance with Section 2.5.

1.1.116 “Program 2” means the research program directed toward the Program 2 Target conducted pursuant to Article II.

1.1.117 “Program 2 Target” means the Target selected by Takeda in accordance with Section 2.5.

1.1.118 “Program Activities” has the meaning set forth in Section 2.1.

1.1.119 “Program IP” means the Program Know-How and the Program Patent Rights.

1.1.120 “Program Know-How” means Know-How, Improvements and other inventions that are conceived, discovered, developed or otherwise made by or on behalf of one or both of the Parties or their Affiliates in connection with the performance of the Program Activities, whether or not patented or patentable.

1.1.121 “Program Patent Rights” means any Patent Rights that claim Program Know-How.

1.1.122 “Program Plan” means, with respect to any Program, the written plan for conducting such Program as further described in Section 2.2.

1.1.123 “Program Term” has the meaning set forth in Section Section 2.3.

1.1.124 “Publication” has the meaning set forth in Section 7.5.

1.1.125 “Quality Agreement” has the meaning set forth in Section 5.5.

1.1.126 “Reciprocal Technology” means any Know-How or Improvements (and any Patent Rights with respect thereto) conceived, discovered, developed or otherwise made by or on behalf of any MTEM Licensee, whether alone or with MTEM, under or in connection with a license or grant of other rights or access in, to or under any SLT-A or SLT-A Fusion Protein (a) that derive from or relate to an SLT-A or SLT-A Fusion Protein, (b) the practice of which is necessary or useful for the

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Development, Manufacture, Commercialization or other Exploitation of SLT-A Fusion Proteins or Licensed Products and (c) that would be MTEM Background IP or SLT-A Program IP were such Know-How or Patent Rights conceived, discovered, developed or otherwise made by MTEM alone.

1.1.127 “Regulatory Approval” means, with respect to a country or jurisdiction in the Territory, any and all approvals (including Drug Approval Applications), licenses, registrations or authorizations of any Regulatory Authority necessary to commercially distribute, sell or market a Licensed Product in such country or jurisdiction, including, where applicable, (a) commercially reasonable pricing or reimbursement approval in such country or jurisdiction, (b) pre- and post-approval marketing authorizations (including any prerequisite Manufacturing approval or authorization related thereto) and (c) labeling approval.

1.1.128 “Regulatory Authority” means, with respect to a country or jurisdiction in the Territory, any national (e.g., the FDA), supra-national (e.g., the European Commission, the Council of the European Union, or the EMA) regional, state or local regulatory agency, department, bureau, commission, council or other Governmental Authority involved in the granting of a Regulatory Approval or otherwise exercising authority with respect to biopharmaceutical products in such country or jurisdiction.

1.1.129 “Regulatory Documentation” means all (a) applications (including all INDs), registrations, licenses, authorizations and approvals (including Regulatory Approvals), (b) correspondence and reports submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority) and all supporting documents with respect thereto, including all adverse event files and complaint files, (c) clinical and other data contained, referenced or otherwise relied upon in any of the foregoing, and (d) for clarity, any Drug Master File.

1.1.130 “Replacement Target” has the meaning set forth in Section 2.5.13.

1.1.131 “Replacement Target Program” means the research program directed toward any Replacement Target conducted pursuant to Article II.

1.1.132 “Representative” has the meaning set forth in Section 5.2.2.

1.1.133 “Research License” has the meaning set forth in Section 3.1.2.

1.1.134 [***].

1.1.135 “Royalty Report” has the meaning set forth in Section 6.14.1.

1.1.136 “Royalty Term” means, on a Licensed Product-by-Licensed Product and country-by-country basis, the period commencing upon the First Commercial Sale of a Licensed Product in such country and ending upon the latest to occur of (a) the date of expiration of the last Valid Patent Claim of the MTEM Background Patent Rights, the SLT-A Program Patent Rights or the Target Program Patent Rights (other than Targeting Moiety IP), in each case that would be infringed by the sale of the applicable Licensed Product in the applicable country, if not for Takeda’s ownership thereof or the licenses granted hereunder, (b) the date of expiration of any regulatory exclusivity for such Licensed Product in such country and (c) ten (10) years after the First Commercial Sale of such Licensed Product in any country.

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1.1.137 “SLT-A” means (a) any Shiga or Shiga-like toxin A Subunit or fragment thereof, including variants, such as deimmunized variants, variants with heterologous epitopes, furin-cleavage resistant variants and combinations thereof, including those listed on Schedule 1.1.1377 hereto and (b) any Improvements to any of the foregoing.

1.1.138 “SLT-A Fusion Protein” means any SLT-A conjugated, fused (e.g., as a single polypeptide chain), or otherwise combined with any Takeda Targeting Moiety.

1.1.139 “SLT-A Program IP” means the SLT-A Program Know-How and the SLT-A Program Patent Rights.

1.1.140 “SLT-A Program Know-How” means any Program Know-How that constitutes an Improvement to any invention included in the SLT-A Technology other than Program IP that is Target Program Know-How or is claimed by Target Program Patent Rights.

1.1.141 “SLT-A Program Patent Rights” means any Patent Rights claiming SLT-A Program Know-How. For clarity, SLT-A Program Patent Rights does not include any Target Program Patent Rights.

1.1.142 “SLT-A Technology” means the Patent Rights set forth on Schedule 1.1.1422 and any inventions claimed or described therein.

1.1.143 “Sublicensee” means any Person (other than an Affiliate of Takeda or a Distributor) that is granted a sublicense under Section 3.5 by Takeda or its Affiliate in accordance with the terms of this Agreement to Develop or Commercialize Licensed Products.

1.1.144 “Supply Agreement” has the meaning set forth in Section Section 5.1.

1.1.145 “Supply Price” means, with respect to a quantity of Development Material, the cost of goods of such Development Material [***]. To the extent Development Material is Manufactured directly by MTEM, the cost of goods will equal the fully burdened cost of Manufacturing such Development Material, consisting of the cost of raw materials, direct and identifiable labor, product quality assurance/control costs and other direct and identifiable variable costs and appropriate direct and identifiable costs (or appropriate allocation thereof) yield losses (to the extent consistent with industry practice), storage, and shipping, rent and depreciation of capital expenditures, to the extent directly attributable and allocable to the Manufacture of such Development Material. Without limitation to the foregoing, (a) should any facility or equipment not be used to their full capacity for the Manufacture of Development Material, allocations shall be on the basis of that actually used for the Manufacture and supply of such Development Material and not any amount in respect of idle or unused capacity; and (b) the costs of goods (i) will be calculated in accordance with applicable Accounting Standards and include allocations that are commercially justifiable and consistent with fair industry practices, (ii) will exclude all costs that cannot be linked to a specific Manufacturing activity, such as charges for corporate overhead that are not controllable by the manufacturing plant, and (iii) will exclude any Third Party license payments owed or incurred by MTEM in connection with any Manufacturing activities. Cost of goods shall not include (A) costs that are expressly allocated to be borne by MTEM under this Agreement (e.g., under Article II), (B) costs associated with scale-up or capability building, unless expressly agreed in writing by the Parties, or (C) any

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inter-company mark-up between MTEM and its Affiliates. To the extent MTEM uses a contract manufacturer for any of such activities, the cost of goods means the amount paid to the applicable contract manufacturer, including, any raw materials, reagents or other components directly purchased by MTEM on behalf of the CMO and any related shipping costs including shipping insurance costs. In no circumstances will the costs incurred by MTEM, and used to calculate the Supply Price, be double counted.

1.1.146 “Takeda” has the meaning set forth in the preamble hereto.

1.1.147 “Takeda Background IP” means the Takeda Background Know-How and the Takeda Background Patent Rights.

1.1.148 “Takeda Background Know-How” means Background IP owned or Controlled by Takeda that is used, or provided for use, by Takeda, in the performance of the Program Activities.

1.1.149 “Takeda Background Patent Rights” means any Patent Rights that claim Takeda Background Know-How.

1.1.150 “Takeda Program Activities” has the meaning set forth in Section 2.1.

1.1.151 “Takeda Target” means a Designated Target or a Licensed Target.

1.1.152 “Takeda Targeting Moiety” means (a) any Targeting Moiety or sequence thereof that is provided by or on behalf of Takeda to MTEM under this Agreement and that is Directed to a Target or (b) any Improvement thereto.

1.1.153 “Target” means (a) any protein (including any glyco- or lipo-protein), carbohydrate, compound or other composition that stimulates the production of Antibodies or against which Targeting Moieties are Directed, (b) any naturally occurring isoform or variants thereof or (c) any fragment or peptide of any of the foregoing. The whole protein, carbohydrate, compound or other composition as well as a fragment or peptide thereof, or portion of the whole is considered the same Target.

1.1.154 “Target Program IP” means the Target Program Know-How and the Target Program Patent Rights.

1.1.155 “Target Program Know-How” means any Program Know-How that is not SLT-A Program Know-How related to either or both of the following: (a) any Takeda Targeting Moiety, including Improvements, modifications, fragments and derivatives thereof and corresponding compositions of matter, methods of making or using any of the foregoing (“Targeting Moiety IP”) or (b) conjugates and fusion proteins comprising a moiety described in clause (a), including any SLT-A Fusion Protein or other SLT-A conjugate and corresponding compositions of matter, methods of making or using any of the foregoing.

1.1.156 “Target Program Patent Rights” means any Patent Rights that claim Target Program Know-How.

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1.1.157 “Targeting Moiety” means any Antibody or other targeting moiety, such as a peptide, cyclic peptide, small molecule or related molecular structure capable of being Directed through its binding to a Target, including non-immunoglobulin scaffolds, including fibronectin, lipocalin, protein A, ankyrin, thioredoxin, and the like.

1.1.158 “Targeting Moiety IP” has the meaning set forth in the definition of Target Program Know-How.

1.1.159 “Technology Recipient” has the meaning set forth in Section 5.2.

1.1.160 “Technology Transfer” has the meaning set forth in Section 5.2.

1.1.161 “Technology Transfer Documentation” has the meaning set forth in Section 5.2.1.

1.1.162 “Term” has the meaning set forth in Section 11.1.

1.1.163 “Territory” means all countries and jurisdictions in the world.

1.1.164 “Testing Laboratory” has the meaning set forth in Schedule Section 5.1.

1.1.165 “Third Party” means any Person other than Takeda, MTEM and their respective Affiliates.

1.1.166 “Third Party Action” has the meaning set forth in Section 8.7.1.

1.1.167 “Valid Patent Claim” means, with respect to a Patent Right in a country or jurisdiction, any claim of an issued Patent Right that has not (a) expired, irretrievably lapsed or been abandoned, revoked, dedicated to the public or disclaimed, including any applicable patent term adjustments or extensions, Supplementary Protection Certificates and similar patent term extensions awarded by regional or national patent offices; or (b) been found to be unpatentable, invalid or unenforceable by an unreversed and unappealable decision of a Governmental Authority in such country or jurisdiction.

Section 1.2 Certain Rules of Interpretation in this Agreement and the Schedules.

1.2.1 Unless otherwise specified, all references to monetary amounts are to United States of America currency (U.S. Dollars);

1.2.2 The preamble to this Agreement and the descriptive headings of Articles and Sections are inserted solely for convenience of reference and are not intended as complete or accurate descriptions of the content of this Agreement or of such Articles or Sections;

1.2.3 Except where the context otherwise requires, wherever used, the singular shall include the plural, the plural the singular, the use of any gender shall be applicable to all genders and the word “or” is used in the inclusive sense (and/or);

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1.2.4 The words “include” and “including” have the inclusive meaning frequently identified with the phrases “without limitation” and “but not limited to”;

1.2.5 The words “will” and “shall” have the same meaning;

1.2.6 Whenever this Agreement refers to a number of days, unless otherwise specified, such number refers to calendar days. Unless otherwise specified, deadlines within which any payment is to be made or act is to be done within or following specified time period after a date shall be calculated by excluding the day, Business Day, month or year of such date, as applicable, and including the day, Business Day, month or year of the date on which the period ends;

1.2.7 Whenever any payment is to be made or action to be taken under this Agreement is required to be made or taken on a day other than a Business Day, such payment shall be made or action taken on the next Business Day following such day to make such payment or do such act; and

1.2.8 Unless otherwise specified, references in this Agreement to any Article, Section, Exhibit or Schedule means references to such Article, Sections, Exhibits or Schedule of this Agreement.

ARTICLE II

RESEARCH PROGRAM

Section 2.1 Objective and Conduct of the Programs. The Parties shall conduct one or more Programs, each in accordance with a Program Plan, the terms of this Agreement and Applicable Law in good scientific manner. The purpose of each Program will be to identify, generate and evaluate SLT-A Fusion Proteins directed to Designated Targets for Takeda’s Development, Manufacture, Commercialization and other Exploitation under this Agreement, subject to Takeda’s exercise of its exclusive Option with respect to such Designated Targets. During the Option Period (a) MTEM shall use commercially reasonable efforts to perform each Program Plan and conduct the activities assigned to it under (and within the timelines contained in) each Program Plan (such activities, “MTEM Program Activities”) and (b) Takeda shall use commercially reasonable efforts to perform each Program Plan and conduct the activities assigned to it under (and within the timelines contained in) each Program Plan (such activities, “Takeda Program Activities” and together with the MTEM Program Activities, the “Program Activities”). Except for any consideration that becomes due and payable to MTEM by Takeda pursuant to the terms and conditions of Article VI, each Party shall bear its own costs and expenses in connection with such Party’s performance of the Program Activities assigned to such Party under any Program Plan.

Section 2.2 Program Plans.

2.2.1 Program Plan Framework. Each Program Plan will provide a framework for the applicable Program, will be substantially in the form attached hereto as Schedule 2.2.1, and will describe the activities pursuant to which (a) Takeda will deliver to MTEM [***] Takeda Targeting Moieties Directed to the applicable Designated Target, (b) MTEM will (i) create SLT-A Fusion Proteins, characterize SLT-A Fusion Proteins as indicated in the Program Plan (including, analytical testing, purification, antigen binding and cytotoxicity testing) and (ii) deliver to Takeda any such resulting SLT-A Fusion Proteins or Components thereof (the “Fusion Protein Materials”) and such SLT-As and other control drug fusion materials (such materials, excluding, for clarity, the Fusion Protein Materials; collectively, the “MTEM Study Materials”), each characterized and delivered as contemplated under the Program Plan or agreed to by the Parties, and (c) Takeda will have the right to perform evaluation activities on SLT-A Fusion Proteins (the “Evaluation”), all as more specifically set forth in the applicable Program Plan. Each Program Plan shall be developed and approved in accordance with Section 2.5.66.

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2.2.2 Changes to Program Plans. Takeda and MTEM may propose changes from time to time to any Program Plan, which shall be subject to review and approval by the Joint Scientific Committee, as provided in Section 2.6 (including the decision-making mechanisms set forth therein). Notwithstanding the foregoing, any proposed change to a Program Plan may not [***] by more than [***], or the scope of tasks relating to, animal studies that MTEM is obligated to perform, without MTEM’s written consent.

2.2.3 Records. MTEM shall maintain, in good scientific manner, complete and accurate books and records pertaining to its activities under each Program Plan, in sufficient detail to verify compliance with its obligations under this Agreement and which books and records shall (a) be appropriate for patent and regulatory purposes, (b) be kept and maintained in compliance with Applicable Law, and (c) properly reflect all work done and results achieved in the performance of its activities hereunder. Such books and records shall be retained by MTEM for [***] after the expiration or termination of this Agreement in its entirety or for such longer period as may be required by Applicable Law. Following exercise of an Option with respect to a particular Licensed Target, Takeda shall have the right, during normal business hours and upon reasonable notice, to inspect and copy all records of MTEM maintained with respect to the Program with respect to such Target pursuant to this Section 2.2.3. After the end of the applicable retention period, if MTEM desires to destroy any books or records maintained pursuant to this Section 2.2.3, MTEM shall notify Takeda of such desire and Takeda shall have [***] after receipt of such notice to, at its option, either take custody of any such books or records MTEM proposes to destroy or allow MTEM to destroy such books and records.

2.2.4 Reports; Disclosure of Results. Throughout the Program Term for each Program, and no less frequently than once per Calendar Quarter, MTEM shall provide to Takeda a written report setting forth in reasonable detail the MTEM Program Activities and the research results from each Program as they become available, including any immunogenicity data, SLT-A immunogenicity and other assays that are developed in connection with the Program Activities (whether Program IP or MTEM Background IP), SLT-A on-Target/off-tumor SLT-A-related toxicities (clinical or preclinical) and any Improvements to the SLT-A Technology. On Takeda’s request, MTEM shall provide to Takeda in a timely manner any other information Controlled by MTEM in connection with MTEM’s other Development programs [***], to the extent that such information is reasonably related and relevant to a Program Plan for any Program or Development or Manufacturing of a Licensed Product, such information redacted for Third Party Confidential Information.

2.2.5 Subcontracting; Performance by Affiliates. Each Party shall have the right to subcontract any of the activities assigned to it under any Program Plan to a Third Party to the extent expressly provided for in such Program Plan or with the written approval of the Joint Scientific Committee; provided that, in each case, no such permitted subcontracting shall relieve the subcontracting Party of any obligation hereunder. The Parties recognize that each may perform some or all of its obligations under this Agreement through Affiliates; provided, that each Party shall remain responsible and be a guarantor of the performance by its Affiliates and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance.

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Section 2.3 Term of the Programs. The term of Program 1 shall commence on Takeda’s delivery to MTEM [***] for Program 1, and the term of each subsequent Program shall [***], as applicable. The term of each Program shall continue until the earlier of (a) the expiration of the Option Period with respect to the applicable Designated Target, (b) such date as Takeda notifies MTEM in writing pursuant to Section 3.3 that it is, or is not, exercising the Option with respect to the applicable Designated Target and (c) the date that is [***] after the completion of the Evaluation, in the case of a replaced Licensed Target (each such period, a “Program Term”).

Section 2.4 Use of Materials.

2.4.1 MTEM acknowledges and agrees that (a) it shall not use any Takeda Targeting Moieties or other materials supplied by Takeda to MTEM for any purpose other than creating the SLT-A Fusion Proteins and delivering the resulting SLT-A Fusion Proteins to Takeda pursuant to, and otherwise performing its obligations under, the applicable Program Plan, (b) it shall only use Takeda Targeting Moieties or other materials supplied by Takeda to MTEM in compliance with all Applicable Laws, (c) it shall not transfer any Takeda Targeting Moieties or other materials supplied by Takeda to MTEM or grant any rights thereto to any Third Party without the express prior written consent of Takeda, (d) Takeda shall retain full ownership of, and all right title and interest to and under, all Takeda Targeting Moieties or other materials supplied by Takeda to MTEM and (e) at the end of the applicable Program Term, or upon earlier termination of this Agreement, MTEM shall at the instruction of Takeda either destroy or return any unused Takeda Targeting Moieties or other materials supplied by Takeda to MTEM.

2.4.2 Takeda acknowledges and agrees that (a) it shall not use any MTEM Study Materials supplied by MTEM to Takeda for any purpose other than the activities assigned to Takeda under the Program, evaluating SLT-A Fusion Proteins as set forth in the applicable Program Plan or otherwise performing activities within the scope of the Research License (unless and until Takeda exercises an Option with respect to the applicable Designated Target, upon exercise of which, Takeda shall be free to retain and use MTEM Study Materials arising out of the applicable Program for a Licensed Target for any purpose within the scope of the Exclusive License for any Licensed Target), (b) it shall only use MTEM Study Materials supplied by MTEM to Takeda in compliance with all Applicable Laws, (c) except as otherwise provided hereunder (including under Section 2.2.5) or in a Program Plan, it shall not transfer any MTEM Study Materials supplied by MTEM to Takeda or grant any rights thereto to any Third Party without the express prior written consent of MTEM (unless and until Takeda exercises an Option with respect to a Designated Target, upon exercise of which, Takeda shall be free to use MTEM Study Materials arising out of the Program for such Licensed Target for any purpose within the scope of the Exclusive License for such Licensed Target), (d) MTEM shall retain full ownership of, and all right, title, and interest in and to, all MTEM Study Materials supplied by MTEM to Takeda and (e) at the end of the Option Period with respect to a Designated Target if Takeda has not exercised an Option for such Designated Target, or upon earlier termination of this Agreement for any reason, Takeda shall at the instruction of MTEM either destroy or return any unused MTEM Study Materials supplied by MTEM to Takeda under the Program for such Designated Target in its possession or control unless also applicable to another Designated Target or Licensed Target.

2.4.3 Each Party acknowledges and agrees that (a) it shall not use any Fusion Protein Materials with respect to a Takeda Target for any purpose other than activities set forth in the Program Plan for such Takeda Target (or, with respect to Takeda, evaluating the Fusion Protein Materials within the scope of the Research License, unless and until Takeda exercises an Option for such Designated Target, upon exercise of which, Takeda shall be free to use such Fusion Protein Materials for any purpose within the scope of the Exclusive License for any Licensed Target), (b) it shall only use Fusion Protein Materials in compliance with all Applicable Laws, (c) except as otherwise provided hereunder or in a Program Plan, it shall not transfer any Fusion Protein Materials or grant any rights thereto to any Third Party (other than, with respect to Takeda, to its Affiliates, (sub)licensees and (sub)contractors in connection with the Program Activities, including the evaluation activities of Takeda) without the express

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prior written consent of the other Party (unless and until, with respect to Takeda, Takeda exercises an Option with respect to a Designated Target, upon exercise of which, Takeda shall be free to use Fusion Protein Materials arising out of the applicable Program for a Licensed Target for any purpose within the scope of the Exclusive License for any Target), and (d) at the end of the Option Period with respect to a Takeda Target (i) if Takeda has not exercised an Option with respect to the applicable Designated Target, or upon earlier termination of this Agreement for any reason, each Party shall, unless otherwise agreed by the Parties, destroy any unused Fusion Protein Materials arising out of the Program for such Designated Target in its possession or control and (ii) if Takeda has exercised an Option with respect to a Designated Target, MTEM shall at the instruction of Takeda either deliver to Takeda or destroy any Fusion Protein Materials arising out of the Program for such Licensed Target in its possession or control.

Section 2.5 Availability of Targets; Approval of New Program Plans.

2.5.1 Limit on Designated Targets. Takeda may designate up to two (2) Designated Targets, each subject to being replaced, all as set forth in this Section 2.5. Takeda shall have the right at any time prior to [***] from the Effective Date to designate the Program 1 Target pursuant to this Section 2.5 and (b) [***] of the Effective Date to designate the Program 2 Target pursuant to this Section 2.5.

2.5.2 Reserved Target. From the Effective Date until the earlier of (a) written notice from Takeda that [***] or (b) [***] from the Effective Date (the “Reserved Period”), MTEM will [***]. The Parties acknowledge and agree that, as of the Effective Date, [***], and the procedures set forth in [***] will not apply to [***]. For clarity, if Takeda does not [***].

2.5.3 Replacement Target. [***] “Replacement Target”) [***] of such Program Target and subject to and in accordance with the procedures described in Section 2.5.44 for the initial designation of a Target as a Designated Target (including the designation of a Program Plan with respect thereto and agreement upon a Program Plan as provided in Section 2.5.66). For clarity, except pursuant to Section 9.2, [***] Replacement Target [***] pursuant to the procedures set forth in Section 2.5.44. [***] Replacement Target [***] prior to the Exercise Option Date, that Replacement Target [***]. If [***] Replacement Target [***] Replacement Target [***]. In either case, a new Program Plan shall be prepared as set forth in Section 2.2.1.

2.5.4 Gatekeeper Process.

(a) MTEM shall from time to time after the Effective Date provide the Gatekeeper with a list of current Targets that MTEM does not wish to make available as Designated Targets or Replacement Targets for any Program (“Excluded Targets”). Excluded Targets include two Target subsets: (i) MTEM’s Excluded Targets, to include MTEM’s initial list of Excluded Targets as set forth on Schedule 1.1.88 attached hereto and MTEM Excluded Targets selected after the Effective Date; and (ii) MTEM Licensee Designated or Licensed Targets. Subject to the foregoing sentence, MTEM’s Excluded Targets not initially included on the list of Excluded Targets provided to the Gatekeeper may be added at such time that MTEM has established a bona fide internal research program with respect to such Target and for which it has a proof of concept data set, including that set forth on Schedule 2.5.4 attached hereto, which data will be provided to the Gatekeeper upon Takeda’s request; and promptly upon execution of a license agreement with a MTEM Licensee whereby MTEM conveys an exclusive option and/or license rights to said Third Party for such Target. If Takeda desires to designate the Program 2 Target or a Replacement Target, Takeda shall provide the Gatekeeper with a confidential written description of such proposed Target (the “Inquiry”), including to the extent available, the Name, Aliases, and UniProt/SwissProt number sequence for such proposed Target. Within five (5) Business Days following the Gatekeeper’s receipt of an Inquiry with respect to a particular proposed Target, MTEM

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shall ensure that the Gatekeeper shall notify Takeda in writing whether the proposed Target is Available for designation as a Designated Target. The Parties hereby acknowledge and agree that a proposed Target shall be “Available” for designation by Takeda as a Designated Target unless such Target is an Excluded Target [***] the date of Takeda’s Inquiry pursuant to this Section 2.5.4(a).

(b) For clarity, in the event that the Gatekeeper notifies Takeda that a proposed Target is not Available pursuant to the procedures set forth in this Section 2.5.4(a), Takeda shall not have exhausted any of its rights to designate Designated Targets (whether for Program 2 Target or as a Replacement Target) hereunder.

(c) MTEM shall be solely responsible for the Gatekeeper’s performance of its obligations under this Agreement and MTEM shall be liable for any breach by the Gatekeeper of any such obligation or any error or omission of or by the Gatekeeper in performing such obligations. MTEM shall cause the Gatekeeper to enter into a customary confidentiality agreement that includes confidentiality obligations as least as stringent as the provisions set forth in Section 7.1 and prohibits the Gatekeeper from disclosing to MTEM that Takeda has made any Inquiry or the Target that was the subject of any Inquiry.

2.5.5 Designation of Target. In the event that the Gatekeeper notifies Takeda that a proposed Target is Available for designation as a Designated Target in accordance with Section 2.5.44, [***] following receipt of such notice, Takeda will thereafter notify the Gatekeeper if it wishes to so designate such proposed Target (in which case, Takeda will also promptly provide notice to MTEM that it has designated a Target to be a Designated Target). Upon designation by Takeda of any Target as a Designated Target, MTEM may not list such Target as an Excluded Target.

2.5.6 Approval of Program Plans. Within [***] from the Effective Date, in the case of the Program 1 Target, and upon designation of the Program 2 Target or any Replacement Target, Takeda shall provide to the Joint Scientific Committee a proposed Program Plan for the Program for such Designated Target. Upon approval of a proposed Program Plan by the Joint Steering Committee pursuant to Section 2.6.2(b), such proposed Program Plan will be deemed to be a Program Plan hereunder and the corresponding Program will commence.

Section 2.6 Governance of Programs.

2.6.1 Primary Contacts. Promptly following the Effective Date, each Party will designate an individual to be reasonably available to the other Party to facilitate communication, respond to questions and otherwise coordinate the Parties’ activities under this Agreement regarding, relating to or in connection with the conduct of a Program or activities with respect to SLT-A Fusion Proteins. Such designated individual may, but is not required to, serve as a representative of its respective Party on the Joint Scientific Committee. A Party may replace its designated individual at any time by written notice to the other Party.

2.6.2 Joint Scientific Committee.

(a) Formation and Composition. Within [***] after the Effective Date, the Parties will establish a Joint Scientific Committee (the “Joint Scientific Committee”) composed of [***] appointed representatives of each of Takeda and MTEM. A Party may change one or more of its representatives on the Joint Scientific Committee at any time or elect to have one of its members represented by a delegate at a meeting of the Joint Scientific Committee. The Joint Scientific Committee will be chaired by a [***] of the Joint Scientific Committee. The Parties may allow additional employees to attend meetings of the Joint Scientific Committee subject to the confidentiality provisions of Article VII.

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(b) Functions and Authority. The Joint Scientific Committee will be responsible for supervising and managing the Programs. Its functions will be:

Reviewing and approving Program Plans and amendments or other modifications thereto;

ii.

Guiding and reviewing the progress of the Programs;

iii.

Making decisions that are assigned to the Joint Scientific Committee hereunder; and

iv.

Such other matters as the Parties may mutually agree in writing.

(c) Meetings. During the Term of this Agreement, the Joint Scientific Committee will meet in person or by teleconference or videoconference [***] during a Program Term or as the Joint Scientific Committee otherwise decides.

(d) Decisions. Each Party shall have [***] on the Joint Scientific Committee. In the event that the Joint Scientific Committee is unable to reach unanimous agreement on any issue that is subject to its decision-making authority, [***] will have [***] decision making authority relating to any such issue, including approving the Program Plans and amendments to the Program Plans, other than any amendment to a Program Plan that would materially increase the activities to be performed by MTEM in the aggregate as compared to the activities included in such Program Plan prior to the proposed amendment.

(e) Minutes and Reports. The Joint Scientific Committee will maintain accurate minutes of its meetings, including all proposed decisions and recommended actions or decisions taken. Promptly after each meeting, a member of the Joint Scientific Committee designated by the Joint Scientific Committee will provide the Parties with draft minutes of each meeting, the status of the Programs, any issues requiring decisions and any proposed decisions. Within [***] of each meeting, the Joint Scientific Committee chair will provide final versions of the meeting minutes and such minutes will be recognized as having been accepted by the Parties.

(f) Duration. Unless earlier terminated by mutual written consent of the Parties, the Joint Scientific Committee will be in existence only at times during which there is a Program Term in effect.

ARTICLE III

LICENSE GRANTS AND EXCLUSIVE OPTION

Section 3.1 Program License Grants.

3.1.1 Subject to the terms and conditions of this Agreement, during the Program Term for the applicable Program, Takeda shall, and does hereby, grant to MTEM a non-exclusive, non-transferrable (except as set forth in Section 12.7), worldwide, royalty-free right and license, without the right to grant sublicenses (except to a permitted subcontractor as provided in Section 2.2.5), to and under (a) the Takeda Background IP, (b) Takeda’s right, title and interest in any Other Program IP and (c) Takeda’s right, title and interest in Program IP, in each case ((a)-(c)) solely to conduct MTEM’s Program Activities under such Program in accordance with Article II as set forth in the applicable Program Plan.

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3.1.2 Subject to the terms and conditions of this Agreement, during the Program Term for the applicable Program, MTEM shall, and does hereby, grant to Takeda a non-exclusive, non-transferrable (except as set forth in Section 12.7), worldwide, royalty-free right and license, with the right to grant sublicenses through multiple tiers in accordance with Section 3.5, to and under the (a) the MTEM Background IP, (b) MTEM’s right, title and interest in any Other Program IP and (c) the SLT-A Program IP, in each case ((a)-(c)) solely to conduct Takeda’s activities (including research and Evaluation activities) under the Programs in accordance with Article II (whether during the Program Term or thereafter until the expiration of the applicable Option Period) (collectively, the “Research License”). Each Program Plan and Research License shall include the right of Takeda to evaluate and conduct research under the MTEM Background IP, MTEM’s right, title and interest in any Other Program IP and the SLT-A Program IP to the extent such evaluation and research relates to SLT-A Fusion Proteins or Targeting Moieties Directed to the applicable Designated Target (including the use of SLT-As in connection therewith), for the sole purpose of determining Takeda’s interest in exercising an Option with respect to such Designated Target, but shall specifically exclude (x) [***] utilizing such SLT-A Fusion Proteins (or SLT-As) in any country or (y) [***]. For clarity, any Research License with respect to a Designated Target shall cease with respect to such Designated Target upon [***] Replacement Target [***] Replacement Target.

Section 3.2 Other License Grants.

3.2.1 Subject to the provisions of this Agreement, including the Options and any Exclusive License granted by MTEM to Takeda pursuant to Section 3.4, Takeda hereby grants to MTEM a non-exclusive, worldwide, royalty-free, fully-paid right and license, with the right to grant sublicenses through multiple tiers in accordance with Section 3.5, to and under Takeda’s right, title and interest in any Other Program IP for all uses not set forth in the non-exclusive license grant under Section 3.1.1 and excluding any right to Exploit any SLT-A Fusion Protein or Licensed Product with respect to such Target.

3.2.2 Subject to the provisions of this Agreement, including the Options and any Exclusive License granted by MTEM pursuant to Section 3.4, MTEM hereby grants to Takeda a non-exclusive, worldwide, royalty-free, fully-paid and perpetual right and license, with the right to grant sublicenses through multiple tiers in accordance with Section 3.5, to and under MTEM’s right, title and interest in the Other Program IP for all uses.

Section 3.3 Grant of Options.

3.3.1 Subject to the provisions of this Agreement, MTEM grants to Takeda (a) as of the Effective Date, an exclusive option with respect to the Program 1 Target, (b) as of the date Takeda nominates the Program 2 Target, an exclusive option with respect to the Program 2 Target and (c) [***] Replacement Target [***] in each case ((a)-(c)), exercisable during the applicable Option Period, to obtain an Exclusive License described in Section 3.4, with respect to the applicable Designated Targets (each, an “Option”), as set forth below.

3.3.2 At any time during the applicable Option Period with respect to a Designated Target, Takeda shall have the right to notify MTEM in writing that it intends to exercise its option to obtain the Exclusive License to such Designated Target. Within [***] of receipt of such notice, MTEM shall provide the bring-down certificate described in Section 9.2. Then Takeda shall [***] to review such certificate along with any disclosures made therein and to exercise the Option with respect to the Designated Target by written notice to MTEM. The date on which Takeda provides such notice, the “Option Exercise Date”). In consideration of such exercise, [***] Replacement Target in the case in which the [***] Fee was previously paid for [***], Takeda shall pay MTEM the applicable Option Exercise Fee described in Section 6.5.

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3.3.3 Upon the exercise of an Option with respect to a Licensed Target, MTEM shall, upon and in accordance with Takeda’s request in writing, promptly deliver to Takeda, at Takeda’s sole cost and expense, all copies of Confidential Information of Takeda arising out of a Program, including Product Information and Target Program Know-How, with respect to such Licensed Target in the possession or control of MTEM, except that MTEM may retain one (1) copy for legal record keeping requirements and for purposes of exercising any of its rights under this Agreement.

Section 3.4 Exclusive License Grants and Rights of Reference.

3.4.1 Effective as of the Option Exercise Date, MTEM shall, and does hereby, grant to Takeda an exclusive (even as to MTEM, except to the extent required for MTEM to perform its obligations under this Agreement), non-transferrable (except as set forth in Section 12.7), royalty-bearing (a) right and license to and under the MTEM Background IP and MTEM’s interest in the Program IP, and (b) right to access and reference to the MTEM Regulatory Documentation solely in connection with its exercise of its rights under clause (a) above; in each case ((a) and (b)), with the right to grant sublicenses through multiple tiers in accordance with Section 3.5, and, in each case ((a) and (b)), solely to Develop, Manufacture, Commercialize and otherwise Exploit Licensed Products Directed to such Licensed Target, within the Field in the Territory (collectively, the “Exclusive License”). Each Exclusive License shall continue (x) for the applicable Royalty Term and (y) thereafter, as provided in Section 11.1, unless such Exclusive License earlier terminated pursuant to Article XI.

3.4.2 For clarity, any Exclusive License with respect to a Licensed Target shall cease with respect to such Licensed Target upon Takeda’s designation of a Replacement Target with respect to such Licensed Target and shall instead apply with respect to such Replacement Target; provided, that such Exclusive License with respect to such Licensed Target shall continue to the extent necessary or useful to complete any Clinical Trials that are ongoing at the time of Takeda’s designation of the Replacement Target to such Licensed Target.

Section 3.5 Rights to Sublicense. Each Party shall have the right to grant sublicenses (or further rights of reference) to its Affiliates and Third Parties, through multiple tiers of sublicensees, under the licenses and rights of reference granted in Section 3.1, Section 3.2 or Section 3.4, as applicable, to the extent set forth in Section 3.1, Section 3.2 or Section 3.4, as applicable; provided that any such Affiliate or Third Party is bound to the following provisions of this Agreement, mutatis mutandis, including obligations of confidentiality and assignment of inventions comparable in scope to those included herein and provided, further, that any such sublicenses shall otherwise be consistent with the terms and conditions of this Agreement. Each Party shall remain obligated for all of its obligations under this Agreement, to the extent not satisfied by or on behalf of Licensee or any sublicensee, and, as between the Parties, will remain liable for all acts or omissions of its sublicensees hereunder.

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Section 3.6 Use and Licensing of Third Party Technologies.

3.6.1 [***]. If MTEM intends to use in any Program any new intellectual property acquired from a Third Party [***], and such use by MTEM or Takeda hereunder would trigger a need to take a license to such intellectual property from a Third Party or would trigger a payment to such Third Party, then MTEM shall notify Takeda of such proposed use and confirm with Takeda that such intellectual property would be beneficial to the Program, after which the Parties shall discuss in good faith, a Takeda contribution, if any, to any payment obligation to such Third Party. [***]. In the event that [***] desires to take such a license, the Parties shall coordinate in good faith regarding the terms that would apply under such license and in any event such license shall be sublicensable to Takeda through multiple tiers under terms to be negotiated. Unless otherwise agreed in writing, notwithstanding the foregoing, after the first Option exercise hereunder unless and until this Agreement terminates in its entirety, and solely with respect to use in any Program, MTEM shall not enter into any such Third Party license, or discuss with a Third Party entering into any such Third Party license, without the prior written consent of Takeda, said consent not to be unreasonably withheld.

3.6.2 No less frequently than [***], MTEM shall amend Schedule 9.2.5-MTEM to add the Patent Rights Controlled by MTEM claiming any new MTEM Background IP and shall amend Schedule 9.2.9-MTEM to add such new SLT-As. Such amended schedules shall be promptly delivered to Takeda.

3.6.3 Except as set forth in Section 3.6.1, if Takeda intends to use in any Program any new intellectual property acquired from a Third Party after the Effective Date, and such use by MTEM or Takeda hereunder would trigger a need to take a license to such intellectual property from a Third Party or would trigger a payment to such Third Party, then [***] responsible for any such Third Party payment obligation in connection therewith, subject to Section 6.8.2. In the event that Takeda desires to take such a license, it will be sublicensable to MTEM pursuant to Section 3.1.1, solely to conduct MTEM’s Program Activities under such Program in accordance with Article II as set forth in the applicable Program Plan.

Section 3.7 Compliance with Future MTEM In-Licenses. MTEM represents and warrants that the MTEM Background IP, as it exists as of the Effective Date, does not include any intellectual property that is in-licensed by MTEM or jointly owned with a Third Party. MTEM will not terminate or enter into any amendment to, and will not commit any acts or permit the occurrence of any omissions that would cause breach or termination of, any Future MTEM In-License that would adversely affect Takeda or otherwise adversely effect, limit, restrict, impact or otherwise impair Takeda’s rights, or impose additional obligations on Takeda, under this Agreement without first obtaining the prior written consent of Takeda; provided that, upon becoming aware of any such breach occurring and prior to any such termination right being triggered with respect to a Future MTEM In-License, MTEM will promptly provide notice thereof to Takeda and, unless and until a Future MTEM In-License provides (or MTEM enters into a written agreement, including but not limited to an amendment to such Future MTEM In-License, providing) that Takeda’s rights under such Future MTEM In-License granted hereunder would survive any termination of such Future MTEM In-License without imposing any additional obligations on Takeda; unless otherwise agreed to in writing by the Parties.

Section 3.8 IP Rights from Other Partners. MTEM shall ensure that any future licensee of MTEM or any sublicensee with respect to the MTEM Background Technology or of MTEM’s right, title and interest in or to the Program IP (each, a “MTEM Licensee”), has agreed to (a) promptly disclose in writing to MTEM any Reciprocal Technology, including all relevant information and materials with respect thereto, and (b) assign such Third Party’s rights and interests in such Reciprocal Technology to MTEM or grant to MTEM the irrevocable right and license to Exploit such Reciprocal Technology in connection with SLT-A Fusion Proteins, including the right to sublicense (through multiple tiers) to Third Parties (including to Takeda on an exclusive basis with respect to the Exclusive Targets (including any Designated Target as to which the Option Period has not expired)). MTEM will use commercially reasonable efforts to secure the above described license royalty-free to Takeda.

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Section 3.9 Disclosure of IP. Following Takeda’s exercise of an Option with respect to a Designated Target, MTEM shall (a) disclose and make available to Takeda the MTEM Background IP (including documents, data and information such as the Drug Master File and the MTEM Regulatory Documentation) and Program IP in its possession or control as is necessary or reasonably useful to enable Takeda, its Affiliates, and its Sublicensees to use and reference the MTEM Background IP, such Program IP and MTEM Regulatory Documentation to practice the Exclusive License on the terms and (b) upon Takeda’s reasonable request and [***] notice to MTEM, make available to Takeda at the Facility and any other facilities used in connection with the performance of the Program Activities with respect to the applicable Target, MTEM’s personnel to provide a reasonable amount of technical assistance and training to Takeda’s personnel in order to enable Takeda to use the such intellectual property and MTEM Regulatory Documentation.

Section 3.10 Target Exclusivity.

3.10.1 During each Option Period for a Designated Target, MTEM agrees, on behalf of itself and its Affiliates (a) to collaborate exclusively with Takeda with respect to each Designated Target and (b) except as set forth herein, not to Develop, Manufacture, use or Commercialize or otherwise Exploit any Targeting Moiety with respect to each Designated Target other than pursuant to this Agreement (or enable any Third Party to do so), in each case until such time as such a Designated Target is replaced (pursuant to Section 2.5.1) or until the end of such Option Period if Takeda does not exercise the applicable Option, whichever is earlier. For clarity, [***] its Program otherwise terminated, all restrictions on its subsequent use by MTEM are relieved and that Target is removed from the Excluded Target List.

3.10.2 During the term of each Exclusive License, if any, and on a Target-by-Target basis, MTEM agrees on behalf of itself and its Affiliates not to Develop, Manufacture, make, have made, use or Commercialize or otherwise Exploit (a) any Targeting Moiety Directed to the Licensed Target or (b) any SLT-A fusion protein that is Directed to the Licensed Target, except to the extent expressly contemplated under Article V. For clarity, [***] its Program terminated, all restrictions on its subsequent use by MTEM are relieved and that Target is removed from the Excluded Target List.

3.10.3 For purposes of this Section 3.10, “collaborate exclusively” means that MTEM shall not, either directly or indirectly, itself or in collaboration with a Third Party, Exploit any MTEM Background IP or Program IP for any activities relating to any Targeting Moiety that is Directed to a Takeda Target, including by granting any right or license, including granting any covenant not to sue, with respect to any of the foregoing.

ARTICLE IV

REGULATORY, DEVELOPMENT AND COMMERCIALIZATION

Section 4.1 Regulatory Activities.

4.1.1 As between the Parties, Takeda shall have the sole right to prepare, obtain and maintain Regulatory Approvals (including the setting of the overall regulatory strategy therefor) and other submissions and to conduct communications with the Regulatory Authorities, for SLT-A Fusion Proteins or Licensed Products in the Territory (which shall include filings of or with respect to INDs and other filings or communications with the Regulatory Authorities with respect to Program Activities). MTEM shall not file any IND with respect to any SLT-A Fusion Protein prior to the expiration of all Option Periods hereunder, and then only with respect to Targets other than the Takeda Targets that [***] Replacement Target or otherwise terminated as a Takeda Target. MTEM shall support Takeda, as may be

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reasonably necessary, in obtaining Regulatory Approvals for the Licensed Products and in the activities in support thereof, including providing all documents or other materials in the possession or control or MTEM or any of its Affiliates as may be necessary or useful for Takeda or any of its Affiliates or its or their Sublicensees to obtain Regulatory Approvals for Licensed Products including access to the contents in the Drug Master File, as well as other MTEM Regulatory Documentation that are necessary or useful to compile the Chemistry Manufacturing and Controls section of an IND submission or an application for Regulatory Approval with respect to a Licensed Product and such other relevant information MTEM has created or possesses or Controls as Takeda may reasonably request.

4.1.2 All Regulatory Documentation (including all Regulatory Approvals) relating to the Licensed Products with respect to the Territory shall be owned by, and shall be the sole property and held in the name of, Takeda or its designated Affiliate, Sublicensee or designee. Promptly following the exercise of an Option with respect to a Designated Target, MTEM shall, and does hereby, assign, and shall cause its Affiliates and its and their licensees and Sublicensees to so assign, to Takeda or its designated Affiliate, Sublicensee or designee, without additional compensation, all of its right, title and interest in and to all Regulatory Documentation to the extent solely relating to any Licensed Product.

Section 4.2 Development and Commercialization. Upon exercise of an Option with respect to a Licensed Target, as between the Parties, except with respect to those obligations of MTEM in support thereof as provided hereunder, Takeda shall have the sole right and responsibility, at its sole expense, for all aspects of the Development, Commercialization and other Exploitation of SLT-A Fusion Proteins and Licensed Products, including the sole right to invoice and book sales, establish all terms of sale (including pricing and discounts) and warehouse and distribute the Licensed Products in the Territory and perform or cause to be performed all related services. As between the Parties, Takeda shall handle all returns, recalls or withdrawals, order processing, invoicing, collection, distribution and inventory management with respect to the Licensed Products in the Territory. Except as set forth in any Program Plan or Supply Agreement, MTEM shall not conduct any GLP Toxicology Studies or perform any other Development activities or Manufacturing activities with respect to any SLT-A Fusion Proteins prior to the expiration of all Option Periods hereunder, and then only with respect to Targets other than the Takeda Targets that have not been [***] Replacement Target or otherwise terminated as a Takeda Target .

Section 4.3 Diligence. Takeda shall use Commercially Reasonable Efforts to (a) Develop a Licensed Product Directed to each Licensed Target in each Major Market Country, and (b) if such Licensed Product receives all Regulatory Approval in any such Major Market Country, Commercialize such Licensed Product in such Major Market Country.

Section 4.4 Progress Reports. On a Licensed Target-by-Licensed Target basis, beginning upon Takeda’s exercise of an Option with respect to a Designated Target, [***] thereafter, within [***], Takeda shall provide MTEM, through its designated contact person identified in accordance with Section 2.6.1, with a written report that provides a summary of Takeda’s significant activities related to Development and Commercialization of Licensed Product(s) with respect to such Licensed Target and status of Clinical Trials and applications for Regulatory Approval necessary for marketing such Licensed Product(s). Such reports shall be deemed Takeda’s Confidential Information for the purposes of Article VII.

Section 4.5 Cooperation with Governmental Authorities. Following Takeda’s exercise of an Option with respect to a Designated Target, upon request by Takeda, MTEM shall provide the FDA and other applicable Governmental Authorities full access to all MTEM Regulatory Documentation, MTEM Background Know-How and Program IP, in each case, to the extent reasonably necessary or useful for the FDA and other applicable Governmental Authorities to consider and approve Takeda, an Affiliate, a Sublicensee or a Third Party as a manufacturer of the Licensed Products, or to consider and act upon any filings with such Governmental Authorities with respect to Licensed Products, including for Regulatory Approvals of the Licensed Products. Takeda shall be responsible for all reasonable costs and expenses in connection with MTEM’s performance of all agreed upon duties under this Section 4.5.

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ARTICLE V

MANUFACTURING AND SUPPLY

Section 5.1 Responsibility for Manufacturing. Subject to oversight by the Joint Scientific Committee or Joint Manufacturing Committee, as applicable, and subject to this Section 5.1, MTEM will be primarily responsible for Manufacturing activities with respect to SLT-A Fusion Proteins Directed to each Designated Target and Components thereof (“Discovery Material”) during the applicable Program Term and for Manufacturing activities with respect to Licensed Products and Components thereof (“Development Material,” together with Discovery Material, the “Supply”) through completion of the first Phase I Clinical Trial for the applicable Licensed Product, including supplying Antibodies expressed as a single chain protein as requested by Takeda and at Takeda’s cost, unless otherwise agreed to in writing by the Parties. Notwithstanding the foregoing, Takeda will, upon notice to MTEM at any time in Takeda’s sole discretion, have the right to assume, or allow its designee to assume, some or all of such Manufacturing activities.

5.1.1 Pre-Option Exercise. Included in each Program Plan will be the Parties’ expectations for Manufacturing activities and supply of Discovery Material during the applicable Program Term. MTEM will use reasonable commercial efforts to ensure timely supply to Takeda of such quantities of Discovery Material as are necessary to accomplish the goals of the Program.

5.1.2 Post-Option Exercise. Within [***] after the [***] (if any), the Parties will agree on a development material service agreement between the Parties pursuant to which MTEM would supply Development Material, for preclinical development supporting IND filing and Phase I Clinical Trial supply and thereafter until the completion of the Technology Transfer, provided however that MTEM will not be required to supply Development Material after the Phase 1 Clinical Trials. Such agreement will also include any mutually agreed Manufacturing process development and supply chain development activities for the applicable Licensed Product (the “Supply Agreement”). [***] will be provided for up to [***]. The Supply Agreement will set forth the terms and conditions applicable to such supply on the terms and conditions set forth herein and such other additional provisions as are usual and customary for inclusion in a supply agreement of this sort, which, for clarity, will supplement and will not materially expand, limit or change the terms and conditions set forth herein. If no Supply Agreement for the applicable SLT-A Fusion Protein or Licensed Product is in place within the time period specified above, then MTEM will supply SLT-A Fusion Proteins or Licensed Products, as applicable, on the terms set forth herein.

5.1.3 Third Party Suppliers. Takeda acknowledges that MTEM may contract with Third Parties to fulfill its obligations to Manufacture and for Supply hereunder (each such Third Party, a “CMO”) subject to the approval of such CMO by the Joint Manufacturing Committee pursuant to Section 5.4.2. The Parties hereby agree that each Approved CMO is approved solely for performance of Manufacturing of Supply within the scope of the applicable CMO agreement as approved by the Joint Manufacturing Committee. Through the Joint Manufacturing Committee, MTEM will keep Takeda informed of all activities of its CMOs and material information related to Manufacturing Discovery Material or Development Materials, as the case may be. With respect to Takeda Development Material, MTEM will provide Takeda with reasonable access to its CMOs, including permitting and enabling Takeda to accompany MTEM in audits and inspections and using reasonable

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efforts to cause its CMOs to permit Takeda to conduct audits and inspections, as well as for regulatory purposes and technical transfer. The Parties will coordinate audits and inspections of CMOs through the Joint Manufacturing Committee. MTEM will provide Takeda with each CMO agreement prior to execution for review and comment and to ensure terms are consistent with MTEM’s obligations hereunder and under the Supply Agreement. Comments received [***] will be given good faith consideration. MTEM will not materially change any agreement with an Approved CMO as it relates to Supply, including any change to the criteria agreed upon by the Parties through the Joint Manufacturing Committee to which Supply should conform to be considered acceptable for its intended use, except in accordance with the Quality Agreement and otherwise subject to agreement of the Joint Manufacturing Committee.

5.1.4 Payment. Takeda will purchase Development Materials from MTEM at the Supply Price, plus all shipping costs, including shipping insurance therefor, for all delivered conforming Supply (“Supply Payment”); provided, however, the Joint Scientific Committee or Joint Manufacturing Committee, as applicable, will timely agree upon a schedule for the Supply Payments in consideration for Manufacturing activities (whether conducted directly by MTEM or contracted by MTEM with a CMO pursuant to Section 5.1.3) that are anticipated to take longer than three (3 months). Such schedule will take into account the agreed upon Manufacturing activities and milestones for such activities and will include a mechanism for truing up to actual costs, including refunds or credit for non-conforming product, all in accordance with agreed upon terms set forth in the Supply Agreement. All Supply Payments will be contingent upon receipt by Takeda of an invoice from MTEM in accordance with the agreed upon schedule and which references the applicable purchase order number. Supply Payments will be made within sixty (60) days of receipt of each such invoice.

Section 5.2 Technology Transfer. Without limitation to MTEM’s obligations under Section 3.10, at Takeda’s request, for each Takeda Target, MTEM shall transfer the Manufacturing process for the SLT-A Fusion Proteins and the Licensed Products to Takeda or its designee (the “Technology Recipient”) as set forth in this Section 5.2, which transfer will comprise all necessary and available Know-How, documentation, methods, reagents, processes and other components to enable Takeda or its designee to independently Manufacture Licensed Products (such transfer, the “Technology Transfer”).

5.2.1 Within [***] after Takeda notifies MTEM that it is exercising Technology Transfer rights under this Section 5.2, MTEM shall deliver to the Technology Recipient copies of the then-current Manufacturing process for and any other information reasonably required in order to Manufacture the SLT-A Fusion Proteins and the Licensed Products, including master batch records and any other manufacturing records (collectively, the “Technology Transfer Documentation”).

5.2.2 During such [***], and upon Takeda’s reasonable request with at least [***] notice to MTEM, MTEM shall also find a convenient time to permit representatives of the Technology Recipient or Takeda, as applicable, (the “Representatives”) to access the Facility during normal business hours to observe the Manufacturing of the SLT-A Fusion Proteins and the Licensed Products. While the Representatives are at the Facility, MTEM shall make available to the Representatives employees of MTEM (or its Affiliates or subcontractors) for consultation with respect to the Technology Transfer Documentation and the Manufacturing process for the SLT-A Fusion Proteins and, if applicable, the Licensed Products.

5.2.3 At Takeda’s request, MTEM shall use commercially reasonable efforts to effect assignments of any existing contract to the extent relating to the SLT-A Fusion Proteins and the Licensed Products, or to obtain for Takeda substantially all of the practical benefit and burden under such agreement to the extent applicable to the SLT-A Fusion Proteins and the Licensed Products, including by

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entering into appropriate and reasonable alternative arrangements on terms agreeable to Takeda. Unless otherwise agreed by the Parties, any agreement with any contract manufacturing organization or other service provider entered into by MTEM on or after the Effective Date that relates to any SLT-A Fusion Protein or any Licensed Product shall be assignable or otherwise transferable to Takeda without the consent of the counterparty thereto to the extent related to such SLT-A Fusion Protein or, if applicable, Licensed Product.

5.2.4 Following the delivery of the Technology Transfer Documentation, MTEM shall provide the Technology Recipient with reasonable access to MTEM’s employees for telephone or in person consultations regarding the Manufacture of the SLT-A Fusion Proteins and, if applicable, the Licensed Products.

5.2.5 Without limiting the foregoing, MTEM shall take, and shall cause its Affiliates and subcontractors to take, all action and to do all things necessary, proper or advisable to complete the Technology Transfer in accordance with this Section 5.2, including, as applicable, obtaining and making available such information, personnel, products, materials, services, facilities and other resources as reasonably necessary to enable the Technology Recipient to Manufacture the SLT-A Fusion Proteins and the Licensed Products.

5.2.6 Takeda shall pay MTEM for its reasonable, out-of-pocket costs and expenses incurred in the performance of its activities under this Section 5.2 unless the Technology Transfer is a response by Takeda to a breach by MTEM of its supply obligations hereunder, in which case MTEM shall bear all of its own expenses.

Section 5.3 Responsibility for Manufacturing After Option Exercise. Following completion of the Technology Transfer, including any required validation, unless otherwise agreed by the Parties in writing, Takeda or its designee shall have the sole right, at its cost, for Manufacturing activities with respect to SLT-A Fusion Proteins and Licensed Products; provided, that if requested by Takeda, MTEM shall continue to supply SLT-A Fusion Proteins to Takeda at the Supply Price for use in Clinical Trials pursuant to the Supply Agreement.

Section 5.4 Joint Manufacturing Committee.

5.4.1 Formation and Composition. Within [***] after the [***] or earlier upon request of Takeda, the Parties will establish a joint manufacturing committee (the “Joint Manufacturing Committee”) composed [***] of each of Takeda and MTEM. A Party may change one or more of its representatives on the Joint Manufacturing Committee at any time or elect to have one of its members represented by a delegate at a meeting of the Joint Manufacturing Committee. The Joint Manufacturing Committee will be chaired by a Takeda representative selected by Takeda from one of the Takeda’s members of the Joint Manufacturing Committee. The Parties may allow additional employees to attend meetings of the Joint Manufacturing Committee subject to the confidentiality provisions of Article VII.

5.4.2 Functions and Authority. The Joint Manufacturing Committee will be responsible for developing a plan for manufacturing process development and supply chain development, including CMO selection, including coordinating inspections of potential CMOs by both Parties, reviewing the progress of such plan, reviewing and serving as a forum for discussing and approving changes to such plan, any Supply Agreement or change in facility location, and such other matters as the Parties may mutually agree in writing. The Joint Manufacturing Committee will keep Joint Scientific Committee reasonably informed of the foregoing.

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5.4.3 Decisions. Each Party shall [***]. In the event that the [***], such matter will be referred to the Joint Scientific Committee for resolution.

5.4.4 Standing Rules. The Joint Manufacturing Committee may establish such standing rules as it may determine are necessary.

5.4.5 Duration. Unless earlier terminated by mutual written consent of the Parties, the Joint Manufacturing Committee will be in existence until the later of (a) completion of the Technology Transfer and (b) completion of the chemistry manufacturing and controls section of each IND with respect to each Licensed Product is complete.

Section 5.5 Quality Agreement. Takeda and MTEM shall, promptly following the first Option Exercise Date, or as otherwise determine by the Joint Manufacturing Committee, and in any event prior to the Manufacture of any SLT-A Fusion Protein or Licensed Product by MTEM, prepare and enter into a reasonable and customary quality assurance agreement that sets forth the terms and conditions upon which MTEM will conduct its quality activities in connection with this Agreement (the “Quality Agreement”). Each Party shall duly and punctually perform all of its obligations under the Quality Agreement.

ARTICLE VI

PAYMENTS AND RECORDS

Section 6.1 Upfront Fees. In partial consideration of the licenses, rights and privileges granted by MTEM to Takeda hereunder and subject to the terms and conditions of this Agreement, Takeda shall pay to MTEM upfront fees as follows:

6.1.1 One Million U.S. Dollars ($1,000,000) no later than twenty (20) Business Days following the Effective Date; and

6.1.2 [***] no later than [***] Business Days following the date on which the Joint Scientific Committee approves the Program Plan with respect to each of Program 1 and 2 in accordance with Section 2.6.2(b).

6.1.3 The Parties acknowledge and agree that [***] of each of the above payments in Section 6.1.2 constitutes consideration for access being granted to Takeda to certain technology of MTEM and the remainder of each such payments constitutes consideration for the other rights and privileges granted by MTEM to Takeda hereunder. Each of the above payments in this Section 6.1 is [***] with respect to the corresponding [***] pursuant to Section 6.5 [***] set forth in Section 6.1.1 [***] set forth in Section 6.1.2 with regard to [***] set forth in Section 6.1.2 with regard to Program [***].

Section 6.2 Equity. Pursuant to the terms, and subject to the conditions, set forth in a stock purchase agreement substantially in the form attached hereto as Exhibit A, MTEM agrees to sell, and Takeda agrees to purchase, shares of MTEM’s capital stock for an aggregate purchase price up to twenty million U.S. Dollars ($20,000,000), but not to exceed 19.9% of MTEM’s fully diluted capital (following the investment).

Section 6.3 Preclinical Development Milestone Payments. Subject to the terms and conditions of this Agreement, with respect to each Designated Target hereunder, Takeda shall pay to MTEM a preclinical milestone payment of [***] within [***] following commencement by Takeda, its Affiliate or Sublicensee of the [***] study contemplated in the applicable Program Plan for such [***] Replacement Target. For clarity, the maximum aggregate amount of preclinical milestones payable by Takeda pursuant to this Section 6.3 is [***] Replacement Target [***].

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Section 6.4 Replacement Target Fees. Subject to the terms and conditions of this Agreement, Takeda shall pay to MTEM with respect to each Replacement Target designated by Takeda pursuant to Section 2.5.13, no later than [***] following the date on which the [***] with respect to such Replacement Target is approved in accordance with Section 2.6.2(b) as follows:


Timing of Replacement Target Designation	Payment
Prior to the applicable [*] for the existing [*]		[	***]
On or after the applicable [*] but prior to [] for the existing [**]		[	***]
On or after [*] of the first [] for the existing [**]		[	***]

Section 6.5 Option Exercise Fee. Takeda shall pay to MTEM an option exercise fee of [***] (“Option Exercise Fee”) for each Option exercised and obtained by Takeda with respect to each Designated Target [***] Replacement Target within [***] after the [***]. For clarity, the maximum amount of Option Exercise Fees payable by Takeda under this Section 6.5 shall be [***] Replacement Target [***].

Section 6.6 Development Milestone Payments. Subject to the terms and conditions of this Agreement, Takeda shall pay to MTEM the following milestone payments within [***] days following the first occurrence of each event set forth below with respect to the first Licensed Product Directed to each Licensed Target to achieve such event, whether such events are achieved by Takeda, its Affiliates or Sublicensees, as follows:


Milestone Number	Milestone Event	Milestone Payments
Milestone Number	Milestone Event	First Time Milestone is Achieved by the First Licensed Product Directed to the Licensed Target that is Program Target 1 (or the Replacement Target therefor, if any)	First Time Milestone is Achieved by the First Licensed Product Directed to the Licensed Target that is Program Target 2 (or the Replacement Target therefor, if any)
1	Initiation of [***]	[***]	[***]
2	Initiation of the [***]	[***]	[***]
3	Initiation of the [***]	[***]	[***]
4	Initiation of the [***]	[***]	[***]

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5	Acceptance of the [***]	[***]	[***]
6	Acceptance of the [***]	[***]	[***]
7	Acceptance of the [***]	[***]	[***]
8	Receipt of written notice of Regulatory Approval for a [*] for the first Indication in [*]	[***]	[***]
9	Receipt of written notice of Regulatory Approval for a [*] for the first Indication by [*]	[***]	[***]
10	Receipt of written notice of Regulatory Approval for a [*] for the first Indication in [*]	[***]	[***]
11	Receipt of written notice of Regulatory Approval for a [*] for an Indication in [*] other than the Indication for which milestone payment 8 was paid	[***]	[***]
12	Receipt of written notice of Regulatory Approval for a [*] Product for an Indication by [*] other than the Indication for which milestone payment 9 was paid	[***]	[***]
13	Receipt of written notice of Regulatory Approval for a [*] for an Indication by [*] other than the Indication for which milestone payment 10 was paid	[***]	[***]

Each milestone payment in this Section 6.6 is due only once and shall be payable only upon the first achievement of such milestone event, with respect to Program 1 or Program 2, regardless of whether there has been a Replacement Target for any original [***], neither of which has been the subject of any other milestone payment under this Section 6.6 and no amounts shall be due under this Section 6.6 for subsequent or repeated achievements of any such milestone event regardless of whether milestone event 1 or 2 is achieved with respect to any Replacement Target [***] with respect to which milestone payment 1 or 2 has previously been paid. For clarity, the maximum aggregate amount of milestone payments payable by Takeda pursuant to this Section 6.6 is [***].

Section 6.7 Sales Milestone Payments. Subject to the terms and conditions of this Agreement, Takeda shall pay to MTEM the following sales milestone payments [***] after the end of the first Calendar Year in which the aggregate annual Net Sales of all Licensed Products Directed to each Licensed Target in such Calendar Year reach the following thresholds for the first time:

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Milestone	Milestone Payments
Milestone	First Time Milestone is Achieved with respect to the Licensed Target that is Program Target 1 (including the Replacement Target therefor, if any)	First Time Milestone is Achieved with respect to the Licensed Target that is Program Target 2 (including the Replacement Target therefor, if any)
Aggregate Net Sales of all Licensed Products for the applicable Licensed Target [***]	[***]	[***]
Aggregate Net Sales of all Licensed Products for the applicable Licensed Target [***]	[***]	[***]

Each sales milestone payment is separate and may only be earned once for the aggregate of all Licensed Products for each Licensed Target, however, if more than one Net Sales threshold is reached in the same Calendar Year, [***] payments shall be payable during such Calendar Year. For example, if annual Net Sales of all Licensed Products for a Licensed Target first reach [***] in Calendar Year 1, [***] shall be payable to MTEM for such Calendar Year 1, however, if annual Net Sales of all Licensed Products for a Licensed Target first reach [***] (without first reaching [***] in Calendar Year 1), then [***] would be payable to MTEM for Calendar Year 2 and [***] would be payable to MTEM [***]. For clarity, the maximum aggregate amount of milestone payments payable by Takeda pursuant to this Section 6.7 is [***].

Section 6.8 Royalties Payable by Takeda.

6.8.1 In consideration for the Exclusive Licenses granted to Takeda herein, and subject to the terms and conditions of this Agreement, during the applicable Royalty Term for a Licensed Product, on a Licensed Target-by-Licensed Target basis, Takeda shall pay to MTEM royalties on the annual aggregate Net Sales of all Licensed Products Directed to such Licensed Target in the Territory during the applicable Royalty Term for such Licensed Product (but excluding any Net Sales in any country for which the Royalty Term for such Licensed Product in such country is not in effect), which royalties shall be paid at the following rates as set forth below:


Annual Net Sales for all Licensed Products Directed to a Licensed Target		Royalty Rate
For the portion of aggregate Net Sales of all Licensed Products for such Licensed Target in any given Calendar Year of less than [***]		[***]
For the portion of aggregate Net Sales of all Licensed Products for such Licensed Target in any given Calendar Year equal to or greater than [*] and less than [*]		[***]
For the portion of aggregate Net Sales of all Licensed Products for such Licensed Target in any given Calendar Year equal to or greater than [*] and less than [*]		[***]
For the portion of aggregate Net Sales of all Licensed Products for such Licensed Target in any given Calendar Year equal to or greater than [*] and less than [*]		[***]
For the portion of aggregate Net Sales of all Licensed Products for such Licensed Target in any given Calendar Year equal to or greater than [***]		[***]

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For avoidance of doubt, the incremental royalty rates set forth above shall only apply to that portion of the Net Sales of royalty-bearing Licensed Products for the Licensed Target that falls within the indicated range of sales. By way of example, and not in limitation of the foregoing, if, during a Calendar Year, Net Sales of the Licensed Products, in the aggregate, for a Licensed Target were equal to [***], the royalty payable by Takeda would be calculated by adding (i) the royalty due on Net Sales with respect to the first [***] at the first level percentage of [***], and (ii) the royalty due on Net Sales for the Licensed Target with respect to the next [***] at the second level percentage of [***]. The obligation to pay royalties shall be imposed only once with respect to the same unit of Licensed Product sold by Takeda, its Affiliate or Sublicensee. Takeda shall have no obligation to pay any royalty with respect to Net Sales of any Licensed Product in any country after the Royalty Term for such Licensed Product in such country is not in effect.

6.8.2 Royalty Reductions.

(a) If and for so long as there is a Biosimilar Product or Generic Product being sold by a Third Party in a Calendar Quarter in a country in the Territory, then the royalties otherwise payable by Takeda to MTEM in such country pursuant to Section 6.8 above shall be reduced by the percent set forth below of the amounts otherwise owed:


Biosimilar Products or Generic Products unit volume sales for each Licensed Product in such country, as a percentage of total sales of Licensed Products, on the one hand, and Biosimilar Products and Generic Products, on the other hand, in such country		Reduction rate
[***]		[***]
Greater than [*] up to [*]		[***]
Greater than [*] up to [*]		[***]
Greater than [*] up to [*]		[***]
Greater than [***]		[***]

The Parties will select a mutually agreeable independent Third Party to identify and calculate the Biosimilar Products or Generic Products unit volume sales for each Licensed Product in a Calendar Quarter in a country in the Territory and such unit volume sales amounts shall be included in each royalty report provided for under Section 6.144. In the event that such independent Third Party is not available or

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otherwise able to accurately determine or calculate the Biosimilar Product or Generic Product unit volume sales, Takeda shall calculate the Biosimilar Product or Generic Product unit volume sales based on available data in good faith. In the event MTEM disputes Takeda’s calculation of any Biosimilar Product or Generic Product unit volume sales for a Licensed Product in a country in the Territory, MTEM may by written notice to Takeda require, at MTEM’s cost, that such dispute be resolved in accordance with Section 12.3 by and submitted to a panel of experts; provided, that Takeda shall have the right to take royalty reductions pursuant to this Section 6.8.2 pending resolution of any such dispute, calculated using its good faith calculation of the Biosimilar Product or Generic Product unit volume sales pursuant to the preceding sentence.

(b) Subject to the last sentence of Section 6.8.1, from and after the date on which a Licensed Product is Exploited in a country that is not covered by a Valid Claim(s) of the MTEM Background Patent Rights, the SLT-A Program Patent Rights or the Target Program Patent Rights (other than Targeting Moiety IP) in such country, the royalty rates set forth in Section 6.8 with respect to such country shall each be [***], provided that the royalty rates shall be adjusted from [***] during the Royalty Term should a Valid Claim be granted in such country;

(c) [***] in accordance with Section 8.7.2.

(d) If and for so long as Takeda makes payments to any Third Party in consideration for a license from a Third Party pursuant to Section 8.9, Takeda may reduce the royalty payments, otherwise due as set forth in Section 6.8 [***] of the amount paid to the Third Party; provided, however, that such reductions, in the aggregate, may not reduce the average effective royalty by more than [***] points of such rate. Takeda may carry forward, and deduct from future royalty payments due hereunder, any amounts which cannot be deducted under this clause (d) due to the proviso in the immediately prior sentence.

(e) Any reductions set forth in Section 6.8.2 shall be (i) applied to the royalty rate payable to MTEM under Section 6.8.1 first as set forth in Section 6.8.2(a), then Section 6.8.2(b), then Section 6.8.2(c) and then Section 6.8.2(d), and (ii) with respect to Net Sales in a country in which any such reduction is triggered, allocated across the applicable rates set forth in Section 6.8.1 on a pro rata basis in proportion to the Net Sales in such country compared to Net Sales throughout the Territory, excluding in each case, any Net Sales in a country for which the Royalty Term for such Licensed Product in such country has expired, from and after the date of such expiration.

(f) MTEM acknowledges and agrees that the sales levels set forth in this Section 6.8 and Section 6.7 shall not be construed as representing an estimate or projection of anticipated sales of the Licensed Products or implying any level of diligence or Commercially Reasonable Efforts in the Territory and that the sales levels set forth in Section 6.7 and Section 6.8 are merely intended to define Takeda’s royalty and other payment obligations, as applicable, in the event such sales levels are achieved and that the sales levels set forth in Section 6.7 and Section 6.8 are merely intended illustrative purposes only.

Section 6.9 Payment Terms. Royalties shown to have accrued by each Royalty Report provided for under this Article VI shall be due on the date such Royalty Report is due pursuant to Section 6.14.2.

Section 6.10 Payment Method. All payments by Takeda to MTEM under this Agreement shall be paid in U.S. Dollars, and all such payments shall be made by bank wire transfer in immediately available funds to the bank account designated by MTEM in writing; provided, that such account information is provided to Takeda at [***] to any such payment becoming due hereunder.

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Section 6.11 Late Payments. If a Party does not receive payment of any sum due to it on or before the due date therefor, simple interest shall thereafter accrue on the sum due to such Party from the due date until the date of payment at a per-annum rate of [***] over the then-current Prime Rate reported in The Wall Street Journal or the maximum rate allowable by Applicable Law, whichever is lower.

Section 6.12 Exchange Control. If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country in the Territory where any Licensed Product is sold, payment shall be made through such lawful means or method as the Parties reasonably shall determine.

Section 6.13 Taxes; Withholding Taxes. Except as otherwise provided below, all amounts due from Takeda to MTEM under this Agreement are gross amounts. Takeda shall be entitled to deduct the amount of any withholding taxes payable or required by Applicable Law to be withheld by Takeda, its Affiliates or Sublicensees, to the extent Takeda, its Affiliates or Sublicensees pay such withheld amounts to the appropriate Governmental Authority on behalf of MTEM. Takeda promptly shall deliver to MTEM proof of payment of any withholding taxes, together with copies of all communications from or with such Governmental Authority with respect thereto, and other supporting documentation as may be required by the Governmental Authority, and shall provide reasonable cooperation with MTEM in seeking any related tax exemption or credits that may be available to MTEM with respect thereto. MTEM shall cooperate with Takeda in seeking any tax exemption or credits that may be available to Takeda with respect to the SLT-A Fusion Proteins, Licensed Products or Targets, including the tax credit available under section 45C of the Internal Revenue Code by reason of Takeda’s research and development expenditures contributing to any Licensed Product being granted orphan drug status by the FDA.

Section 6.14 Reports; Exchange Rates.

6.14.1 For so long as any Royalty Term remains in effect, Takeda shall, with respect to each Calendar Quarter (or portion thereof), provide a written report showing, on a consolidated aggregated basis in reasonable detail (a) the gross sales of Licensed Products sold by Takeda, its Affiliates and its Sublicensees in the Territory during the corresponding Calendar Quarter on which royalties are due hereunder and the Net Sales from such gross sales, (b) the royalties payable in U.S. Dollars, if any, which shall have accrued hereunder based upon such Net Sales of Licensed Products, (c) the withholding taxes, if any, required by law to be deducted in respect of such royalties, (d) the dates of the First Commercial Sale of each Licensed Product in each country in the Territory for which royalties are due hereunder, if it has occurred during the corresponding Calendar Quarter, and (e) the exchange rates (as determined pursuant to Section 6.14.3 herein) used in determining the royalty amount expressed in U.S. Dollars (each, a “Royalty Report”).

6.14.2 Royalty Reports shall be due within [***] following the end of the Calendar Quarter to which such Royalty Report relates. Takeda shall keep complete and accurate records in sufficient detail to properly reflect all gross sales and Net Sales and to enable the royalties payable hereunder to be determined.

6.14.3 With respect to sales of Licensed Products invoiced in U.S. Dollars, the gross sales, Net Sales, and royalties payable shall be expressed in U.S. Dollars. With respect to sales of Licensed Products invoiced in a currency other than U.S. Dollars, the gross sales, Net Sales and royalties payable shall be expressed in the currency of the invoice issued by the Party making the sale together with the U.S. Dollars equivalent of the royalty due, calculated using the average quarter-end rate of exchange for a given Calendar Quarter published in the East Coast Edition of the Wall Street Journal during the applicable Calendar Quarter.

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Section 6.15 Audits.

6.15.1 Upon the written request of a Party and with at least [***] prior written notice, but not [***], the other Party shall permit an independent certified public accounting firm of internationally recognized standing, selected by such first Party and reasonably acceptable to such other Party, at such first Party’s sole cost and expense (except as set forth in this Section 6.155), to have access during normal business hours to such of the records of such other Party as required to be maintained under this Agreement to verify the accuracy of the Royalty Reports due hereunder, in the case of MTEM, or to verify the accuracy of the Supply Price, in the case of Takeda. Such accountants may audit records relating to Royalty Reports or the Supply Price, as applicable, made for any year ending not more than [***] prior to the date of such request. The accounting firm shall disclose to the Party requesting such audit only whether the Royalty Reports or the Supply Price, as applicable, were correct or not, and the specific details concerning any discrepancies and such information shall be shared at the same time with the other Party. No other information obtained by such accountants shall be shared with the Party requesting such audit.

6.15.2 If such accounting firm concludes that any royalties were owed but not paid to MTEM, Takeda shall pay the additional royalties within [***] following the date MTEM delivers to Takeda such accounting firm’s written report so concluding, together with the interest payment required by Section 6.11. If such accounting firm concludes that the Supply Price charged by MTEM was inconsistent with the definition therefor and such inconsistency resulted in an overpayment by Takeda hereunder, MTEM shall reimburse Takeda such overpayment within [***] following the date Takeda delivers to MTEM such accounting firm’s written report so concluding, together with the interest payment required by Section 6.111. The fees charged by such accounting firm shall be paid by the Party requesting such audit; provided, that if the audit discloses that (a) the royalties payable by Takeda for the audited period are more than [***] of the royalties actually paid for such period, then Takeda shall pay the reasonable fees and expenses charged by such accounting firm or (b) the Supply Price payable by Takeda for the audited period is less than [***] of the Supply Price actually paid for such period, then MTEM shall pay the reasonable fees and expenses charged by such accounting firm. If such accounting firm concludes that the royalties paid were more than what was owed during such period, MTEM shall refund the overpayments within thirty (30) days following the date MTEM receives such accounting firm’s written report so concluding.

Section 6.16 Confidential Financial Information. The Parties shall treat all financial information subject to review under this Article VI or under any sublicense agreement as Confidential Information of such Party as set forth in Article VII, and shall cause its accounting firm to retain all such financial information in confidence under terms substantially similar to those set forth in Article VII and with respect to each inspection, the independent accounting firm shall be obliged to execute for each Party’s benefit a reasonable confidentiality agreement prior to commencing any such inspection.

Section 6.17 University IP. All Know-How and inventions (and all Patent Rights and intellectual property or other proprietary rights) generated by [***] or individuals working on his behalf reasonably related to the use or development of methods of making or screening, libraries of, or compositions of cytotoxic proteins identified therefrom, specific Targeting Moieties and any Improvements to any of the foregoing whether at, or on behalf of, University Health Network, Ontario Cancer Institute, or otherwise, have been assigned to MTEM or one of its Affiliates and any milestones or royalties that may be due thereunder will be paid solely by MTEM. For clarity, none of the aforementioned IP falls within the scope of MTEM Background Know-How.

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ARTICLE VII

CONFIDENTIALITY

Section 7.1 Non-Disclosure Obligations. Except as otherwise provided in this Article VII during the Term and for a period of [***] thereafter, each Party and their respective Affiliates shall maintain in confidence, and use only for purposes as expressly authorized and contemplated by this Agreement, all Confidential Information. “Confidential Information” means all confidential or proprietary information (including information relating to such Party’s research programs, development, marketing and other business practices and finances), data, documents or other materials supplied by the other Party or their respective Affiliates under this Agreement, including such information that is marked or otherwise identified as “Confidential”; provided that, notwithstanding anything to the contrary, Confidential Information constituting Program IP or relating exclusively to Designated Targets or Licensed Targets (“Product Information”) shall be considered the Confidential Information of both MTEM and Takeda (except for any Target Program IP, which shall in all cases constitute the Confidential Information of Takeda only (and MTEM shall be considered the receiving Party with respect thereto regardless of which Party generated such Target Program IP) and (c) the terms of this Agreement shall be Confidential Information of both Parties (and both Parties shall be deemed the receiving Party with respect thereto). Without limiting the foregoing, each Party shall use at least the same standard of care as it uses to protect its own Confidential Information to ensure that its and its Affiliates’ employees, agents, consultants, clinical investigators and any sublicensees or subcontractors only make use of the other Party’s Confidential Information for purposes as expressly authorized and contemplated by this Agreement and do not disclose or make any unauthorized use of such Confidential Information.

Section 7.2 Permitted Disclosures.

7.2.1 Notwithstanding the foregoing, but subject to the last sentence of this Section 7.2, the provisions of Section 7.1 shall not apply to information, documents or materials that the receiving Party can conclusively establish:

(a) have become published or otherwise entered the public domain or become generally available to the public other than by breach of this Agreement by the receiving Party or its Affiliates;

(b) are permitted to be disclosed by prior consent of the other Party;

(c) have become known to the receiving Party by a Third Party, provided such Confidential Information was not obtained by such Third Party directly or indirectly from the disclosing Party on a confidential basis;

(d) prior to disclosure under this Agreement, was already in the possession of the receiving Party, its Affiliates or Sublicensees; or

(e) have been independently developed by or for the receiving Party without reference to the disclosing Party’s Confidential Information;

provided that the exceptions described in clauses (d) and (e) shall not apply with respect to Confidential Information constituting (i) SLT-A Program Know-How that was conceived, discovered, developed or otherwise made by Takeda, (ii) Target Program Know-How conceived, discovered, developed or otherwise made by MTEM or (iii) Product Information.

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7.2.2 Each Party may also disclose Confidential Information as set forth below in this Section 7.2.2. Notwithstanding the disclosures permitted under Section 7.2.2, any Confidential Information so disclosed shall remain subject to the confidentiality obligations of Section 7.1, unless and until any exceptions described in Section 7.2.1 shall apply. Either Party may disclose Confidential Information to the extent such disclosure is made:

(a) in response to a valid order of a court of competent jurisdiction or other Governmental Authority or Regulatory Authority or, if in the reasonable opinion of the receiving Party’s legal counsel, such disclosure is otherwise required by Applicable Law, including by reason of filing with securities regulators (including the rules and regulations of any stock exchange or trading market on which the disclosing Party’s (or its parent’s) securities are traded); provided, that the receiving Party shall first have given notice to the disclosing Party and given the disclosing Party a reasonable opportunity to quash such order or to obtain a protective order or confidential treatment requiring that the Confidential Information and documents that are the subject of such order or requirement be held in confidence by such court or agency or, if disclosed, be used only for the purposes for which the order was issued; provided, further, that the Confidential Information disclosed in response to such court or governmental order or Applicable Law shall be limited to that information which is legally required to be disclosed in response to such court or governmental order or Applicable Law (including the rules and regulations of any stock exchange or trading market on which the disclosing Party’s (or its parent’s) securities are traded);

(b) in the case of the Party controlling prosecution of the applicable Program Patent Rights, solely to the extent reasonably necessary to include in a patent application claiming Program Patent Rights; provided, that the Party filing the patent application shall provide at least [***] prior written notice of such disclosure to the other Party, reasonably consider the other Party’s comments in good faith and take reasonable and lawful actions to avoid or minimize the degree of disclosure;

(c) by Takeda, to a Regulatory Authority, as reasonably required or useful in connection with any filing, submission or communication with respect to any SLT-A Fusion Protein or Licensed Product; provided, that reasonable measures shall be taken to assure confidential treatment of such information, to the extent such protection is available;

(d) by MTEM, to a Regulatory Authority, as reasonably required or useful in connection with any filing, submission or communication with respect to any SLT-A related product excluding any SLT-A Fusion Protein or Licensed Product; provided, that reasonable measures shall be taken to assure confidential treatment of such information, to the extent such protection is available;

(e) to a Sublicensee or Distributor as permitted hereunder; provided, that such Sublicensee or Distributor is then subject to obligations of confidentiality and limitations on use of such Confidential Information substantially similar to those contained herein and Takeda otherwise complies with Section 3.5;

(f) by Takeda, its Affiliates or its or their Sublicensees to an actual or potential Third Party Manufacturing, Development or Commercialization collaborator, Distributor, contractor or partner with respect to a Takeda Target, SLT-A Fusion Protein or Licensed Product or otherwise as may be necessary or useful in connection with its exercise of rights or performance of obligations hereunder (including in connection with any litigation with respect thereto); provided, that such Third Party recipient is, if practicable, then subject to obligations of confidentiality and limitations on use of such Confidential Information substantially similar to those contained herein;

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(g) by Takeda or to an actual or potential investor in or acquirer of the business to which this Agreement relates; provided, that (i) such Third Party recipient is then subject to obligations of confidentiality and limitations on use of such Confidential Information substantially similar to those contained herein and (ii) Takeda shall provide at least [***] prior notice of (including a copy of) any such proposed disclosure to MTEM and shall not make any such disclosure without first obtaining MTEM’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed) with respect thereto in each instance (it being understood that if consent with respect to a specific disclosure is given by MTEM with respect to a particular type of audience of Third Parties (e.g., investors not affiliated with a pharmaceutical company), Takeda may subsequently make such specific disclosure to another member of such audience consistent with such consent without obtaining specific consent from MTEM in such instance); and

(h) by MTEM to actual or potential strategic partners, investors or acquirers; provided, that such disclosures shall be limited to the terms of this Agreement and pre-clinical data and pre-clinical results arising out of a Program and shall be limited disclosures that do not divulge or otherwise make available (i) the identity of any Takeda Target, (ii) the identity of any SLT-A Fusion Protein or any Takeda Targeting Moiety used in the Program, or (iii) the identity of Takeda or any of its Affiliates or Sublicensees; provided, further, that, in each case, (x) such Third Party recipient is then subject to obligations of confidentiality and limitations on use of such Confidential Information substantially similar to those contained herein, and (y) MTEM shall provide at least [***] prior notice of (including a copy of) any such proposed disclosure to Takeda and shall not make any such disclosure without first obtaining Takeda’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed) with respect thereto in each instance (it being understood that if consent with respect to a specific disclosure is given by Takeda with respect to a particular type of audience of Third Parties (e.g., investors not affiliated with a pharmaceutical company), MTEM may subsequently make such specific disclosure to another member of such audience consistent with such consent without obtaining specific consent from Takeda in such instance).

Section 7.3 Press Releases and Other Disclosures to Third Parties. Neither MTEM nor Takeda will, without the prior consent of the other, issue any press release or make any other public announcement or furnish any statement to any Person (other than either Parties’ respective Affiliates) concerning the existence of this Agreement, its terms and the transactions contemplated hereby, except for (a) the initial press release, which will be mutually agreed upon by the Parties as soon as practicable following the Effective Date, (b) disclosures made in compliance with Section 7.1, Section 7.2 and Section 7.4, (c) disclosures made to attorneys, consultants, and accountants retained to represent the Parties in connection with the negotiation and consummation of the transactions contemplated hereby, and (d) press releases by Takeda, in its sole discretion, regarding Takeda’s activities under this Agreement with respect to a Licensed Product following exercise of the Option with respect to the applicable Designated Target. In addition, if so required, first approval by a Party of the contents of a press release or public disclosure shall constitute permission of a Party to use such same contents subsequently, without submission of the press release or public disclosure to a Party for approval.

Section 7.4 Use of Name. Except as expressly provided herein, neither Party shall mention or otherwise use the name, logo or trademark of the other Party or any of its Affiliates or any of its or their Sublicensees (or any abbreviation or adaptation thereof) (including any Product Trademark) in any publication, press release, marketing and promotional material or other form of publicity without the prior written consent of such other Party. The restrictions imposed by this Section 7.4 shall not prohibit (a)

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Takeda from making any disclosure identifying MTEM to the extent required in connection with its exercise of its rights or obligations under this Agreement or (b) either Party from making any disclosure identifying the other Party that is required by Applicable Law or the rules of a stock exchange on which the securities of the disclosing Party are listed (or to which an application for listing has been submitted).

Section 7.5 Publications Regarding Results of the Programs. Neither Party may publish, present or announce results of the Programs hereunder either orally or in writing (a “Publication”) without complying with the provisions of this Section 7.5; provided that, without limiting what is below, from and after Takeda’s exercise of an Option hereunder, MTEM shall not make any Publication with respect to the applicable Program without Takeda’s prior written consent. A Party wishing to make a Publication will provide the other Party with a copy of the proposed Publication. The other Party shall have [***] from receipt of a proposed Publication to provide comments or proposed changes to the publishing Party. The publishing Party shall take into account the comments or proposed changes made by the other Party on any Publication and shall agree to designate employees or others acting on behalf of the other Party as co-authors on any Publication describing results to which such persons have contributed in accordance with standards applicable to authorship of scientific publications. If the other Party reasonably determines that the Publication would entail the public disclosure of such Party’s Confidential Information or of a patentable invention upon which a patent application should be filed prior to any such disclosure, submission of the concerned Publication to Third Parties shall be delayed for such period as may be reasonably necessary for deleting any such Confidential Information of the other Party (if the other Party has requested deletion thereof from the proposed Publication), or the drafting and filing of a patent application claiming such invention, provided such additional period shall not exceed [***] from the date the publishing Party first provided the proposed Publication to the other Party. Notwithstanding anything to the contrary in the foregoing, with respect to any Publications by investigators or other Third Parties, such materials shall be subject to review under this Section 7.5 only to the extent that Takeda has the right and ability (after using commercially reasonable efforts) to do so.

Section 7.6 Return of Confidential Information. Upon the effective date of the termination of this Agreement for any reason (or, upon date of expiration of an Option Period with respect to a Designated Target for which Takeda does not exercise its Option), with respect to Confidential Information (including, in the case of the foregoing parenthetical, Confidential Information of the requesting Party arising out of a Program with respect to such Designated Target) to which such non-requesting Party does not retain rights under the surviving provisions of this Agreement, each Party shall, upon and in accordance with the other Party’s request in writing, either: (a) promptly destroy all copies of such Confidential Information in the possession or control of the non-requesting Party and confirm such destruction in writing to the requesting Party; or (b) promptly deliver to the requesting Party, at the non-requesting Party’s sole cost and expense, all copies of such Confidential Information in the possession or control of the non-requesting Party. Notwithstanding the foregoing, the non-requesting Party shall be permitted to retain such Confidential Information (i) to the extent necessary or useful for purposes of performing any continuing obligations or exercising any ongoing rights hereunder and, in any event, a single copy of such Confidential Information for archival purposes and (ii) any computer records or files containing such Confidential Information that have been created solely by such non-requesting Party’s automatic archiving and back-up procedures, to the extent created and retained in a manner consistent with such non-requesting Party’s standard archiving and back-up procedures, but not for any other uses or purposes. All Confidential Information shall continue to be subject to the terms of this Agreement for the period set forth in Section 7.1.

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ARTICLE VIII

INTELLECTUAL PROPERTY OWNERSHIP

Section 8.1 Disclosure of Inventions. Each Party shall promptly disclose to the other Party any Program IP (except that Takeda shall have no obligation to disclose any Targeting Moiety IP to MTEM).

Section 8.2 Ownership of Intellectual Property.

8.2.1 Background IP. Except as otherwise provided in Section 8.2.2, Section 8.2.3 or Section 8.2.4, as between the Parties, subject to the licenses and rights of reference granted in Article III, each Party shall own and retain all right, title and interest in and to any and all Background IP of such Party.

8.2.2 Target Program IP. As between the Parties, subject to the licenses granted in Article III, Takeda shall own and, subject to the licenses granted in Article III, retain all right, title and interest in and to any and all Target Program IP. MTEM shall, and does hereby, assign to Takeda and will cause each of its officers, directors, employees, Affiliates, subcontractors and agents to assign to Takeda all such right, title and interest in and to any Target Program IP, without additional compensation, as is necessary to fully effect the sole ownership provided for in the first sentence of this Section 8.2.2.

8.2.3 SLT-A Program IP. As between the Parties, MTEM shall own and, subject to Section 3.10 and the licenses, rights of reference and Options granted in Article III, retain all right, title and interest in and to any and all SLT-A Program IP. Takeda shall, and does hereby, assign to MTEM and will cause each of its officers, directors, employees and Affiliates, to assign to MTEM all such right, title and interest in and to any SLT-A Program IP, without additional compensation, as is necessary to fully effect the sole ownership provided for in the first sentence of this Section 8.2.3.

8.2.4 Other Program IP. As between the Parties, subject to the licenses and rights of reference granted in Article III, each Party shall own and retain all right, title and interest in and to any and all Other Program IP (other than Joint Other Program Technology) that is conceived, discovered, developed or otherwise made solely by or on behalf of such Party (or its Affiliates or its or their sublicensees or (sub)contractors), whether or not patented or patentable and any and all Patent Rights and other intellectual property rights with respect thereto. As between the Parties, subject to the licenses, rights of reference and Options granted in Article III, the Parties shall each own and retain an equal, undivided interest in and to any and all Joint Other Program IP. Subject to the licenses, rights of reference and Options granted in Article III and, in the case of MTEM, its exclusivity obligations hereunder, each Party (and its Affiliates) shall have the right to Exploit the Joint Other Program Technology without a duty of seeking consent of or accounting to the other Party (and to the extent such consent is required by Applicable Law, such consent is hereby granted); provided, that neither Party shall have the right to disclose (except as provided in Section 7.2) or license (except as may be permitted under Article III) any Joint Other Program IP to any Third Party without the consent of the other Party.

8.2.5 United States Law. The determination of whether Know-How, Improvements and inventions are conceived, discovered, developed or otherwise made by a Party for the purpose of allocating proprietary rights (including Patent Rights, copyright or other intellectual property rights) therein, shall, for purposes of this Agreement, be made in accordance with Applicable Law in the United States as such law exists as of the Effective Date irrespective of where or when such conception, discovery, development or making occurs. Each Party shall, and does hereby, assign, and shall cause its Affiliates and its and their sublicensees to so assign, to the other Party, without additional compensation, such right, title and interest in and to any Know-How, Improvements and other inventions as well as any intellectual property rights with respect thereto, as is necessary to fully effect, as applicable, the sole or joint ownership specified in this Article VIII.

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Section 8.3 Patent Prosecution and Maintenance.

8.3.1 MTEM Background IP; SLT-A Program IP; MTEM Other Program IP. MTEM shall have the first right and authority, but not the obligation, to prepare, file, prosecute and maintain the MTEM Background Patent Rights, the SLT-A Program Patent Rights and any Other Program Patent Rights solely owned by MTEM on a worldwide basis and to be responsible for any related pre-grant and post-grant patent administrative proceedings (including interference, re-issuance, re-examination, derivation and post-grant review procedures and opposition proceedings), in each case, at MTEM’s sole cost and expense. MTEM shall keep Takeda reasonably informed and provide reasonable opportunity for Takeda to comment with respect to all material steps with regard to the preparation, filing, prosecution and maintenance of MTEM Background Patent Rights, the SLT-A Program Patent Rights and any Other Program Patent Rights solely owned by MTEM (including any patent administrative proceeding), and shall reasonably consider such comments in good faith. If MTEM decides not to file for or continue prosecuting any MTEM Background Patent Rights, SLT-A Program Patent Rights or any Other Program Patent Rights solely owned by MTEM, then MTEM shall promptly so notify Takeda in writing (which written notice shall be at [***] before any relevant deadline prior to taking any extension for such MTEM Background Patent Rights, SLT-A Program Patent Rights or any Other Program Patent Rights solely owned by MTEM, as applicable). Thereafter, Takeda shall have the right, but not the obligation, to engage in the activities set forth in this Section 8.3.1 with respect to such MTEM Background Patent Rights, SLT-A Program Patent Rights or any Other Program Patent Rights solely owned by MTEM, as applicable, at Takeda’s sole expense.

8.3.2 Takeda Background IP; Target Program IP; Takeda Other Program IP; Joint Other Program IP. Takeda (or its Affiliate or Sublicensee) shall have the sole right and authority, but not the obligation, to decide whether to file or maintain as a trade secret, prepare, file, prosecute and maintain the Takeda Background Patent Rights, the Target Program Patent Rights, the Other Program Patent Rights solely owned by Takeda and the Joint Other Program Patent Rights on a worldwide basis, and to be responsible for any related pre-grant and post-grant patent administrative proceedings. Takeda shall be responsible for all costs and expenses in connection with the preparation, filing, prosecution and maintenance of the Takeda Background Patent Rights, the Target Program Patent Rights and the Other Program Patent Rights solely owned by Takeda. The Parties shall cooperate and [***] all costs and expenses in connection with the preparation, filing, prosecution and maintenance of the Joint Other Program Patent Rights, with Takeda having final decision making authority. If Takeda decides in any country not to file, maintain or enforce a Patent Right under the Joint Other Program IP, or intends to allow such a Patent Right to lapse or become abandoned without having first filed a substitute Patent Right, Takeda shall notify and consult with MTEM of such decision or intention at [***] prior to the date upon which the subject matter of such Patent Right shall become unpatentable or such Patent Right shall lapse or become abandoned, and MTEM shall thereupon have the right (but not the obligation) to assume the prosecution, maintenance and enforcement thereof at its own expense with counsel of its own choice.

8.3.3 Cooperation. The Parties shall at all times fully cooperate with each other in order to reasonably implement the foregoing provisions of this Section 8.3. Such cooperation may include each Party’s execution of necessary legal documents, coordinating filing or prosecution of applications to avoid potential issues during prosecution (including novelty, non-obviousness, enablement, estoppel and double patenting), and the assistance of each Party’s relevant personnel and the transfer of the applicable patent files to the prosecuting Party. In the case that any proposed filing with respect to any Takeda

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Background Patent Rights, Target Program Patent Rights or Other Program Patent Rights solely owned by Takeda, on the one hand, discloses a [***] disclosed or claimed by any MTEM Background Patent Rights, the SLT-A Program Patent Rights or Other Program Patent Rights solely owned by MTEM, on the other hand, Takeda and MTEM will use good faith efforts to coordinate filings with respect to such Patent Rights so that filings with respect to such Takeda Background Patent Rights, Target Program Patent Rights or Other Program Patent Rights solely owned by Takeda, on the one hand, are made [***] that filings with respect to such MTEM Background Patent Rights, SLT-A Program Patent Rights or Other Program Patent Rights solely owned by MTEM, on the other hand are made (provided, that the foregoing coordination shall (a) not unreasonably delay Takeda from making any filing with respect to Takeda Background Patent Rights, Target Program Patent Rights or Other Program Patent Rights solely owned by Takeda and (b) in any event, not delay Takeda from making any filing with respect to Takeda Background Patent Rights, Target Program Patent Rights or Other Program Patent Rights solely owned by Takeda by more than [***] after notice by Takeda to MTEM that Takeda is ready to make such proposed filing, which notice shall include a copy of such proposed filing). Without limitation of the foregoing, the Parties shall use reasonable efforts to avoid creating potential issues in prosecution of the patent applications claiming MTEM Background Patent Rights, SLT-A Program Patent Rights or Other Program Patent Rights solely owned by MTEM, on the one hand and Takeda Background Patent Rights, Target Program Patent Rights or Other Program Patent Rights solely owned by Takeda or jointly owned by Takeda and MTEM, on the other hand. Except as otherwise expressly authorized in this Agreement, Takeda shall not disclose or claim in any patent application, patent or publication any Confidential Information of MTEM without first obtaining MTEM’s prior written consent. Except as otherwise expressly authorized in this Agreement, MTEM shall not disclose or claim in any patent application, patent or publication any Confidential Information of Takeda without first obtaining Takeda’s prior written consent.

8.3.4 Patent Term Extension and Supplementary Protection Certificate. As between the Parties, Takeda or its Affiliate or Sublicensee shall at all times have the sole right to make final decisions regarding, and to apply for, patent term extensions in the Territory, including the United States with respect to extensions pursuant to 35 U.S.C. § 156 et. seq. and in other jurisdictions pursuant to supplementary protection certificates, and in all jurisdictions with respect to any other extensions that are now or become available in the future, wherever applicable (collectively, the “Extensions”), for the Takeda Background Patent Rights, the Target Program Patent Rights, the Other Program Patent Rights solely owned by Takeda, the Joint Other Program Patent Rights and with respect to the Licensed Products, in each case including whether or not to do so. MTEM shall provide prompt and reasonable comments and, as requested by Takeda, assistance with respect thereto, including by taking such action as patent holder as is required under any Applicable Law to obtain such extension or supplementary protection certificate. As between the Parties, prior to the Option Exercise Date hereunder, MTEM shall have the sole right to make final decisions regarding, and to apply for, Extensions for the MTEM Background Patent Rights, the SLT-A Program Patent Rights and the Other Program IP solely owned by MTEM; thereafter, Takeda and MTEM shall cooperate in good faith in making decisions regarding, and to apply for, such Extensions as they relate to MTEM Background Patent Rights, with Takeda having final decision making authority where Extensions are not available for Target Program Patent Rights.

8.3.5 UPC Opt-Out and Opt-In. MTEM shall, as soon as reasonably practicable on request by Takeda (a) lodge an application with the Registry of the Unified Patent Court in the manner specified by Rule 5 of the Rules of Procedure of the Unitary Patent Court requesting the Opt-Out or Opt-In, as specified by Takeda, of any MTEM Background Patent Right, SLT-A Program Patent Right or Other Program Patent Right owned solely or jointly by MTEM, (b) pay the prescribed fee and make such submissions, and (c) take such other actions as may be necessary or useful to secure the Opt-Out or Opt-In, as applicable, of such Patent Right including making any declarations required by Rule 5(3)(e) of the Rules of Procedure of the Unitary Patent Court. Costs of the Parties attributable to the foregoing will be agreed upon by the Parties prior to lodging an application.

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8.3.6 Common Ownership Under Joint Research Agreements. Notwithstanding anything to the contrary in this Article XIII, Takeda shall have the first right to make an election under 35 U.S.C. § 102(c) when exercising its rights under this Article VIII without the prior written consent of MTEM. If Takeda fails to make such an election within [***] following the date on which the opportunity to make such election arose, then MTEM shall have the right and option to do so at its expense. With respect to any such permitted election, the Parties shall coordinate their activities with respect to any submissions, filings or other activities in support thereof. The Parties acknowledge and agree that this Agreement is a “joint research agreement” as defined in 35 U.S.C. § 100(h).

8.3.7 Joint Patent Committee.

(a) Formation and Composition. The Parties will establish a joint patent committee (the “Joint Patent Committee”) composed of one (1) appointed representative of each of Takeda and MTEM. A Party may at any time, by written notice to the other Party’s representative on the Joint Patent Committee, change its representative on the Joint Patent Committee or elect to be represented by a delegate at a meeting of the Joint Patent Committee. The Joint Patent Committee will be chaired by the Takeda representative. The Parties may allow additional employees to attend meetings of the Joint Patent Committee subject to the confidentiality provisions of Article VII.

(b) Functions and Authority. The Joint Patent Committee will be responsible for only the following:

Coordinating with the Parties in accordance with Section 8.3.3 to reasonably avoid creating potential issues in prosecution of the patent applications claiming each Party’s respective Patent Rights;

ii.

Subject to Section 8.3.1, discussing patent prosecution strategy relating to prosecution of Patent Rights under this Article VIII other than the Takeda Background Patent Rights, Target Program Patent Rights and Other Program Patent Rights solely owned by Takeda, and status updates with respect to such Patent Rights; and

iii.

Such other matters as the Parties may mutually agree in writing.

(c) Meetings. During the Term of this Agreement until its disbandment, the Joint Patent Committee will meet in person or by teleconference or videoconference when and as reasonably requested by a representative to the Joint Patent Committee.

(d) Decisions. Each Party shall have one (1) vote on the Joint Patent Committee. The Joint Patent Committee will seek to make all decisions by consensus. In the event that the Joint Patent Committee cannot reach consensus on an issue, then the Party that has the right to control the matter under this Article VIII shall have sole and final decision making authority relating to the matter. If the matter at issue falls under Joint Other Program IP, and agreement cannot be reached, then two additional members, one from each Party, will be asked to assist the Joint Patent Committee in its decision making process by consensus.

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(e) Minutes and Reports. The Joint Patent Committee will draft, distribute and maintain accurate minutes of its meetings, including with respect to all proposed decisions and recommended actions or decisions taken, in accordance with policies to be agreed by the Joint Patent Committee.

(f) Duration. Unless earlier terminated by mutual written consent of the Parties, the Joint Patent Committee will be in existence until the expiration of the last of the Program Patent Rights and the MTEM Background Patent Rights.

Section 8.4 Enforcement of Patent Rights.

8.4.1 Notification of Infringement. In the event that a Party becomes aware of an infringement or misappropriation of the intellectual property owned by or licensed to the other Party hereunder, which infringement or misappropriation relates to an SLT-A Fusion Protein or Licensed Product, it shall promptly notify the other Party and provide such other Party with all details of such infringement of which it is aware (each, an “Infringement Notice”).

8.4.2 MTEM Background IP; SLT-A Program IP; MTEM Other Program IP. [***] shall have the first right, at its sole cost and expense, but not the obligation, to determine the appropriate course of action to enforce the MTEM Background Patent Rights, the SLT-A Program Patent Rights and any Other Program Patent Rights solely owned by MTEM or otherwise abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce the MTEM Background Patent Rights, the SLT-A Program Patent Rights and any Other Program Patent Rights solely owned by MTEM, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation or other enforcement action with respect to the MTEM Background Patent Rights, the SLT-A Program Patent Rights and any Other Program Patent Rights solely owned by MTEM. MTEM shall in good faith consider the interests of the Takeda in conducting the foregoing activities. If MTEM fails to enforce the MTEM Background Patent Rights, the SLT-A Program Patent Rights and any Other Program Patent Rights, which Other Program Patent Rights are solely owned by MTEM with respect to the Manufacture, Commercialization or other activity by any Third Party with respect to a product that competes with any Licensed Product within [***] following any Infringement Notice, then Takeda shall have the right and option to do so at its expense. MTEM shall reasonably cooperate with Takeda in any such action at Takeda’s expense, to enforce the MTEM Background Patent Rights, the SLT-A Program Patent Rights and any Other Program Patent Rights, which Other Program Patent Rights are solely owned by MTEM, including being joined as a party to such action if necessary.

8.4.3 Takeda Background IP; Target Program IP; Takeda Other Program IP. Takeda shall have the sole right, at its sole expense, but not the obligation, to determine the appropriate course of action to enforce the Takeda Background Patent Rights, the Target Program Patent Rights, the Other Program Patent Rights solely owned by Takeda, or otherwise to abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce the Takeda Background Patent Rights, the Target Program Patent Rights, the Other Program Patent Rights solely owned by Takeda, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation or other enforcement action with respect to the Takeda Background Patent Rights, the Target Program Patent Rights, and the Other Program Patent Rights solely owned by Takeda. MTEM and Takeda shall fully cooperate with each other, at Takeda’s expense, in any such action to enforce the Takeda Background Patent Rights, the Target Program Patent Rights, the Other Program Patent Rights solely owned by Takeda, including being joined as a party to such action if necessary, including participating in joint or common interest defenses. MTEM will be informed of any settlement discussions.

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8.4.4 Joint Other Program IP. Takeda and MTEM agree to cooperate with each other and to [***] relating to abating the infringement of Joint Other Program IP, to take (or refrain from taking) appropriate action to enforce the Joint Other Program Patent Rights, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation or other enforcement action with respect to the Joint Other Program Patent Rights. MTEM and Takeda shall fully cooperate with each other, [***], in any such action to enforce the Joint Other Program Patent Rights, including participating in joint or common interest defenses and in any settlement discussions and in being joined as a party to such action if necessary, with Takeda having final decision making authority when agreement cannot be reached.

8.4.5 Recoveries. The Party enforcing under this Article VIII shall bear the costs and expenses of such enforcement. Except as otherwise agreed by the Parties in connection with a cost sharing arrangement, any recovery realized as a result of such enforcement action (whether by way of settlement or otherwise) shall be first allocated to reimburse each Party for its costs and expenses in making such recovery. [***] Party controlling the enforcement action.

Section 8.5 Separate Representation. The Party not bringing an action with respect to an infringement in the Territory under this Article VIII shall be entitled to separate representation in such matter by counsel of its own choice and at its own expense, but such Party shall at all times cooperate fully with the Party bringing such action; provided that to the extent such separate representation is retained and used in connection with any cooperation provision of this Article VIII, the Party bringing such action shall reimburse such cooperating Party for the cost of such counsel, if required under this Article VIII.

Section 8.6 Trademarks. Takeda shall be responsible for the selection, registration, maintenance and defense of all trademarks for use in connection with the sale or marketing of the Licensed Products in the Territory (collectively, “Product Trademarks”) at Takeda’s own cost and expense, and Takeda shall own such Product Trademarks. MTEM shall not, and shall not permit its Affiliates to, (a) use in their respective businesses, any trademark that is confusingly similar to, misleading or deceptive with respect to or that dilutes any (or any part) of any Product Trademark and (b) do any act that endangers, destroys, or similarly affects, in any material respect, the value of the goodwill pertaining to any Product Trademark. MTEM shall not, and shall not permit its Affiliates to, attack, dispute or contest the validity of or ownership of any Product Trademark anywhere in the Territory or any registrations issued or issuing with respect thereto, other than any Product Trademark that is confusingly similar to, misleading or deceptive with respect to or that dilutes any (or any part) of any Product Trademarks.

Section 8.7 Third Party Actions.

8.7.1 Notification of Third Party Action. Each Party shall promptly disclose to the other Party in writing any warning letter or other notice of infringement or misappropriation received by a Party, or any action, suit or proceeding brought against a Party alleging infringement of a Patent Right or misappropriation of intellectual property of any Third Party with regard to any aspect of the conduct by either Party, its Affiliates, sublicensees or Distributors pursuant to this Agreement or a Program, including any defense or counterclaim in connection with an infringement action initiated pursuant to Section 8.4 (each, a “Third Party Action”).

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8.7.2 Takeda Right to Defend. As between the Parties, Takeda, [***] and through counsel of its choosing, shall have the sole right, but not the obligation, to defend against any Third Party Action in the Territory alleging that the Development, Manufacture, Commercialization or other Exploitation of any Licensed Product infringes or misappropriates a Third Party’s intellectual property rights. To the extent such Third Party Action alleges that any SLT-A Technology or any other MTEM Background IP (or any Know-How or Patent Right that, but for any misappropriation by or on behalf of MTEM or any of its Affiliates, would be considered an SLT-A Technology or other MTEM Background IP under this Agreement), or the Exploitation thereof, infringes or misappropriates a Third Party’s intellectual property rights and Takeda obtains a license or other rights from such Third Party to such intellectual property rights, whether by license, settlement, judgment or otherwise, Takeda shall be entitled to offset a total of up to [***] of the reasonable out-of-pocket costs and expenses of defending or settling such Third Party Action under this Section 8.7.2 (including the payment of any damage awards, settlement amounts or other similar amounts payable to such Third Party), said offset in a given Calendar Quarter to be made against any royalties owed to MTEM under Section 6.8 for such Calendar Quarter, with any balance then remaining to be carried over to royalties due with respect to subsequent Calendar Quarters, up to a maximum amount for each Calendar Quarter of [***] of the royalties owed with respect to such subsequent Calendar Quarter; provided, that if such Third Party Action relates to a breach of a representation, warranty or covenant of MTEM in Article IX, Takeda shall be entitled to recover, pursuant to, and to the extent provided in, Article X, any of its reasonable out-of-pockets costs and expenses of defending or settling such Third Party Action (including the payment of any damage awards, settlement amounts or other similar amounts payable to such Third Party) that are not offset under this Section 8.7.2. Any recoveries awarded to Takeda in connection with any Third Party Action defended under this Section 8.7.2 shall be applied first to reimburse Takeda for its reasonable out-of-pocket costs and expenses of defending such claim, suit or proceedings and then to reimburse MTEM for amounts deducted pursuant to the previous sentence, with the balance of any such recoveries being shared between the Parties [***] to Takeda and [***] to MTEM if Takeda is entitled to offset royalties at or below the aforementioned limit under this Section 8.7.2, and otherwise, the balance of any such recoveries shall be retained by Takeda. Takeda shall have the sole and exclusive right to select counsel for such Third Party Action. MTEM shall have the right to select its own counsel to represent MTEM and consult with Takeda’s selected counsel in any Third Party Action for which Takeda is entitled to offset any portion of its costs and expenses of any damage awards, settlement amounts or other similar amounts payable to such Third Party.

8.7.3 Consultation; Settlement. The Parties shall consult with one another on all material aspects of the defense and settlement of Third Party Actions. The Parties shall reasonably and in good faith cooperate with each other in all such actions or proceedings. No Party shall admit the invalidity or unenforceability of any Patent Right Controlled by the other Party without the other Party’s prior written consent.

Section 8.8 Invalidity or Unenforceability Defenses or Actions. Each Party shall promptly notify the other Party in writing of any alleged or threatened assertion of invalidity or unenforceability of any of the Program Patent Rights, the MTEM Background Patent Rights or the Takeda Background Patent Rights by a Third Party of which such Party becomes aware. Upon receipt of any such notice (other than with respect to any Program Patent Rights owned or Controlled by Takeda and any Takeda Background Patent Rights, with respect to which Takeda shall have the sole right, but not the obligation, to defend and control the defense of the validity and enforceability thereof), the Parties shall promptly meet to discuss in good faith the most favorable approach to defend against any such allegation in light of each Party’s commercial interests therein, including which Party should control the defense of the validity and enforceability of the Program Patent Rights (other than with respect to any Program Patent Rights owned or Controlled by Takeda) or the MTEM Background Patent Rights and the allocation of costs and expenses with respect thereto; provided, that as between the Parties, if any such invalidity or unenforceability of any such Program Patent Rights or MTEM Background Patent Rights is raised as a defense or counterclaim in connection with a Third Party Action initiated pursuant to Section 8.7, Takeda

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shall have the right, but not the obligation, to defend and control the defense of the validity and enforceability of such Program Patent Rights or MTEM Background Patent Rights at its sole expense in the Territory and using counsel of its own choice. If the controlling Party with respect to a Program Patent Right (other than with respect to any Program Patent Rights owned or Controlled by Takeda) or MTEM Background Patent Right elects not to defend or control the defense of the applicable Patent Rights in a suit brought in the Territory or otherwise fails to initiate and maintain the defense of any such claim, suit or proceeding, then the other Party may conduct and control the defense and settlement of any such claim, suit or proceeding using counsel of its own choice at its sole cost and expense. Where a Party controls such an action, the other Party shall have the right to participate in any such claim, suit or proceeding with counsel of its choice at its sole cost and expense (provided, that the controlling Party shall retain control of the defense in such claim, suit or proceeding) and shall cause its Affiliates to, assist and cooperate with the controlling Party, at the controlling Party’s expense, as such controlling Party may reasonably request from time to time in connection with its activities set forth in this Section. In connection with any activities with respect to a defense, claim or counterclaim relating to the Program Patent Rights (other than with respect to any Program Patent Rights owned or Controlled by Takeda) or the MTEM Background Patent Rights pursuant to this Section 8.8, the controlling Party shall (a) consult with the other Party as to the strategy for such activities, (b) consider in good faith any comments from the other Party and (c) keep the other Party reasonably informed of any material steps taken and provide copies of all material documents filed, in connection with such defense, claim or counterclaim, pursuant to Section 8.7.

Section 8.9 Third Party Rights. If in the opinion of Takeda, the Development, Manufacture, Commercialization or other Exploitation of a Licensed Product hereunder infringes or is reasonably expected to infringe or misappropriate any Patent Right, trade secret or other intellectual property right of a Third Party in any country or jurisdiction in the Territory, then Takeda shall have the right, but not the obligation, upon consultation with MTEM, to negotiate and obtain a license or other rights from such Third Party to such rights as necessary or desirable to Develop, Manufacture, Commercialize or otherwise Exploit such Licensed Product in such country or jurisdiction. In the event that Takeda negotiates and obtains any such license from a Third Party, Takeda shall be entitled to [***] to such Third Party from the royalties payable to MTEM hereunder in accordance with, and to the extent provided in, Section 6.8.2(b).

ARTICLE IX

REPRESENTATIONS AND WARRANTIES; COVENANTS

Section 9.1 Mutual Representations, Warranties and Covenants. Each Party hereby represents and warrants, as of the Effective Date, and covenants (as applicable) to the other Party as follows:

9.1.1 Corporate Existence and Power. It is a company or corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement, including the right to grant the licenses granted by it hereunder.

9.1.2 Authority and Binding Agreement. As of the Effective Date, (a) it has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; (b) it has taken all necessary corporate action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; (c) this Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid and binding obligation of such Party that is enforceable against it in accordance with its terms; and (d) its execution of and performance under this Agreement will not violate or breach any obligation or restriction (including any confidentiality or non-competition obligation or any exclusivity restriction) to which such Party is legally bound by contract, judicial order or otherwise.

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9.1.3 No Conflict. It is not a party to any agreement that would prevent it from granting the rights granted to the other Party under this Agreement or performing its obligations under this Agreement. It has the full right to grant the licenses or sublicenses (as applicable) granted herein and such grant shall not result in the misappropriation of any Third Party intellectual property or violation of such Third Party’s rights with respect thereto. During the Term, it will not enter into any agreement, contract, commitment or other arrangement that could reasonably be expected to conflict with the rights granted to the other Party hereunder or otherwise prevent the other Party from exercising the rights granted to it hereunder. Neither Party shall misappropriate any trade secret of a Third Party in connection with the performance of its activities hereunder.

9.1.4 No Debarment. (a) Neither it nor any of its Affiliates has been debarred or is subject to debarment pursuant to Section 306 of the FFDCA or analogous provisions of Applicable Law outside the United States or listed on any Excluded List and (b) neither it nor any of its Affiliates has, to its knowledge, used in any capacity, in connection with the activities to be performed under this Agreement, any individual or entity that has been debarred pursuant to Section 306 of the FFDCA or analogous provisions of Applicable Law outside the United States, or that is the subject of a conviction described in such Section or analogous provisions of Applicable Law outside the United States, or listed on any Excluded List.

9.1.5 Government Authorizations. It will maintain throughout the Term all permits, licenses, registrations and other forms of authorizations and approvals from any Governmental Authority, necessary or required to be obtained or maintained by such Party in order for such Party to execute and deliver this Agreement and to perform its obligations hereunder in a manner which complies with all Applicable Law.

9.1.6 To each Party’s knowledge, as of the Effective Date, (x) the materials supplied by one Party to the other Party for the conduct of the Program Plan for the first Program and (y) the use and practice of the Takeda and MTEM Background IP for the conduct of the Program Plan, in each case ((x) and (y)), would not infringe any intellectual property rights of any Third Party.

Section 9.2 Additional Representations, Warranties and Covenants of MTEM. MTEM represents and warrants to Takeda as of the Effective Date and covenants, as specified below. In addition, in the event that Takeda designates a Designated Target (including any Replacement Target to any Designated Target) or expresses interest in exercising an Option to take an Exclusive License pursuant to Section 2.5, then MTEM will provide to Takeda a certification within five (5) Business Days of the applicable notice received from Takeda (each such date of certification, the “Certification Date”) that the representations and warranties set forth in this Section 9.2 are true and correct as of the Certification Date (assuming that the applicable Option has been exercised), except as may be specifically disclosed in such certification with respect to events or activities occurring after the Effective Date or the most recent Certification Date, whichever is later, and Takeda shall have the right within ten (10) Business Days of receipt of any such certification to withdraw its designation of such Designated Target or to exercise its Option, as applicable, in which case such withdrawn Designated Target or Licensed Target shall not be considered as a Designated Target (in the case of the Target designation process) or a Licensed Target (in the case of the Option exercise process), as applicable, and Takeda shall have the right to designate another Designated Target (in such first case) or exercise another Option with respect to another Designated Target, in such second case, in place thereof):

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9.2.1 Non-Infringement of MTEM Background Patent Rights by Third Parties. To MTEM’s knowledge, there are no activities by Third Parties that would constitute misappropriation or infringement of the MTEM Background Patent Rights within the Territory.

9.2.2 Ownership. MTEM Controls the MTEM Background IP, SLT-A Program Technology and its interest in any Other Program IP free and clear of all liens and encumbrances other than those disclosed by MTEM to Takeda prior to the Effective Date or in the certification delivered pursuant to this Section 9.2 and that do not conflict with the rights granted Takeda hereunder), it has the exclusive right to grant, all rights and licenses (or sublicenses, as the case may be) it purports to grant to Takeda under this Agreement (other than those rights and licenses granted to Takeda on a non-exclusive basis) and neither such rights and licenses nor any other provision of this Agreement are subject to any in-license or other similar agreements with another Person regarding any intellectual property rights licensed hereunder (or that would be licensed following the exercise of the applicable Option), including the SLT-A Technology existing as of the Effective Date or as of the Certification Date, as the case may be. MTEM has not misappropriated any intellectual property of a Third Party in connection with developing the MTEM Background IP or the performance of the Programs or its other obligations under this Agreement.

9.2.3 Validity and Enforceability. To MTEM’s knowledge, MTEM has complied in all material respects with all Applicable Law with respect to the filing, prosecution and maintenance of those MTEM Background Patent Rights or, with respect to any representations and warranties made before the Effective Date, Program Patent Rights owned by MTEM or otherwise of which MTEM has control of such filing, prosecution and maintenance (the “MTEM Prosecution Patent Rights”) and, to MTEM’s knowledge, the filing, prosecution and maintenance of all other MTEM Background Patent Rights and Program Patent Rights have been in compliance in all material respects with all Applicable Laws with respect thereto. To MTEM’s knowledge, MTEM has paid all maintenance and annuity fees with respect to the MTEM Prosecution Patent Rights due and all maintenance and annuity fees with respect to all other MTEM Background Patent Rights have been paid when due. No dispute regarding inventorship has been alleged or threatened with respect to the MTEM Prosecution Patent Rights or Program Patent Rights, to MTEM’s knowledge, with respect to any other MTEM Background Patent Rights or Program Patent Rights.

9.2.4 No Action or Claim. There (a) are no actual, pending or, to MTEM’s knowledge, alleged or threatened, adverse actions, suits, claims, interferences, re-examinations, oppositions, inventorship challenges or formal governmental investigations involving the MTEM Background IP or, with respect to any representations and warranties made after the Effective Date, involving the Program Patent Rights owned or controlled by MTEM, by or against MTEM or any of its Affiliates, in each case that are in or before any Governmental Authority, and (b) are no actual, pending or, to MTEM’s knowledge, alleged or threatened, adverse actions, suits, claims, interferences, re-examinations, oppositions, inventorship challenges or formal governmental investigations involving the MTEM Background IP, in each case that are in or before any Governmental Authority, which if adversely determined would have a material effect upon the ability of MTEM to use or provide the MTEM Background IP in connection with the activities to be conducted hereunder, or to fulfil its obligations pursuant to the terms of this Agreement.

9.2.5 Completeness. Schedule 9.2.5 includes a complete and correct list, in all respects, of all MTEM Background Patent Rights, said Schedule to be updated in a timely manner with new relevant MTEM Background Patent Rights.

(a) No rights or licenses are required under the MTEM Background IP or MTEM Regulatory Documentation for Takeda to Develop, Manufacture or Commercialize SLT-A Fusion Proteins or Licensed Products as contemplated herein after exercise of the Option(s) other than those granted under Article III (or that would be granted upon exercise of the Option(s).

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(b) Neither MTEM nor any of its Affiliates has previously entered into any agreement, whether written or oral, with respect to or otherwise assigned, transferred, licensed, conveyed or otherwise encumbered its entire right, title or interest in or to (a) the MTEM Background IP or MTEM Regulatory Documentation or, with respect to any representations and warranties made after the Effective Date, Program Patent Rights owned or controlled by MTEM (including by granting any covenant not to sue with respect thereto) or (b) any Patent Right or other intellectual property or proprietary right that would be MTEM Background IP or MTEM Regulatory Documentation, but for such assignment, transfer, license, conveyance or encumbrance, in each case (of (a) and (b)), that is inconsistent with or otherwise diminish the rights and licenses granted to Takeda under this Agreement.

9.2.6 Future MTEM In-Licenses. As of the Effective Date, MTEM is not a party to any in-license or cross-license with regard to any MTEM Background Technology. With respect to any representations and warranties made after the Effective Date, Schedule 9.2.6 sets forth a true and complete list of any Future MTEM In-Licenses. MTEM has, prior to the Effective Date, provided Takeda with access to true and complete copies of each of the agreements listed in Schedule 9.2.6 and any prior agreements where surviving obligations restrict or have an adverse material impact on either Party with respect to the MTEM Background IP. As of each future Certification Date, MTEM will represent as to whether (a) the licenses in any Future MTEM In-Licenses are sublicensable; (b) the Future MTEM In-Licenses are in full force and effect, have been duly maintained, have not been cancelled, expired or abandoned; (c) MTEM is not aware of any challenges to or violation of the rights granted thereunder by any Third Party; (d) MTEM is not in breach under any Future MTEM In-Licenses, nor, to MTEM’s knowledge, is any counterparty thereto; and (e) MTEM has not received any notice of breach under any Future MTEM In-Licenses and MTEM does not know of any basis for any such action. The scope of the rights granted to Takeda hereunder to intellectual property licensed pursuant to any Future MTEM In-Licenses are no more restricted than the analogous rights granted to Takeda hereunder with respect to intellectual property rights wholly owned by MTEM or its Affiliates. To MTEM’s knowledge, no Third Party Manufacturer or supplier of SLT-A Fusion Proteins (including any Component thereof) engaged by MTEM as of the Effective Date or any Certification Date Controls (as such defined term would apply to such Third Party if such Third Party were a Party to this Agreement) any Know-How or Patent Right, that Takeda would be required to license in order for Takeda to manufacture such SLT-A Fusion Protein (including any such Component thereof) as contemplated hereunder without infringing the intellectual property rights of such Third Party.

9.2.7 Manufacturing Agreements. there are no exclusivity provisions or any other restrictions in any agreement between MTEM or its Affiliates, on the one hand, and any Third Party Manufacturer of the SLT-A Fusion Proteins (including any Component thereof), on the other hand, that would limit Takeda’s ability to have the SLT-A Fusion Proteins or Licensed Products (including any Component thereof) Manufactured by such Third Party Manufacturer or any other Person following the Technology Transfer.

9.2.8 Compliance with Applicable Law. To MTEM’s knowledge, the Development of MTEM Background IP and Program IP conducted by MTEM and its Affiliates and its and their subcontractors has been conducted in compliance with all Applicable Law in all material respects. To MTEM’s knowledge, neither MTEM nor any of its Affiliates, nor any of their respective officers, employees or agents, has made an untrue statement of a material fact or fraudulent statement to any Regulatory Authority or failed to disclose a material fact required to be disclosed to any Regulatory Authority. To MTEM’s knowledge, the pending applications included in MTEM Background Patent Rights are being diligently prosecuted in the respective patent offices in the Territory in accordance with Applicable Law and MTEM and its Affiliates have presented all relevant references, documents and information of which it and the inventors are aware to the relevant patent examiner at the relevant patent office where required by law.

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9.2.9 SLT-As and MTEM Background IP. Schedule 9.2.9 sets forth a true and complete list of SLT-As with respect to which MTEM or its Affiliates Control MTEM Background IP. With respect to each Takeda Target, (a) MTEM is not a party to any agreement that would prevent it from granting the rights granted to Takeda under this Agreement or performing its obligations under this Agreement, (b) MTEM has the full right to grant the Research License and Exclusive License, as applicable, granted herein and such grant shall not result in the misappropriation of any Third Party intellectual property or violation of any Third Party’s rights with respect thereto and (c) MTEM has not granted to any Third Party any right or license, including any covenant not to sue, to Exploit any SLT-A Fusion Protein or the MTEM Background IP in connection with any Targeting Moiety Directed to a Takeda Target.

9.2.10 Government Funding. The inventions claimed by the SLT-A Technology (a) were not conceived, discovered, developed or otherwise made in connection with any research activities funded, in whole or in part, by any state or the federal government of the United States or any agency thereof, (b) are not a “subject invention” as that term is described in 35 U.S.C. Section 201(e) and (c) are not otherwise subject to the provisions of the Patent and Trademark Law Amendments Act of 1980, as amended, codified at 35 U.S.C. §§ 200-212, as amended, as well as any regulations promulgated pursuant thereto, including in 37 C.F.R. part 401.

9.2.11 The representations and warranties of MTEM in this Agreement and the information, documents and materials furnished to Takeda in connection with its period of diligence prior to the Effective Date, do not, taken as a whole, (a) contain any untrue statement of a material fact or (b) omit to state any material fact necessary to make the statements or facts contained therein, in light of the circumstances under which they were made, not misleading.

Section 9.3 Additional Covenants of MTEM.

9.3.1 MTEM shall not grant a lien on the MTEM Background IP or MTEM’s interest in any Program IP to any Third Party or knowingly permit a lien to be imposed on the MTEM Background IP or MTEM’s interest in any Program IP other than those disclosed to Takeda by MTEM and that do not conflict with the rights granted Takeda hereunder. MTEM will not misappropriate any intellectual property of a Third Party in connection with developing the MTEM Background IP, Program IP or the performance of the Programs or its other obligations under this Agreement.

9.3.2 MTEM will not enter into any agreement with respect to or otherwise assign, transfer, license, convey or otherwise encumber its right, title or interest in or to (a) the MTEM Background IP for use with a Licensed Target. MTEM’s interest in any Program IP or MTEM Regulatory Documentation (including by granting any covenant not to sue with respect thereto) or (b) any Patent Right or other intellectual property or proprietary right that would be MTEM Background IP, Program IP or MTEM Regulatory Documentation, but for such assignment, transfer, license, conveyance or encumbrance, in each case of (a) and (b), that is inconsistent with or otherwise diminishes the rights and licenses granted to Takeda under this Agreement. MTEM shall maintain and perform its obligations under any Future MTEM In-Licenses and maintain such Future MTEM In-Licenses in full force and effect during the Term and will not amend any Future MTEM In-Licenses in a manner than adversely affects Takeda’s rights hereunder, without having first obtained Takeda’s express prior written consent.

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9.3.3 Without limitation to any product warranty applicable under any Supply Agreement, all Fusion Protein Materials and MTEM Study Materials provided by or on behalf of MTEM hereunder will be Manufactured in conformance with Applicable Law and this Agreement.

9.3.4 Neither MTEM nor any of its Affiliates shall use in any capacity, in connection with the performance of the activities hereunder, any Person that has been debarred pursuant to Section 306 of the FFDCA or that is the subject of a conviction described in such section. MTEM shall inform Takeda in writing promptly if it or any such Person that is performing any activities hereunder is debarred or is the subject of a conviction described in Section 306 of the FFDCA or if any action, suit, claim, investigation or legal or administrative proceeding is pending or, to MTEM’s knowledge, is threatened, related to the debarment or conviction of it or any such Person performing any activities hereunder.

9.3.5 To the extent that any inventions claimed by the MTEM Background IP or Program IP are conceived, discovered, developed or otherwise made in connection with any research activities funded, in whole or in part, by the federal government of the United States or any agency thereof, MTEM shall comply with the provisions of the Patent and Trademark Law Amendments Act of 1980, as amended, codified at 35 U.S.C. §§ 200-212, as amended, as well as any regulations promulgated pursuant thereto, including in 37 C.F.R. part 401.

9.3.6 MTEM shall not use any Third Party funding with respect to the performance of the MTEM Program Activities or the Manufacture of SLT-A Fusion Proteins, Licensed Products or without the prior written consent of Takeda in each case, which consent may be withheld in Takeda’s sole discretion.

Section 9.4 DISCLAIMER OF WARRANTIES. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH HEREIN, NEITHER PARTY MAKES ANY REPRESENTATIONS OR GRANTS ANY WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE AND EACH PARTY SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENT RIGHTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

ARTICLE X

INDEMNITY; LIMITATION OF LIABILITY

Section 10.1 Indemnity.

10.1.1 [***] shall defend, indemnify and hold harmless [***] and its Affiliates and Sublicensees and Distributors and their respective directors, officers, employees and agents (the “[***]”) from and against all liabilities, losses, damages, and expenses, including reasonable attorneys’ fees and costs (collectively, “Liabilities”), incurred by or imposed on any of the [***] as a result of any Third Party claims, suits, actions, terminations or demands (collectively, “Claims”) to the extent such Claims are incurred, relate to, are in connection with or arise out of (a) the breach or non-fulfillment of any representations, warranties or covenants in this Agreement by [***], (b) the negligence, recklessness or willful misconduct of [***] in connection with the performance of its obligations hereunder, (c) violation of Applicable Law by [***] in connection with the performance of its obligations hereunder or (d) any action or omission of the [***] in performing its obligations under or in connection with this Agreement (including in connection with any information provided to the [***] by or on behalf of [***]), except in each case ((a), (b), (c) or (d)), to the extent such Liabilities resulted from any action for which [***] must indemnify [***] under Section 10.1.2 (a), (b) or (c).

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10.1.2 [***] shall defend, indemnify and hold harmless [***], its Affiliates and their respective directors, officers, employees and agents (the “[***]”) from and against all Liabilities incurred by or imposed on any of the [***] as a result of any Claims to the extent such Claims are incurred, relate to, are in connection with or arise out of (a) the breach or non-fulfillment of any representations, warranties or covenants in this Agreement by [***], (b) the negligence, recklessness or willful misconduct of [***] in connection with the performance of its obligations hereunder, (c) violation of Applicable Law by [***] in connection with the performance of its obligations hereunder, or (d) the [***], its Affiliates or Sublicensees, except in each case ((a), (b), (c) or (d)), to the extent such Liabilities resulted from any action for which [***] must indemnify [***] under Section 10.1.1.

Section 10.2 Procedure.

10.2.1 A Party (the “Indemnitee”) that intends to claim indemnification under this 0 shall promptly provide notice to the other Party (the “Indemnitor”) of any Claim in respect of which the Indemnitee intends to claim such indemnification, which notice shall include a reasonable identification of the alleged facts giving rise to such Liability, and the Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, jointly with any other Indemnitor similarly noticed, to control the defense thereof with counsel selected by the Indemnitor. However, notwithstanding the foregoing, except with respect to any Claim that is a Third Party Action, the process for the defense of which shall be governed by Section 8.7, the Indemnitee shall have the right to participate in, but not control, the defense of any Claim, and request separate counsel, with the fees and expenses to be paid by the Indemnitee, unless (a) representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other Party represented by such counsel in such proceedings or (b) the Indemnitor has failed to assume the defense of the applicable Claim, in which case ((a) or (b)), such fees and expenses shall be paid by the Indemnitor. The Indemnitee shall, and shall cause each of its Affiliates and its and their respective directors, officers, employees and agents, as applicable, to, cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals and otherwise providing reasonable access to such indemnitees and other employees and agents of the Indemnitee, in each case as may be reasonably requested in connection therewith; provided, that the Indemnitor shall reimburse the Indemnitee for its reasonable and verifiable out-of-pocket expenses in connection therewith. The Indemnitor may not settle any Claim, and the Indemnitee shall not be responsible for or be bound by any settlement of a Claim that imposes an obligation on it, without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld, conditioned or delayed.

10.2.2 The assumption of the defense of a Claim by the Indemnitor shall not be construed as an acknowledgment that the Indemnitor is liable to indemnify the Indemnitee in respect of the Claim, nor shall it constitute a waiver by the Indemnitor of any defenses it may assert against the Indemnitee’s claim for indemnification. In the event that it is ultimately determined that the Indemnitor is not obligated to indemnify, defend or hold harmless the Indemnitee from and against the Claim, the Indemnitee shall reimburse the Indemnitor for any and all costs and expenses (including attorneys’ fees and costs of suit) and any Liabilities incurred by the Indemnitor in its defense of the Claim.

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Section 10.3 Limitation of Liability. EXCEPT (A) IN THE EVENT OF THE WILLFUL MISCONDUCT OR FRAUD OF A PARTY OR A PARTY’S BREACH OF ITS OBLIGATIONS UNDER ARTICLE VII OR SECTION 3.10, (B) AS PROVIDED UNDER SECTION 12.12 OR (C) TO THE EXTENT ANY SUCH DAMAGES ARE REQUIRED TO BE PAID TO A THIRD PARTY AS PART OF A CLAIM FOR WHICH A PARTY PROVIDES INDEMNIFICATION UNDER THIS ARTICLE X, NEITHER PARTY NOR ANY OF ITS AFFILIATES OR SUBLICENSEES SHALL BE LIABLE IN CONTRACT, TORT, NEGLIGENCE, BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR LOST PROFITS SUFFERED BY THE OTHER PARTY AND REGARDLESS OF ANY PRIOR NOTICE OF SUCH DAMAGES.

Section 10.4 Insurance. During the Term and thereafter for the period of time required below, each Party shall maintain on an ongoing basis comprehensive general liability insurance in the minimum amount of [***] per occurrence and [***] annual aggregate combined single limit for bodily injury and property damage liability and any other insurance required by Applicable Law. Commencing not later than [***] prior to the first use in humans of a Licensed Product and thereafter for the period of time required below, Takeda shall obtain and maintain on an ongoing basis products liability insurance (including contractual liability coverage on Takeda’s indemnification obligations under this Agreement) in the amount of at least [***] per occurrence and as an annual aggregate combined single limit for bodily injury and property damage liability. All of such insurance coverage may be maintained through a self-insurance plan that substantially complies with the foregoing limits and requirements. Thereafter, Takeda shall maintain such insurance coverage without interruption during the Term and for a period of at [***] thereafter. Each Party shall provide the other Party at least [***] prior written notice of any cancellation to or material change in its insurance coverage below the amounts and types described above.

ARTICLE XI

TERM AND TERMINATION

Section 11.1 Term. Unless earlier terminated pursuant to this Article XI, the term of this Agreement (the “Term”) shall commence on the Effective Date and shall remain in full force and effect until the earlier of (a) the date of expiration of all Option Periods, in the case that Takeda elects not to exercise any Option and (b) the date of expiration of the last to expire Royalty Term. Upon expiration of the Royalty Term for a Licensed Product in a country or jurisdiction, the grants in Section 3.4 shall become fully-paid, royalty-free, freely transferable, sublicensable through multiple tiers, perpetual and irrevocable in such country or jurisdiction, with no further obligation to MTEM for such Licensed Product.

Section 11.2 Termination by Takeda.

11.2.1 Convenience. Takeda shall have the right, at any time, to terminate this Agreement, in its entirety or on a Takeda Target-by-Takeda Target basis, by providing not less than [***] prior written notice to MTEM of such termination. Any such termination of this Agreement with respect to a Takeda Target shall not affect the continuation of this Agreement with respect to any other Takeda Target.

11.2.2 Change in Control. MTEM shall notify Takeda in writing as soon as possible after MTEM announces publicly any information regarding any proposed Change in Control of MTEM (or if the Change in Control will not be publicly announced, then no later than [***] after the signing of the Change in Control). Takeda shall have the right, at its election in its sole discretion:

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(a) to terminate this Agreement in its entirety or with respect to any Takeda Target upon written notice to MTEM, in which case such termination shall be effective at Takeda’s election upon either (i) the date such Change in Control of MTEM becomes effective or (ii) such later date as specified by Takeda,

(b) disband the Joint Scientific Committee and the Joint Manufacturing Committee and terminate the activities of the Joint Scientific Committee and the Joint Manufacturing Committee and thereafter undertake one or more MTEM Program Activities with respect to any Takeda Target solely and exclusively by (or on behalf of) itself (without any consultation with or approval by MTEM and neither MTEM nor any of its Affiliates shall have the right to receive reports under Section 4.4 from and after the date of such Change in Control); and/or

(c) require that (i) the Future Acquirer maintain at least the same level of diligence in performing its obligations under the Agreement, including its obligations under the Program Plan and Manufacturing after the Change in Control, as had been applied prior to the applicable transaction, unless otherwise agreed to in writing by the Parties, and (ii) no employee of the Future Acquirer or such Future Acquirer’s Affiliates shall participate in or contribute to the performance of MTEM’s obligations in connection with any Program or Manufacturing hereunder (including as the primary contact or as member, delegate or attendee of the Joint Steering Committee or Joint Manufacturing Committee) or otherwise be provided or have access to any Confidential Information of Takeda.

Without limiting the foregoing, MTEM shall not disclose to, and shall implement appropriate protections to prevent the use by such Future Acquirer of any Program IP or other Product Information.

Section 11.3 Termination for Material Breach.

11.3.1 Breach. Either Party may (but is not required to and without limitation of any other right or remedy such Party may have) terminate this Agreement for material breach by the other Party (the “Breaching Party”) of this Agreement if the Breaching Party has not cured such breach within [***] after notice thereof (such period, the “Notice Period”) specifying the breach and its claim of right to terminate, other than

(a) with respect to a breach that cannot be cured within the Notice Period and the Breaching Party commences actions to cure such breach within the Notice Period, in which case the Notice Period shall be tolled (provided, that the Breaching Party thereafter diligently continues such actions);

(b) with respect to a material breach by Takeda that is limited to one Takeda Target hereunder, in which case, subject to the remainder of this Section 11.3, MTEM shall only have the right to terminate this Agreement with respect to such Takeda Target; or

(c) with respect to any alleged breach by Takeda of its diligence obligations set forth in Section 4.3, in which case, MTEM shall first provide written notice thereof to Takeda and the Parties shall meet within [***] after delivery of such notice to Takeda to discuss in good faith such alleged breach and Takeda’s Development and Commercialization plans, as applicable, with respect to the applicable Licensed Product, which discussions shall be concluded before MTEM may issue any such termination notice with respect to such alleged

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breach; provided, that if either Party initiates a dispute resolution procedure under Section 12.3 as permitted under this Agreement to resolve the dispute for which termination is being sought within [***] following the end of the Notice Period and is diligently pursuing such procedure, the Notice Period shall be tolled and the termination shall become effective only if such breach remains uncured for [***] after the final resolution of the dispute through such dispute resolution procedure (or, if the breach cannot be cured within such [***] period, if the Breaching Party commences actions to cure such breach within such period and thereafter diligently continues such actions). It is understood that termination pursuant to this Section 11.3 shall be a remedy of last resort and may be invoked only in the case where the breach cannot be reasonably remedied by the payment of money damages. During any cure period under this Section 11.3.1 in response to a notice from Takeda, any obligation of Takeda to pay milestones under Article VI shall be suspended unless and until MTEM has cured the material breach at issue.

11.3.2 Insolvency. Either Party may terminate this Agreement in its entirety effective immediately upon written notice to the other Party if, at any time such other Party (a) files in any court or agency pursuant to any statute or regulation of any state or country a petition in bankruptcy or insolvency or for reorganization (save for solvent reorganization or solvent reconstruction), (b) files for, appoints or suffers appointment of a receiver or trustee of the Party or over substantially all of its assets that is not discharged within [***] after such filing, (c) proposes a written agreement of composition or extension of substantially all of its debts, (d) files a petition under any bankruptcy or insolvency act or has any such petition filed against that is not discharged within [***] of the filing thereof, (e) proposes or is a party to any dissolution or liquidation, (f) admits in writing its inability generally to meet its obligations as they fall due in the general course or (g) makes an assignment of substantially all of its assets for the benefit of creditors.

Section 11.4 License Survival Upon Insolvency. All licenses (and to the extent applicable, rights) granted under or pursuant to this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of 11 U.S.C. § 101, et. seq. (“Bankruptcy Code”), licenses of rights to “intellectual property” as defined under the Paragraph 101(35A) of the Bankruptcy Code. The Parties agree that the non-bankrupt Party shall retain and may fully exercise all of its rights and elections under Applicable Law. The Parties further agree that, in the event of the commencement of bankruptcy proceeding by or against a bankrupt Party, the other Party shall be entitled to a complete duplicate of (or complete access to, as appropriate) any intellectual property that is licensed to such Party pursuant to the license grants set forth in Article III, but only to the extent set forth in such license grants, and all embodiments of such intellectual property; and the same, if not already in the other Party’s possession, shall be promptly delivered to the other Party (a) upon any such commencement of a bankruptcy proceeding, upon the other Party’s written request therefor (which request must identify the specific intellectual property), unless the bankrupt Party (or trustee on behalf of the bankrupt Party) elects within [***] to continue to perform all of its obligations under this Agreement or (b) if not delivered under (a) above, upon rejection of this Agreement by or on behalf of the bankrupt Party, upon written request therefore by the other Party.

Section 11.5 Effect of Expiration and Termination.

11.5.1 General Effects. Except where explicitly provided within this Agreement, expiration or termination of this Agreement in its entirety or with respect to any Takeda Target, as applicable for any reason, will not affect any obligations, including payment of any royalties or other sums which have accrued as of the date of termination or expiration. Notwithstanding the foregoing, but

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subject to Section 11.1, upon expiration or termination of this Agreement, MTEM’s obligations pursuant to Section 3.10 will [***] terminate (a) with respect to a Takeda Target having been terminated, and (b) in full if this Agreement is terminated in its entirety. Following the delivery of a notice of termination of this Agreement in its entirety by a Party, Takeda shall not be responsible for the payment of any future milestones under this Agreement other than those that were due prior to the delivery of the notice of termination. Except as needed in order to permit the sell-off activities set forth in Section 11.5.2, upon expiration or termination of this Agreement in its entirety, all licenses granted by either Party to the other Party hereunder (other than pursuant to Section 3.2), including all Research Licenses and Exclusive Licenses, and all sublicenses granted by either Party thereunder, will [***] terminate. In the event of a termination with respect to only one Takeda Target, only the licenses to the extent relating to such Takeda Target shall terminate. For clarity, the Program with respect to the terminated Targets shall terminate effective upon receipt of notice of termination. Upon expiration or termination of this Agreement in its entirety or with respect to only one Takeda Target, the Parties will agree upon and implement a plan for the orderly transition or winding down of any in-process Regulatory Filings or Clinical Trials in a manner consistent with Applicable Laws and standards of ethical conduct of human clinical trials.

11.5.2 Sell-Off. In the case that the licenses granted to Takeda under Section 3.1 or Section 3.4 terminate with respect to a Target, notwithstanding such termination, Takeda shall have the right to complete (or have completed) the Manufacture of any work-in-process SLT-A Fusion Proteins, Licensed Products or and sell any existing inventory of Licensed Product(s) (if applicable) with respect to the terminated Target for a period of up to [***] following such termination, subject to Takeda’s obligation to make corresponding payments with respect to any such sales pursuant to Section 6.8.

11.5.3 Effect of Termination by Takeda for Convenience. If Takeda terminates this Agreement in its entirety or with respect to any Takeda Target pursuant to Section 11.2.1, all licenses granted pursuant to this Agreement (and then in effect) or all licenses relating to such Target (and then in effect), as applicable, shall automatically be terminated and MTEM shall automatically have as of the termination effective date (“Termination Effective Date”), an option exercisable within [***] of the Termination Effective Date to obtain on reasonable commercial terms a worldwide, non-exclusive, sublicensable, royalty-bearing license under Takeda’s interest in Program IP generated, conceived or reduced to practice during the terminated Programs that (a) is not related to any Takeda Targeting Moiety, and (b) was not derived from or generated, conceived or reduced to practice with the use of any Takeda Confidential Information, including any Takeda Background IP, for any and all uses.

11.5.4 Effect of Termination by Takeda for Change in Control of MTEM. If Takeda terminates this Agreement in its entirety pursuant to Section 11.2.1 prior to Takeda’s exercise of all Options hereunder, (a) all licenses granted pursuant to this Agreement (and then in effect) or all licenses relating to such Target (and then in effect), as applicable, shall automatically be terminated (other than pursuant to Section 3.2), and (b) in the case of termination (or assumption of MTEM Program Activities) by Takeda pursuant to Section 11.2.2, within [***] following such election by Takeda, MTEM shall reimburse Takeda for any amounts paid by Takeda pursuant to Section 6.1 or Section 6.3 with respect to any Takeda Target terminated or assumed by Takeda pursuant to Section 11.2.1. If Takeda terminates this Agreement in its entirety or with respect to any Takeda Target pursuant to Section 11.2.2 after Takeda’s exercise of all Options hereunder, all licenses granted pursuant to this Agreement (and then in effect) or all licenses relating to such Target (and then in effect), as applicable, shall survive and all licenses and remaining payment obligations, including payment of any royalties or other sums which have accrued as of the date of termination or expiration, will survive.

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11.5.5 Effect of Termination by MTEM for Material Breach or Takeda Insolvency. If MTEM terminates this Agreement in its entirety pursuant to Section 11.3.1 or Section 11.3.2, all licenses granted pursuant to this Agreement (and then in effect) or all licenses relating to such Target (and then in effect), as applicable, shall automatically be terminated and MTEM shall automatically have as of the Termination Effective Date, an option exercisable within [***] of the Termination Effective Date to obtain on reasonable commercial terms a worldwide, non-exclusive, sublicensable, royalty-bearing license under Takeda’s interest in Program IP generated, conceived or reduced to practice during the terminated Programs that (a) is not related to any Takeda Targeting Moiety, and (b) was not derived from or generated, conceived or reduced to practice with the use of any Takeda Confidential Information, including any Takeda Background IP, for any and all uses.

11.5.6 Effect of Termination by Takeda for Material Breach or for MTEM Insolvency. In the event that Takeda is entitled to terminate this Agreement in its entirety pursuant to Section 11.3.1 or Section 11.3.2, Takeda may, as an alternative, elect to maintain this Agreement in effect, except that the first and second sentences of Section 4.4 shall terminate.

11.5.7 Continuation in Lieu of Termination. If Takeda has the right to terminate any Target under Section 11.3 but does not elect to exercise such right, this Agreement shall continue in full force and effect.

11.5.8 Survival. The following provisions will survive expiration or termination of this Agreement: Articles I, VII, VIII, IX, X and XII and Sections 2.2.3, 2.2.4, 2.2.5, 2.4, 3.2, 6.15, 6.16, 6.17, 11.4 and 11.5.

ARTICLE XII

MISCELLANEOUS

Section 12.1 Notices. Any consent, notice or report required or permitted to be given or made under this Agreement by one of the Parties to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, first class air mail or courier), first class air mail or courier, postage prepaid (where applicable), addressed to such other Party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the address or in accordance with this Section 12.1 and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee. This Section 12.1 is not intended to govern the day-to-day business communications necessary between the Parties in performing their obligations under the terms of this Agreement.

If to MTEM:

Molecular Templates, Inc.

9301 Amberglen Boulevard, Suite 100

Austin, TX 78729

Attention: Jason Kim, President and CFO

Telephone: [***]

Fax: [***]

If to Takeda:

Millennium Pharmaceuticals, Inc.

40 Landsdowne Street

Cambridge, MA 02139

Attention: Legal Department

Telephone: [***]

Facsimile: [***]

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Section 12.2 Applicable Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the conflict of law principles thereof that may dictate application of the laws of any other jurisdiction. Subject to Section 12.3, the Parties hereby irrevocably and unconditionally consent to the exclusive jurisdiction of the courts of the Commonwealth of Massachusetts for any action, suit or proceeding (other than appeals therefrom) arising out of or relating to this Agreement.

Section 12.3 Dispute Resolution. The Parties agree that if any dispute or disagreement arises between Takeda on the one hand and MTEM on the other in respect of this Agreement, subject to Section 12.12, they shall follow the following procedure in an attempt to resolve the dispute or disagreement.

12.3.1 The Party claiming that such a dispute exists shall give notice in writing (“Notice of Dispute”) to the other Party of the nature of the dispute.

12.3.2 Within [***] following receipt of a Notice of Dispute, the [***] of MTEM and the [***] (or equivalent) of Takeda shall meet at a mutually agreed upon time and location for the purpose of resolving such dispute.

12.3.3 In the event of a dispute between the Parties requiring resolution by a panel of experts (“Expert Panel”), such dispute shall be resolved in accordance with this Section 12.3.3. Notice from a Party initiating resolution by the Expert Panel shall contain a statement of the issue forming the basis of the dispute, the position of the moving Party as to the proper resolution of that issue and the basis for such position. Within [***] after receipt of such notice, the responding Party shall submit to the moving Party a statement of its conception of the specific issue in question, its position as to the proper resolution of that issue and the basis for such position.

(a) Within [***] of the responding Party’s response, each Party shall appoint to the Expert Panel an individual who (i) has expertise in the pharmaceutical or biotechnology industry and the specific matters at issue, (ii) is not a current or former director, employee or consultant of such Party or any of its Affiliates, or otherwise has not received compensation or other payments from such Party (or its Affiliates) for the past five (5) years and (iii) has no known personal financial interest or benefit in the outcome or resolution of the dispute, and the appointing Party shall give the other Party written notice of such appointment; provided, that for such appointment to be effective and for such individual to serve on the Expert Panel, such individual must deliver to the other Party a certificate confirming that such individual satisfies the criteria set forth in clauses (i) through (iii) above, disclosing any potential conflict or bias and certifying that, as a member of the Expert Panel, such individual is able to render an independent decision. Within [***] of the appointment of the second expert, the two (2)-appointed experts shall agree on an additional expert who meets the same criteria as described above, and shall appoint such expert as chair of the Expert Panel. If the Party-appointed experts fail to timely agree on a third expert, then upon the written request of either Party, each Party-appointed expert shall, within [***] of such request, nominate one expert candidate and the CPR Institute for Dispute Resolution shall, within [***] of receiving the names of the Parties’ respective nominees, select one of those experts to serve as the chair of the Expert Panel. Each expert shall agree, prior to his or her appointment, to render a decision as soon as practicable after the appointment of the full Expert Panel.

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(b) Within [***] of the appointment of the third expert, the Expert Panel shall hold a preliminary meeting or teleconference with the Parties or their representatives and shall designate a time and place for a hearing of the Parties on the dispute and the procedures to be utilized at the hearing. The Parties may agree in writing to waive the hearing and have the Expert Panel reach a decision on the basis of written submissions alone. The Expert Panel may order the Parties to produce any documents or information that are relevant to the dispute. All such documents or information shall be provided to the other Party and the Expert Panel as expeditiously as possible but no later than [***] prior to the hearing (if any), along with the names of all witnesses who will testify at the hearing and a brief summary of their testimony. The hearing shall be held in Boston, MA, unless otherwise agreed by the Parties, and shall take place as soon as possible but no more than [***] after the appointment of the third expert, unless the Parties otherwise agree in writing or the Expert Panel agrees to extend such time period for good cause shown. The hearing shall last no more than one (1) day, unless otherwise agreed by the Parties or the Expert Panel agrees to extend such time period for good cause shown. After the conclusion of all testimony (or if no hearing is held after all submissions have been received from the Parties), at a time designated by the Expert Panel no later than [***] after the close of the hearing or the receipt of all submissions, each Party shall simultaneously submit to the Expert Panel and exchange with the other Party its final proposed resolution.

(c) In rendering the final decision (which shall be rendered no later than fifteen (15) days after receipt by the Expert Panel of the Parties’ respective proposed resolutions), the Expert Panel shall be limited to choosing a resolution proposed by a Party without modification; provided, that in no event shall the Expert Panel render a decision that is inconsistent with the Parties’ intentions as set forth in this Agreement. The agreement of two (2) of the three (3) experts shall be sufficient to render a decision and the Parties shall abide by such decision. The decision of the Expert Panel shall be final and binding on the Parties and may be entered and enforced in any court having jurisdiction. The Parties shall share equally the costs and expenses of the Expert Panel.

12.3.4 In the event of an unresolved dispute between the Parties involving intellectual property, including any disputes relating to inventorship or the validity, enforceability or scope of any patent or trademark rights shall, but other than as set forth in Section 12.3.3, such dispute shall, at either Party’s election and subject to Section 12.2, be submitted for resolution by a court of competent jurisdiction.

12.3.5 In the event of a dispute regarding any payments owing under this Agreement, all undisputed amounts shall be paid promptly when due and the balance, if any, promptly after resolution of the dispute.

Section 12.4 Entire Agreement. This Agreement, together with the Exhibits and Schedules attached hereto and the Quality Agreement, contains the entire understanding of the Parties with respect to the specific subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly superseded by this Agreement, including that certain Confidential Disclosure Agreement between the Parties dated December 17, 2015, as amended by letter agreement Amendment 1, dated October 21, 2016, which is hereby terminated effective as of the Effective Date; provided, that such Confidential Disclosure Agreement will continue to govern the treatment of Confidential Information (as defined therein) disclosed by the Parties prior to the Effective Date in accordance with its terms. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties.

Section 12.5 Severability. Each Party hereby agrees that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties shall substitute, by mutual consent, valid provisions for such invalid provisions, in their economic effect, are sufficiently similar to the invalid

Page 67

provisions that it can be reasonably assumed that the Parties would have entered into this Agreement based on such valid provisions. In case such alternative provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions.

Section 12.6 Force Majeure. No Party (or any of its Affiliates) shall be held liable or responsible to the other Party (or any of its Affiliates) hereunder, or be deemed to have defaulted under or breached this Agreement, for failure or delay by such Party in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party (or any of its Affiliates), including fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, acts of God, earthquakes, or omissions or delays in acting by any Governmental Authority (each, an “Event of Force Majeure”); provided, that the affected Party shall exert all reasonable efforts to eliminate, cure or overcome any such Event of Force Majeure and to resume performance of its obligations promptly. Notwithstanding the foregoing, to the extent that an Event of Force Majeure continues for a period in excess of six (6) months, the affected Party shall promptly notify in writing the other Party of such Event of Force Majeure and within four (4) months of the other Party’s receipt of such notice, the Parties shall negotiate in good faith either (a) a resolution of the Event of Force Majeure, if possible or (b) an extension by mutual agreement of the time period to resolve, eliminate, cure or overcome such Event of Force Majeure.

Section 12.7 Assignment. Neither Party may assign its rights or, except as provided in Section 2.2.5 and Article VIII, delegate its obligations under this Agreement, whether by operation of law or otherwise, in whole or in part (including with respect to any Licensed Target or any Licensed Product) without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed, except that Takeda shall have the right, without such consent, (a) to perform any or all of its obligations and exercise any or all of its rights under this Agreement through any of its Affiliates, Sublicensees or Distributors, and (b) assign any or all of its rights and delegate any or all of its obligations hereunder (including on a Target-by- Target or Licensed Product-by-Licensed Product basis) to any of its Affiliates or its or their Sublicensees or to any successor in interest (whether by merger, acquisition, asset purchase or otherwise) to all or substantially all of the business to which this Agreement (or the applicable Licensed Target(s) or Licensed Product(s)) relates); provided that Takeda shall provide written notice to MTEM within thirty (30) days after such assignment or delegation. Any permitted successor of Takeda or any permitted assignee of all of a Takeda’s rights under this Agreement that has also assumed all of Takeda’s obligations hereunder in writing shall, upon any such succession or assignment and assumption, be deemed to be a party to this Agreement as though named herein in substitution for Takeda, whereupon Takeda shall cease to be a party to this Agreement and shall cease to have any rights or obligations under this Agreement. All validly assigned rights of Takeda shall inure to the benefit of and be enforceable by, and all validly delegated obligations of Takeda shall be binding on and be enforceable against, the permitted successors and assigns of Takeda. Any attempted assignment or delegation in violation of this Section 12.7 shall be void and of no effect.

Section 12.8 Independent Contractors. MTEM and Takeda each acknowledge that they shall be independent contractors and that the relationship between the Parties shall not constitute a partnership, joint venture, agency or any type of fiduciary relationship. Neither MTEM nor Takeda shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior consent of the other Party to do so.

Page 68

Section 12.9 Waiver and Non-Exclusion of Remedies. The waiver by either Party of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise. The rights and remedies provided herein are cumulative and do not exclude any other right or remedy provided by Applicable Law or otherwise available, except as expressly set forth herein.

Section 12.10 Further Assurances. Each Party shall execute such additional documents as are necessary to effect the purposes of this Agreement.

Section 12.11 No Benefit to Third Parties. Except as provided in Article X, the covenants and agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their successors and permitted assigns and they shall not be construed as conferring any rights on any other parties.

Section 12.12 Equitable Relief. Each Party acknowledges and agrees that the restrictions set forth in Section 2.5.4(c), Section 3.10, Article VII and Article VIII are reasonable and necessary to protect the legitimate interests of the other Party and that such other Party would not have entered into this Agreement in the absence of such restrictions and that any breach or threatened breach of any provision of such Section or Articles may result in irreparable injury to such other Party for which there will be no adequate remedy at law. In the event of a breach or threatened breach of any provision of such Section or Articles, the non-breaching Party shall be authorized and entitled to seek from any court of competent jurisdiction injunctive relief, whether preliminary or permanent, specific performance and an equitable accounting of all earnings, profits and other benefits arising from such breach, which rights shall be cumulative and in addition to any other rights or remedies to which such non-breaching Party may be entitled in law or equity. Both Parties agree to waive any requirement that the other (a) post a bond or other security as a condition for obtaining any such relief and (b) show irreparable harm, balancing of harms, consideration of the public interest or inadequacy of monetary damages as a remedy. Nothing in this Section 12.12 is intended or should be construed, to limit either Party’s right to equitable relief or any other remedy for a breach of any other provision of this Agreement.

Section 12.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be signed or delivered by facsimile or electronically scanned signature page.

(The remainder of this page has been intentionally left blank. The signature page follows.)

Page 69

IN WITNESS WHEREOF, the Parties have executed this Multi-Target Collaboration and License Agreement as of the Effective Date.


MOLECULAR TEMPLATES, INC.

By:		/s/ Eric Poma
Name:		Eric Poma
Title:		CEO

MILLENNIUM PHARMACEUTICALS, INC.

By:		/s/ Christophe Bianchi
		Christophe Bianchi
		President

EXHIBIT A

STOCK PURCHASE AGREEMENT

SCHEDULE 1.1.898

MTEM TARGETS

[***]

SCHEDULE 1.1.1377

EXISTING SLT-As

[***]

SCHEDULE 1.1.1422

SLT-A TECHNOLOGY

[***]

SCHEDULE 2.2.1

FORM OF PROGRAM PLAN


Step	Activity	Responsible Party	Time to complete*^#
[***]	[***]	[***]	[***]
[***]	[***]	[***]
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[***]	[***]	[***]	[***]

[***]

SCHEDULE 2.5.4

[***]

SCHEDULE 9.2.5

MTEM BACKGROUND PATENT RIGHTS


Patent Application Serial Number	Title	Assignee	Filing Date	Status
[*] [*]	[***]	[***]	[***]	[***]
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[*] [*]	[***]	[***]	[***]	[***]
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[***]	[***]	[***]	[***]	[***]

SCHEDULE 9.2.6

FUTURE MTEM IN-LICENSES

[***]

SCHEDULE 9.2.69

MTEM OWNED SLT-As

[***]


[*] [*]	[***]	[***]	[***]	[***]
[*] [*]	[***]	[***]	[***]	[***]
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[*] [*]	[***]	[***]	[***]	[***]
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[***]


[*] [*]	[***]	[***]	[***]	[***]
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[*] [*]	[***]	[***]	[***]	[***]
[*] [*]	[***]	[***]	[***]	[***]
[*] [*]	[***]	[***]	[***]	[***]
[***]	[***]	[***]	[***]	[***]

EX-23.1 3 d266142dex231.htm EX-23.1 EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Molecular Templates, Inc.

Austin, Texas

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-195084, No. 333-202043, No. 333-207745) and Registration Statements on Form S-8 (No. 333-210089, No. 333-202476, No. 333-196249, No. 333-187107, No. 333-180149, No. 333-173047, No. 333-167260, No. 333-164865, No. 333-156733, No. 333-126276, No. 333-134598, and No. 333-143130) of Molecular Templates, Inc. (f/k/a Threshold Pharmaceuticals, Inc.) of our report dated February 22, 2017, relating to the financial statements of Molecular Templates, Inc. which appears in this Form 8-K/A. Our report contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

/s/ BDO USA, LLP

BDO USA, LLP

Austin, Texas

October 17, 2017

EX-99.1 4 d266142dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

The following is an excerpt of portions of the prospectus contained in the Form S-4 registration statement (File No. 333-217993) as declared effective by the Securities and Exchange Commission on June 30, 2017. Such information is as of June 30, 2017 (unless an earlier date is indicated).

MOLECULAR BUSINESS

Molecular is a clinical-stage oncology company focused on the discovery and development of differentiated, targeted, biologic therapeutics for cancer. Molecular believes its proprietary biologic drug platforms, which it refers to as engineered toxin bodies, or ETBs, provide a differentiated mechanism of action that solves problems associated with currently available cancer therapeutics. ETBs use a genetically engineered version of the Shiga-like Toxin A subunit, or SLTA, a ribosome inactivating bacterial protein. In its wild-type form, SLT is thought to induce its own entry into a cell when proximal to the cell surface membrane, self-route to the cytosol, and enzymatically and irreversibly shut down protein synthesis via ribosome inactivation. SLTA is normally coupled to its cognate Shiga-like Toxin B subunit, or SLTB, to target the CD77 cell surface marker, a non-internalizing glycosphingolipid. In Molecular’s scaffold, a genetically engineered SLTA subunit with no cognate SLTB component is genetically fused to antibody domains or fragments specific to a cancer target, resulting in a biologic therapeutic that can identify the particular target cell and specifically kill the target cell. The antibody domains may be substituted with other antibody domains having different specificities to allow for the rapid development of new drugs to selected targets in cancer.

ETBs combine the specificity of an antibody with SLTA’s potent mechanism of cell destruction. In Molecular’s second and third-generation ETBs, Molecular has modified the SLTA further to reduce immunogenicity and deliver additional payloads into a target cell, respectively. Immunogenicity is the ability of a particular substance, such as an antigen or epitope, to provoke an immune response. ETBs have relatively predictable pharmacokinetic, or PK, and absorption, distribution, metabolism and excretion, or ADME, profiles and can be rapidly screened for desired activity in robust cell-based and animal-model assays. Because SLTA can induce internalization against non- and poorly-internalizing receptors, the universe of targets for ETBs may be substantially larger than that seen with antibody-drug conjugates, or ADCs, which may not be effective if the target is not able to internalize them.

ETBs have a differentiated mechanism of cell-kill in cancer therapeutics (the inhibition of protein synthesis via ribosome destruction), and Molecular has preclinical and clinical data demonstrating the utility of these molecules in chemotherapy-refractory cancers. ETBs have shown good safety data in multiple animal models as well as in Molecular’s clinical study. Molecular believes the target specificity of ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their safety profile provide opportunities for the clinical development of these agents to address multiple cancer types.

Molecular’s approach to drug development in oncology involves the selection of lead compounds to validated targets in cancer and continuous improvements to Molecular’s ETB platform. Molecular has developed ETBs for various targets, including CD20, CD38, HER2, PD-L1, and CD45. CD20 is central to B cell malignancies and is clinically validated as a target for the treatment of lymphomas and autoimmune disease. CD38 has been validated as a meaningful clinical target in the treatment of multiple myeloma. PD-L1 is central to the immune checkpoint pathways and is a target expressed in a variety of solid tumor cancers. CD45 is expressed on most lymphocytes and has been studied as a potential key target for lymphodeletion strategies related to stem cell transplant therapy. Molecular’s lead compound, MT-3724, is a first generation ETB that recognizes CD20, a B cell marker. The dose escalation portion of its first Phase I clinical trial has been completed for MT-3724. Molecular anticipates advancing one or more additional ETBs into clinical trials in 2018.

Molecular has built up multiple core competencies around the creation and development of ETBs. Molecular developed the ETB technology in-house and continues to make iterative improvements in the scaffold and identify new uses of the technology. Molecular also developed the process for manufacturing ETBs under GMP standards and continues to make improvements to its manufacturing processes. Molecular has conducted multiple GMP manufacturing runs with its lead compound and believes this process is robust and could support commercial production with economics similar to those seen with antibodies.

Challenges in Oncology

Existing mechanisms of action, the specific biochemical interaction through which a drug substance produces its pharmacological effect, are subject to numerous limitations in oncology. The clinical benefit of a given drug is a function of the biological properties of the drug, the target with which the drug interacts and the tumor indication being treated, but the relative contribution of each of these factors is difficult to separate. To date, identifying the most appropriate cancer targets, applying the most effective mechanisms of action and selecting the appropriate disease indications and most responsive patient populations for a particular drug have presented significant challenges, including the following:

The limited number of addressable cancer targets given current available mechanisms of action; for example, targets appropriate for antibody-drug conjugate, or ADC, approaches are relegated to those extracellular targets that already readily and efficiently self-internalize;

•

The level of cell surface expression of these addressable cancer targets and the shedding of the target by the tumor as a means of resistance to therapy may impact a drug’s effectiveness;

•

ADC approaches generally use small molecule payloads which damage DNA, or disrupt or prevent microtubule assembly, and can be subject to the same mechanisms of resistance as in general chemotherapy;

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Established single-agent therapies are only effective in a minority of cancer patients;

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Current approaches to target prioritization are not comprehensively systematic and do not leverage a complete understanding of a drug’s effect on a given tumor type to best identify high value targets in certain patient populations;

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In vitro epitope selection on a given target may not be predictive of clinical optimization; and

•

Predictive biomarkers, the value and use of which are relatively new, are not uniformly used to proactively select responsive patient populations and/or preferred indications, which can drive longer development timelines with higher associated costs.

Molecular’s Differentiated Approach

Molecular was founded on the principle that differentiated mechanisms of action are crucial for improving outcomes in oncology. Molecular has created a new scaffold with a differentiated mechanism of action, coupled with a predictable PK and ADME profile. Molecular’s ETB scaffold permits rapid screening ability for lead identification and easily scalable production, which Molecular believes offers an opportunity to provide meaningful clinical benefits in oncology with more efficient capital expenditures than current treatments. Molecular believes the differentiated biological activity innate to the ETB scaffold, particularly the ability to induce internalization and employ a differentiated mechanism of cell kill, may allow for differentiated clinical benefit in patients with relapsed or refractory disease as well as potential combination with standard of care therapies in earlier stage disease.

Molecular likens the extensive de-immunization work it has conducted on SLTA to the chimerization of monoclonal antibodies. Monoclonal antibody chimerization is a process for reducing immunogenicity when an antibody from one species is introduced into a different species. Chimerization allows for the wide-spread use of antibodies as human therapeutics across multiple disease settings. Molecular believes that the de-immunization of SLTA may allow for ETB use across multiple indications in oncology, including solid tumors.

Molecular has seen in both preclinical models and in its Phase I study that the differentiated mechanism of action employed by its ETBs can be effective in chemo-resistant tumor cells. Molecular believes this creates the potential for a rapid characterization of efficacy in carefully designed clinical trials in relapsed and refractory settings, particularly when targeting tumor markers that persist after treatment with multiple lines of therapy and whose targeting has been shown to provide a survival benefit. Molecular also has seen preclinically that its ETBs

can have additive or synergistic activity in combination with a number of small molecule agents including chemotherapeutics, immunomodulatory agents and tyrosine kinase inhibitors. Molecular believes that the ability of ETBs to be additive or synergistic to a variety of current treatments may allow for combination therapy in earlier lines of disease.

Molecular believes its efforts have allowed and will continue to allow Molecular to develop ETBs against well-validated targets and new targets, enabling a phenotypically based clinical trial design that may result in shorter development timelines with lower associated costs. More specifically:

•

Molecular’s research and design platform allows it to rapidly select lead ETBs from a comprehensive screen. Molecular’s ETB platform utilizes a suite of integrated technologies to screen ETB libraries for lead identification. Molecular performs initial preclinical screens on ETBs with lead selection around potency, affinity and expression. These screens typically take six to eight weeks. Critical components of Molecular’s approach include:

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The proprietary optimization of the genetic fusion between the immunoglobulin-targeting domain and Molecular’s proprietary SLTA scaffold;

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The proprietary de-immunizing modifications made to the SLTA scaffold, which reduce both adaptive and innate immune responses to ETBs;

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Rapid screening for potency, affinity and specificity against target expressing versus non-expressing cells; and

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Early evaluation of protein expression and stability of potential lead ETB candidates.

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Molecular’s ability to create lead ETBs to well-validated targets reduces the risk of target-mediated side effects and increases the likelihood of obtaining meaningful clinical benefit. Molecular has deployed its technology against targets in oncology that are central to disease progression and that are known to persist after a given modality has failed. Molecular believes these targets reduce the risk of clinical failure from either unacceptable target-mediated adverse events or from a failure to impact disease outcome because of loss of the target. For example, Molecular’s lead compound, MT-3724, targets the B-cell surface marker CD20. CD20 appears central to B-cell malignancies, and the FDA has approved multiple antibody therapies targeting CD20. Destruction of CD20-expressing cells has not been found to cause significant damage to the patient, known as severe toxicity. CD20 cell surface expression persists in the majority of patients who have progressed after treatment with a CD20 monoclonal antibody. Because of its centrality to disease progression, lack of associated toxicities and persistence after treatment failure, Molecular chose targeting of CD20 for Molecular’s lead ETB program. Molecular used a similar rationale in the selection of Molecular’s current pipeline, including ETBs targeting CD38 and HER2, which are targets central to disease outcome that persist after a given modality has failed.

•

Molecular’s ETB platform allows Molecular to rapidly identify ETBs to targets and select patients in the Phase I clinical trials that phenotypically match that ETB program. Molecular can screen a library of single chain variable fragments, or scFvs, expressed in Molecular’s ETB scaffold to a given target in six to eight weeks. The pharmacokinetic and ADME profile of these compounds are similar and relatively predictive in humans based on animal models. Once the lead is selected and IND-enabling studies are completed, Molecular can enrich a Phase I trial with only patients expressing the target of the ETB. In these Phase I trials, Molecular can get a faster read on safety as well as efficacy than is possible in many drug development programs. Molecular’s current Phase I trial with MT-3724 established the PK, ADME, dose-limiting toxicity, or DLT, recommended Phase II dose and monotherapy efficacy after just 21 patients were treated.

Molecular’s goal is to bring the right ETBs to the right patients to provide long-lasting benefits that ultimately improve patients’ lives. To achieve its goal, Molecular is:

•

Implementing development strategies that capitalize on the differentiated pharmacological features of Molecular’s ETB technology and the validated nature of the targets it has chosen. Molecular believes the target specificity of its ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their safety profiles will provide opportunities for the clinical development of these agents to address multiple cancer types. For example, Molecular is aggressively developing its lead product MT-3724 as a single agent therapy for relapsed and refractory diffuse large B-cell lymphoma, or DLBCL, patients and in combination with approved therapies in earlier stages of high-risk DLBCL. The targeting of CD20 with antibody therapeutics is known to confer clinical benefit in these settings. MT-3724’s differentiated mechanism of action, safety and pharmacological profiles targeting CD20 may provide an advantage over other modalities. Given the unique mechanism of direct cell-kill, via ribosome inactivation, Molecular believes there is the potential for combination or sequential drug strategies that may be unique to its ETB drug candidates. Further, although the safety data for MT-3724 is still preliminary, Molecular believes the different PK and ADME profiles of its ETBs may allow them to be more appropriate therapies for certain patient populations, particularly those who are unable to tolerate intensive chemotherapy as primary or conditioning therapy. Molecular believes all of these attributes will enable Molecular to pursue development strategies not feasible with other therapeutic approaches.

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Efficiently building a broad pipeline of ETB therapeutics targeting defined patient populations through the use of Molecular’s research and design platform. Molecular believes its research and design platform is an efficient and productive discovery and development engine that can identify new targets across multiple cell types with the aim of creating a portfolio of novel, targeted ETBs. By selecting tumor targets best suited to ETB biology, Molecular can prioritize indications, including potential niche indications and/or niche subsets of indications. Molecular believes this will enable Molecular to build a clinical population of patients who may be more likely to respond to its therapies, allowing Molecular to potentially shorten development timelines and lower associated costs.

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Maximizing the value of Molecular’s early pipeline through the continual improvement of Molecular’s technology. Since the founding of the company, Molecular has made substantial progress in improving its ETB technology. Molecular’s lead compound, MT-3724, is a first-generation ETB utilizing a minimally altered SLTA and a first-generation fusion between the SLTA and the antibody domains. Molecular’s second-generation ETBs utilize a proprietary SLTA that has been heavily modified to dramatically reduce innate and adaptive immunogenicity. In addition, the second-generation compounds utilize a new approach for the genetic fusion of the SLTA and antibody domain that enhances the potency of Molecular’s ETBs. Molecular has now created a third generation of ETBs that retain the properties of the second generation but add the ability to deliver foreign class I antigens into target cells for expression in complex with MHC class I molecules on the target cell’s surface. Molecular has shown preclinically that certain foreign antigens can be functionally recognized by human T-cells and believes this represents a differentiated approach to immuno-oncology.

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Building a fully integrated discovery-to-commercial oncology company focused on compounds with unique and differentiated biology. Molecular believes that differentiated mechanisms of action are crucial for improving outcomes in oncology. Molecular has created a robust translational platform that Molecular believes allows it to create a sustainable, novel pipeline of ETBs with differentiated mechanisms of tumor destruction, relatively predictable PK and ADME, and scalable and economical manufacturing. If MT-3724, MT-4019, MT-5111 or any future product candidates Molecular may develop are approved, Molecular will consider commercializing them itself in select markets.

Molecular’s Engineered Toxin Body (ETB) Platform Technology

Although chemotherapy remains the cornerstone of treatment for most cancers, the advent of new and targeted classes of therapies has dramatically changed outcomes in the treatment of disease. The advent of monoclonal antibodies, signal transduction inhibitors and, most recently, immune-oncologics have provided substantial clinical benefit in both the relapsed and refractory setting and in combination in earlier lines of therapy. Molecular believes that ETBs can represent a new class of targeted agents with differentiated biology that are well-positioned to potentially improve outcomes in cancer patients.

ETBs appear to induce the internalization of non- or poorly-internalizing targets, have a differentiated mechanism of action (enzymatic and irreversible ribosome inactivation), have relatively predictable PK and ADME profiles and can be readily manufactured to GMP standards. Molecular’s research and design platform allows for the rapid (six to eight weeks) in vitro selection of a lead ETB to a given target based on affinity and specificity, potency and expression. Lead selection is confirmed through the use of animal models to verify PK, ADME and potency. Molecular’s first generation ETB is represented by MT-3724. Molecular’s first generation ETBs possess potent direct cell killing effects via a differentiated mechanism of action, can force receptor internalization, but do not use a de-immunized scaffold. Because MT-3724 is being developed for treating B-cell malignancies, where patients are typically immuno-compromised, Molecular did not believe de-immunization was critical in most patients; this hypothesis has been supported by clinical data in DLBCL patients.

Molecular’s second-generation ETBs have higher potency than its first-generation ETBs and possess a de-immunized scaffold that elicits significantly reduced innate and adaptive immunogenic responses as demonstrated in Molecular’s preclinical and animal studies (presented at the 2017 American Association for Cancer Research, or AACR, Annual Meeting). With Molecular’s third-generation ETBs, Molecular has now begun to explore a unique approach to immuno-oncology, which is referred to herein as “Antigen Seeding.” Molecular is currently building out animal models to further validate and screen ETB candidates support this approach.

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Molecular believes that its proprietary ETB technology platform represents a differentiated approach in oncology. ETBs possess the targeting specificity of antibody-based therapeutic approaches but deliver highly potent payloads that disrupt protein synthesis, a fundamental function of a cancer cell, in a manner not subject to traditional chemotherapy resistance mechanisms or target internalization limitations, as with ADCs. Molecular also is seeking to exploit the ETB’s ability to force internalization against receptors that do not normally internalize to expand the universe of potential targets subject to pharmaceutical treatments. MT-3724 highlights this capability and approach. MT-3724 targets CD20, which is a canonical non-internalizing receptor not susceptible to traditional chemo-based ADC approaches. Also as described earlier, ETBs are easily manufactured to GMP standards and do not require intensive logistical and manufacturing infrastructure to support their manufacture and distribution.

Novel mechanisms of action are needed in oncology treatment, and Molecular believes that differentiated mechanisms of action that are innate to the ETB platform technology puts its ETBs into a distinct class of biologic therapies that may offer unique benefits over existing treatment modalities.

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ETB Product Pipeline

Molecular is developing a pipeline of ETBs that Molecular believes will provide a meaningful and long-lasting benefit to cancer patients. Molecular plans to develop each of these as single agents and/or in combination with other therapies, as applicable. The following table depicts Molecular’s current pipeline:

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MT-3724—ETB Targeting CD20

Overview

CD20 is expressed on 90% of B-cell non-Hodgkin’s lymphoma, or NHL, cells and is a non-internalizing receptor. Rituxan (rituximab), an antibody to CD20, is approved for treatment of NHL in both the front and second-line settings. However, Rituxan has limited direct cell-kill effects against CD20-expressing cells. Instead, it works through indirect methods of recruiting immune responses to CD20-expressing cells through antibody dependent cell-mediated cytotoxicity, or ADCC, and/or complement dependent cytotoxicity, or CDC. Rituxan’s indirect cell-kill mechanism’s reliance on a favorable tumor microenvironment for immune stimulation is problematic because it allows multiple points where resistance can emerge. Therefore, direct cell-kill approaches that target CD20-expressing lymphomas are attractive. Two such agents are currently approved, the radioisotope-conjugated antibodies Bexxar, developed by GlaxoSmithKline, and Zevalin, developed by IDEC Pharmaceuticals (now part of Biogen), both of which use ionizing radiation to induce direct cell-kill without internalization being necessary.

These radioisotope conjugated antibodies are more effective than naked anti-CD20 antibody approaches such as Rituxan and HuMax-CD20 in the relapsed or refractory indolent NHL setting because they are far less dependent on the physiology of the tumor. However, despite their favorable efficacy profile, Bexxar and Zevalin are considered commercial disappointments and have not been widely adopted by oncologists primarily due to the constraints associated with the administration of nuclear medicines. Radioimmunotherapies are difficult to administer, with few institutions licensed for nuclear medicine. Because of these factors, the combined use of Bexxar and Zevalin accounted for only 4% of all administered second-line therapies for indolent NHL patients worldwide (seven major markets) despite superior clinical data in this setting. Molecular believes this provides a significant opportunity for a CD20-targeting therapy, such as MT-3724, that directly kills cells without the use of radioisotopes, preferably through a mechanism of action of cell kill that is also not subject to cross-resistance with chemotherapy or antibody approaches.

MT-3724 is a first-generation ETB specific to the B-cell marker CD20 protein. Molecular developed MT-3724 to provide a non-radioactive means of direct cell-kill targeted to CD20 for the treatment of NHL. The differentiated mechanism of action of MT-3724 involves binding to the surface protein CD20, forcing internalization into the target cell, retrograde transport to the cytosol and subsequent enzymatic and permanent ribosome-inactivation. Molecular is currently conducting a Phase I study of MT-3724 in patients with relapsed/refractory NHL.

Preclinical Overview

MT-3724 is a fusion protein which is comprised of the variable regions of the heavy (VH) and light chains (VL) of an anti-CD20 antibody connected with a short linker peptide (Figure 1) that make up a single-chain variable fragment, or scFv. This binding domain is genetically fused to a proprietarily engineered form of SLTA. Because MT-3724 lacks the fragment crystallizable, or Fc, portion of an intact antibody, MT-3724 does not rely on host antibody-dependent cellular toxicity, or ADCC, complement-dependent cytotoxicity, or CDC, or complement-mediated lysis to induce cell death. Naked antibody therapies rely on the induction of ADCC/CDC as the primary mechanisms of indirect cell-kill. Thus, Molecular believes MT-3724 may avoid the mechanisms of lymphoma cell resistance identified with the currently available anti-CD20 antibodies.

The three key biological properties of MT-3724 that reflect the differentiated biology of ETBs include:

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forced internalization against CD20, a receptor that does not normally internalize;

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self-routing through the cell to the cytosol; and

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irreversible and enzymatic inactivation of target cell ribosomes.

Figure 1. MT-3724 drug product

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Molecular conducted a study to evaluate the binding affinity and selectivity of MT-3724 to CD20+ cells, which demonstrated that MT-3724 bound to CD20+ expressing cell lines with specificity. MT-3724 gains entry into target cells through CD20-dependent binding. The binding of MT-3724 to CD20 is a critical step in cellular cytotoxicity induced by MT-3724.

In Vivo Results

MT-3724 has demonstrated potent and specific activity against a wide panel of CD20 expressing cancer cell lines, including Rituxan refractory patient samples. In addition to in vitro activity, Molecular has evaluated MT-3724 in a series of preclinical efficacy models that show its potent activity in destroying CD20 expressing human tumors. MT-3724 was generally well tolerated in these animal models. In one model, tumor responses were measured on Days 5, 10, 15 and 20 by bioluminescent imaging of Raji-luc tumors. Treatment with MT-3724 was tolerated and resulted in a statistically significant survival advantage in this model as shown in Figure 2:

Figure 2. Disseminated Raji-Luc Imaging

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Molecular performed a study to determine the therapeutic potential of MT-3724 to inhibit the growth of CD20-expressing human lymphoma cells in a subcutaneous implant model in athymic nude mice. Molecular observed a significant anti-tumor response in MT-3724 treated mice. Specifically, Molecular concluded that administration of MT-3724 at both 2 mg/kg/dose and 4 mg/kg/dose demonstrated cytotoxic activity against human lymphoma cells in this xenograft tumor model, as shown in Figure 3. Treatment with MT-3724 was generally well tolerated in the animals.

Figure 3. Subcutaneous Raji Xenograft Tumor Volumes

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Clinical Overview

MT-3724 is being developed for the treatment of patients with relapsed or refractory NHL who have relapsed following response to one or more anti-CD20 antibody therapies with or without other front-line therapies and for whom higher priority approved therapies (biologic, chemotherapeutic or stem cell transplantation) are not an

option. The primary objectives of the multicenter Phase I clinical trial of MT-3724 were to establish the maximum tolerated dose, or MTD, and an appropriate dose for Phase II clinical trials. The secondary objectives of the Phase I clinical trial were to assess the safety, tolerability and pharmacokinetic profile of MT-3724 after intravenous dosing as well as to assess any biological and clinical activity. This Phase I clinical trial was not designed to show statistical significance of the study endpoints.

Molecular initially filed an IND application with the FDA on July 31, 2014, and Molecular received the notification from the FDA that it could proceed with the Phase I trial on August 29, 2014. The Phase I trial was a multi-center, open-label, multiple-dose Phase I/Ib, dose-escalation study of MT-3724 in subjects with relapsed, refractory B-cell NHL or chronic lymphocytic leukemia, or CLL. A total of 21 patients were treated with MT-3724 with doses ranging from 5 to 100 mcg/kg dose. Patients were dosed on a 3 times per week schedule over two weeks (6 doses) with a two-week hiatus for the first cycle as mandated by the FDA. Subsequent cycles were dosed over two weeks with a one-week hiatus. Originally, up to five cycles of treatment were allowed per protocol. This was subsequently amended to allow for extended dosing beyond five cycles.

Twenty-one patients were treated with escalating doses of MT-3724 starting at the 5 mcg/kg dose level. Nearly all patients experienced at least one adverse event, with peripheral edema, diarrhea, myalgia, cough, fatigue, constipation, nausea, anemia, stomatitis, pyrexia, dizziness, headache, insomnia, dyspnea, being the more commonly reported adverse events. During the study, there were no treatment-related deaths.

The first two patients treated in the 100 mcg/kg/dose cohort developed signs and symptoms of a systemic inflammatory response (a constellation of adverse events including a grade 2 decrease in serum albumin levels, which together were consistent with capillary leak syndrome) in the first cycle of treatment. Upon thorough evaluation of each case, the Data Monitoring Committee, or DMC, deemed the capillary leak syndrome the DLT and determined that the 100 mcg/kg/dose had exceeded the MTD and the cohort was closed to further enrollment. The symptoms related to the DLT were non-life threatening and resolved upon cessation of dosing MT-3724. Six patients were dosed at a reduced dose level of 75 mcg/kg cohort with no DLTs reported. The recommended Phase II dose will be 75 mcg/kg.

To date, 31 SAEs have been reported. Most these events were attributed to exacerbation of a pre-existing condition or disease progression. Both subjects in the 100 mcg/kg/dose cohort were withdrawn in cycle 1 for SAEs which the investigator and DMC assessed as DLTs and determined that the MTD had been exceeded.

Molecular has observed promising signals of efficacy for MT-3724 in treating non-Hodgkin’s lymphoma. Patients in the Phase I trial were of older age (median = 67) and heavily pre-treated with a median number of prior therapies of four. Those patients with £ four prior therapies (n=5) were generally chemo-intolerant patients who could not sustain multiple lines of chemo-based regiments. The majority of patients were of the DLBCL subtype (n=16). Of the 14 DLBCL patients who received at least one cycle of MT-3724, eight patients entered the trial with low levels of serum anti-CD20 antibody while six patients had high levels of anti-CD20 antibody. As reported in Molecular’s presentation to the 2016 American Society of Hematology Annual Meeting, or the 2016 ASH Meeting, patients with high anti-CD20 antibody did not respond to MT-3724, presumably due to target inaccessibility. In the eight DLBCL patients with low CD20 antibody, the observed objective response rate, or ORR was 25% (2/8) including a partial response, or PR, and a complete metabolic response, or CMR. Molecular observed clinical responses starting at the lowest dose level of 5 mcg/kg as shown in Figure 4. The patient who achieved a CMR was eligible for and received an allogeneic stem cell transplant, or SCT. Three patients had stable disease, or SD, with tumor reductions of 19% (10 mcg/kg), 48% (75 mcg/kg), and 49% (100 mcg/kg), respectively. The patient at 100 mcg/kg with 49% tumor reduction had received only a single dose of MT-3724 at the time of measurement. The remaining three patients had progressive disease, or PD. Notably, three of the eight DLBCL patients received fewer than two cycles of MT-3724 due to early withdrawal from the study (including the two patients at the DLT dose of 100 mcg/kg). Lower levels of anti-drug antibodies, or ADAs, were observed among DLBCL patients and did not appear to neutralize the efficacy of MT-3724 in patients.

Figure 4. PET images for DLBCL patient in the 5 mcg/kg dose cohort

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Based on the clinical effect observed among DLBCL patients, Molecular has opened up an expansion study as part of the Phase I trial to further explore the potential of MT-3724 in DLBCL. Molecular expects to enroll up to nine additional DLBCL patients at the 75 mcg/kg dose level. Molecular expects to start reporting on this expansion study in early 2018. Furthermore, Molecular is planning to develop MT-3724 in combination with chemotherapy-based standards of care for high-risk, treatment-naïve DLBCL patients. A patient is considered to be treatment naive if they have never undergone treatment for DLBCL. Although treatment with the CD20 antibody Rituxan in combination with chemotherapy remains the standard of care treatment with curative intent for all treatment-naïve DLBCL patients, the presence of certain prognostic markers is associated with relapse and rapid disease progression. Molecular plans to combine MT-3724 with the standard of care for these high-risk patients to potentially improve overall survival and cure rates in this disease. Molecular plans on initiating its Phase II trials in treatment-naïve DLBCL patients in the second half of 2017.

Recent Presentations

MT-3724 AACR presentation: In April 2017, Molecular presented preclinical data for Molecular’s MT-3724 lead compound at the AACR annual conference. MT-3724 is a first-generation compound and, as such, is not de-immunized. Nevertheless, to date, Molecular has not seen a high level of neutralizing antibodies in patients treated with MT-3724, likely because of the nature of their disease (B-cell malignancy) and their prior therapies (B-cell depleting agents). The MT-3724 presentation at AACR demonstrated the reduction in anti-drug antibodies, or ADAs, seen when MT-3724 was co-administered with sirolimus in both murine and non-human primate, or NHP, models. These data may be useful in guiding clinical development of MT-3724 if Molecular does begin to see significant levels of ADAs to patients treated with MT-3724. Additionally, researchers at MD Anderson Cancer Center presented preclinical data on MT-3724 potency against mantle cell lymphoma samples. Researchers demonstrated a substantial survival advantage in a xenograft model using a patient-derived mantle cell lymphoma.

MT-4019—ETB Targeting CD38

Overview

CD38 is a single-chain type II transmembrane glycoprotein that is expressed by a variety of hematologic cells in an activation- and differentiation-dependent manner. Its cellular functions are involved in the regulation of cell proliferation and survival. CD38 is expressed at high rates on patient myeloma samples, making it an important marker and potential target in the development of targeted biologics.

Daratumumab (Genmab/Johnson and Johnson) received FDA approval in 2015. Daratumumab is a monoclonal antibody that binds CD38 on multiple myeloma cells and induces cell death indirectly. A careful analysis of patients treated with daratumumab in the Phase II pivotal trial for approval in fourth-line myeloma patients reveals that CD38 expression persists after patients have progressed on daratumumab and that the myeloma cells of patients who relapsed after daratumumab treatment showed an increase in cell surface receptors (CD55 and CD59) that inhibit daratumumab’s ability to recruit an immune response to the myeloma cells (Nijhof et al., 2016). Persistence of a surface marker central to disease strongly suggests that a different modality targeting that surface marker and that is not cross-resistant to antibody therapy may provide substantial clinical benefit in myeloma.

Despite cell specific expression, an antibody-drug conjugate, or ADC, approach to CD38 has not been developed, likely because CD38 does not efficiently internalize, thereby limiting the amount of drug that could be delivered to myeloma cell. Because SLTA can force its own internalization and enzymatically inhibit ribosome function, Molecular theorized that the lack of internalization seen with CD38 might not prevent the engineering of a potent and specific ETB targeted to CD38.

MT-4019 is Molecular’s most advanced second-generation ETB and specifically targets CD38. The compound was evaluated in many of the same preclinical assays as daratumumab. Daratumumab (trade name Darzalex^®) is an anti-cancer drug originally developed by Genmab. Based on published daratumumab xenograft data, MT-4019 appears to have more potent direct cell-kill activity and more rapid and pronounced activity when tested in the identical xenograft model. However, the mechanism of action of MT-4019 is wholly different than daratumumab, and Molecular believes that MT-4019 may be active in CD38+ myeloma patients that have failed treatment with an anti-CD38 antibody.

The proposed development plan for MT-4019 is modeled on that of daratumumab. After a robust response rate in its Phase I trial, daratumumab was granted Breakthrough Therapy Designation, and its expanded Phase II trial (N=106) was considered sufficient for registration. If similar efficacy is seen with MT-4019, Molecular believes its CPRIT grant funding dedicated to this program may be sufficient to advance MT-4019 through a pivotal trial.

Preclinical Data with MT-4019

MT-4019 Structure

MT-4019 utilizes Molecular’s second-generation scaffold in which the fusion of the scFv to the SLTA has been optimized and in which the SLTA portion of the ETB has been de-immunized. MT-4019 has high affinity for the CD38 receptor and potent and specific cell-kill activity against CD38-expressing cells.

Figure 5. MT-4019 Drug Product

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De- immunized SLTA scaffold

The host immune response to bacterial proteins used in the treatment of solid tumors has historically prevented prolonged dosing and limited the utility of immunotoxins as a class of molecules. There has been much greater success with immunotoxins in hematological malignancies, as patients tend to be immunosuppressed due both to the nature of their disease and the drugs used in treatment (Kreitman et al., 2006). Multiple myeloma patients show a decreased immune response to bacterial proteins (Jacobson, et al., 1986), and Molecular has further reduced the likelihood of neutralizing antibodies by using its proprietary de-immunized SLTA, as shown in Molecular’s MT-4019 presentation at the 2017 AACR Annual Meeting.

MT-4019 Binding Specificity

MT-4019 showed high-affinity binding to recombinant CD38 protein and to the CD38+ myeloma H929 cell line. MT-4019 shows no binding to a non-specific protein.

MT-4019 In Vitro Activity

MT-4019 shows extremely potent and specific cell-kill activity against cells that express CD38. MT-4019 was tested for cell-kill activity on H929 and HDLM-2 cells, two commonly used cell lines that are CD38+ and CD38-, respectively. The IC₅₀ (the concentration at which 50% of cells are killed) for MT-4019 was calculated as 16 picomolar (pM) against H929 cells, but Molecular did not observe any measurable cell-kill with MT-4019 against CD38-HDLM-2 cells. A full summary of cell kill is presented in Table 1. There is a relationship between cell-kill potency and level of CD38 expression.

Table 1. Summary of Cell-Kill Activity for MT-4019


Cell Line	Type	CD38 Expression Level	CD_{50 ( I)}
H929	Multiple myeloma	+++	16 pM
Daudi	B-lymphoblast	+++	58 pM
ST486	B-lymphoblast	+++	41 pM
MOLP-8	Multiple myeloma	++	228 pM
BC3	B-lymphocyte	++	180 pM
IM-9	Multiple myeloma	—	>>100 nM
HDLM-2	B-lymphoblast	—	>> 100 nM
Ll236	B-lymphoblast	—	>> 100 nM

(1)	pM = picomolar; nM = nanomolar

The potency of MT-4019 compares favorably with that reported for daratumumab, but direct comparisons are difficult as daratumumab requires the addition of effector cells for cytotoxicity. In an assay measuring the potency of CDC-mediated cell-kill of daratumumab against Daudi cells, the CD50 was reported to be approximately 800pM compared to 58pM with MT-4019 (de Weers et al., 2011). What is likely to be more important than the improved potency seen with MT-4019, though, is its wholly distinct mechanism of action. In patients who have progressed after CD38 treatment but still retain CD38 expression, the direct mechanism of cell kill seen with MT-4019 may be relevant.

MT-4019 In Vivo Activity: MTD Study

MT-4019 and MT-3724 were tested in CB17 SCID mice to determine the maximal tolerated dose, or MTD, of the drug. Mice were dosed via IP injection with either MT-3724 at 1 or 2mg/kg or MT-4019 at 1, 2, or 4 mg/kg. Dosing was three times weekly for two weeks, and cageside observations and body weight measurements were conducted. The doses of MT-4019 were selected based on experience with MT-3724.

The MTD for MT-4019 was not identified within the dose range tested. No deaths were observed during dosing or the recovery period. Average body weight loss appeared dose-dependent with the highest loss for MT-4019 occurring in the 4 mg/kg arm, but even in this arm mean body weight loss was still no more than 5% of baseline (Figure 6). By comparison, at the 2 mg/kg dose for MT-3724, mean body weight loss was 10%.

Figure 6. Murine Safety Study

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MT-4019 In Vivo Activity

Molecular replicated the Daudi cell xenograft model used with daratumumab (de Weers, et al.) with MT-4019 to confirm in vivo activity. Molecular implanted luciferase-expressing Daudi cells (2.5 X 106 Daudi cells as in the daratumumab study) in SCID mice and administered varying doses of MT-4019. Due to the smaller size of the younger age mice used in the MT-4019 study (5-6 weeks), compared to the daratumumab study (8-10 weeks), the tumor burden per mass was larger for mice in the MT-4019 study. There was variability in tumor enlargement between the daratumumab and MT-4019 models. As measured by the integrated light intensity, tumors were significantly larger at peak in the MT-4019 model than in the daratumumab model (1.5X10¹¹ photons per second in control animals for MT-4019 vs. up to 1.0X107 integrated light intensity in control animals for daratumumab). Because of the much shorter half-life of MT-4019, six administrations were given over two weeks as opposed to one administration of daratumumab.

By Day 40, a statistically significant difference was seen between mice treated with the vehicle control and mice treated with MT-4019 (Figure 7A). Tumor imaging clearly shows the difference between the treated and untreated mice by day 22 (Figure 7B).

Figure 7. MT-4019 Daudi-luc Disseminated Xenograft

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Figure 7. SCID mice were injected intraveneously with 2.5 X 106 Daudi cells expressing luciferase. After 1hr, the first dose of MT-4019 or Vehicle was administered intraperitoneally. In total, six doses of MT-4019 were administered over two weeks on a Monday-Wednesday-Friday schedule. Total BLI was measured. Representative imaging for mice treated with Vehicle or 0.5 mg/Kg of MT-4019 at Day 22 are shown in Figure 7B.

MT-4019 Combination Activity

MT-4019 was combined in vitro with pomalidomide, an immunomodulatory imide drug, or IMiD, and approved standard of care for refractory multiple myeloma. H929 cells were pre-treated for either 24 or 72 hours with pomalidomide and then treated with MT-4019. An isobologram was calculated to determine whether there was a synergistic effect between the two agents. Strong synergy was demonstrated (Figure 8) which is likely due to both

the differences in mechanism of action between the agents as well as the target for MT-4019 as pomalidomide has been shown to increase the expression of CD38 (Boxhammer, et al., 2015). The differences in mechanism of cell-kill and the effect of pomalidomide on CD38 expression may make the combination of these agents worth exploring in the clinic.

Figure 8. Combination Study with Pomalidomide

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Clinical and Regulatory Plan

Molecular has begun to pursue GMP manufacturing for MT-4019. Molecular has substantial expertise with the GMP manufacture of ETBs based on its successful production of MT-3724. Molecular has a non-GMP facility in-house and has conducted seven GMP campaigns with MT-3724. From its experience with MT-3724,

Molecular believes it can transfer expression of MT-4019 and complete manufacturing for GLP toxicity studies within six months. Based on expression and process improvements, MT-4019 is expected to have similar or better yields than MT-3724.

Molecular expects to initiate IND-enabling studies to fully characterize MT-4019 based on toxicology and pharmacology in 2017. Molecular expect to initiate a Phase I clinical trial for MT-4019 in 2018. The Phase I trial will be conducted as a single-arm, open-label, multi-center, dose escalation study in patients with CD38+ relapsed/refractory multiple myeloma. Molecular was awarded a $15.2 million grant from CPRIT for the development of MT-4019. Molecular expects this grant to cover the cost of IND-enabling studies and the Phase I and Phase II trials for MT-4019.

Recent Presentations

MT-4019 AACR presentation. Molecular presented data on MT-4019, Molecular’s second-generation ETB targeting CD38, at the AACR Meeting in April 2017. The CD38 receptor has been shown to persist in patients after they stop responding to daratumumab, which is a monoclonal antibody that works with a person’s immune system. Monoclonal antibodies attach themselves to multiple myeloma cells and directly kill them and/or signal to the immune system to destroy them. CD38 is a poorly internalizing receptor, rendering it unsuitable for targeting with standard antibody-drug conjugates, or ADCs. Unlike chemotherapy, ADCs are intended to target and kill only the cancer cells and spare healthy cells. ADCs are complex molecules composed of an antibody linked to a biologically active cytotoxic (anticancer) payload or drug. Molecular believes CD38 is an excellent target for Molecular’s ETB technology. After a robust screening process, Molecular identified MT-4019 as Molecular’s lead ETB to CD38. MT-4019 utilizes Molecular’s second-generation ETB scaffold and, in the AACR presentation, Molecular demonstrated potent cell-kill activity against CD38-expressing tumor cells with 50% inhibitory concentrations (IC50) achieved at picomolar concentrations of the drug. MT-4019 also demonstrated reduced innate and adaptive immunity in murine and NHP models. Molecular believes this level of decreased immunogenicity has not been previously reported. Molecular anticipates moving MT-4019 into clinical trials in 2018.

Next Generation ETB Targets

Molecular has launched additional programs against the key targets HER2 and PD-L1. Molecular selected HER2 as a target because of its validated role in breast cancer. Targeting HER2 with different modalities (antibody, small molecule and ADC) has shown clinical benefit, and the target is known to persist after a given modality has failed. The clinical benefit seen with Kadcyla (an ADC to HER2) strongly suggests that a direct cell-kill approach to HER2 can be well tolerated in patients. Molecular believes that attacking HER2-expressing tumor cells with a differentiated mechanism of destruction may provide meaningful clinical benefits, even in patients whose disease has progressed on other HER2-targeted modalities. Molecular’s lead HER2 ETB, MT-5111, has shown potent picomolar activity in Kadcyla insensitive HER2+ cell lines and has shown additive or synergistic benefit in vitro with Kadcyla in HER2+ cell lines.

In the case of Molecular’s ETB program targeting the PD-L1 receptor, Molecular has focused on targeting PD-L1 with a direct cell-kill approach rather than using it to induce an immune response. PD-L1 is a focal point for immuno-oncology checkpoint antibodies; its expression on tumors is known to downregulate CD8 T-cell activity against tumor cells. Molecular believes that targeting PD-L1 in this manner may overcome resistance to checkpoint inhibitors dependent on T-cell infiltration and changes in the tumor microenvironment.

ETB Research & Development Partnerships

Takeda Pharmaceuticals

In October 2016, Molecular entered into a collaboration and option agreement with Takeda to discover and develop CD38-targeting ETBs, which includes MT-4019 for evaluation by Takeda. Under the terms of the agreement, Molecular is responsible for providing to Takeda (i) new ETBs generated using Takeda’s proprietary fully human antibodies targeting CD38 and (ii) MT-4019 for in vitro and in vivo pharmacological and anti-tumor efficacy evaluations. Molecular granted Takeda an exclusive option to negotiate and obtain an exclusive worldwide license to develop and commercialize any ETB that may result from this collaboration, including MT-4019. Molecular is entitled to receive up to $2.0 million in technology access fees and cost reimbursement associated with Molecular’s performance and completion of Molecular’s obligations under the agreement. To date, Molecular has received $1.0 million under this agreement.

In June 2017, Molecular entered into a Multi-Target Collaboration and License Agreement with Takeda in which Molecular will collaborate with Takeda to identify, generate and evaluate engineered toxin bodies, or ETBs, against certain targets designated by Takeda. Takeda will designate certain targets of interest as the focus of the research. Takeda will provide to Molecular targeting moieties against the designated targets. Molecular will create and characterize ETBs against those targets and provide them to Takeda for further evaluation. Each party grants to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and Molecular agrees to work exclusively with Takeda with respect to the designated targets.

Under the agreement, Takeda has an option to acquire an exclusive license under Molecular’s intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. Upon exercise of the option, Takeda is obliged to use commercially reasonable efforts to develop and obtain regulatory approval of any licensed ETBs in major market countries, and thereafter to commercialize licensed ETBs in those countries. Molecular is obligated to manufacture ETBs to support research and clinical development through Phase I clinical trials, provided that Takeda can assume manufacturing responsibility at any time.

Molecular will receive an upfront fee and may receive net milestone payments of $25.0 million in aggregate through the exercise of the option to license ETBs. Post option exercise, Molecular is entitled to receive up to approximately $545.0 million in additional milestone payments through preclinical and clinical development and commercialization. Molecular is also entitled to tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions.

The agreement will expire on the expiration of the option period for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a the licensed ETB. The agreement may be sooner terminated by Takeda for convenience or upon a Molecular change of control, or by either party for an uncured material breach of the agreement.

Other Research & Development Collaborations

Henry M. Jackson Foundation

In July 2014, Molecular entered into a non-exclusive license agreement for certain biological materials for use in conjunction with the development of Molecular’s lead clinical stage ETB MT-3724. Under the terms of the agreement, Molecular is required to pay the Henry M. Jackson Foundation aggregate payments totaling $110,000 with respect to this license.

Manufacturing

Molecular relies on third-party contract manufacturing organizations, known as CMOs, to manufacture and supply Molecular with GMP drug substance and drug product materials to support Molecular’s clinical trials and anticipate doing so for the foreseeable future. The manufacturing processes for MT-3724, MT-4019 and other preclinical ETB candidates have been developed by Molecular’s manufacturing staff. Once a process is developed and defined for an ETB, it is transferred to CMOs to scale-up and optimize for manufacturing that conforms to current GMP (“cGMP”) standards.

Molecular has established well-defined, cost efficient manufacturing under GMP, including bioanalytical, quality control and quality assurance, logistics, distribution and supply chain management. After manufacturing, Molecular’s ETB candidates are tested and released by Molecular’s analytical and quality systems staff in conjunction with some select contract research organizations, or CROs. The quality control organization performs a series of release assays designed to ensure that the product meets all applicable specifications. Molecular’s quality assurance staff also reviews manufacturing and quality control records prior to batch release in an effort to assure conformance with cGMP as mandated by the FDA and foreign regulatory agencies.

Molecular’s manufacturing staff is trained and routinely evaluated for conformance to rigorous manufacturing procedures and quality standards. This oversight is intended to ensure compliance with FDA and foreign regulations and to provide consistent ETB output. Molecular’s quality control and quality assurance staff is similarly trained and evaluated as part of Molecular’s effort to ensure consistency in the testing and release of the product, as well as consistency in materials, equipment and facilities.

For the purposes of internal research and support for Molecular’s ongoing collaborations, Molecular has small scale manufacturing capabilities that are sufficient to manufacture drug materials for preclinical research.

Intellectual Property Portfolio

Molecular seeks to protect proprietary rights to its platform technologies through a combination of patents and patent applications, trade secrets and know-how. Molecular’s platform technologies include ETBs directed to specific molecular targets, in which a Shiga toxin A subunit construct is linked to an immunoglobulin domains directed to the target, and their uses for treating cancer, killing cancer cells and selectively delivering payload molecules into a target cell. Molecular’s platform technologies also include various ETB scaffolds regardless of target, and the Shiga toxin components of ETBs, including improved Shiga toxin A subunit constructs having disruptions of B-cell epitopes and/or T-cell epitopes for reduced immunogenicity when used in ETB scaffolds.

To cover its proprietary technologies and its current pipeline of proprietary ETB products and related methods, such as methods of use, Molecular has filed patent applications representing 11 international patent families, together covering 72 pending regional and national applications worldwide, including 12 pending U.S. patent applications and 60 foreign patent applications currently pending in the regional European Patent Office and nine other jurisdictions outside of the U.S. (Australia, Canada, China, Hong Kong, Israel, India, Japan, South Korea and Mexico). Molecular also has provisional rights pending in seven U.S. provisional patent applications.

Molecular’s patent families covering ETBs and modified ETB scaffolds for the targeted killing of cancer cells or for the selective delivery of molecules into a target cell include 10 internationally filed patent families. Patent rights in these patent families, if granted, will expire without extension in 2034-2036. Molecular also has a patent family directed to the screening of large ETB libraries, in which patent rights, if granted, will expire without extension in 2035. With respect to its ETB pipeline, Molecular’s lead compound which targets CD20, MT-3724, and pharmaceutical compositions and uses of MT-3724, are covered by two international patent families. Patent rights in these patent families, if granted, will expire without extension in 2034 and 2036. Molecular’s current pipeline also includes ETBs which target CD38 (MT-4019) and HER2 (MT-5111), covered by at least one international patent family from which patent rights, if granted, will expire without extension in 2036.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products, such as MT-3724, MT-4019, and any future product candidates. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

U.S. drug development

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations and biologics under the FDCA, the Public Health Service Act, or PHSA, and their implementing regulations. Both drugs and biologics also are subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or post-market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on Molecular. MT-3724, MT-4019 and any ETB product candidates must be approved by the FDA through either a NDA or Biologics Licensing Application, BLA, process before they may be legally marketed in the United States. The process generally involves the following:

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Completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with GLP requirements;

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Submission to the FDA of an IND, which must become effective before human clinical trials may begin;

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Approval by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before a trial may be initiated at that site;

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Performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice requirements, or GCP, and other clinical trial-related requirements to establish the safety and efficacy of the investigational product for each proposed indication;

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Submission to the FDA of an NDA or BLA;

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A determination by the FDA within 60 days of its receipt of an NDA or BLA that the NDA or BLA is sufficiently complete to permit a substantial review, in which case the NDA or BLA is filed;

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Satisfactory completion of a FDA pre-approval inspection of the manufacturing facility or facilities where the drug or biologic will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug or biologic’s identity, strength, quality and purity;

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Potential FDA audit of the preclinical and/or clinical trial sites that generated the data in support of the NDA or BLA; and

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FDA review and approval of the NDA or BLA, including consideration of the views of an FDA advisory committee, if one was involved, prior to any commercial marketing or sale of the drug or biologic in the United States.

The preclinical testing, clinical trials and the approval process requires substantial time, effort and financial resources, and Molecular cannot be certain that any approvals for MT-3724, MT-4019 and any future product candidates will be granted on a timely basis, or at all. The data required to support an NDA or BLA are generated in two distinct developmental stages: preclinical and clinical. The preclinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which support subsequent clinical testing. The sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational new drug to humans, and must become effective before human clinical trials may begin.

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB at each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA or BLA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.

Preclinical Studies and IND

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of effects on reporduction

and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions and places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical trials

Clinical trials generally are conducted in three sequential phases, known as Phase I, Phase II and Phase III, which may overlap.

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Phase I clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug.

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Phase II clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified and a preliminary evaluation of efficacy is conducted.

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Phase III clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.

Post-approval trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase IV clinical trials as a condition of approval of an NDA or BLA.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug or biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies may perform additional animal studies and develop additional information about the chemistry and physical characteristics of the drug or biologic as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that MT-3724, MT-4019 and any future product candidates do not undergo unacceptable deterioration over their shelf life.

NDA/BLA and FDA Review Process

Following completion of the clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of an NDA or BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. In short, the NDA or BLA is a request for approval to market the drug or biologic for one or more specified indications and must contain proof of safety and efficacy for a drug or safety, purity and potency for a biologic. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of FDA. FDA approval of an NDA or BLA must be obtained before a drug or biologic may be marketed in the United States.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA or BLA must be accompanied by a user fee. FDA adjusts the PDUFA user fees on an annual basis. According to the FDA’s fee schedule, for fiscal year 2017, the user fee for an application requiring clinical data, such as an NDA or BLA, is $2,038,100. PDUFA also imposes an annual product fee for human drugs and biologics (approximately $97,750) and an annual establishment fee (approximately $0.51 million) on facilities used to manufacture prescription drugs and biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs or BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

The FDA reviews all submitted NDAs and BLAs before it accepts them for filing, or it may refuse to file the application and request additional information. The FDA must make a decision on accepting an NDA or BLA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA or BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months, from the filing date, in which to complete its initial review of a new molecular-entity (NME) or nonNME NDA or original BLA and respond to the applicant, and six months from the filing date of a NME NDA or original BLA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs, and the review process is often extended by FDA requests for additional information or clarification.

Before approving an NDA or BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. After the FDA evaluates an NDA or BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA or BLA identified by the FDA. The Complete Response Letter may require additional clinical data, including additional pivotal Phase III clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA or BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than Molecular interpret the same data.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety or providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication but that could be used off-label in the orphan indication.

Expedited Development and Review Programs

The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and biologics that meet certain criteria. Specifically, new drugs and biologics are eligible for fast track designation if they are intended to treat a serious or life threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor can request the FDA to designate the product for fast track status any time before receiving NDA or BLA approval, but ideally no later than the pre-NDA or pre-BLA meeting.

Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies.

The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review. A product may also be eligible for accelerated approval, if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the product.

Additionally, a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus intensive guidance from the FDA to ensure an efficient drug development program. Fast track designation, priority review, accelerated approval and breakthrough therapy designation do not change the standards for approval, but may expedite the development or approval process.

Pediatric Information

Under the Pediatric Research Equity Act, or PREA, an NDA or BLA or supplement to a NDA or BLA must contain data to assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers. The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FDCA to require that a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase II meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase III or Phase II/III study. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or other clinical development programs.

Post-marketing Requirements

Following approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping activities, reporting of adverse experiences, and complying with promotion and advertising requirements, which include restrictions on promoting approved drugs for unapproved uses or patient populations (known as “off-label use”). Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the drug or biologic, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA/BLA or NDA/BLA supplement, which may require additional data from preclinical studies or clinical trials.

The FDA may also place other conditions on approvals including the requirement for REMS to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the NDA or BLA must submit a proposed REMS. The FDA will not approve the NDA or BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing. FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. Molecular rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of Molecular’s products in accordance with cGMPs. These manufacturers must comply with cGMPs that require, among other things, quality control and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs or biologics are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure to conform to cGMPs, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA or BLA, including recall.

Companion Diagnostics and Complementary Diagnostics

Molecular believes that the success of Molecular’s product candidates may depend, in part, on the development and commercialization of either a companion diagnostic or complementary diagnostic. Companion diagnostics and complementary diagnostics can identify patients who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased risk for serious side effects as a result of treatment

with a particular therapeutic product; or monitor response to treatment with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion diagnostics and complementary diagnostics are regulated as medical devices by the FDA. The level of risk combined with available controls to mitigate risk determines whether a companion diagnostic device requires Premarket Approval Application, or PMA, approval or is cleared through the 510(k) premarket notification process. For a novel therapeutic product for which a companion diagnostic device is essential for the safe and effective use of the product, the companion diagnostic device should be developed and approved or 510(k)-cleared contemporaneously with the therapeutic. The use of the companion diagnostic device will be stipulated in the labeling of the therapeutic product.

Other Regulatory Matters

Manufacturing, sales, promotion and other activities following product approval may also be subject to regulation by other regulatory authorities in the United States in addition to the FDA, Depending on the nature of the product, those authorities may include the CMS, other divisions of the Department of Health and Human Services, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, OSHA, the Environmental Protection Agency and state and local governments.

For example, in the United States, sales and marketing must comply with state and federal fraud and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. In addition, the ACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes created by HIPAA. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws.

The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals or refusal to allow a firm to enter into supply contracts, including government contracts. Any action against Molecular for violation of these laws, even if Molecular successfully defend against it, could cause Molecular to incur significant legal expenses and divert Molecular’s management’s attention from the operation of Molecular’s business. Prohibitions or restrictions on sales or withdrawal of future products marketed by Molecular could materially affect Molecular’s business in an adverse way.

Changes in regulations, statutes or the interpretation of existing regulations could impact Molecular’s business in the future by requiring, for example: (i) changes to Molecular’s manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of Molecular’s products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of Molecular’s business.

U.S. Patent-term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of MT-3724, MT-4019 and any future product candidates, some of Molecular’s U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit restoration of the patent term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent-term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. PTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, Molecular may apply for restoration of patent term for Molecular’s currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of a NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for a NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

An abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product was created by the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the ACA. This amendment to the PHSA, in part, attempts to minimize duplicative testing. Biosimilarity, which requires that the biological product be highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there be no clinically meaningful differences between the product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the same clinical results as the reference product in any given patient and, for products administered multiple times to an individual, that the product and the reference product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation or switch. Complexities associated with the larger, and often more complex, structure of biological products as compared to small molecule drugs, as well as the processes by which such products are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.

A reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor.

Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing regulatory exclusivity periods. This six-month exclusivity, which attaches to both the twelve-year and four-year exclusivity periods for reference biologics, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial. Furthermore, a biological product seeking licensure as biosimilar to or interchangeable with a reference product indicated for a rare disease or condition and granted seven years of orphan drug exclusivity may not be licensed by the FDA for the protected orphan indication until after the expiration of the seven-year orphan drug exclusivity period or the 12-year reference product exclusivity, whichever is later.

European Union Drug Development

In the European Union, Molecular’s future products also may be subject to extensive regulatory requirements. As in the United States, drugs, which are referred to as medicinal products can be marketed only if a marketing authorization from the competent regulatory agencies has been obtained.

Similar to the United States, the various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated, a clinical trial application must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred. The EU clinical trials legislation currently is undergoing a transition process mainly aimed at harmonizing and streamlining clinical-trial authorization, simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their transparency.

European Union Drug Review and Approval

In the European Economic Area, or EEA, which is comprised of the 27 Member States of the European Union (including Norway and excluding Croatia), Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations.

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The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicines such as gene-therapy, somatic cell-therapy or tissue-engineered medicines and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU.

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National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e., in the RMS and the Member States Concerned).

Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

European Union New Chemical Entity Exclusivity

In the European Union, new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. The data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic application for eight years, after which generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those 10 years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are determined to bring a significant clinical benefit in comparison with currently approved therapies.

European Union Orphan Designation and Exclusivity

In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the European Union community (or where it is unlikely that the development of the medicine would generate sufficient return to justify the investment) and for which no satisfactory method of diagnosis, prevention or treatment has been authorized (or, if a method exists, the product would be a significant benefit to those affected).

In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following medicinal product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Rest of the World Regulation

For other countries outside of the European Union and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Additionally, the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If Molecular fail to comply with applicable foreign regulatory requirements, Molecular may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Reimbursement

Sales of Molecular’s products will depend, in part, on the extent to which Molecular’s products will be covered by third-party payors, such as government health programs, commercial insurance and managed care organizations. In the United States no uniform policy of coverage and reimbursement for drug or biological products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of Molecular’s products will be made on a payor-by-payor basis. As a result, the coverage determination process is often a time-consuming and costly process that will require Molecular to provide scientific and clinical support for the use of Molecular’s products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

The United States government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. For example, the ACA contains provisions that may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Adoption of general controls and measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceutical drugs. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs from 15.1% of average manufacturer price, or AMP, to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits. Congress and President Trump have expressed their intention to repeal or repeal and replace the ACA. If that is done, many if not all of the provisions of the ACA may no longer apply to prescription drugs.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which Molecular receive marketing approval. However, any negotiated prices for Molecular’s products covered by a Part D prescription drug plan likely will be lower than the prices Molecular might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

For a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer. As of 2010, the ACA expanded the types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase.

As noted above, the marketability of any products for which Molecular receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. An increasing emphasis on cost containment measures in the United States has increased and Molecular expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which Molecular receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In addition, in most foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of Molecular’s products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.

Competition

Molecular competes directly with companies that focus on oncology as well as companies dedicating their resources to novel forms of cancer therapies. Molecular also faces competition from academic research institutions, governmental agencies and various other public and private research institutions. With the proliferation of new drugs and therapies into oncology, Molecular expects to face increasingly intense competition as new technologies become available. Any ETB candidates that Molecular successfully develops and commercializes will compete with existing therapies and new therapies that may become available in the future.

Many of Molecular’s competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than Molecular does. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of Molecular’s competitors. Smaller or early-stage companies also may prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with Molecular in recruiting and retaining top qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, Molecular’s programs.

The key competitive factors affecting the success of all of Molecular’s ETB candidates, if approved, are likely to be their efficacy, safety, dosing convenience, price, the effectiveness of companion diagnostics in guiding the use of related therapeutics, the level of generic competition and the availability of reimbursement from government and other third-party payors.

Molecular’s commercial opportunity could be reduced or eliminated if its competitors develop and commercialize products that are safer, more effective, less expensive, more convenient or easier to administer, or have fewer or less severe effects than any products that Molecular may develop. Molecular’s competitors also may obtain FDA, EMA or other regulatory approval for their products more rapidly than Molecular may obtain approval for its products, which could result in Molecular’s competitors establishing a strong market position before Molecular is able to enter the market. Even if Molecular’s ETB candidates achieve marketing approval, they may be priced at a significant premium over competitive products if any have been approved by then.

In addition to currently marketed therapies, there are also a number of products in late-stage clinical development directed to the same biological targets as Molecular’s programs, including antibodies, antibody drug conjugates and bi-specific antibodies.

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Approved antibody-based products targeting CD20 include rituximab (Genentech/Roche), ofatumumab (Novartis), obinutuzumab (Genentech/Roche) and ibritumomab tiuxetan (Spectrum Pharmaceuticals).

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Antibody-based products, including bi-specific antibodies, targeting CD20 in development include veltuzumab (Immunomedics), ocaratuzumab (Mentrik Biotech), REGN1979 (Regeneron Pharmaceuticals), RG7828 (Genentech/Roche), XmAb13676 (Novartis/Xencor) and CD3-CD20 Duobody (Genmab).

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The approved antibody-based product targeting CD38 is daratumumab (Janssen/Genmab).

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Antibody-based products, including bi-specific antibodies, targeting CD38 in development include MOR02 (Morphosys), isatuximab (Sanofi) and XmAb13551 (Amgen/Xencor)

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Approved antibody-based products, including antibody drug conjugates, targeting HER2 include trastuzumab, pertuzumab and trastuzumab emtansine (all from Genentech/Roche)

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Antibody-based products, including bi-specific antibodies, targeting HER2 in development include margetuximab (Macrogenics), MEDI4276 (AstraZeneca), MM-111 (Merrimack Pharmaceuticals), FS102 (Bristol-Myers Squibb/F-star) and MCLA-128 (Merus).

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Approved antibody-based products targeting PD-L1 include atezolizumab (Genentech/Roche) and avelumab (Merck KGaA/Pfizer)

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Antibody-based products targeting PD-L1 in development include durvalumab (AstraZeneca), LY3300054 (Lilly) and BMS-936559 (Bristol-Myers Squibb)

Employees

As of May 5, 2017, Molecular had 24 full-time employees. 9 of Molecular’s employees have Ph.D., PharmD or M.D. degrees, and 16 of Molecular’s employees are engaged in research and development activities. None of Molecular’s employees are subject to a collective bargaining agreement. Molecular believes that Molecular has good relations with Molecular’s employees.

Corporate Information

Molecular (formerly D5 Pharma, Inc., a Delaware corporation) was incorporated in Delaware on February 19, 2009. Its principal executive offices are at 9301 Amberglen Boulevard, Suite 100, Austin, Texas 78729, and its telephone number is (512) 869 1555.

Properties

Molecular currently subleases Molecular’s research and development and corporate offices in Austin, TX, occupying approximately 18,000 square feet. This sublease expires at the end of May 2017. In October 2016, Molecular entered into a five-year lease agreement for the Austin, TX space that will be effective June 2017 through May 2022 and includes an option to renew for one additional five-year period at Molecular’s discretion. In January 2017, Molecular entered into an amendment of the lease to add an additional 3,000 square feet, consisting mostly of research and development space. During March 2017, Molecular entered into a second amendment to the Austin, TX lease that allows for adding an additional 11,000 square feet. This amendment becomes effective automatically if and when Molecular receives at least $30.0 million in additional aggregate debt or equity funding, but excluding any CPRIT grant funds, on or before June 23, 2017. Molecular also has the right to waive this financing requirement at Molecular’s discretion. Upon the amendment becoming effective, the term of Molecular’s lease for the Austin, TX lease will extend to 72 months and expire May 2023.

Molecular also leases office facilities occupying approximately 4,600 square feet in Jersey City, NJ under a lease expiring in September 2019.

Molecular believes substantially all of Molecular’s property and equipment is in good condition and that Molecular has sufficient capacity to meet its current operational needs.

Legal Proceedings

Molecular is not a party to any material legal proceedings.

EX-99.2 5 d266142dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

RISK FACTORS

Risks Related to Ownership of Threshold Common Stock

Threshold may not be able to correctly estimate Threshold’s future operating expenses or Threshold’s operating expenses may exceed Threshold’s expectations, which could cause the ownership percentage retained by the Threshold stockholders in the combined company to be reduced.

Pursuant to the terms of the merger agreement, if Threshold’s net cash at the consummation of the merger is less than $12.5 million, the ownership percentage of Threshold’s stockholders, option holders and warrant holders in the combined company immediately following the consummation of the merger will be reduced. As of March 31, 2017, Threshold had cash and cash equivalents totaling $17.6 million. The cash, cash equivalents and marketable securities as of March 31, 2017 excludes a $2.0 million bridge loan to Molecular Templates in the form of a promissory note. However, certain contingent payments related to the merger, including severance and change of control payments payable to Threshold’s existing and former executive officers, will become due and payable in connection with the closing of the merger.

Threshold’s operating expenses and expenses associated with the merger and Threshold’s obligations thereunder may exceed Threshold’s estimates as a result of a variety of factors, many of which are outside of its control. These factors include:

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the time, resources and costs associated with the merger, including legal and accounting costs;

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the costs associated with complying with its obligations under the merger agreement; and

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the costs of any claims or liabilities related to the proposed merger.

If Threshold has not correctly estimated Threshold’s future operating expenses or Threshold’s operating expenses exceed Threshold’s expectations, Threshold may be below the $12.5 million level at the time of the merger’s closing, which would result in an adjustment to the exchange ratio in the merger agreement such that the ownership percentage retained by the Threshold’s stockholders in the combined company immediately following the merger may be reduced.

If Threshold fails to continue to meet all applicable NASDAQ Capital Market requirements and NASDAQ determines to delist the Threshold common stock, the delisting could adversely affect the market liquidity of the Threshold common stock and the market price of the Threshold common stock could decrease.

The Threshold common stock is listed on The NASDAQ Capital Market. In order to maintain Threshold’s listing, Threshold must meet minimum financial and other requirements, including requirements for a minimum amount of capital, a minimum price per share and continued business operations so that Threshold is not characterized as a “public shell company.” On November 11, 2016, Threshold received a notice from the staff, or the NASDAQ Staff, that, for the previous 30 consecutive business days, the closing bid price for the Threshold common stock was below the $1.00 per share minimum bid price requirement for continued listing on The NASDAQ Capital Market under NASDAQ Listing Rule 5550(a)(2), or the Bid Price Rule. In accordance with NASDAQ Listing Rule 5810(c)(3)(A), the Threshold had 180 calendar days, or until May 10, 2017, to regain compliance with the Bid Price Rule. To regain compliance with the Bid Price Rule, the closing bid price of the Threshold common stock must be at least $1.00 per share for a minimum of 10 consecutive business days at any time during this 180-day period. Threshold did not regain compliance with the rule by May 10, 2017, but became eligible for an additional 180 calendar day compliance period by meeting the continued listing requirement for market value of publicly held shares and all other applicable standards for initial listing on The NASDAQ Capital

Market, with the exception of the bid price requirement, and by providing written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. In connection with the merger, in March 2017, Threshold’s board of directors approved a reverse stock split of Threshold common stock, within a reverse split ratio range of between 1-for-5 and 1-for-15, inclusive, which would be contingent upon stockholder approval (Proposal No. 5) and subject to the approval by Threshold’s stockholders of the merger and the issuance of shares in the concurrent financing. However, if it appears to the NASDAQ Staff that Threshold will not be able to cure the deficiency, NASDAQ will notify Threshold that its common stock will be subject to delisting. In the event of such a notification, Threshold may appeal the NASDAQ Staff’s determination to delist its securities, but there can be no assurance the NASDAQ Staff would grant Threshold’s request for continued listing. If Threshold fails to continue to meet all applicable NASDAQ Capital Market requirements, NASDAQ may determine to delist the Threshold common stock from The NASDAQ Capital Market. If the Threshold common stock is delisted for any reason, it could reduce the value of the Threshold common stock and its liquidity.

If the Threshold common stock is delisted as a result of Threshold’s failure to comply with the Bid Price Requirement or any other NASDAQ continued listing requirement, Threshold would expect the Threshold common stock to be traded in the over-the-counter market, which could adversely affect the liquidity of the Threshold common stock. Additionally, delisting would substantially impair Threshold’s ability to raise additional funds to fund Threshold’s operations, to meaningfully advance the development of evofosfamide and/or to acquire or in-license additional product candidates or development programs, and Threshold could face other significant material adverse consequences, including:

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a limited availability of market quotations for Threshold common stock;

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a reduced amount of news and analyst coverage for Threshold;

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reduced liquidity for Threshold’s stockholders;

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potential loss of confidence by employees and potential future partners or collaborators; and

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loss of institutional investor interest and fewer business development opportunities.

The price of Threshold common stock has been and may continue to be volatile.

The stock markets in general, the markets for biotechnology stocks and, in particular, the stock price of the Threshold common stock, have experienced extreme volatility. Further price declines in the stock price of the Threshold common stock could result from general market and economic conditions and a variety of other factors, including:

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announcements regarding the development of Threshold’s product candidates, including any delays in any potential future clinical trials, and investor perceptions of Threshold’s ability to advance the development of evofosfamide;

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adverse results or delays in potential future clinical trials of evofosfamide;

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Threshold’s ability to raise additional capital to advance the development of evofosfamide and the terms of any related financing arrangements;

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announcements of regulatory approval or non-approval of Threshold’s product candidates, or delays in the applicable regulatory agency review process

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adverse actions taken by regulatory agencies with respect to Threshold’s product candidates, clinical trials, manufacturing processes or sales and marketing activities

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Threshold’s ability to enter into new collaborative, licensing or other strategic arrangements with respect to Threshold’s product candidates

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the terms and timing of any future collaborative, licensing or other strategic arrangements that Threshold may establish

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announcements of technological innovations, patents or new products by Threshold or Threshold’s competitors

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regulatory developments in the United States, Japan and other foreign countries

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any lawsuit involving Threshold or Threshold’s product candidates

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Threshold’s ability to comply with the minimum listing requirements of NASDAQ

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announcements concerning Threshold’s competitors, or the biotechnology or pharmaceutical industries in general

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developments concerning any strategic alliances or acquisitions Threshold may enter into

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actual or anticipated variations in Threshold’s operating results

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changes in recommendations by securities analysts or lack of analyst coverage

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deviations in Threshold’s operating results from the estimates of analysts

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sales of Threshold common stock by Threshold, including under Threshold’s sales agreement with Cowen

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sales of Threshold common stock by Threshold’s executive officers, directors and significant stockholders or sales of substantial amounts of common stock; and

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additional losses of any of Threshold’s key scientific or management personnel

In the past, following periods of volatility in the market price of a particular company’s securities, litigation has often been brought against that company. Any such lawsuit could consume resources and management time and attention, which could adversely affect Threshold’s business.

If there are large sales of Threshold common stock, the market price of Threshold common stock could drop substantially. In addition, a significant number of shares of Threshold common stock are subject to issuance upon exercise of outstanding options, which upon such exercise would result in dilution to Threshold’s securityholders.

If Threshold or Threshold’s existing stockholders sell a large number of shares of Threshold common stock or the public market perceives that Threshold or Threshold’s existing stockholders might sell shares of Threshold common stock, the market price of the Threshold common stock could decline significantly. As of March 31, 2017, Threshold had 71,591,918 outstanding shares of common stock, substantially all of which may be sold in the public market without restriction, subject to any affiliate restrictions. On November 2, 2015, Threshold entered into a sales agreement with Cowen, or the Cowen Sales Agreement, under which Threshold may sell shares of Threshold common stock from time to time through Cowen, as Threshold’s agent for the offer and sale of the shares, in an aggregate amount not to exceed $50 million. Though Threshold’s ability to sell shares of common stock through Cowen under Threshold’s sales agreement with Cowen is practically limited or precluded altogether due to Threshold’s currently-depressed stock price, to the extent that Threshold sell shares of Threshold common stock pursuant to the sales agreement with Cowen in the future, Threshold’s stockholders will experience dilution. In addition, as of March 31, 2017, there were 10,827,481 shares of Threshold common stock issuable upon the exercise of outstanding options having a weighted-average exercise price of $3.01 per share. Although Threshold cannot determine at this time how many of the currently outstanding options will ultimately be exercised, the options will likely be exercised only if the exercise price is below the market price of the Threshold common stock. To the extent that the options are exercised, additional shares of Threshold common stock will be issued that will be eligible for resale in the public market, which will result in dilution to Threshold’s securityholders.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on Threshold’s stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require annual management assessments of the effectiveness of Threshold’s internal control over financial reporting. If Threshold fails to maintain the adequacy of Threshold’s internal control over financial reporting, as such standards are modified, supplemented or amended from time to time, Threshold may not be able to ensure that Threshold can

conclude on an ongoing basis that Threshold has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If Threshold cannot favorably assess, or Threshold’s independent registered public accounting firm is unable to provide an unqualified attestation report on, the effectiveness of Threshold’s internal control over financial reporting, investor confidence in the reliability of Threshold’s financial reports may be adversely affected, which could have a material adverse effect on Threshold’s stock price.

Threshold’s certificate of incorporation, Threshold’s bylaws and Delaware law contain provisions that could discourage another company from acquiring Threshold and may prevent attempts by Threshold’s stockholders to replace or remove Threshold’s current management.

Provisions of Delaware law, where Threshold is incorporated, Threshold’s certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. In addition, these provisions may frustrate or prevent any attempts by Threshold’s stockholders to replace or remove Threshold’s current management by making it more difficult for stockholders to replace or remove Threshold’s board of directors. These provisions include:

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authorizing the issuance of “blank check” preferred stock without any need for action by stockholders

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providing for a classified board of directors with staggered terms

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requiring supermajority stockholder voting to effect certain amendments to Threshold’s certificate of incorporation and bylaws

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eliminating the ability of stockholders to call special meetings of stockholders

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prohibiting stockholder action by written consent; and

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establishing advance notice requirements for nominations for election to Threshold’s board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

Claims for indemnification by Threshold’s directors and officers may reduce Threshold’s available funds to satisfy successful third-party claims against Threshold and may reduce the amount of money available to Threshold.

Threshold’s amended and restated certificate of incorporation and amended and restated bylaws provide that Threshold will indemnify Threshold’s directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, or the DGCL, Threshold’s amended and restated bylaws and Threshold’s indemnification agreements that Threshold has entered into with Threshold’s directors and officers provide that:

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Threshold will indemnify Threshold’s directors and officers for serving Threshold in those capacities or for serving other business enterprises at Threshold’s request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

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Threshold may, in Threshold’s discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

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Threshold is required to advance expenses, as incurred, to Threshold’s directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

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The rights conferred in Threshold’s amended and restated bylaws are not exclusive, and Threshold is authorized to enter into indemnification agreements with Threshold’s directors, officers, employees and agents and to obtain insurance to indemnify such persons.

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Threshold may not retroactively amend Threshold’s amended and restated bylaw provisions to reduce Threshold’s indemnification obligations to directors, officers, employees and agents.

Threshold’s ability to use Threshold’s net operating losses to offset future taxable income, if any, may be subject to certain limitations.

In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” (generally defined as a greater than 50-percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. If Threshold undergoes additional ownership changes (some of which changes may be outside Threshold’s control), Threshold’s ability to utilize Threshold’s NOLs could be further limited by Section 382 of the Code. The merger will result in an ownership change under Section 382 of the Code for Threshold, and Threshold’s pre-merger net operating loss carryforwards and certain other tax attributes will be subject to limitation or elimination. The net operating loss carryforwards and certain other tax attributes of Molecular and of the combined company may also be subject to limitations as a result of ownership changes. Threshold’s NOLs may also be impaired under state law. Accordingly, Threshold may not be able to utilize a material portion of Threshold’s NOLs. Furthermore, Threshold’s ability to utilize Threshold’s NOLs is conditioned upon Threshold’s attaining profitability and generating U.S. federal taxable income. Other than for 2015, Threshold has incurred net losses since Threshold’s inception, and Threshold anticipates that it will continue to incur significant losses for the foreseeable future; thus, Threshold does not know whether or when Threshold will generate the U.S. federal taxable income necessary to utilize Threshold’s NOLs. See the risk factors described above under the section titled “—Risks Related to Related to Threshold’s Financial Performance and Operations” beginning on page 54 of this proxy statement/prospectus/information statement.

Threshold has never paid dividends on Threshold common stock, and Threshold does not anticipate paying any cash dividends in the foreseeable future.

Threshold has never declared or paid cash dividends on Threshold common stock. Threshold does not anticipate paying any cash dividends on Threshold common stock in the foreseeable future. Threshold currently intends to retain all available funds and any future earnings to fund the development and growth of Threshold’s business. As a result, capital appreciation, if any, of Threshold common stock will be Threshold’s stockholders’ sole source of gain for the foreseeable future.

Risks Related to Molecular’s Financial Condition and Capital Requirements

Molecular has incurred losses since its inception, has a limited operating history on which to assess its business, and anticipates that it will continue to incur significant losses for the foreseeable future.

Molecular is a clinical development-stage biopharmaceutical company with a limited operating history. Molecular has incurred net losses in each year since its inception in 2009, including net losses of $11.0 million and $5.4 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, Molecular had an accumulated deficit of $40.4 million.

As of December 31, 2016, Molecular had cash and cash equivalents of $1.7 million. In January 2017, Molecular issued convertible notes, or the Molecular notes, in the aggregate principal amount of $10.0 million. In connection with execution of the merger agreement, Molecular entered into a note purchase agreement and related bridge note with Threshold pursuant to which Threshold has funded to Molecular a principal amount of $4.0 million. Molecular will continue to require substantial additional capital to continue its clinical development and potential commercialization activities. Accordingly, Molecular will need to raise substantial additional capital to continue to fund its operations. The amount and timing of its future funding requirements will depend on many factors, including the pace and results of its clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on its financial condition and its ability to develop its product candidates.

Molecular has devoted substantially all of its financial resources to identify, acquire, and develop its product candidates, including conducting clinical trials and providing general and administrative support for its operations. To date, Molecular has financed its operations primarily through the sale of equity securities and convertible promissory notes. The amount of its future net losses will depend, in part, on the rate of its future expenditures and its ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Molecular expects losses to increase as it completes Phase I development and advances into Phase II development its lead product candidates. Molecular has not yet commenced pivotal clinical trials for any product candidate and it may be several years, if ever, before Molecular completes pivotal clinical trials and has a product candidate approved for commercialization. Molecular expects to invest significant funds into the research and development of its current product candidates to determine the potential to advance these product candidates to regulatory approval.

If Molecular obtains regulatory approval to market one or more products, its future revenue will depend upon the size of any markets in which its product candidates may receive approval, and its ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors and adequate market share for its product candidates in those markets. Even if Molecular obtains adequate market share for one or more products, because the potential markets in which its product candidates may ultimately receive regulatory approval could be very small, Molecular may never become profitable despite obtaining such market share and acceptance of its products.

Molecular expects to continue to incur significant expenses and increasing operating losses for the foreseeable future and its expenses will increase substantially if and as Molecular:

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continues the clinical development of its product candidate;

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continues efforts to discover new product candidates;

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undertakes the manufacturing of its product candidates or increases volumes manufactured by third parties;

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advances its programs into larger, more expensive clinical trials;

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initiates additional preclinical, clinical, or other trials or studies for its product candidates;

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seeks regulatory and marketing approvals and reimbursement for its product candidates;

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establishes a sales, marketing, and distribution infrastructure to commercialize any products for which Molecular may obtain marketing approval and market for itself;

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seeks to identify, assess, acquire, and/or develop other product candidates;

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makes milestone, royalty or other payments under third-party license agreements;

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seeks to maintain, protect, and expand its intellectual property portfolio;

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seeks to attract and retain skilled personnel; and

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experiences any delays or encounters issues with the development and potential for regulatory approval of its clinical candidates such as safety issues, clinical trial accrual delays, longer follow-up for planned studies, additional major studies or supportive studies necessary to support marketing approval.

Further, the net losses Molecular incurs may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of its results of operations may not be a good indication of its future performance.

Molecular’s independent registered public accounting firm has expressed doubt about Molecular’s ability to continue as a going concern.

Based on its cash balances, recurring losses since inception and inadequacy of existing capital resources to fund planned operations for a twelve-month period, Molecular’s independent registered public accounting firm has included an explanatory paragraph in its report on Molecular’s financial statements as of and for the years ended December 31, 2016 and December 31, 2015 expressing substantial doubt about Molecular’s ability to continue as a going concern. Molecular will, during the remainder of 2017, require significant additional funding to continue operations. If Molecular is unable to continue as a going concern, it may be forced to liquidate its assets and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its financial statements.

Molecular has material weaknesses in its internal control over financial reporting. If one or more material weaknesses persist or if Molecular fails to establish and maintain effective internal control over financial reporting, Molecular’s ability to accurately report its financial results could be adversely affected.

Molecular has been a private company and had limited accounting and financial reporting personnel and other resources with which to address its internal control over financial reporting. In connection with the audits of Molecular’s consolidated financial statements for the years ended December 31, 2015 and 2016 and preparation of interim financial statements for the first quarter of 2017, Molecular and its independent registered public accounting firm identified material weaknesses in Molecular’s internal controls over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.

The material weaknesses related to Molecular’s inability to prepare accurate financial statements, resulting from a lack of adequate accounting personnel to timely and appropriately account for and disclose the impact of complex, non-routine transactions in accordance with GAAP. These non-routine transactions impacted the recording of equity-based compensation, cash-flow presentations, revenue, and related disclosures. In response to these material weaknesses, Molecular evaluated its historical financial and operations data for further deficiencies and instituted additional control procedures around the research and recording of non-recurring transactions. Additionally, Molecular is currently working to remediate these material weaknesses through the reallocation of existing internal resources and retaining third-party consultants to help enhance its internal controls over financial reporting. There can be no assurance that these efforts will remediate the material weaknesses or avoid future weaknesses or deficiencies. Any failure to remediate the material weaknesses and any future weaknesses or deficiencies or any failure to implement required new or improved controls or difficulties encountered in their implementation could cause Molecular to fail to meet its reporting obligations or result in material misstatements in its financial statements. Following the closing of the Merger, Molecular’s management will be required to assess the effectiveness of its disclosure controls and procedures and internal control over financial reporting. If Molecular is unable to remediate its material weaknesses, Molecular’s management may not be able to conclude that its disclosure controls and procedures or internal control over financial reporting are effective, which could result in investors losing confidence in its reported financial information and may lead to a decline in the stock price. Failure to comply with Section 404 of Sarbanes-Oxley could potentially subject Molecular to sanctions or investigations by the SEC, the Financial Industry Regulatory Authority or other regulatory authorities, as well as increasing the risk of liability arising from litigation based on securities law.

Molecular has never generated any revenue from product sales and may never be profitable.

Molecular has no products approved for commercialization and has never generated any revenue. Molecular’s ability to generate revenue and achieve profitability depends on its ability, alone or with strategic collaborators, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize one or more of its product candidates. Molecular does not anticipate generating revenue from product sales for the foreseeable future. Molecular’s ability to generate future revenue from product sales depends heavily on its success in many areas, including but not limited to:

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completing research and development of one or more of its product candidates;

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obtaining regulatory and marketing approvals for one or more of its product candidates;

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manufacturing one or more product candidates and establishing and maintaining supply and manufacturing relationships with third parties that are commercially feasible, meet regulatory requirements and Molecular’s supply needs in sufficient quantities to meet market demand for its product candidates, if approved;

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marketing, launching and commercializing one or more product candidates for which Molecular obtains regulatory and marketing approval, either directly or with a collaborator or distributor;

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gaining market acceptance of one or more of its product candidates as treatment options;

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addressing any competing products;

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protecting, maintaining and enforcing its intellectual property rights, including patents, trade secrets and know-how;

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negotiating favorable terms in any collaboration, licensing or other arrangements into which Molecular may enter;

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obtaining reimbursement or pricing for one or more of its product candidates that supports profitability; and

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attracting, hiring and retaining qualified personnel.

Even if one or more of the product candidates that Molecular develops is approved for commercial sale, Molecular anticipates incurring significant costs associated with launching and commercializing any approved product candidate. Molecular also will have to develop or acquire manufacturing capabilities or continue to contract with contract manufacturers in order to continue development and potential commercialization of its product candidates. For instance, if Molecular’s costs of manufacturing its drug products are not commercially feasible, then it will need to develop or procure its drug products in a commercially feasible manner to successfully commercialize any future approved product, if any. Additionally, if Molecular is not able to generate revenue from the sale of any approved products, Molecular may never become profitable.

Raising additional capital may cause dilution to Molecular’s stockholders, restrict its operations or require Molecular to relinquish rights.

To the extent that Molecular raises additional capital through the sale of equity, convertible debt or other securities convertible into equity, including the issuance of shares of capital stock by the combined company in the contemplated financing concurrent with the completion of the merger, the ownership interest of Molecular’s stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect rights of Molecular’s stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting Molecular’s ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions or declaring dividends. For instance, Molecular’s loan and security agreement with Silicon Valley Bank limits Molecular’s ability to enter into an asset sale, enter into any change of control, incur additional indebtedness, pay any dividends

or enter into specified transactions with its affiliates. Molecular has obtained consent from Silicon Valley Bank to enter into the merger agreement and consummate the merger. If Molecular raises additional funds through strategic collaborations or licensing arrangements with third parties, Molecular may have to relinquish valuable rights to its product candidates or future revenue streams or grant licenses on terms that are not favorable to Molecular. Molecular cannot be assured that it will be able to obtain additional funding if and when necessary to fund its entire portfolio of product candidates to meet its projected plans. If Molecular is unable to obtain funding on a timely basis, Molecular may be required to delay or discontinue one or more of its development programs or the commercialization of any product candidates or be unable to expand its operations or otherwise capitalize on potential business opportunities, which could materially harm Molecular’s business, financial condition, and results of operations.

Molecular also has historically received funds from state and federal government grants for research and development. The grants have been, and any future government grants and contracts Molecular may receive may be, subject to the risks and contingencies set forth below under the section titled “—Risks Related to the Development of Molecular’s Product Candidates—Reliance on government funding for Molecular’s programs may add uncertainty to Molecular’s research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit Molecular’s ability to take certain actions, increase the costs of commercialization and production of product candidates developed under those programs and subject Molecular to potential financial penalties, which could materially and adversely affect Molecular’s business, financial condition and results of operations.” beginning on page 86 of this proxy statement/prospectus/information statement. Although Molecular might apply for government contracts and grants in the future, it cannot assure you that it will be successful in obtaining additional grants for any product candidates or programs.

Risks Related to the Development of Molecular’s Product Candidates

Clinical trials are costly, time consuming and inherently risky, and Molecular may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Clinical development is expensive, time consuming and involves significant risk. Molecular cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include but are not limited to:

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inability to generate satisfactory preclinical, toxicology or other in vivo or in vitro data or to develop diagnostics capable of supporting the initiation or continuation of clinical trials;

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delays in reaching agreement on acceptable terms with clinical research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;

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delays or failure in obtaining required institutional review board, or IRB, approval at each clinical trial site;

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failure to obtain or delays in obtaining a permit from regulatory authorities to conduct a clinical trial;

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delays in recruiting or failure to recruit sufficient eligible patients in its clinical trials;

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failure by clinical sites or CROs or other third parties to adhere to clinical trial requirements;

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failure by Molecular clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign regulatory guidelines;

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patients withdrawing from Molecular’s clinical trials;

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adverse events or other issues of concern significant enough for the FDA, or comparable foreing regulatory authority, to put an Investigational New Drug, or IND, on clinical hold;

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occurrence of adverse events associated with Molecular’s product candidates;

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changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

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the cost of clinical trials of Molecular’s product candidates;

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negative or inconclusive results from Molecular’s clinical trials which may result in Molecular’s deciding, or regulators requiring Molecular, to conduct additional clinical trials or abandon development programs in other ongoing or planned indications for a product candidate; and

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delays in reaching agreement on acceptable terms with third-party manufacturers and the time for manufacture of sufficient quantities of its product candidates for use in clinical trials.

Any inability to successfully complete clinical development and obtain regulatory approval for one or more of its product candidates could result in additional costs to Molecular or impair its ability to generate revenue. In addition, if Molecular makes manufacturing or formulation changes to its product candidates, Molecular may need to conduct additional nonclinical studies and/or clinical trials to show that the results obtained from such new formulation are consistent with previous results obtained. Clinical trial delays could also shorten any periods during which its products have patent protection and may allow competitors to develop and bring products to market before Molecular does, which could impair its ability to successfully commercialize its product candidates and may harm its business and results of operations.

The approach Molecular is taking to discover and develop next generation immunotoxin therapies (called ETBs) is unproven and may never lead to marketable products.

The scientific discoveries that form the basis for Molecular’s efforts to discover and develop its product candidates are relatively recent. To date, neither Molecular nor any other company has received regulatory approval to market therapeutics utilizing ETBs. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Successful development of ETB therapeutic products by Molecular will require solving a number of issues, including identifying appropriate receptor targets, screening for and selecting potent and safe ETB drug candidates, developing a commercially feasible manufacturing process, successfully completing all required preclinical studies and clinical trials, successfully implementing all other requirements that may be mandated by regulatory agencies from clinical development through post-marketing periods, ensuring intellectual property protection in any territory where an ETB may be commercialized and commercializing an ETB successfully in a competitive product landscape. In addition, any product candidates that Molecular develops may not demonstrate in patients the biological and pharmacological properties ascribed to them in laboratory and preclinical testing, and they may interact with human biological systems in unforeseen, ineffective or even harmful ways. If Molecular does not successfully develop and commercialize one or more product candidates based upon this technological approach, it may not become profitable and the value of its capital stock may decline.

Further, Molecular’s focus on ETB technology for developing product candidates as opposed to multiple, more proven technologies for drug development increases the risk associated with its business. If Molecular is not successful in developing an approved product using ETB technology, it may not be able to identify and successfully implement an alternative product development strategy. In addition, work by other companies pursuing similar technologies may encounter setbacks and difficulties that regulators and investors may attribute to Molecular’s product candidates, whether appropriate or not.

Molecular’s ETB therapeutic product candidates are based on a relatively novel technology, which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all. To date, no ETB therapeutics have been approved in the United States.

Molecular has concentrated its research and development efforts to date on a limited number of product candidates based on its ETB therapeutic platform and identifying its initial targeted disease indications. Molecular’s future success depends on its successful development of one or more viable product candidates. Currently, only one of its product candidates, MT-3724, is in clinical development, and the remainder of its product candidates are in preclinical development. There can be no assurance that Molecular will not experience problems or delays in developing its product candidates and that such problems or delays will not cause unanticipated costs, or that any such development problems can be solved.

Additionally, the FDA and comparable foreign regulatory authorities have relatively limited experience with ETB therapeutics. No regulatory authority has granted approval to any person or entity, including Molecular, to market or commercialize ETB therapeutics, which may increase the complexity, uncertainty and length of the regulatory approval process for Molecular’s product candidates. If Molecular’s ETB product candidates fail to prove to be safe, effective or commercially viable, its product candidate pipeline would have little, if any, value, which would have a material adverse effect on its business, financial condition or results of operations.

The clinical trial and manufacturing requirements of the FDA, the European Medicines Agency, or the EMA, and other regulatory authorities, and the criteria these regulators use to determine the safety and efficacy of a product candidate, vary substantially according to the type, complexity, novelty and intended use and market of the product candidate. The regulatory approval process for novel product candidates such as ETB therapeutics can be more expensive and take longer than for other, better known or more extensively studied product candidates. It is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for Molecular’s product candidates in either the United States or the European Union or how long it will take to commercialize its product candidates, even if approved for marketing. Approvals by the European Commission may not be indicative of what the FDA may require for approval, and vice versa, and different or additional preclinical studies and clinical trials may be required to support regulatory approval in each respective jurisdiction. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product candidate to market could decrease Molecular’s ability to generate sufficient product revenue, and Molecular’s business, financial condition, results of operations and prospects may be harmed.

Molecular’s product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial viability of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by its product candidates could cause Molecular or regulatory authorities to interrupt, delay, or terminate clinical trials or result in a restrictive label or delay regulatory approval.

In addition, Molecular’s MT-3724 product candidate has been studied in only a limited number of patients with a confirmed diagnosis of non-Hodgkin’s lymphoma, and the most common adverse events were peripheral edema, diarrhea, myalgia, cough, fatigue, constipation, nausea, anemia, stomatitis, pyrexia, dizziness, headache, insomnia, dyspnea, neutropenia, thrombocytopenia, blurry vision, dysphagia, oral pain, chills, pneumonia, dehydration, hypoalbuminemia, hyponatremia, dysgeusia, oropharyngeal pain, and maculo-papular rash. Molecular may experience a higher rate or severity of adverse events and comparable or higher rates of discontinuation in testing in its future clinical trials. There is no guarantee that additional or more severe side effects will not be identified through ongoing clinical trials of Molecular’s product candidates for current and other indications. Undesirable side effects and negative results for any of Molecular’s product candidates may negatively impact the development and potential for approval of Molecular’s product candidates for their proposed indications.

Additionally, even if one or more of its product candidates receives marketing approval, and Molecular or others later identify undesirable side effects caused by such products, potentially significant negative consequences could result, including but not limited to:

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regulatory authorities may withdraw approvals of such products;

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regulatory authorities may require additional warnings on the label;

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Molecular may be required to create a REMS plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;

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Molecular could be sued and held liable for harm caused to patients; and

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its reputation may suffer.

Any of these events could prevent Molecular from achieving or maintaining market acceptance of a product candidate, even if approved, and could significantly harm its business, results of operations, and prospects.

Molecular’s product development program may not discover all possible adverse events that patients who take MT-3 724 or its other product candidates may experience. The number of subjects exposed to MT-3 724 or its other product candidates and the average exposure time in the clinical development program may be inadequate to detect all adverse events, or chance findings, that may only be detected once the product is administered to more patients and for greater periods of time.

Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited duration of exposure, Molecular cannot be fully assured all severe side effects of MT-3724 or its other product candidates will be uncovered. Such severe side effects may only be uncovered with a significantly larger number of patients exposed to the drug. If such safety problems occur or are identified after MT-3724 or another product candidate reaches the market, the FDA, or comparable foreign regulatory authority, may require that Molecular amend the labeling of the product or temporarily cease marketing the product, or may even withdraw approval for the product.

Molecular’s ETB therapeutic approach is novel. Negative public opinion and increased regulatory scrutiny of ETB -based therapies may damage public perception of the safety of its product candidates and adversely affect its ability to conduct its business or obtain regulatory approvals for its product candidates.

ETB therapy remains a novel technology, with no ETB therapy product approved to date in the United States. Public perception may be influenced by claims that ETB therapy is unsafe, and ETB therapy may not gain the acceptance of the public or the medical community. In particular, Molecular’s success will depend upon physicians who specialize in the treatment of the diseases targeted by Molecular’s product candidates prescribing treatments that involve the use of one or more of its approved product candidates in lieu of, or in addition to, existing treatments with which they are familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion regarding ETB-based therapeutics could have an adverse effect on Molecular’s business, financial condition or results of operations and may delay or impair the development and commercialization of its product candidates or demand for any products Molecular may develop. Serious adverse events, or SAEs, in ETB clinical trials for Molecular’s competitors’ products, even if not ultimately attributable to the relevant product candidates, and the resulting publicity, could result in increased government regulation, unfavorable public perception, potential regulatory delays in the testing or approval of Molecular’s product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.

Molecular is heavily dependent on the success of its product candidates, the most advanced of which is in the early stages of clinical development. Some of its product candidates have produced results in preclinical settings to date, or for other indications than those for which Molecular contemplates conducting development and seeking FDA approval, and Molecular cannot give any assurance that it will generate data for any of its product candidates sufficient to receive regulatory approval in its planned indications, which will be required before they can be commercialized.

Molecular has invested substantially all of its efforts and financial resources to identify, acquire and develop its portfolio of product candidates. Its future success is dependent on its ability to successfully further develop, obtain regulatory approval for, and commercialize one or more product candidates. Molecular currently generates no revenue from sales of any products, and Molecular may never be able to develop or commercialize a product candidate.

Molecular currently has one product candidate in Phase I clinical trials. MT-3724 has only been administered in patients with non-Hodgkin’s lymphoma. This is only one of the multiple indications for which Molecular plans to develop this product candidate. Additionally, Molecular’s clinical and preclinical data to date is not validated and Molecular has no way of knowing if after validation Molecular’s clinical trial data will be complete and consistent. There can be no assurance that the data that Molecular develops for its product candidates in its planned indications will be sufficient to obtain regulatory approval.

In addition, none of its product candidates has advanced into a pivotal clinical trial for Molecular’s proposed indications and it may be years before any such clinical trial is initiated and completed, if at all. Molecular is not permitted to market or promote any of its product candidates before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and Molecular may never receive such regulatory approval for any of its product candidates. Molecular cannot be certain that any of its product candidates will be successful in clinical trials or receive regulatory approval. Further, Molecular’s product candidates may not receive regulatory approval even if they are successful in clinical trials. If Molecular does not receive regulatory approvals for its product candidates, Molecular may not be able to continue its operations.

Product development involves a lengthy and expensive process with an uncertain outcome, and results of earlier preclinical studies and clinical trials may not be predictive of future clinical trial results.

Clinical testing is expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of Molecular’s product candidates may not be predictive of the results of larger, later-stage controlled clinical trials. Product candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks or failure in subsequent clinical trials. Molecular’s clinical trial to date has been conducted on a small number of patients in limited numbers of clinical sites for a limited number of indications. Molecular will have to conduct larger, well-controlled trials in its proposed indications to verify the results obtained to date and to support any regulatory submissions for further clinical development. A number of companies in the biopharmaceutical industry have suffered significant setbacks or failure in advanced clinical trials due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical trials.

Moreover, clinical data are often susceptible to varying interpretations and analyses. Molecular does not know whether any Phase I, Phase II, Phase III or other clinical trials Molecular may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed indication for use sufficient to receive regulatory approval or market its drug candidates.

Molecular may use its financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because Molecular has limited financial and human resources, it may forego or delay pursuit of opportunities with some programs or product candidates or for other indications that later prove to have greater commercial potential. Molecular’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or more profitable market opportunities. Molecular’s spending on current and future research and development programs and future product candidates for specific indications may not yield any commercially viable products. Molecular may also enter into additional strategic collaboration agreements to develop and commercialize some of its programs and potential product candidates in indications with potentially large commercial markets. If Molecular does not accurately evaluate the commercial potential or target market for a particular product candidate, it may relinquish valuable rights to that product candidate through strategic collaborations, licensing or other royalty arrangements in cases in which it would have been more advantageous for Molecular to retain sole development and commercialization rights to such product candidate, or Molecular may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

Molecular may find it difficult to enroll patients in its clinical trials given the limited number of patients who have the diseases for which its product candidates are being studied. Difficulty in enrolling patients could delay or prevent clinical trials of its product candidates.

Identifying and qualifying patients to participate in clinical trials of Molecular’s product candidates is essential to its success. The timing of Molecular’s clinical trials depends in part on the rate at which Molecular can recruit patients to participate in clinical trials of its product candidates, and Molecular may experience delays in its clinical trials if it encounters difficulties in enrollment.

The eligibility criteria of Molecular’s planned clinical trials may further limit the available eligible trial participants as Molecular expects to require that patients have specific characteristics that Molecular can measure or meet the criteria to assure their conditions are appropriate for inclusion in its clinical trials. For instance, Molecular’s Phase I clinical trial of MT-3724 includes patients with non-Hodgkin’s lymphoma. The estimated prevalence of non-Hodgkin’s lymphoma in the United States is that an estimated 72,580 new cases and 20,150 deaths will be attributable to non-Hodgkin’s B-cell lymphomas in 2016. Molecular may not be able to identify, recruit and enroll a sufficient number of patients to complete its clinical trials in a timely manner because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, and the willingness of physicians to participate in its planned clinical trials. If patients are unwilling to participate in Molecular’s clinical trials for any reason, the timeline for conducting trials and obtaining regulatory approval of its product candidates may be delayed.

If Molecular experiences delays in the completion of, or termination of, any clinical trials of its product candidates, the commercial prospects of its product candidates could be harmed, and its ability to generate product revenue from any of these product candidates could be delayed or prevented. In addition, any delays in completing its clinical trials would likely increase its overall costs, impair product candidate development and jeopardize its ability to obtain regulatory approval relative to its current plans. Any of these occurrences may harm its business, financial condition, and prospects significantly.

Molecular may face potential product liability, and, if successful claims are brought against it, Molecular may incur substantial liability and costs. If the use or misuse of Molecular’s product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to its product candidates, Molecular’s regulatory approvals, if any, could be revoked or otherwise negatively impacted and Molecular could be subject to costly and damaging product liability claims. If Molecular is unable to obtain adequate insurance or is required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, its insurance coverage, a material liability claim could adversely affect its financial condition.

The use or misuse of Molecular’s product candidates in clinical trials and the sale of any products for which Molecular may obtain marketing approval exposes Molecular to the risk of potential product liability claims. Product liability claims might be brought against Molecular by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with its product candidates and approved products, if any. There is a risk that Molecular’s product candidates may induce adverse events. If Molecular cannot successfully defend against product liability claims, it could incur substantial liability and costs. Some of Molecular’s ETB therapeutics have shown in clinical trials adverse events, including peripheral edema, diarrhea, myalgia, cough, fatigue, constipation, nausea, anemia, stomatitis, pyrexia, dizziness, headache, insomnia, dyspnea, neutropenia, thrombocytopenia, blurry vision, dysphagia, oral pain, chills, pneumonia, dehydration, hypoalbuminemia, hyponatremia, dysgeusia, oropharyngeal pain, and maculo-papular rash, among others. There is a risk that Molecular’s future product candidates may induce similar or more severe adverse events. Patients with the diseases targeted by Molecular’s product candidates may already be in severe and advanced stages of disease and have both known and unknown significant preexisting and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to Molecular’s product candidates. Such events could subject Molecular to costly litigation, require it to pay substantial amounts of money to injured patients, delay, negatively impact or end its opportunity to receive or maintain regulatory approval to market its products, or require Molecular to suspend or abandon its commercialization efforts. Even in a circumstance in which an adverse event is unrelated to Molecular’s product candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may delay Molecular’s regulatory approval process or impact and limit the type of regulatory approvals its product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on Molecular’s business, financial condition or results of operations.

Although Molecular has product liability insurance covering its clinical trials in the United States for up to $4.0 million per occurrence up to an aggregate limit of $4.0 million, its insurance may be insufficient to reimburse it for any expenses or losses Molecular may suffer. Molecular also will likely be required to increase its product liability insurance coverage for the advanced clinical trials that it plans to initiate. If Molecular obtains marketing approval for any of its product candidates, it will need to expand its insurance coverage to include the sale of commercial products. There is no way to know if Molecular will be able to continue to obtain product liability coverage and obtain expanded coverage if it requires it, in sufficient amounts to protect it against losses due to liability, on acceptable terms, or at all. Molecular may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, its insurance coverage. Where Molecular has provided indemnities in favor of third parties under its agreements with them, there is also a risk that these third parties could incur liability and bring a claim under such indemnities. An individual may bring a product liability claim against Molecular alleging that one of its product candidates causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and breach of warranties. Claims also could be asserted under state consumer protection acts. Any product liability claim brought against Molecular, with or without merit, could result in:

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withdrawal of clinical trial volunteers, investigators, patients or trial sites or limitations on approved indications;

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the inability to commercialize, or if commercialized, decreased demand for, its product candidates;

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if commercialized, product recalls, withdrawals of labeling, marketing or promotional restrictions or the need for product modification;

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initiation of investigations by regulators;

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loss of revenues;

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substantial costs of litigation, including monetary awards to patients or other claimants;

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liabilities that substantially exceed Molecular’s product liability insurance, which Molecular would then be required to pay itself;

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an increase in Molecular’s product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all;

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the diversion of management’s attention from Molecular’s business; and

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damage to Molecular’s reputation and the reputation of its products and its technology.

Product liability claims may subject Molecular to the foregoing and other risks, which could have a material adverse effect on its business, financial condition or results of operations.

Risks Related to Regulatory Approval of Molecular’s Product Candidates and Other Legal Compliance Matters

A potential breakthrough therapy designation by the FDA for Molecular’s product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that Molecular’s product candidates will receive marketing approval.

Molecular may seek a breakthrough therapy designation from the FDA for some of its product candidates. A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biological product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs or biological products that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of a clinical trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA could also be eligible for accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if Molecular believes one of its product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional or other accelerated FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of Molecular’s product candidates qualify and are designated as breakthrough therapies, the FDA may later decide that the drugs or biological products no longer meet the conditions for designation and the designation may be rescinded.

Molecular may seek Fast Track designation for one or more of its product candidates, but it might not receive such designation, and even if Molecular does, such designation may not actually lead to a faster development or regulatory review or approval process.

If a product candidate is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address unmet medical need for this condition, a product sponsor may apply for FDA Fast Track designation. If Molecular seeks Fast Track designation for a product candidate, Molecular may not receive it from the FDA. However, even if Molecular receives Fast Track designation, Fast Track designation does not ensure that Molecular will receive marketing approval or that approval will be granted within any particular timeframe. Molecular may not experience a faster development or regulatory review or approval process with Fast Track designation compared to conventional FDA procedures. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from Molecular’s clinical development program. Fast Track designation alone does not guarantee qualification for the FDA’s priority review procedures.

Even if Molecular obtains regulatory approval for a product, Molecular will remain subject to ongoing regulatory requirements.

If any of Molecular’s product candidates are approved, Molecular will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials and submission of safety, efficacy and other post-approval information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to continuously comply with FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations and corresponding foreign regulatory manufacturing requirements. As such, Molecular and its contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA or marketing authorization application.

Any regulatory approvals that Molecular receives for its product candidates may be subject to limitations on the approved indicated uses for which the product candidate may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. Molecular will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. If its original marketing approval for a product candidate was obtained through an accelerated approval pathway, Molecular could be required to conduct a successful post-marketing clinical trial in order to confirm the clinical benefit for its products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, the regulatory agency may impose restrictions on that product or Molecular, including requiring withdrawal of the product from the market. If Molecular fails to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

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issue warning letters;

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impose civil or criminal penalties;

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suspend or withdraw regulatory approval;

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suspend any of Molecular’s ongoing clinical trials;

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refuse to approve pending applications or supplements to approved applications submitted by Molecular;

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impose restrictions on Molecular’s operations, including closing its contract manufacturers’ facilities; or

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require a product recall.

Any government investigation of alleged violations of law would be expected to require Molecular to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect Molecular’s ability to develop and commercialize its products and the value of Molecular and its operating results would be adversely affected.

Healthcare legislative reform measures may have a material adverse effect on Molecular’s business, financial condition or results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the ACA was passed. The ACA was intended to substantially change the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of specified branded prescription drugs, and promotes a new Medicare Part D coverage gap discount program. However, the ACA has been under threat of repeal since its passage and in May 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act, or the AHCA, which, if enacted, would amend and repeal significant portions of the ACA. While the AHCA was passed by the U.S. House of Representatives, it is unclear whether and in what form this legislation might be passed by the U.S. Senate and, if so, what form any final legislation might take. In any event, it is not clear what the impact of this legislation or other healthcare reform measures that may be adopted in the future will have on any of Molecular’s product candidates if they are approved.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted, and Molecular expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand or lower pricing for its product candidates or additional pricing pressures.

Molecular may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws. If Molecular is unable to comply, or has not fully complied, with such laws, it could face substantial penalties.

If Molecular obtains FDA approval for any of its product candidates and begins commercializing those products in the United States, its operations will be subject to various federal and state fraud and abuse laws, including, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, its proposed sales, marketing and education programs. In addition, Molecular may be subject to patient privacy regulation by both the federal government and the states in which Molecular conduct its business. The laws that may affect its ability to operate include:

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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent;

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HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

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the federal physician sunshine requirements under the Health Care Reform Laws requires manufacturers of drugs, devices, biologics and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including governmental and private payors, to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of Molecular’s business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

If Molecular’s operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to Molecular, Molecular may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of its operations, any of which could adversely affect its ability to operate Molecular’s business and its results of operations.

Reliance on government funding for Molecular’s programs may add uncertainty to Molecular’s research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit Molecular’s ability to take certain actions, increase the costs of commercialization and production of product candidates developed under those programs and subject Molecular to potential financial penalties, which could materially and adversely affect Molecular’s business, financial condition and results of operations.

During the course of Molecular’s development of its lead product candidate, it has been funded in significant part through state grants, including but not limited to the substantial funding it has received from the Cancer Prevention & Research Institute of Texas, or CPRIT. In addition to the funding Molecular has received to date, it has applied and intends to continue to apply for federal and state grants to receive additional funding in the future. Molecular has been awarded a second CPRIT grant for Molecular’s MT-4019 program where contract negotiations are still ongoing and may or may not be successful. Contracts and grants funded by the U.S. government, state governments and their related agencies, including Molecular’s contracts with the State of Texas pertaining to funds Molecular has already received, include provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

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require repayment of all or a portion of the grant proceeds, in certain cases with interest, in the event Molecular violates certain covenants pertaining to various matters that include any potential relocation outside of the State of Texas, failure to achieve certain milestones or to comply with terms relating to use of grant proceeds, or failure to comply with certain laws;

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terminate agreements, in whole or in part, for any reason or no reason;

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reduce or modify the government’s obligations under such agreements without the consent of the other party;

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claim rights, including certain intellectual property rights, in products and data developed under such agreements;

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audit contract-related costs and fees, including allocated indirect costs;

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suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

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impose State of Texas or U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

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impose qualifications for the engagement of manufacturers, suppliers and other contractors as well as other criteria for reimbursements;

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suspend or debar the contractor or grantee from doing future business with the government;

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control and potentially prohibit the export of products;

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pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to government agreements; and

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limit the government’s financial liability to amounts appropriated by the State of Texas on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period.

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In addition to those powers set forth above, the government funding Molecular may receive could also impose requirements to make payments based upon sales of Molecular’s products in the future. For example, under the terms of Molecular’s award from CPRIT, Molecular is required to pay CPRIT a portion of its revenues from sales of products directly funded by CPRIT, or received from Molecular’s licensees or sublicensees, at a percentage in the mid-single digits until the aggregate amount of such payments equals a specified multiple of the grant amount, and thereafter at a rate of less than or equal to three percent, subject to Molecular’s right, under certain circumstances, to make a one-time payment in a specified amount to CPRIT to buy out such payment obligations. See the section titled “Molecular Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” beginning on page 317 of this proxy statement/prospectus/information statement for a description of the CPRIT grant, which includes a description of Molecular’s obligations to make royalty payments.

Molecular may not have the right to prohibit the State of Texas or, if relevant under possible future federal grants, the U.S. government, from using certain technologies developed by Molecular, and Molecular may not be able to prohibit third-party companies, including Molecular’s competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts. These and other provisions of government grants may also apply to intellectual property Molecular licenses now or in the future.

In addition, government contracts and grants normally contain additional requirements that may increase Molecular’s costs of doing business, reduce Molecular’s profits and expose Molecular to liability for failure to comply with these terms and conditions. These requirements include, for example:

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specialized accounting systems unique to government contracts and grants;

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mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

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public disclosures of certain contract and grant information, which may enable competitors to gain insights into Molecular’s research program; and

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mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.

If Molecular fails to maintain compliance with any such requirements that may apply to it now or in the future, it may be subject to potential liability and to termination of its contracts.

If Molecular fails to comply with environmental, health and safety laws and regulations, Molecular could become subject to fines or penalties or incur costs that could have a material adverse effect on its business, financial condition or results of operations.

Molecular’s research and development activities and its third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of its product candidates and other hazardous compounds. Molecular and its manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at Molecular’s and its manufacturers’ facilities pending their use and disposal. Molecular cannot eliminate the risk of contamination, which could cause an interruption of its commercialization efforts, research and development efforts and business operations; environmental damage resulting in costly clean-up; and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Although Molecular believes that the safety procedures utilized by it and its third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, Molecular cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from

these materials. In such an event, Molecular may be held liable for any resulting damages and such liability could exceed its resources and state or federal or other applicable authorities may curtail Molecular’s use of specified materials and/or interrupt its business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. Molecular cannot predict the impact of such changes and cannot be certain of its future compliance. Molecular does not currently carry biological or hazardous waste insurance coverage.

Risks Related to Molecular’s Intellectual Property

Molecular’s ability to compete may decline if it is unable to establish intellectual property rights or if its intellectual property rights are inadequate to protect its ETB technology, present and future product candidates and related processes for its developmental pipeline.

Molecular relies or will rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect its intellectual property related to its technologies, products and product candidates. Its commercial success and viability depends in large part on its and any potential future licensors’ ability to obtain, maintain and enforce patent and other intellectual property protections in the United States, Europe and other countries worldwide with respect to its current and future proprietary technologies and product candidates. If Molecular or its future collaboration partners do not adequately protect such intellectual property, competitors may be able to use its technologies and erode or negate any competitive advantage it may have, which could materially harm Molecular’s business, negatively affect its position in the marketplace, limit its ability to commercialize product candidates and delay or render impossible its achievement of profitability.

Molecular’s strategy and future prospects are based, in particular, on its patent portfolio. Molecular and its future collaboration partners or licensees will best be able to protect its proprietary ETB technologies, products, product candidates and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, effectively protected trade secrets, or other regulatory exclusivities, cover them. Molecular has sought to protect its proprietary position by filing patent applications in the United States and elsewhere worldwide related to its proprietary ETB technologies, product candidates and methods of use that are important to its business. This process is expensive and time consuming, and Molecular may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Molecular will fail to identify patentable aspects of its research and development output before it is too late to obtain meaningful patent protection.

Intellectual property rights have limitations and do not necessarily address all potential threats to Molecular’s competitive advantage. Molecular’s ability to obtain patent protection for its proprietary technologies, product candidates and their uses is uncertain and the degree of future protection afforded by its intellectual property rights is uncertain due to a number of factors, including, but not limited to:

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Molecular or its future collaboration partners may not have been the first to make the inventions covered by pending patent applications or issued patents;

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Molecular or its future collaboration partners may not have been the first to file patent applications covering its ETB technology, product candidates, compositions or their uses;

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others may independently develop identical, similar or alternative methods, products product candidates or compositions and uses thereof;

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Molecular or its future collaboration partners’ disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;

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any or all of Molecular or its future collaboration partners’ pending patent applications may not result in issued patents;

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Molecular or its future collaboration partners may not seek or obtain patent protection in countries that may eventually provide it with a significant business opportunity;

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any patents issued to Molecular or its future collaboration partners may not provide a basis for commercially viable products, may not provide any competitive advantages or may be successfully challenged by third parties;

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Molecular or its future collaboration partners’ products, compositions and methods may not be patentable;

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others may design around Molecular’s or its future collaboration partners’ patent claims to produce competitive products or uses which fall outside of the scope of Molecular’s patents or other intellectual property rights;

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others may identify prior art or other bases which could invalidate Molecular or its future collaboration partners’ patents;

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Molecular’s competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where Molecular or its future collaboration partners do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in major commercial markets; or

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Molecular or its future collaboration partners may not develop additional proprietary technologies or products that are patentable.

Further, the patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. The patent applications that Molecular owns or in-licenses may fail to result in issued patents with claims that cover its product candidates in the United States or in other foreign countries. There is no assurance that all potentially relevant prior art relating to its patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover Molecular’s product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, Molecular’s patents and patent applications may not adequately protect its intellectual property, provide exclusivity for its product candidates or prevent others from designing around the Molecular claims. Any of these outcomes could impair Molecular’s ability to prevent competition from third parties, which may have an adverse impact on its business.

Molecular, independently or together with its licensors, has filed several patent applications covering various aspects of its ETB technology, product candidates and associated assays and uses. Molecular cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to Molecular after patent issuance could deprive Molecular of rights necessary for the successful commercialization of any product candidates that Molecular may develop. Further, if Molecular encounters delays in regulatory approvals, the period of time during which Molecular could market a product candidate under patent protection could be reduced.

If Molecular cannot obtain and maintain effective protection of exclusivity from its regulatory efforts and intellectual property rights, including patent protection or data exclusivity, for its product candidates, Molecular may not be able to compete effectively and its business and results of operations would be harmed.

Molecular may not have sufficient patent terms and regulatory exclusivity protections for its product candidates to effectively protect its competitive position.

Patents have a limited term. In the United States and most jurisdictions worldwide, the statutory expiration of a non-provisional patent is generally 20 years after it is filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering Molecular’s technologies, product candidates and associated uses are obtained, once the patent life has expired for a product candidate, Molecular may be open to competition from generic, biosimilar or biobetter medications.

Patent term extensions under the Hatch-Waxman Act in the United States, and regulatory extensions in Japan and certain other countries, and under Supplementary Protection Certificates in Europe, may be available to extend the patent or data exclusivity terms of Molecular’s product candidates depending on the timing and duration of the regulatory review process relative to patent term. In addition, upon issuance in the United States, any patent term may be adjusted based on specified delays caused by the applicant(s) or the USPTO. Molecular will likely rely on patent term extensions, and Molecular cannot provide any assurances that any such patent term extensions will be obtained and, if so, for how long. As a result, Molecular may not be able to maintain exclusivity for its product candidates for an extended period after regulatory approval, if any, which would negatively impact its business, financial condition, results of operations and prospects. If Molecular does not have sufficient patent terms or regulatory exclusivity to protect its product candidates, its business and results of operations will be adversely affected.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing Molecular’s ability to protect its products, and recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of its patent applications and the enforcement or defense of its issued patents.

As is the case with other biotechnology companies, Molecular’s success is heavily dependent on patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in specified circumstances and weakened the rights of patent owners in specified situations. In addition to increasing uncertainty with regard to Molecular’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken Molecular’s ability to obtain new patents or to enforce Molecular’s existing patents and patents that it might obtain in the future.

For Molecular’s U.S. patent applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO has promulgated regulations and developed procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first inventor to file provisions, did not come into effect until March 16, 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of Molecular’s business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of its patent applications and the enforcement or defense of its issued patents, all of which could have a material adverse effect on Molecular’s business, financial condition or results of operations.

An important change introduced by the Leahy-Smith Act is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that filed or files a patent application in the USPTO after March 16, 2013 but before Molecular files an application could therefore be awarded a patent covering an invention of Molecular’s even if Molecular had made the invention before it was made by the third party. This will require Molecular to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, Molecular’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between its technology and the prior art allow its technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, Molecular cannot be certain that it was the first to either (i) file any patent application related to its product candidates or (ii) invent any of the inventions claimed in its patents or patent applications.

Among some of the other changes introduced by the Leahy-Smith Act are changes that limit where a patentee may file a patent infringement suit and new procedures providing opportunities for third parties to challenge any issued patent in the USPTO. Included in these new procedures is a process known as inter partes review, or IPR, which has been generally used by many third parties over the past two years to invalidate patents. The IPR process is not limited to patents filed after the Leahy-Smith Act was enacted, and would therefore be available to a third party seeking to invalidate any of Molecular’s U.S. patents, even those issued or filed before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate Molecular’s patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Issued patents covering Molecular’s ETB technologies, product candidates and uses could be found invalid or unenforceable if challenged in court.

Even if Molecular’s or its future collaboration partners’ patents do successfully issue and even if such patents cover product candidates and methods of use, third parties may initiate interference, re-examination, post-grant review, IPR or derivation actions in the U.S. Patent and Trademark Office, or USPTO; may initiate third party oppositions in the European Patent Office, or EPO; or may initiate similar actions challenging the validity, enforceability or scope of such patents in other patent administrative proceedings worldwide, which may result in patent claims being narrowed or invalidated. Such proceedings could result in revocation or amendment of Molecular’s patents in such a way that they no longer cover competitive technologies, product candidates or methods of use. Further, if Molecular initiates legal proceedings against a third party to enforce a patent covering its technologies, product candidates or uses, the defendant could counterclaim that Molecular’s relevant patent is invalid or unenforceable. In patent litigation in the United States, certain European and other countries worldwide, it is commonplace for defendants to make counterclaims alleging invalidity and unenforceability in the same proceeding, or to commence parallel defensive proceedings such as patent nullity actions to challenge validity and enforceability of asserted patent claims. Further, in the United States, a third party, including a licensee of one of Molecular’s or its future collaboration partners’ patents, may initiate legal proceedings against Molecular in which the third party challenges the validity, enforceability, or scope of Molecular’s patent(s).

In administrative and court actions, grounds for a patent validity challenge may include alleged failures to meet any of several statutory requirements, including lack of novelty, nonobviousness (or inventive step) and, in some cases clarity, adequate written description or non-enablement of, the claimed invention. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the Examiner during prosecution in the USPTO, or made a misleading statement during

prosecution in the USPTO, the EPO or elsewhere. Third parties also may raise similar claims before administrative bodies in the USPTO or the EPO, even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability are unpredictable. With respect to patent claim validity, for example, Molecular cannot be certain that there is no invalidating prior art, of which it or the patent examiner was unaware during prosecution. Further, Molecular cannot be certain that all of the potentially relevant art relating to its patents and patent applications has been brought to the attention of every patent office. If a defendant or other patent challenger were to prevail on a legal assertion of invalidity or unenforceability, Molecular could lose at least in part, and perhaps all, of the patent protection on its ETB technology, product candidates and associated uses.

Molecular may become involved in lawsuits to protect or enforce its patents or other intellectual property rights, which could be expensive, time consuming and unsuccessful and have a material adverse effect on the success of its business.

Competitors may infringe Molecular’s patents or the patents of its future licensors. If Molecular or one of its licensing partners were to initiate legal proceedings against a third party to enforce a patent covering one of its product candidates, the defendant could counterclaim that the patent covering its product candidate is invalid and/or unenforceable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, nonobviousness, adequate written description, clarity or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that Molecular does not have the right to stop the other party from using the claimed invention at issue on the grounds that Molecular’s or its future collaboration partners’ patent claims do not cover the claimed invention. Third parties may in the future make claims challenging the inventorship or ownership of Molecular’s intellectual property. An adverse outcome in a litigation or proceeding involving one or more of its patents could limit Molecular’s ability to assert those patents against those parties or other competitors, and may curtail or preclude its ability to exclude third parties from making and selling similar or competitive products. Similarly, if Molecular asserts trademark infringement claims, a court may determine that the marks it has asserted are invalid or unenforceable, or that the party against whom it has asserted trademark infringement has superior rights to the marks in question. In this case, Molecular could ultimately be forced to cease use of such trademarks.

Even if Molecular establishes infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Molecular’s confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could adversely affect the market price of Molecular’s common stock. Moreover, there can be no assurance that Molecular will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded and can involve substantial expenses. Even if Molecular ultimately prevails in such claims, the monetary cost of such litigation and the diversion of the attention of its management and scientific personnel could outweigh any benefit it receives as a result of the proceedings.

Interference or derivation proceedings provoked by third parties or brought by Molecular or declared by the USPTO may be necessary to determine the priority or inventorship of inventions with respect to Molecular’s patents or patent applications or those of its licensors. An unfavorable outcome could require Molecular to cease using the related technology or to attempt to license rights to it from the prevailing party. Molecular’s business could be harmed if the prevailing party does not offer Molecular a license on commercially reasonable terms. Its defense of litigation, interference proceedings, or derivation proceedings may fail and, even if successful, may result in substantial costs and distract its management and other employees. In addition, the uncertainties associated with litigation and administrative proceedings could have a material adverse effect on Molecular’s ability to raise the funds necessary to continue its clinical trials, continue its research programs, license necessary technology from third parties or enter into development partnerships that would help Molecular bring its product candidates to market.

If Molecular is unable to protect the confidentiality of its trade secrets and know-how for its product candidates or any future product candidates, Molecular may not be able to compete effectively in its proposed markets.

In addition to the protection afforded by patents, Molecular relies on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that Molecular elects not to patent, processes for which patents are difficult to enforce and any other elements of its product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. Molecular seeks to protect its proprietary technology and processes, in part, by entering into confidentiality agreements with its employees, consultants, scientific advisors and contractors. Molecular also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While Molecular has confidence in these individuals, organizations and systems, agreements or security measures may be breached, and Molecular may not have adequate remedies for any breach. In addition, its trade secrets may otherwise become known or be independently discovered by competitors.

Although Molecular’s current employment contracts provide for and Molecular expects all of its employees and consultants to assign their inventions to Molecular, and all of Molecular’s employees, consultants, advisors, and any third parties who have access to its proprietary know-how, information or technology are expected to enter into confidentiality agreements, Molecular cannot provide any assurances that all such agreements have been duly executed or that its trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to its trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of Molecular’s trade secrets could impair its competitive position and may have a material adverse effect on its business, financial condition or results of operations. Additionally, if the steps taken to maintain its trade secrets are deemed inadequate, Molecular may have insufficient recourse against third parties for misappropriating trade secrets.

Third-party claims of intellectual property infringement could result in costly litigation or other proceedings and may prevent or delay Molecular’s development and commercialization efforts.

Molecular’s commercial success depends in part on its ability to develop, manufacture, market and sell its product candidates and use its proprietary technology without infringing the patent rights of third parties. Molecular is currently not aware of U.S. or foreign patents or pending patent applications owned by third parties that cover therapeutic uses of ETBs. In the future, Molecular may identify such third-party U.S. and non-U.S issued patents and pending applications. If Molecular identifies any such patents or pending applications, Molecular may in the future pursue available proceedings in the U.S. and foreign patent offices to challenge the validity of these patents and patent applications. In addition, or alternatively, Molecular may consider whether to seek to negotiate a license of rights to technology covered by one or more of such patents and patent applications. If any patents or patent applications cover its product candidates or technologies or a requisite manufacturing process, Molecular may not be free to manufacture or market its product candidates, including MT-3724, as planned, absent such a license, which may not be available to Molecular on commercially reasonable terms, or at all.

It is also possible that Molecular has failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Moreover, it is difficult for industry participants, including Molecular, to identify all third-party patent rights that may be relevant to its product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Molecular may fail to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to its technology. In addition, Molecular may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or Molecular may incorrectly conclude that a third-party patent is invalid, unenforceable or not infringed by its activities. Additionally, pending patent applications that have been published can, subject to specified limitations, be later amended in a manner that could cover Molecular’s technologies, its product candidates or the use of its product candidates.

There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and reexamination proceedings before the USPTO and corresponding foreign patent offices. Third parties own numerous U.S. and foreign issued patents and pending patent applications in the fields in which Molecular is developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that Molecular’s product candidates may be subject to claims of infringement of the patent rights of third parties.

Parties making patent infringement claims against Molecular may obtain injunctive or other equitable relief, which could effectively block its ability to further develop and commercialize one or more of its product candidates. Defense of these claims, regardless of their merit, may involve substantial litigation expense and may require a substantial diversion of employee resources from Molecular’s business. In the event of a successful claim of patent infringement against Molecular, Molecular may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign its infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

Molecular may be unsuccessful in obtaining or maintaining third-party rights necessary to develop its ETB technologies or to commercialize its product candidates and associated methods of use through acquisitions and in-licenses.

Presently, Molecular has rights to intellectual property under patent applications that Molecular owns. Because Molecular’s programs may involve a range of ETB targets and antibody domains, which in the future may include targets and antibody domains that require the use of proprietary rights held by third parties, the growth of Molecular’s business may likely depend in part on Molecular’s ability to acquire, in-license or use these proprietary rights. In addition, Molecular’s product candidates may require specific formulations or manufacturing technologies to work effectively and be manufactured efficiently, and these rights may be held by others. Molecular may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that it identifies. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that Molecular may consider attractive. These established companies may have a competitive advantage over Molecular due to their size, cash resources and greater clinical development and commercialization capabilities.

For example, Molecular has previously and may continue to collaborate with federal, state or international academic institutions to accelerate its preclinical research or development under written agreements with these institutions. Typically, these institutions grant the rights to the collaborator and retain a non-commercial license to all rights as well as march-in rights in the situation that the collaborator fails to exercise or commercialize certain covered technologies. Regardless of such initial rights, Molecular may be unable to exercise or commercialize certain funded technologies thereby triggering march-in rights of the funding institution. If Molecular is unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking Molecular’s ability to pursue its program.

In addition, companies that perceive Molecular to be a competitor may be unwilling to assign or license rights to it. Molecular also may be unable to license or acquire third-party intellectual property rights on terms that would allow it to make an appropriate return on its investment. If Molecular is unable to successfully obtain rights to third-party intellectual property rights, its business, financial condition and prospects for growth could suffer.

If Molecular is unable to successfully obtain and maintain rights to required third-party intellectual property, Molecular may have to abandon development of that product candidate or pay additional amounts to the third-party, and its business and financial condition could suffer.

The patent protection and patent prosecution for some of Molecular’s product candidates may in the future be dependent on third parties.

While Molecular normally has or seeks and gains the right to fully prosecute the patent applications relating to its product candidates, there may be times when certain patents or patent applications relating to its product candidates, their uses or their manufacture may be controlled by its licensors. If any of its future licensors fail to appropriately and broadly prosecute patent applications and maintain patent protection of claims covering any of its product candidates, their uses or their manufacture, its ability to develop and commercialize those product candidates may be adversely affected and Molecular may not be able to prevent competitors from making, using, importing, and selling competing products. In addition, even where Molecular now has the right to control patent prosecution of patent applications or the maintenance of patents Molecular has licensed from third parties in the future, Molecular may still be adversely affected or prejudiced by actions or inactions of its licensors in effect from actions prior to Molecular assuming control over patent prosecution.

If Molecular fails to comply with obligations in the agreements under which Molecular licenses intellectual property and other rights from third parties or otherwise experiences disruptions to its business relationships with its licensors, Molecular could lose license rights that are important to its business.

Molecular is and will continue to be a party to a number of intellectual property license collaboration and supply agreements that may be important to its business and expects to enter into additional license agreements in the future. Molecular’s existing agreements impose, and Molecular expects that future agreements will impose, various diligence, milestone payment, royalty, purchasing and other obligations on it. If Molecular fails to comply with its obligations under these agreements, or Molecular is subject to a bankruptcy, its agreements may be subject to termination by the licensor or other contract partner, in which event Molecular would not be able to develop, manufacture or market products covered by the license or subject to supply commitments.

Molecular may be subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that its employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Molecular employs individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including Molecular’s competitors or potential competitors. Although Molecular has written agreements and makes every effort to ensure that its employees, consultants and independent contractors do not use the proprietary information or intellectual property rights of others in their work for Molecular, Molecular may in the future be subject to any claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. Litigation may be necessary to defend against these claims. If Molecular fails in defending any such claims, in addition to paying monetary damages, Molecular may lose valuable intellectual property rights or personnel, which could adversely impact its business. Even if Molecular is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Molecular may not be able to protect its intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Competitors may use Molecular’s technologies in jurisdictions where Molecular has not obtained patent protection to develop its own products and may also export infringing products to territories where Molecular has patent protection, but enforcement is not as strong as that in the United States. These products may compete with Molecular’s products, and Molecular’s patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries, particularly some developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to healthcare, medicine, or biotechnology products, which could make it difficult for Molecular to stop the infringement of its patents or marketing of competing products in violation of its proprietary rights generally. Proceedings to enforce Molecular’s patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert Molecular’s efforts and attention from other aspects of its business, could put Molecular’s patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing and could provoke third parties to assert claims against Molecular. Molecular may not prevail in any lawsuits that Molecular initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Molecular’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that it develops or licenses.

Risks Related to Molecular’s Reliance on Third Parties

Molecular relies on third parties to conduct its clinical trials, manufacture its product candidates and perform other services. If these third parties do not successfully perform and comply with regulatory requirements, Molecular may not be able to successfully complete clinical development, obtain regulatory approval or commercialize its product candidates, and its business could be substantially harmed.

Molecular has relied upon and plans to continue to rely upon third-party CROs to conduct, monitor and manage its ongoing clinical programs. Molecular relies on these parties for execution of clinical trials and manages and controls only some aspects of their activities. Molecular remains responsible for ensuring that each of its trials

is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and its reliance on the CROs does not relieve Molecular of its regulatory responsibilities. Molecular and its CROs and other vendors are required to comply with all applicable laws, regulations and guidelines, including those required by the FDA and comparable foreign regulatory authorities for all of its product candidates in clinical development. If Molecular or any of its CROs or vendors fail to comply with applicable laws, regulations and guidelines, the results generated in its clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require Molecular to perform additional clinical trials before approving its marketing applications. Molecular cannot be assured that its CROs and other vendors will meet these requirements, or that upon inspection by any regulatory authority, such regulatory authority will determine that efforts, including any of its clinical trials, comply with applicable requirements. Its failure to comply with these laws, regulations and guidelines may require Molecular to repeat clinical trials, which would be costly and delay the regulatory approval process.

If any of Molecular’s relationships with these third-party CROs terminates, Molecular may not be able to enter into arrangements with alternative CROs in a timely manner or do so on commercially reasonable terms. In addition, Molecular’s CROs may not prioritize Molecular’s clinical trials relative to those of other customers, and any turnover in personnel or delays in the allocation of CRO employees by the CRO may negatively affect its clinical trials. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, Molecular’s clinical trials may be delayed or terminated and Molecular may not be able to meet its current plans with respect to its product candidates. CROs also may involve higher costs than anticipated, which could negatively affect Molecular’s financial condition and operations.

In addition, Molecular does not currently have the capability to manufacture product candidates for use in the conduct of its clinical trials, and Molecular lacks the resources and the capability to manufacture any of its product candidates on a clinical or commercial scale without the use of third-party manufacturers. Molecular plans to rely on third-party manufacturers, and their responsibilities will include purchasing from third-party suppliers the materials necessary to produce Molecular’s product candidates for Molecular’s clinical trials and regulatory approval. Molecular expects there to be a limited number of suppliers for some of the raw materials that Molecular expects to use to manufacture its product candidates, and Molecular may not be able to identify alternative suppliers to prevent a possible disruption of the manufacture of its product candidates for its clinical trials, and, if approved, ultimately for commercial sale. Although Molecular generally does not expect to begin a clinical trial unless Molecular believes it has a sufficient supply of a product candidate to complete the trial, any significant delay or discontinuity in the supply of a product candidate, or the raw materials or other material components in the manufacture of the product candidate, could delay completion of its clinical trials and potential timing for regulatory approval of its product candidates, which would harm its business and results of operations.

Molecular does not yet have sufficient information to reliably estimate the cost of the commercial manufacturing of its product candidates and its current costs to manufacture its drug products may not be commercially feasible, and the actual cost to manufacture its product candidates could materially and adversely affect the commercial viability of its product candidates. As a result, Molecular may never be able to develop a commercially viable product.

In addition, Molecular’s reliance on third-party manufacturers exposes Molecular to the following additional risks:

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Molecular may be unable to identify manufacturers on acceptable terms or at all;

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Molecular’s third-party manufacturers might be unable to timely formulate and manufacture Molecular’s product or produce the quantity and quality required to meet Molecular’s clinical and commercial needs, if any;

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Contract manufacturers may not be able to execute Molecular’s manufacturing procedures appropriately;

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Molecular’s future third-party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply its clinical trials or to successfully produce, store and distribute its products;

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Manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMPs and other government regulations and corresponding foreign standards, and Molecular does not have control over third-party manufacturers’ compliance with these regulations and standards;

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Molecular may not own, or may have to share, the intellectual property rights to any improvements made by Molecular’s third-party manufacturers in the manufacturing process for its product candidates; and

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Molecular’s third-party manufacturers could breach or terminate their agreement with Molecular.

Each of these risks could delay Molecular’s clinical trials, the approval, if any of its product candidates by the FDA or the commercialization of its product candidates or result in higher costs or deprive Molecular of potential product revenue. In addition, Molecular relies on third parties to perform release testing on its product candidates prior to delivery to patients. If these tests are not appropriately conducted and test data are not reliable, patients could be put at risk of serious harm, which could result in product liability suits.

The manufacture of medical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of medical products often encounter difficulties in production, particularly in scaling up and validating initial production and absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in Molecular’s supply of its product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Molecular cannot be assured that any stability or other issues relating to the manufacture of its product candidates will not occur in the future. Additionally, Molecular’s manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If Molecular’s manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, Molecular’s ability to provide its product candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require Molecular to commence new clinical trials at additional expense or terminate clinical trials completely.

Molecular may be unable to realize the potential benefits of any collaboration.

Even if Molecular is successful in entering into a collaboration with respect to the development and/or commercialization of one or more product candidates, there is no guarantee that the collaboration will be successful. Collaborations may pose a number of risks, including:

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collaborators often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and may not commit sufficient resources to the development, marketing or commercialization of the product or products that are subject to the collaboration;

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collaborators may not perform their obligations as expected;

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any such collaboration may significantly limit Molecular’s share of potential future profits from the associated program, and may require it to relinquish potentially valuable rights to its current product candidates, potential products or proprietary technologies or grant licenses on terms that are not favorable to Molecular;

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collaborators may cease to devote resources to the development or commercialization of Molecular’s product candidates if the collaborators view its product candidates as competitive with their own products or product candidates;

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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the course of development, might cause delays or termination of the development or commercialization of product candidates, and might result in legal proceedings, which would be time consuming, distracting and expensive;

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collaborators may be impacted by changes in their strategic focus or available funding, or business combinations involving them, which could cause them to divert resources away from the collaboration;

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collaborators may infringe the intellectual property rights of third parties, which may expose Molecular to litigation and potential liability;

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the collaborations may not result in Molecular achieving revenues sufficient to justify such transactions; and

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collaborations may be terminated and, if terminated, may result in a need for Molecular to raise additional capital to pursue further development or commercialization of the applicable product candidate.

As a result, a collaboration may not result in the successful development or commercialization of Molecular’s product candidates.

Molecular enters into various contracts in the normal course of its business in which Molecular indemnifies the other party to the contract. In the event Molecular has to perform under these indemnification provisions, it could have a material adverse effect on its business, financial condition and results of operations.

In the normal course of business, Molecular periodically enters into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to Molecular’s academic and other research agreements, Molecular typically indemnifies the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which Molecular has secured licenses, and from claims arising from Molecular’s or its sublicensees’ exercise of rights under the agreement. With respect to Molecular’s collaboration agreements, Molecular indemnifies its collaborators from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right owned by a third party. With respect to consultants, Molecular indemnifies them from claims arising from the good faith performance of their services.

If Molecular’s obligations under an indemnification provision exceed applicable insurance coverage or if Molecular were denied insurance coverage, Molecular’s business, financial condition and results of operations could be adversely affected. Similarly, if Molecular is relying on a collaborator to indemnify Molecular and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify Molecular, its business, financial condition and results of operations could be adversely affected.

Risks Related to Commercialization of Molecular’s Product Candidates

Molecular currently has limited marketing and sales experience. If Molecular is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell its product candidates, Molecular may be unable to generate any revenue.

Although some of its employees may have marketed, launched and sold other pharmaceutical products in the past while employed at other companies, Molecular has no experience selling and marketing its product

candidates, and Molecular currently has no marketing or sales organization. To successfully commercialize any products that may result from its development programs, Molecular will need to find one or more collaborators to commercialize its products or invest in and develop these capabilities, either on its own or with others, which would be expensive, difficult and time consuming. Any failure or delay in the timely development of Molecular’s internal commercialization capabilities could adversely impact the potential for success of its products.

If commercialization collaborators do not commit sufficient resources to commercialize Molecular’s future products and Molecular is unable to develop the necessary marketing and sales capabilities on its own, Molecular will be unable to generate sufficient product revenue to sustain or grow its business. Molecular may be competing with companies that currently have extensive and well-funded marketing and sales operations, particularly in the markets its product candidates are intended to address. Without appropriate capabilities, whether directly or through third-party collaborators, Molecular may be unable to compete successfully against these more established companies.

Molecular may attempt to form collaborations in the future with respect to its product candidates, but it may not be able to do so, which may cause it to alter its development and commercialization plans.

Molecular may attempt to form strategic collaborations, create joint ventures or enter into licensing arrangements with third parties with respect to its programs that it believes will complement or augment its existing business. Molecular may face significant competition in seeking appropriate strategic collaborators, and the negotiation process to secure appropriate terms is time consuming and complex. Molecular may not be successful in its efforts to establish such a strategic collaboration for any product candidates and programs on terms that are acceptable to it, or at all. This may be because Molecular’s product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort, its research and development pipeline may be viewed as insufficient, the competitive or intellectual property landscape may be viewed as too intense or risky, and/or third parties may not view its product candidates and programs as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy profile.

Any delays in identifying suitable collaborators and entering into agreements to develop and/or commercialize Molecular’s product candidates could delay the development or commercialization of its product candidates, which may reduce their competitiveness even if they reach the market. Absent a strategic collaborator, Molecular would need to undertake development and/or commercialization activities at its own expense. If Molecular elects to fund and undertake development and/or commercialization activities on its own, it may need to obtain additional expertise and additional capital, which may not be available to it on acceptable terms or at all. If Molecular is unable to do so, it may not be able to develop its product candidates or bring them to market and its business may be materially and adversely affected.

If the market opportunities for its product candidates are smaller than Molecular believes they are, Molecular may not meet its revenue expectations and, assuming approval of a product candidate, its business may suffer. Because the patient populations in the market for its product candidates may be small, Molecular must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.

Molecular’s estimates for the addressable patient population and its estimates for the prices it can charge for its product candidates may differ significantly from the actual market addressable by its product candidates. For instance, Molecular’s Phase I clinical trial of MT-3724 is focused on non-Hodgkin’s lymphoma. The estimated prevalence of non-Hodgkin’s B-cell lymphoma is that an estimated 72,580 new cases and 20,150 deaths will be attributable to the disease in the United States in 2016, only a subset of which may benefit from treatment with MT-3724. Molecular’s projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with its product candidates, are based on its beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Additionally, while Molecular believes that the data in its Phase I clinical trials for MT-3724 are supportive of application to other indications, there can be no assurance that its clinical trials will successfully address any additional indications. Likewise, the potentially addressable patient population for each of its product candidates may be limited or may not be amenable to treatment with its product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect its business, financial condition, results of operations and prospects.

Molecular faces substantial competition and its competitors may discover, develop or commercialize products faster or more successfully than Molecular.

The development and commercialization of new drug products is highly competitive. Molecular faces competition from major pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, universities and other research institutions worldwide with respect to MT-3724 and the other product candidates that it may seek to develop or commercialize in the future. Molecular is aware that the following companies have therapeutics marketed or in development that could compete with ETBs: Roche, Genentech, Bayer, Takeda, AbbVie, Celgene, Seattle Genetics, Immunogen, Morphosys, Genmab, Bristol Myers Squibb, Novartis, Regeneron, Janssen, Xencor, Amgen, Macrogenics, Astra Zeneca, Lilly, Merck KGaA, Pfizer, Merus, Sanofi, Mentrik Biotech, Merrimack Pharmaceuticals, Spectrum Pharmaceuticals and F-Star. Molecular’s competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than MT-3724 or any other product candidates that Molecular is currently developing or that it may develop, which could render its product candidates obsolete and noncompetitive.

Many of Molecular’s competitors have materially greater name recognition and financial, manufacturing, marketing, research and drug development resources than it does. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in its competitors. Large pharmaceutical companies in particular have extensive expertise in preclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with Molecular’s competitors.

If Molecular’s competitors obtain marketing approval from the FDA or comparable foreign regulatory authorities for their product candidates more rapidly than Molecular does, it could result in Molecular’s competitors establishing a strong market position before Molecular is able to enter the market. Third-party payors, including governmental and private insurers, also may encourage the use of generic products. For example, if MT-3724 is ultimately approved, it may be priced at a significant premium over other competitive products. This may make it difficult for MT-3724 or any other future products to compete with these products. Failure of MT-3724 or other product candidates to effectively compete against established treatment options or in the future with new products currently in development would harm Molecular’s business, financial condition, results of operations and prospects.

The commercial success of any of Molecular’s current or future product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.

Even with the approvals from the FDA and comparable foreign regulatory authorities, the commercial success of Molecular’s products will depend in part on the health care providers, patients and third-party payors accepting its product candidates as medically useful, cost-effective and safe. Any product that Molecular brings to the market may not gain market acceptance by physicians, patients and third-party payors. The degree of market acceptance of any of Molecular’s products will depend on a number of factors, including but not limited to:

•

the efficacy of the product as demonstrated in clinical trials and potential advantages over competing treatments; 101

•

the prevalence and severity of the disease and any side effects;

•

the clinical indications for which approval is granted, including any limitations or warnings contained in a product’s approved labeling;

•

the convenience and ease of administration;

•

the cost of treatment;

•

the willingness of the patients and physicians to accept these therapies;

•

the perceived ratio of risk and benefit of these therapies by physicians and the willingness of physicians to recommend these therapies to patients based on such risks and benefits;

•

the marketing, sales and distribution support for the product;

•

the publicity concerning its products or competing products and treatments; and

•

the pricing and availability of third-party insurance coverage and reimbursement.

Even if a product displays a favorable efficacy and safety profile upon approval, market acceptance of the product remains uncertain. Efforts to educate the medical community and third-party payors on the benefits of the products may require significant investment and resources and may never be successful. If its products fail to achieve an adequate level of acceptance by physicians, patients, third-party payors and other health care providers, Molecular will not be able to generate sufficient revenue to become or remain profitable.

Molecular may not be successful in any efforts to identify, license, discover, develop or commercialize additional product candidates.

Although a substantial amount of Molecular’s effort will focus on the continued clinical testing, potential approval and commercialization of its existing product candidates, the success of Molecular’s business is also expected to depend in part upon its ability to identify, license, discover, develop or commercialize additional product candidates. Research programs to identify new product candidates require substantial technical, financial and human resources. Molecular may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Molecular’s research programs or licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:

•

Molecular’s research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;

•

Molecular may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;

•

its product candidates may not succeed in preclinical or clinical testing;

•

its potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;

•

competitors may develop alternatives that render Molecular’s product candidates obsolete or less attractive;

•

product candidates Molecular develops may be covered by third parties’ patents or other exclusive rights;

•

the market for a product candidate may change during Molecular’s program so that such a product may become unreasonable to continue to develop;

•

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

•

a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.

If any of these events occur, Molecular may be forced to abandon its development efforts for a program or programs, or Molecular may not be able to identify, license, discover, develop or commercialize additional product candidates, which would have a material adverse effect on its business, financial condition or results of operations and could potentially cause Molecular to cease operations.

Failure to obtain or maintain adequate reimbursement or insurance coverage for products, if any, could limit Molecular’s ability to market those products and decrease its ability to generate revenue.

The pricing, coverage, and reimbursement of Molecular’s approved products, if any, must be sufficient to support its commercial efforts and other development programs, and the availability and adequacy of coverage and reimbursement by third-party payors, including governmental and private insurers, are essential for most patients to be able to afford expensive treatments. Sales of Molecular’s approved products, if any, will depend substantially, both domestically and abroad, on the extent to which the costs of its approved products, if any, will be paid for or reimbursed by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or government payors and private payors. If coverage and reimbursement are not available, or are available only in limited amounts, Molecular may have to subsidize or provide products for free or Molecular may not be able to successfully commercialize its products.

In addition, there is significant uncertainty related to the insurance coverage and reimbursement for newly approved products. In the United States, the principal decisions about coverage and reimbursement for new drugs are typically made by the CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel product candidates such as Molecular’s and what reimbursement codes its product candidates may receive if approved.

Outside the United States, international operations are generally subject to extensive governmental price controls and other price-restrictive regulations, and Molecular believes the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of products. In many countries, the prices of products are subject to varying price control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the amount that Molecular is able to charge for its products, if any. Accordingly, in markets outside the United States, the potential revenue may be insufficient to generate commercially reasonable revenue and profits.

Moreover, increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result in restrictions on coverage and the level of reimbursement for new products and, as a result, they may not cover or provide adequate payment for its products. Molecular expects to experience pricing pressures in connection with products due to the increasing trend toward managed healthcare, including the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, and prescription drugs in particular, has and is expected to continue to increase in the future. As a result, profitability of Molecular’s products, if any, may be more difficult to achieve even if they receive regulatory approval.

Risks Related to Molecular’s Business Operations

Molecular’s future success depends in part on its ability to retain its Chief Executive Officer and Chief Scientific Officer and to attract, retain, and motivate other qualified personnel.

Molecular is highly dependent on Eric E. Poma, Ph.D., its Chief Executive Officer and Chief Scientific Officer, the loss of whose services may adversely impact the achievement of its objectives. Dr. Poma could leave Molecular’s employment at any time, as he is an “at will” employee. Recruiting and retaining other qualified employees, consultants and advisors for Molecular’s business, including scientific and technical personnel, will also

be crucial to Molecular’s success. There is currently a shortage of highly qualified personnel in Molecular’s industry, which is likely to continue. Additionally, this shortage of highly qualified personnel is particularly acute in the area where Molecular is located. As a result, competition for personnel is intense and the turnover rate can be high. Molecular may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in development and commercialization of Molecular’s product candidates may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of Dr. Poma may impede the progress of Molecular’s research, development and commercialization objectives and would negatively impact Molecular’s ability to succeed in its product development strategy.

Molecular will need to expand its organization, and Molecular may experience difficulties in managing this growth, which could disrupt its operations.

As of December 31, 2016, Molecular had 24 full-time employees. As Molecular’s development and commercialization plans and strategies develop, Molecular expects to need additional managerial, operational, sales, marketing, financial, legal and other resources. Molecular’s management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these growth activities. Molecular may not be able to effectively manage the expansion of its operations, which may result in weaknesses in its infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Molecular’s expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If Molecular’s management is unable to effectively manage its growth, its expenses may increase more than expected, its ability to generate and/or grow revenue could be reduced and it may not be able to implement its business strategy. Molecular’s future financial performance and its ability to commercialize product candidates and compete effectively will depend, in part, on its ability to effectively manage any future growth.

Failure in Molecular’s information technology and storage systems could significantly disrupt the operation of Molecular’s business.

Molecular’s ability to execute its business plan and maintain operations depends on the continued and uninterrupted performance of its information technology, or IT, systems. IT systems are vulnerable to risks and damages from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of Molecular’s and its vendors’ servers are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive problems. These events could lead to the unauthorized access, disclosure and use of non-public information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, Molecular may not be able to address these techniques proactively or implement adequate preventative measures. If Molecular’s computer systems are compromised, it could be subject to fines, damages, litigation and enforcement actions, and it could lose trade secrets, the occurrence of which could harm its business. Despite precautionary measures to prevent unanticipated problems that could affect its IT systems, sustained or repeated system failures that interrupt Molecular’s ability to generate and maintain data could adversely affect its ability to operate its business.

Risks Related to the Combined Company

In determining whether you should approve the merger, the issuance of shares of Threshold common stock and other matters related to the merger, as applicable, you should carefully read the following risk factors in addition to the risks described above.

The market price of the combined company’s common stock is expected to be volatile, and the market price of the common stock may drop following the merger.

The market price of the combined company’s common stock following the merger could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the Threshold common stock to fluctuate include:

•

the ability of the combined company to obtain regulatory approvals for MT-3724 or other product candidates, and delays or failures to obtain such approvals;

•

failure of any of the combined company’s product candidates, if approved, to achieve commercial success;

•

failure by the combined company to maintain its existing third-party license and supply agreements;

•

failure by the combined company or its licensors to prosecute, maintain, or enforce its intellectual property rights;

•

changes in laws or regulations applicable to the combined company’s product candidates;

•

any inability to obtain adequate supply of the combined company’s product candidates or the inability to do so at acceptable prices;

•

adverse regulatory authority decisions;

•

introduction of new products, services or technologies by the combined company’s competitors;

•

failure to meet or exceed financial and development projections the combined company may provide to the public;

•

failure to meet or exceed the financial and development projections of the investment community;

•

the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

•

announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the combined company or its competitors;

•

disputes or other developments relating to proprietary rights, including patents, litigation matters, and the combined company’s ability to obtain patent protection for its technologies;

•

additions or departures of key personnel;

•

significant lawsuits, including patent or stockholder litigation;

•

if securities or industry analysts do not publish research or reports about the combined company’s business, or if they issue an adverse or misleading opinions regarding its business and stock;

•

changes in the market valuations of similar companies;

•

general market or macroeconomic conditions;

•

sales of its common stock by the combined company or its stockholders in the future;

•

trading volume of the combined company’s common stock;

•

announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;

•

adverse publicity relating to ETB therapeutics generally, including with respect to other products and potential products in such markets;

•

the introduction of technological innovations or new therapies that compete with potential products of the combined company;

•

changes in the structure of health care payment systems; and

•

period-to-period fluctuations in the combined company’s financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and reputation.

Additionally, a decrease in the stock price of the combined company may cause the combined company’s common stock to no longer satisfy the continued listing standards of The NASDAQ Capital Market. If the combined company is not able to maintain the requirements for listing on The NASDAQ Capital Market, it could be delisted, which could have a materially adverse effect on its ability to raise additional funds as well as the price and liquidity of its common stock.

The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that Molecular did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new implemented by the SEC and NASDAQ. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time consuming and costly. For example, the combined company’s management team will consist of the executive officers of Molecular prior to the merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations also may make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

Anti-takeover provisions in the combined company’s charter documents and under Delaware law could make an acquisition of the combined company more difficult and may prevent attempts by the combined company stockholders to replace or remove the combined company management.

Provisions in the combined company’s certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a prohibition on actions by written consent of the combined company’s stockholders, a staggered board and the ability of the board of directors to issue preferred stock without stockholder approval. In addition, because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although Threshold and Molecular believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with the combined company’s board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the combined company’s stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.

The bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between the combined company and its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with the combined company or its directors, officers or other employees.

The bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on the combined company’s behalf, any action asserting a breach of fiduciary duty owed by any of its directors, officers or other employees to the combined company or its stockholders, any action asserting a claim against it arising pursuant to any provisions of the DGCL, its certificate of incorporation or its bylaws, or any action asserting a claim against it that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such lawsuits against the combined company and its directors, officers and other employees. If a court were to find the choice of forum provision contained in the bylaws to be inapplicable or unenforceable in an action, the combined company may incur additional costs associated with resolving such action in other jurisdictions.

Threshold and Molecular do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings, if any, to fund the development and growth of the combined company’s business. As a result, capital appreciation, if any, of the common stock of the combined company will be your sole source of gain, if any, for the foreseeable future.

An active trading market for the combined company’s common stock may not develop and its stockholders may not be able to resell their shares of common stock for a profit, if at all.

Prior to the merger, there had been no public market for Molecular common stock. An active trading market for the combined company’s shares of common stock may never develop or be sustained. If an active market for its common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.

Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.

If existing stockholders of Threshold and Molecular sell, or indicate an intention to sell, substantial amounts of the combined company’s common stock in the public market after legal restrictions on resale discussed in this proxy statement/prospectus/information statement lapse, the trading price of the common stock of the combined company could decline. Based on shares outstanding as of June 6, 2017, shares expected to be issued upon completion of the merger, and assuming completion of the concurrent financing and Takeda equity financing in connection with the merger, the combined company is expected to have outstanding a total of approximately 295,878,247 shares of common stock immediately following the completion of the merger, without giving effect to the reverse stock split. Of the 295,878,247 shares of common stock, 158,997,381 shares, without giving effect to the reverse stock split, will be available for sale in the public market beginning 180 days after the closing of the merger as a result of the expiration of lock-up or similar agreements between Threshold and Molecular on the one hand and certain stockholders and Threshold and Molecular on the other hand. All other outstanding shares of common stock will be freely tradable, without restriction, in the public market. In addition, shares of common stock that are subject to outstanding options of Molecular will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these shares are sold, the trading price of the combined company’s common stock could decline.

After completion of the merger, Molecular’s executive officers, directors and principal stockholders will have the ability to control or significantly influence all matters submitted to the combined company’s stockholders for approval.

Upon the completion of the merger and concurrent financing and Takeda equity financing, it is anticipated that Molecular’s executive officers, directors and principal stockholders will, in the aggregate, beneficially own approximately 44.7% of the combined company’s outstanding shares of common stock (excluding Threshold’s out of the money options). As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to the combined company’s stockholders for approval, as well as the combined company’s management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of the combined company’s assets. Within this group, before giving effect to the concurrent financing and Takeda equity financing, Santé Health Ventures I, L.P. and its affiliates will own approximately 45.3% of the combined company’s shares (excluding Threshold’s out of the money options), and Excel Venture Fund II, L.P. and AJU Growth & Healthcare Fund and its affiliates will own approximately 7.4% and 6.4%, respectively. This concentration of voting power could delay or prevent an acquisition of the combined company on terms that other stockholders may desire.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the combined company, its business or its market, its stock price and trading volume could decline.

The trading market for the combined company’s common stock will be influenced by the research and reports that equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined company’s common stock after the completion of the merger, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined company will not have any control over the analysts or the content and opinions included in their reports. The price of the combined company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.

The combined company will have broad discretion in the use of proceeds from the concurrent financing and Takeda equity financing and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

The combined company will have broad discretion over the use of proceeds from the concurrent financing and Takeda equity financing. You may not agree with the combined company’s decisions, and its use of the proceeds may not yield any return on your investment. The combined company’s failure to apply the net proceeds of the concurrent financing and Takeda equity financing effectively could compromise its ability to pursue its growth strategy and the combined company might not be able to yield a significant return, if any, on its investment of these net proceeds. You will not have the opportunity to influence its decisions on how to use the net proceeds from the concurrent financing or Takeda equity financing.

Because the merger will result in an ownership change under Section 382 of the Code for Threshold, Threshold’s pre-merger net operating loss carryforwards and certain other tax attributes will be subject to limitation or elimination. The net operating loss carryforwards and certain other tax attributes of Molecular and of the combined company may also be subject to limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, or Section 382, the corporation’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50 percentage points by value over a rolling three-year period. Similar rules may apply under state tax laws. The merger will result in an ownership change for Threshold and, accordingly, Threshold’s net operating loss carryforwards and certain other tax attributes will be subject to limitation and possibly elimination after the merger. The merger is expected to limit Molecular’s net operating loss carryforwards and certain other tax attributes.

Additional ownership changes in the future could result in additional limitations on Threshold’s, Molecular’s and the combined company’s net operating loss carryforwards and certain other tax attributes. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of Threshold’s, Molecular’s or the combined company’s net operating loss carryforwards and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.

If the combined company fails to maintain proper and effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.

The combined company will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of NASDAQ. The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective disclosure controls and procedures and internal control over financial reporting. The combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. As a private company, Molecular has never been required to test its internal controls within a specified period. This will require that the combined company incur substantial professional fees and internal costs to expand its accounting and finance functions and that it expend significant management efforts. The combined company may experience difficulty in meeting these reporting requirements in a timely manner.

The combined company may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. The combined company’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and effective internal controls, the combined company may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its common stock could decline and it could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities.

EX-99.3 6 d266142dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

INDEX TO MOLECULAR FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm		F-2
Financial Statements:
Balance Sheets as of December 31, 2016 and 2015		F-3
Statements of Operations for Years Ended December 31, 2016 and 2015		F-4
Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2016 and 2015		F-5
Statements of Cash Flows for years ended December 31, 2016 and 2015		F-6
Notes to Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Molecular Templates, Inc.

Austin, Texas

We have audited the accompanying financial statements of Molecular Templates, Inc., which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, and the related notes to the financial statements. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Molecular Templates, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

As more fully discussed in Note 2 to the financial statements, the 2015 financial statements have been restated to correct misstatements related to accounting for warrants, stock compensation expense and income taxes. Our opinion is not modified with respect to this matter.

We also audited the adjustments described in Note 2 that were applied to restate beginning accumulated deficit and additional paid-in-capital as of January 1, 2015. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2014 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2014 financial statements as a whole.

As discussed in Note 4 to the financial statements, the Company has elected to change its method of accounting for Preferred Stock in 2016. Our opinion is not modified with respect to this matter.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

/s/ BDO USA, LLP

Austin, Texas

February 22, 2017

F-2

Molecular Templates, Inc.

Balance Sheets


December 31,	2016			2015
				(Restated)
Assets

Current Assets
Cash and cash equivalents	$	1,715,777		$	4,244,792
Prepaid expenses and other current assets		126,727			209,371

Total Current Assets		1,842,504			4,454,163

Property and Equipment, net		334,438			174,629

Intangible Assets		920,766			332,977

Total Assets	$	3,097,708		$	4,961,769

Liabilities, Mezzanine Equity and Stockholders’ Deficit

Current Liabilities
Accounts payable	$	934,258		$	357,444
Accrued expenses		1,210,320			410,236
Deferred revenue		1,870,254			1,500,000
Current portion of capital lease obligations		35,596			18,693
Current portion of long-term debt		2,400,000			666,667
Related party debt (Note 6)		7,315,038			2,684,962

Total Current Liabilities		13,765,466			5,638,002

Capital Lease Obligations, net of current portion		53,297			4,615

Warrant Liabilities		48,634			33,777

Long-Term Debt, net of current portion		3,164,325			2,303,207

Total Liabilities		17,031,722			7,979,601

Commitments and Contingencies (Note 13)

Mezzanine Equity
Series A Preferred Stock		3,889,257			3,689,257
Series B Preferred Stock		5,480,130			5,173,658
Series C Preferred Stock		16,501,938			15,435,762

Total Mezzanine Equity		25,871,325			24,298,677

Stockholders’ Deficit		(39,805,339	)		(27,316,509	)

Total Liabilities, Mezzanine Equity and Stockholders’ Deficit	$	3,097,708		$	4,961,769

See accompanying notes to financial statements.

F-3

Molecular Templates, Inc.

Statements of Operations


Year Ended December 31,	2016			2015
				(Restated)
Grant Revenue	$	1,879,746		$	526,456

Operating Expenses
General and administrative		4,477,448			2,566,417
Research and development		8,016,636			3,340,937
Loss on disposal of equipment		4,766			1,847

Total Operating Expenses		12,498,850			5,909,201

Loss from Operations		(10,619,104	)		(5,382,745	)

Other Income (Expense)
Other income, net		18,660			24,096
Interest expense		(430,959	)		(64,175	)
Change in fair value of warrant liabilities		3,293			3,190

Total Other Income (Expense)		(409,006	)		(36,889	)

Loss Before Income Tax Benefit		(11,028,110	)		(5,419,634	)

Income Tax		—			—

Net Loss		(11,028,110	)		(5,419,634	)

Deemed Dividends on Preferred Stock		(1,572,648	)		(1,572,648	)

Net Loss Attributable to Common Shareholders	$	(12,600,758	)	$	(6,992,282	)

See accompanying notes to financial statements.

F-4

Molecular Templates, Inc.

Statements of Changes in Stockholders’ Deficit


	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares		Amount		Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance at December 31, 2014 (Restated)		301,163	$	302	$	343,718	$	(20,779,873	)	$	(20,434,853	)
Stock compensation expense		—		—		111,626		—			111,626
Deemed dividends on preferred stock		—		—		—		(1,572,648	)		(1,572,648	)
Net loss		—		—		—		(5,419,634	)		(5,419,634	)

Balance at December 31, 2015 (Restated)		301,163		302		455,344		(27,772,155	)		(27,316,509	)
Exercise of common stock options		2,140		1		2,478		—			2,479
Stock compensation expense		—		—		109,449		—			109,449
Deemed dividends on preferred stock		—		—		—		(1,572,648	)		(1,572,648	)
Net loss		—		—		—		(11,028,110	)		(11,028,110	)

Balance at December 31, 2016		303,303	$	303	$	567,271	$	(40,372,913	)	$	(39,805,339	)

See accompanying note to financial statements

F-5

Molecular Templates, Inc.

Statements of Cash Flows


Year Ended December 31,	2016			2015
				(Restated)
Cash Flows from Operating Activities
Net loss	$	(11,028,110	)	$	(5,419,634	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		65,283			59,730
Loss on disposal of equipment		4,766			1,847
Stock compensation expense		109,449			111,626
Amortization of debt discount		12,601			6,838
Change in fair value of warrant liabilities		(3,293	)		(3,190	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		83,644			(178,160	)
Accounts payable		556,814			259,435
Accrued expenses		800,084			284,393
Deferred revenue		370,254			985,544

Net Cash Used in Operating Activities		(9,028,508	)		(3,891,571	)

Cash Flows from Investing Activities
Purchases of property and equipment		(101,015	)		(33,935	)
Increase in intangible assets		(587,789	)		(254,080	)

Net Cash Used in Investing Activities		(688,804	)		(288,015	)

Cash Flows from Financing Activities
Payments on capital lease obligations		(44,257	)		(17,708	)
Proceeds from issuance of long-term debt		3,000,000			3,000,000
Repayment of long-term debt		(400,000	)		—
Proceeds from issuance of related party debt		4,630,076			2,684,962
Proceeds from exercise of common stock options		2,478			—

Net Cash Provided by Financing Activities		7,188,297			5,667,254

Net (Decrease) Increase in Cash and Cash Equivalents		(2,529,015	)		1,487,668
Cash and Cash Equivalents—Beginning of Year		4,244,792			2,757,124

Cash and Cash Equivalents—End of Year	$	1,715,777		$	4,244,792

Supplemental Cash Flow Information
Cash paid for interest	$	229,518		$	63,353

Non-Cash Investing and Financing Activities
Deemed dividends on preferred stock	$	1,572,648		$	1,572,648
Capital lease additions to fixed assets	$	109,843		$	—
Fixed asset additions in accounts payable	$	20,000		$	—
Warrants issued with debt	$	18,150		$	36,962

See accompanying notes to financial statements.

F-6

Organization and Nature of Operations

Notes to Financial Statements

1.	Organization and Nature of Operations

Nature of the Business

Molecular Templates, Inc. (the “Company”) is clinical stage a biopharmaceutical company formed in 2009, with a differentiated protein platform for the development of new therapeutics in cancer and other diseases, headquartered in Austin, Texas. The initial development activities are focused on the research and development of lead compounds for a variety of cancers.

Basis of Presentation

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

2.	Restatement of Financial Statements

Background

The Company restated certain balances as of and for the year ended December 31, 2015 to give effect to the following correction of errors:

Accounting for warrants—to record liabilities associated with warrants issued in 2015 as debt discount; change in fair value of the warrant liabilities; and amortization of debt discount;

Accounting for stock compensation expense—to record compensation expense for stock options issued to employees; and

Accounting for deferred taxes—to record a valuation allowance against a deferred tax asset.

Impact of the Restatement

The cumulative effect of these adjustments on the Company’s previously reported stockholders’ equity was a decrease of $25,943 as of the beginning of the fiscal year ended December 31, 2015.

Certain amounts in the 2015 financial statements have been reclassified to conform to current period presentation. The following is a summary of the impact of the restatement on the Company’s balance sheet, statement of operations, statement of changes in stockholders’ equity, and statement of cash flows:


	As of December 31, 2015
	As Previously Reported			Adjustments			As Restated
Balance Sheet Data
Deferred tax asset, net	$	25,943		$	(25,943	)	$	—
Warrant liabilities		—			33,777			33,777
Long-term debt, net of current portion		2,333,333			(30,126	)		2,303,207
Redeemable convertible preferred stock		—	*		24,298,677			24,298,677
Stockholders’ deficit		(2,988,239	)*		(24,328,270	)		(27,316,509	)

F-7


	Year Ended December 31, 2015
	As Previously Reported			Adjustments			As Restated
Statement of Operations Data
General and administrative	$	2,447,953		$	118,464		$	2,566,417
Change in fair value of warrant liabilities		—			(3,190	)		(3,190	)

Cash Flow Data
Net loss	$	(5,304,360	)	$	(115,274	)	$	(5,419,634	)
Stock compensation expense		—			111,626			111,626
Change in fair value of warrant liabilities		—			(3,190	)		(3,190	)
Amortization of debt discount		—			6,838			6,838

The Company elected to reclassify the redeemable convertible preferred stock to mezzanine equity in 2016. Stockholders’ Deficit has been adjusted to reflect the reclassification of redeemable convertible preferred stock of $24,298,667, which includes a cumulative adjustment of $4,767,371 to record preferred stock at its redemption value at December 31, 2015.

3.	Liquidity and Going Concern

The Company has incurred significant net losses and negative cash flows from operations since inception, and as a result has an accumulated deficit of approximately $40.4 million at December 31, 2016. The Company expects to incur a net loss and negative cash flows from operations in 2017 and the foreseeable future. The Company’s management believes that successful achievement of the Company’s business objectives will require additional financing. Given these conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements have been prepared on a going concern basis and do not include any adjustments that might result from these uncertainties.

The Company expects to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements and/or public or private debt. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may be required to curtail its business activities until it can obtain adequate financing.

4.	Summary of Significant Accounting Policies

Reclassifications

Certain amounts in the financial statements for prior periods have been reclassified to conform to current period presentation.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers temporary investments with original maturities of three months or less from date of purchase to be cash equivalents.

F-8

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents. The Company places its cash and cash equivalents with a limited number of high quality financial institutions and may exceed the amount of insurance provided on such deposits. The Company is also subject to risk related to concentrations in grant revenue. During the years ended December 31, 2016 and 2015, one grant provided 100% and 98% of the Company’s grant revenue, respectively.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Major additions and improvements are capitalized while maintenance and repairs that do not improve or extend the useful life of the respective asset are expensed. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, which range from five to seven years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.

Intangible Assets

The Company capitalizes patent application costs that are expected to have a future benefit to the Company. These costs will be amortized over the expected life of the patent.

Impairment of Long-Lived Assets

When events, circumstances and/or operating results indicate that the carrying values of long-lived assets might not be recoverable through future operations, the Company prepares projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate that the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value is estimated based upon internal evaluation of each asset that includes quantitative analyses of net revenue and cash flows, review of recent sales of similar assets and market responses based upon discussions in connection with offers received from potential buyers. Certain factors used for this nonrecurring fair value measurement are considered Level 3 inputs. Management determined there was no impairment during the years ended December 31, 2016 and 2015.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the related services have been performed, the price is fixed and determinable and collectability is reasonably assured. The Company receives funds from state and city financial assistance programs. The state award is a conditional cost reimbursement grant and revenue is recognized as allowable costs are incurred. The revenue from the city award was recognized when the performance conditions were met. The Company recognized approximately $1.9 million and $0.5 million in grant revenue under these awards during the years ended December 31, 2016 and 2015, respectively. Amounts collected in excess of revenue recognized are recorded as deferred revenue.

Income Taxes

Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

F-9

ASC 740 clarifies the accounting for uncertainty in income taxes recognized in the financial statements and provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of tax expense. The Company has not recognized any material uncertain tax positions for the years ended December 31, 2016 and 2015.

The Company files income tax returns in the U.S. federal, New Jersey and Texas jurisdictions. As of December 31, 2016, the statute of limitations for assessment by the Internal Revenue Service (“IRS”) is open for the 2013 and subsequent tax years, although carryforward attributes that were generated for tax years prior to then may still be adjusted upon examination by the IRS if they either have been, or will be, used in a future period. The 2012 and subsequent tax years remain open and subject to examination by the State of New Jersey and the State of Texas. There are currently no federal or state income tax audits in progress.

Stock-Based Compensation

The Company accounts for its stock-based compensation awards in accordance with Accounting Standards Codification (“ASC”) Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. The Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. The Company recognizes stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options over the requisite service period.

Preferred Stock

The Company’s Series A, B and C Convertible Preferred Stock (collectively known as “Preferred Stock”) allows the holders to require the company to redeem their shares after achievement of specified certain milestones. Certain of the redemption features are outside the Company’s control, and as a result, the Preferred Stock has been reflected in the balance sheet as mezzanine equity.

Effective January 1, 2016, the Company changed its accounting policy related to the Preferred Stock. The Company had previously reported Preferred Stock as a component of Stockholders’ Equity, but now presents Preferred Stock in mezzanine equity. The Company applied this change retrospectively, and as a result, an adjustment of $24,298,667 to record Preferred Stock at its redemption value, was made to the previously reported December 31, 2015 financial statements. Additionally, as a result of the accounting change, accumulated deficit as of January 1, 2015 increased from $17,297,022, as originally reported, to $20,779,873, to reflect the adjustment to record the Preferred Stock at its redemption value on January 1, 2015.

Warrants

In conjunction with various financing transactions, the Company issued warrants to purchase the Company’s Series C Preferred Stock that require liability classification.

The Company estimates the fair value of the warrants at each reporting period using Level 3 inputs. The estimates in valuation models are based, in part, on subjective assumptions, including but not limited to stock price volatility, the expected life of the warrants, the risk-free interest rate and the fair value of the Series C Preferred Stock underlying the warrants, and could differ materially in the future. Changes in the fair value of the

F-10

warrant liability from the prior period are recorded as a component of other income and expense. The Company will continue to adjust the fair value of the warrant liability at the end of each reporting period for changes in fair value from the prior period until the earlier of the exercise or expiration of the applicable warrant.

Research and Development Costs

Research and development costs are expensed as incurred.

Recently Issued Accounting Pronouncements

In May 2014 and August 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2014-09 and No. 2015-14, Revenue from Contracts with Customers, which supersede the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance included in the ASC. The standard requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The standard is effective retrospectively for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company is in the process of evaluating the impact the new standard will have on its financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related footnote disclosures in certain circumstances. This amendment is effective for fiscal years, and interim periods within those fiscal years, ending after December 15, 2016. The adoption of this accounting pronouncement required management to perform this assessment.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Retrospective application is required and early adoption is permitted. The adoption of ASU 2015-03 only impacts balance sheet classification; therefore, it did not have a material impact on the Company’s financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent in the balance sheet. ASU 2015-17 becomes effective for interim and annual periods beginning after December 31, 2016. The Company does not anticipate that this pronouncement will have a material impact on its financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires the recognition of lease assets and lease liabilities by lessees for all leases, including leases previously classified as operating leases, and modifies the classification criteria and accounting for sales type and direct financing leases by lessors. Leases continue to be classified as finance or operating leases by lessee and both classifications require the recognition of a right-of-use asset and a lease liability, initially measured at the present value of the lease payments in the statement of financial position. Interest on the lease liability and amortization of the right-of-use asset are recognized separately in the statement of operations for finance leases and as a single lease cost recognized on the straight-line basis over the lease term for operating leases. The standard is effective using a modified retrospective approach for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact the standard will have on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee

F-11

share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those annual periods beginning after December 15, 2018. The Company is currently evaluating the impact this guidance will have on its financial statements.

5.	Property and Equipment

Property and equipment consisted of the following:


December 31,	2016			2015
Lab equipment	$	488,212		$	335,172
Leasehold improvements		47,808			107,906
Furniture and fixtures		32,828			47,952
Computer and equipment		34,886			25,658

		603,734			516,688
Less: accumulated depreciation and amortization		(269,296	)		(342,059	)

Property and Equipment, net	$	334,438		$	174,629

Depreciation and amortization expense totaled approximately $65,000 and $60,000 for the years ended December 31, 2016 and 2015, respectively.

6.	Related-Party Transactions

During the years ended December 31, 2016 and 2015, the Company received an aggregate of approximately $4,630,000 and $2,685,000, respectively, from stockholders under secured convertible promissory notes (the “Notes”). All of the Notes issued in 2016 and 2015 have the same terms. The Notes are subordinate to the long-term debt due to a bank and accrue interest at a rate of 5.0% per annum, which is due with all unpaid principal on the maturity date of September 7, 2017. Accrued and unpaid interest related to the Notes totaled approximately $201,000 as of December 31, 2016 and is included with accrued expenses on the balance sheet. All outstanding principal and accrued interest is automatically convertible at 80% of the fair value price per share of preferred stock sold in a Qualified Equity Financing, as defined (the “Conversion Discount”). If the Notes remain outstanding beyond September 7, 2017, the Conversion Discount will automatically increase by 5% on September 8, 2017 (the “First Discount Increase Date”). Thereafter, on each consecutive three-month anniversary of the First Discount Increase Date, the Conversion Discount will automatically increase by additional successive 5% increments. If a Qualified Equity Financing does not occur or a Liquidation Event, as defined, occurs prior to September 7, 2017, the holders of the Notes have the right to convert the Notes into shares of Series C-1 Preferred Stock at $3.81 per share. The Conversion Discount represents a contingent beneficial conversion feature and will be accounted for when the contingency is resolved. The Notes are supported by an underlying note purchase agreement (the “Agreement”), which allows for aggregate principal borrowings of up to $10,000,000.

The Company incurred expenses to a stockholder for consulting fees which totaled approximately $60,000 for each of the years ended December 31, 2016 and 2015 included in general and administrative expenses.

7.	Borrowing Arrangements

The Company is obligated under a loan and security agreement with a bank which allows for aggregate borrowings of up to $6,000,000, subject to the Company’s achievement of certain milestones (the “Growth Capital Loan”). The Company borrowed an aggregate of $3,000,000 under the Growth Capital Loan during each

F-12

of the years ended December 31, 2016 and 2015. The Company made monthly interest-only payments at an annual rate equal to 1.19% above the Prime Rate. Beginning November 1, 2016, the Company paid the first of 30 consecutive equal monthly payments of principal plus interest. The Company paid approximately $400,000 in principal and $220,000 in interest in 2016 and $0 in principal and interest in 2015. The Growth Capital Loan matures on April 30, 2019 and is secured by substantially all assets of the Company. The Company does not have any financial loan covenants related to the Growth Capital Loan. As of December 31, 2016 and 2015, the Company was in compliance with the non-financial covenants of the Growth Capital Loan.

Future required principal payments on the Notes (see Note 6) and the Growth Capital Loan were as follows as of December 31, 2016:


Year Ending December 31,
2017	$	9,715,038
2018		2,400,000
2019		800,000

Total debt		12,915,038
Debt discount and deferred finance costs		(35,675	)

Total debt, net	$	12,879,363

8.	Common Stock

The following is a summary of the Company’s common stock as of December 31, 2016 and 2015:


	Par Value		Shares Authorized		Shares Issued and Outstanding
					December 31,
					2016		2015
Common Stock	$	0.001		11,048,874		303,303		301,163

9.	Mezzanine Equity

Redeemable Convertible Preferred Stock

The following is a summary of the Company’s redeemable convertible preferred stock as of December 31, 2016 and 2015 (collectively, the “Preferred Stock”):


	Par Value		Shares Authorized		Shares Issued and Outstanding
					December 31,
					2016		2015
Series A Preferred Stock	$	0.001		2,500,000		2,500,000		2,500,000
Series B Preferred Stock	$	0.001		2,273,531		2,273,531		2,273,531
Series C Preferred Stock	$	0.001		4,391,748		4,342,874		4,342,874

				9,165,279		9,116,405		9,116,405

F-13

The following table presents changes in the Preferred Stock:


	Series A Preferred		Series B Preferred		Series C Preferred		Total
Balance at December 31, 2014	$	3,489,257	$	4,867,186	$	14,369,586	$	22,726,029
Deemed dividends on Preferred Stock		200,000		306,472		1,066,176		1,572,648

Balance at December 31, 2015		3,689,257		5,173,658		15,435,762		24,298,677
Deemed dividends on Preferred Stock		200,000		306,472		1,066,176		1,572,648

Balance at December 31, 2016	$	3,889,257	$	5,480,130	$	16,501,938	$	25,871,325

Voting

The holders of the Preferred Stock are entitled to vote together with the holders of common stock on all matters submitted to stockholders for a vote. Each holder of Preferred Stock is entitled to the number of votes equal to the number of shares of common stock into which each preferred share is convertible at the time of such vote.

Dividends

The holders of Preferred Stock are entitled to receive dividends when, as and if declared by the Board of Directors and out of funds legally available, prior and in preference to any declaration or payment of any dividend on the Company’s common stock. Dividends accrue at an annual rate of $0.08 per share for Series A Preferred Stock, $0.1348 per share for Series B Preferred Stock, and $0.2455 per share for Series C Preferred Stock, and are cumulative. As of December 31, 2016 and 2015, accumulated but undeclared and unpaid dividends were approximately $6,340,000 and $4,767,000, respectively.

Liquidation

The Series C Preferred Stock is senior to the Series A and Series B Preferred Stock in the event of any liquidation, dissolution or winding up of the affairs of the Company (as defined), either voluntarily or involuntarily. The holders of Series A, B and C Preferred Stock are entitled to receive $1.00, $1.6851 and $3.0639 per share, respectively, plus all declared or accrued (whether or not declared) but unpaid dividends, or such lesser amount as may be approved by the holders of at least two-thirds of the then-outstanding shares of such stock, payable in preference and priority to any payments made to the holders of the then-outstanding common stock.

Redemption

The Preferred Stock is redeemable in two equal annual installments at the election of the holders of 80% of the then-outstanding shares of Preferred Stock at any time after the sixth anniversary of the original issue date. The redemption price for the Series A, B, and C Preferred Stock will be an amount per share equal to $1.00, $1.6851 and $3.0693, respectively, plus all declared or accrued and unpaid dividends thereon. The value of the Preferred Stock is being accreted up to redemption value from the date of issuance to the earliest redemption date of the instrument. Changes in the redemption value are recognized as they occur and reported as a deemed dividend on the preferred stock. The carrying value of the stock is adjusted to the redemption value at the end of the reporting period. If the Preferred Stock had been redeemed on December 31, 2016, the redemption value would have been approximately $25,870,000.

Conversion

Each share of Series A, B and C Preferred Stock, is convertible at the option of the holder, at any time after the date of issuance into a number of shares of common stock as determined by dividing $1.00, $1.6851 or

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$3.0693, respectively, by the conversion price in effect at the time. The initial conversion prices of the Series A, B, and C Preferred Stock are $1.00, $1.6851 and $3.0693, respectively, and are subject to adjustment (as defined by the agreement). Conversion is automatic upon the earlier of (i) the Company’s sale of common stock in a firm commitment underwritten public offering in which the public offering price exceeds $15.3465 per share and the aggregate gross proceeds raised is at least $50,000,000, or (ii) upon written request from the holders of 80% of the Preferred Stock then outstanding. At the commitment date, the fair value of common shares was less than the conversion price; therefore, there was no beneficial conversion feature at issuance.

10.

Warrants

In 2015 and 2016, the Company issued warrants to the lender in conjunction with the Growth Capital Loan. The holder of the warrants is entitled to purchase one share of Series C Convertible Preferred Stock for $3.0693 for each warrant. When issued, the fair value of the warrants was recorded as a debt discount. The Company had the following warrants outstanding and exercisable at December 31, 2016:


	Number of Shares		Exercise Price		Expiration Date
Series C Preferred Stock		14,254	$	3.0693		April 7, 2024
Series C Preferred Stock		17,310	$	3.0693		April 30, 2025
Series C Preferred Stock		17,310	$	3.0693		April 29, 2026

The Company utilizes the Black Scholes model to value the liability classified warrants. The estimated fair value of the warrants is determined using Level 3 inputs. Inherent in the Black Scholes model are key inputs related to stock price, exercise price, expected term, risk-free interest rate, expected volatility, and dividend yield.

11.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting requires characterization of the inputs used to measure fair value into a three-level fair value hierarchy as follows:

Level 1—Inputs based on quoted prices in active markets for identical assets or liabilities. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity.

Level 3—Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available.

Fair value measurements are classified based on the lowest level of input that is significant to the measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values stated below takes into account the market for the Company’s financials, assets and liabilities, the associated credit risk and other factors as required. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

The carrying amounts of cash and cash equivalents and accounts payable approximate their fair values due to the short-term maturities of these instruments. The carrying value of the Company’s debt approximates its fair value based on market prices of similar borrowings available.

The fair value of the Company’s warrant liabilities at inception and for subsequent mark-to-market fair value measurements are based on management’s valuation model and expectations with respect to the method

F-15

and timing of settlement. These estimates are prepared using models that consider various inputs including: (a) the Company’s estimated future cash flows, (b) time value, and (c) current market conditions, as well as other relevant economic measures. The Company has determined that the warrant liability fair values are Level 3 items within the fair value hierarchy.

The following table presents the changes in the warrant liabilities:


Warrant Liabilities
Balance at December 31, 2014	$	—
Fair value of Series C warrants issued		36,967
Changes in fair value of warrants		(3,190	)

Balance at December 31, 2015		33,777
Fair value of Series C warrants issued		18,150
Changes in fair value of warrants		(3,293	)

Balance at December 31, 2016	$	48,634

12.

Stock-Based Compensation

The 2009 Stock Plan (the “Plan”) provides for the issuance of incentive stock options, nonqualified stock options and restricted stock to employees, directors and consultants of the Company. The maximum number of shares of common stock that may be issued over the term of the Plan may not exceed 1,452,268 shares. The Company has reserved a sufficient number of shares of common stock to permit exercise of options in accordance with the terms of the Plan. The form of the options to be granted under the Plan will be determined by the Company’s Board of Directors at the time of grant. Options generally vest according to a five-year vesting schedule, with 20% of the shares vesting on the one-year anniversary and equal monthly vesting installments thereafter.

A summary of stock option activity during the year ended December 31, 2016 follows:


	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Options Outstanding, December 31, 2015		1,303,749		$	0.63		6.6	$	886,549
Issued		45,000
Exercised		(2,140	)
Cancelled		(15,438	)

Options Outstanding, December 31, 2016		1,331,171		$	0.65		5.7	$	878,573

Options Vested and Exercisable, December 31, 2016		853,761		$	0.51		4.6	$	683,009

There were no stock options granted during the year ended December 31, 2015. The assumptions used to calculate the fair value of options granted during the year ended December 31, 2016 under the Black-Scholes pricing model were as follows:


Black Scholes Inputs
Expected dividends		0.00	%
Expected volatility		76.00	%
Risk-free interest rate		1.25	%
Expected term		5 years
Weighted average fair value	$	1.31

F-16

The expected term of employee stock options represents the weighted-average period that the options are expected to remain outstanding. The risk-free interest rate is based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options. The expected volatility was based on comparable companies’ common stock in the same industry over a historical period which approximates the expected term of the options issued. The dividend yield assumption is based on the Company’s expectation of no dividend payouts.

As of December 31, 2016, total unrecognized compensation cost related to unvested stock option awards was approximately $112,000 and the related weighted average period over which it is expected to be recognized was 1.34 years.

13.

Commitments and Contingencies

The Company is obligated under operating lease agreements covering the Company’s office facilities. Facilities expense under the operating leases was approximately $288,000 and $198,000 for the years ended December 31, 2016 and 2015, respectively.

Future minimum payments due under the operating lease agreements at December 31, 2016 were as follows:


Year Ending December 31,
2017	$	556,298
2018		873,036
2019		932,196
2020		851,051
2021		883,946
2022		373,757

	$	4,470,284

The Company leases laboratory equipment under non-cancelable capital lease agreements. As of December 31, 2016 and 2015, laboratory equipment under capital leases included in property and equipment totaled approximately $136,000 and $43,000, respectively, net of accumulated amortization of approximately $44,000 and $27,000, respectively.

Future minimum capital lease payments consisted of the following at December 31, 2016:


Year Ending December 31,
2017	$	40,679
2018		33,993
2019		11,739
2020		11,739

		98,150
Less: amount representing interest		(9,257	)

		88,893
Current portion of capital lease obligations		(35,596	)

Capital Lease Obligations, net of current portion	$	53,297

14.

Income Taxes

The Company recorded no provision for income taxes for the years ended December 31, 2016 and 2015 due to reported net losses in each year.

F-17

A reconciliation of the expected income tax (benefit) expense computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2016 and 2015:


Year Ended December 31,	2016			2015
				(Restated)
Income tax benefit computed at federal statutory tax rate	$	(3,749,558	)	$	(1,842,676	)
Change in valuation allowance		3,952,307			1,972,608
Research credits		(308,186	)		(168,682	)
Other		105,437			38,750

Total	$	—		$	—

During the years ended December 31, 2016 and 2015, the Company had no interest and penalties related to income taxes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets based upon the Company’s lack of earnings history. During the year ended December 31, 2016, the valuation allowance increased by $3,952,307. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows:


December 31,	2016			2015
Net operating loss carryforwards	$	10,445,731		$	6,703,130
Credit carryforwards		965,084			636,549
Deferred revenue		635,886			510,000
Depreciation and amortization		(328,537	)		(104,836	)
Accrued liabilities		8,500			12,964
Stock compensation		8,008			4,207

		11,734,672			7,762,014
Less: valuation allowance		(11,734,672	)		(7,762,014	)

Total Deferred Tax Assets	$	—		$	—

As of December 31, 2016 and 2015, the Company had net operating loss carryforwards of $30,722,737 and $19,715,092, respectively, and federal research and development tax credit carryforwards of $884,988 and $576,802, respectively, for federal purposes, and Texas research and development tax credit carryforwards of $121,358 and $90,525, respectively. The net operating loss and tax credit carryforwards will expire in varying amounts, beginning in 2029 if not utilized. Utilization of the carryforward(s) may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as well as similar state provisions. Ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of stockholders who own at least 5% of the stock of a corporation by more than 50% in the aggregate over a three-year period. The Company has not performed a study to determine whether any ownership change has occurred since the Company’s formation through December 31, 2016. The Company’s ability to utilize existing carryforwards could be substantially restricted if an ownership change has occurred or will occur.

F-18

15.

Subsequent Events

The Company has evaluated subsequent events through February 22, 2017, the date the financial statements were available to be issued.

In January 2017, the Company borrowed approximately $2,184,000 from a stockholder under the note purchase agreement (see Note 6).

F-19

EX-99.4 7 d266142dex994.htm EX-99.4 EX-99.4

Exhibit 99.4

MOLECULAR TEMPLATES, INC.

Financial Statements

As of and for the Three and Six Months Ended

June 30, 2017 and 2016

MOLECULAR TEMPLATES, INC.

Contents


	Page
Financial Statements
Condensed Balance Sheets as of June 30, 2017 and December 31, 2016 (unaudited)		3

Condensed Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2017 and 2016 (unaudited)		4

Condensed Statements of Changes in Stockholders’ Deficit as of June 30, 2017 (unaudited)		5

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (unaudited)		6

Notes to Condensed Financial Statements (unaudited)		7-16

MOLECULAR TEMPLATES, INC.

Condensed Balance Sheets (Unaudited)


	June 30, 2017			December 31, 2016
Assets
Current Assets
Cash and cash equivalents	$	4,608,059		$	1,715,777
Accounts receivable		1,500,000			—
Prepaid expenses and other current assets		153,491			126,727

Total Current Assets		6,261,550			1,842,504
Property and Equipment, net		417,398			334,438
Intangible Assets		1,180,615			920,766

Total Assets	$	7,859,563		$	3,097,708

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Current Liabilities
Accounts payable	$	1,240,731		$	934,258
Accrued expenses		2,682,610			1,210,320
Deferred revenue		4,233,263			1,870,254
Current portion of capital lease obligations		49,915			35,596
Current portion of long-term debt		2,337,384			2,400,000
Promissory note payable		4,000,000			—
Related party debt (Note 8)		10,000,000			7,315,038

Total Current Liabilities		24,543,903			13,765,466
Deferred Rent		40,330			—
Capital Lease Obligations, net of current portion		73,179			53,297
Warrant Liabilities		45,572			48,634
Long-Term Debt, net of current portion		2,296,817			3,164,325

Total Liabilities		26,999,801			17,031,722
Commitments and Contingencies (Note 12)
Redeemable Convertible Preferred Stock
Series A Preferred Stock		3,991,128			3,889,257
Series B Preferred Stock		5,631,390			5,480,130
Series C Preferred Stock		17,069,230			16,501,938

Total Redeemable Convertible Preferred Stock		26,691,748			25,871,325

Stockholders’ Deficit		(45,831,986	)		(39,805,339	)

Total Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit	$	7,859,563		$	3,097,708

See accompanying notes to the unaudited condensed financial statements.

MOLECULAR TEMPLATES, INC.

Condensed Statements of Comprehensive Loss (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Grant Revenue	$	41,641		$	971,284		$	166,991		$	1,526,262
Collaboration Revenue		—			—			1,760,000			—

Total Revenue		41,641			971,284			1,926,991			1,526,262

Operating Expenses
General and administrative		2,614,704			1,434,158			4,534,567			2,219,895
Research and development		1,071,218			2,392,525			2,008,870			4,428,811
Loss on disposal of equipment		—			—			—			1,607

Total Operating Expenses		3,685,922			3,826,683			6,543,437			6,650,313

Loss from Operations		(3,644,281	)		(2,855,399	)		(4,616,446	)		(5,124,051	)
Other Income (Expense)
Other income, net		610			6,000			749			12,000
Interest expense		(421,854	)		(87,258	)		(645,282	)		(160,811	)
Change in fair value of warrant liabilities		1,672			852			3,062			1,344

Total Other Income (Expense)		(419,572	)		(80,406	)		(641,471	)		(147,467	)

Loss Before Income Tax		(4,063,853	)		(2,935,805	)		(5,257,917	)		(5,271,518	)
Income Tax		—			—			—			—

Net Loss		(4,063,853	)		(2,935,805	)		(5,257,917	)		(5,271,518	)
Deemed Dividends on Preferred Stock		(392,085	)		(396,162	)		(820,423	)		(786,324	)

Net Loss Attributable to Common Shareholders	$	(4,455,938	)	$	(3,331,967	)	$	(6,078,340	)	$	(6,057,842	)

Other Comprehensive (Loss) Income		—			—			—			—
Comprehensive Loss	$	(4,455,938	)	$	(3,331,967	)	$	(6,078,340	)	$	(6,057,842	)

See accompanying notes to the unaudited condensed financial statements.

MOLECULAR TEMPLATES, INC.

Condensed Statements of Changes in Stockholders’ Deficit (Unaudited)


	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)


	Shares		Amount
Balance at December 31, 2016		303,303		303		567,271		(40,372,913	)		(39,805,339	)
Stock compensation expense		—		—		51,693		—			51,693
Deemed dividends on preferred stock		—		—		—		(820,423	)		(820,423	)
Net loss		—		—		—		(5,257,917	)		(5,257,917	)

Balance at June 30, 2017		303,303	$	303	$	618,964	$	(46,451,253	)	$	(45,831,986	)

See accompanying notes to the unaudited condensed financial statements.

MOLECULAR TEMPLATES, INC.

Condensed Statements of Cash Flows (Unaudited)


	Six Months Ended June 30,
	2017			2016
Cash Flows from Operating Activities
Net loss	$	(5,257,917	)	$	(5,271,517	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		37,363			31,522
Loss on disposal of equipment		—			1,607
Stock compensation expense		51,693			58,320
Amortization of debt discount		269,874			5,609
Change in fair value of warrant liabilities		(3,062	)		(1,344	)
Changes in operating assets and liabilities:
Accounts receivable		(1,500,000	)		—
Prepaid expenses and other current assets		(26,763	)		139,653
Accounts payable		267,522			171,283
Accrued expenses		1,468,191			381,164
Deferred revenue		2,363,009			(526,263	)
Deferred rent		40,330			—

Net Cash Used in Operating Activities		(2,289,760	)		(5,009,966	)
Cash Flows from Investing Activities
Purchases of property and equipment		(20,420	)		(22,205	)
Increase in intangible assets		(259,849	)		(82,192	)

Net Cash Used in Investing Activities		(280,269	)		(104,397	)
Cash Flows from Financing Activities
Payments on capital lease obligations		(22,651	)		(13,782	)
Proceeds from issuance of debt		—			3,000,000
Repayment of long-term debt		(1,200,000	)		—
Proceeds from promissory note		4,000,000			—
Proceeds from issuance of related party debt		2,684,962			315,038

Net Cash Provided by Financing Activities		5,462,311			3,301,256

Net Increase (Decrease) in Cash and Cash Equivalents		2,892,282			(1,813,107	)
Cash and Cash Equivalents - Beginning of Period		1,715,777			4,244,793

Cash and Cash Equivalents - End of Period	$	4,608,059		$	2,431,686

Supplemental Cash Flow Information
Cash paid for interest	$	134,114		$	86,016

Non-Cash Investing and Financing Activities
Deemed dividends on preferred stock	$	820,423		$	786,324
Capital lease additions to fixed assets	$	56,851		$	50,205
Fixed asset additions in accounts payable	$	38,952		$	—
Fixed asset additions in accrued expenses	$	4,099		$	—
Warrants issued with debt	$	—		$	18,150

See accompanying notes to the unaudited condensed financial statements.

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

1. Organization and Nature of Operations

Nature of the Business

Molecular Templates, Inc. (the “Company”) is a clinical stage biopharmaceutical company formed in 2009, with a novel protein platform for the development of new therapeutics in cancer and other diseases, headquartered in Austin, Texas. The initial development activities are focused on the research and development of lead compounds for a variety of cancers.

Basis of Presentation

The Company prepared its interim condensed financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). They do not include all of the information and footnotes required by GAAP for complete financial statements. The Company has made estimates and judgments affecting the amounts reported in its condensed financial statements and the accompanying notes. The actual results that the Company experiences may differ materially from the Company’s estimates. The accounting estimates that require the Company’s most significant, difficult and subjective judgments include revenues, stock compensation, and warrant liability valuation.

Unaudited Interim Results

In management’s opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair statement of the results of operations, financial position, and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim condensed financial statements may not be the same as those for the full year. This interim information should be read in conjunction with the audited financial statements in the Company’s Annual Financial Statements for the year ended December 31, 2016.

2. Liquidity and Going Concern

The Company has incurred significant net losses and negative cash flows from operations since inception, and as a result has an accumulated deficit of approximately $46 million at June 30, 2017. The Company expects to incur a net loss and negative cash flows from operations in 2017 and the foreseeable future. The Company’s management believes that successful achievement of the Company’s business objectives will require additional financing. Given these conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The condensed financial statements have been prepared on a going concern basis and do not include any adjustments that might result from these uncertainties.

The Company expects to raise capital through a variety of sources, which may include the public equity market, private equity financing, collaborative arrangements, licensing arrangements, grant funding, and/or public or private debt. However, additional funding may not be available when needed or on terms acceptable to the Company. If the Company is unable to obtain additional capital, it may be required to curtail its business activities until it can obtain adequate financing (see Note 13 – Subsequent Events for additional information regarding the Company’s merger and subsequent financing).

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

3. Merger Agreement

In March 2017, the Company entered into an Agreement and Plan of Merger and Reorganization on March 16, 2017 (“merger agreement”) with Threshold Pharmaceuticals, Inc. (“Threshold”), a public company registered in the United States, pursuant to which the stockholders of the Company would become the majority owners of Threshold. The transaction was consummated on August 1, 2017 (see Note 13 – Subsequent Events).

In connection with execution of the merger agreement, Threshold executed a promissory note to the Company pursuant to a note purchase agreement, which provided for promissory notes up to an aggregate principal amount of $4.0 million with an initial closing held on March 24, 2017 for a principal amount of $2.0 million. The Company received the remaining $2.0 million on June 1, 2017.

4. Summary of Significant Accounting Policies

Revenue Recognition

The accounting guidance for revenue recognition requires that the following criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectibility is reasonably assured. Determination of whether persuasive evidence of an arrangement exists and whether delivery has occurred or services have been rendered are based on management’s judgments regarding the fixed nature of the fee charged for research performed and milestones met, and the collectability of those fees. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

Revenue under the Company’s license and collaboration arrangements is recognized based on the performance requirements of the contract. Collaboration agreements may include non-refundable license fees, research and development funding, cost reimbursements and contingent milestones and royalties. Under ASC 605-25, in multiple-element arrangement; fixed or determinable contract consideration is allocated to the deliverables with stand-alone value and revenue is recognized for each such deliverable according to the method appropriate for each deliverable. Revenue is allocated to each element using a selling price hierarchy, using the selling price for an element based on vendor specific objective evidence (“VSOE); third-party evidence (“TPE”); or the best estimate of selling price, if neither VSOE nor TPE is available.

Upfront, non-refundable licensing payments are assessed to determine whether or not the licensee is able to obtain stand-alone value from the license. Where the license does not have stand-alone value, non-refundable license fees are recognized as revenue as the Company performs under the applicable agreement. Where the license has stand-alone value, the Company recognizes total license revenue at the time all revenue recognition criteria have been met.

Accounts Receivable

Accounts receivable represent valid claims against customers. Management reviews accounts receivable regularly to determine if any receivable amounts are potentially uncollectible and then estimates the amount of allowance for doubtful accounts necessary to reduce the accounts receivable to estimate its net realizable value. As of June 30, 2017 and December 31, 2016 there were no receivable amounts requiring an allowance for doubtful accounts.

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

Intangible Assets (Patents)

Intangible assets consist of patents in application statuses which are not yet subject to amortization, and which management has deemed to have an alternative future use.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB amended the principal-versus-agent implementation guidance and illustrations in the new standard. In April 2016, the FASB amended the guidance on identifying performance obligations and the implementation guidance on licensing in the new standard. In May 2016, the FASB amended the guidance on collectability, noncash consideration, presentation of sales tax and transition in the new standard. In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends certain narrow aspects of the guidance issued in ASU 2014-09. The new standard will become effective starting on January 1, 2018. Early application is permitted to the original effective date of January 1, 2017. The Company will adopt the standard on January 1, 2018. The standard permits the use of either the modified retrospective method or full retrospective approach for all periods presented. While the Company is continuing to assess all potential impacts of the standard, the Company believes the most significant accounting impact will relate to the timing of the recognition of our license, collaboration, and milestone revenues.

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee – ShareBased Payment Accounting,” or ASU 2016-09, which amends ASC Topic 718, “Compensation – Stock Compensation.” ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires management to record right-to-use asset and lease liability on the statement of financial position for operating leases. ASU 2016-02 is effective for annual and interim reporting periods beginning on or after December 15, 2018 and the modified retrospective approach is required. The Company is in the process of evaluating the impact the adoption of this standard would have on its financial statements and disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance, modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms or conditions. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. The Company does not expect the adoption of this guidance to have a material impact on its financial statements or disclosures.

5. Research and Development Collaboration Agreements – Takeda Pharmaceuticals

In October 2016, Molecular entered into a collaboration and option agreement with Takeda to discover and develop CD38-targeting ETBs, which includes MT-4019 for evaluation by Takeda. Under the terms of the agreement, Molecular is responsible for providing to Takeda (i) new ETBs generated using Takeda’s proprietary fully human antibodies targeting CD38 and (ii) MT-4019 for in vitro and in vivo pharmacological and anti-tumor efficacy evaluations. Molecular granted Takeda an exclusive option during the term of the collaboration and option agreement and for a period of thirty days thereafter, to negotiate and obtain an exclusive worldwide license to develop and

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

commercialize any ETB that may result from this collaboration, including MT-4019. Molecular is entitled to receive up to $2.0 million in technology access fees and cost reimbursement associated with the Company’s performance and completion of the Company’s obligations under the agreement.

Revenues are recognized over the period that the research and development services occur using the proportional performance model.

During the three and six months ended June 30, 2017, the Company recorded research and development revenue from Takeda of $0 and $1.7 million, respectively, under the Takeda Agreement. During the three and six months ended June 30, 2016, the Company recorded no research and development revenue from Takeda since the agreement was not yet in place. Accounts receivable due from Takeda as of June 30, 2017 and December 31, 2016 were $1.5 million and $0, respectively.

In June 2017, Molecular entered into a Multi-Target Collaboration and License Agreement with Takeda (“Multi-Target Takeda Agreement”) in which Molecular will collaborate with Takeda to identify, generate and evaluate engineered toxin bodies, or ETBs, against certain targets designated by Takeda. Takeda will designate certain targets of interest as the focus of the research. Each party grants to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and Molecular agrees to work exclusively with Takeda with respect to the designated targets.

Under the agreement, Takeda has an option during an option period to obtain an exclusive license under Molecular’s intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. The option period for each target ends three months after the completion of the evaluation of such designated target.

Molecular will receive an upfront fee of $1.0 million and may receive net milestone payments of $25.0 million in aggregate through the exercise of the option to license ETBs. Post option exercise, Molecular is entitled to receive up to approximately $545.0 million in additional milestone payments through preclinical and clinical development and commercialization. Molecular is also entitled to tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions.

The agreement will expire on the expiration of the option period (within three months after the completion of the revaluation of each designated target) for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a the licensed ETB. The agreement may be sooner terminated by Takeda for convenience or upon a Molecular change of control, or by either party for an uncured material breach of the agreement.

Revenues are recognized over the period that the research and development services occur using the proportional performance model.

In connection with the execution of a collaboration and license agreement Takeda also entered into a stock purchase agreement with Threshold and Molecular, pursuant to which Takeda will purchase approximately $20.0 million of shares of common stock following the reverse-merger in the third quarter of 2017. Refer to the Note 13. Subsequent Events, for further details.

During the three and six months ended June 30, 2017, the Company recorded no research and development revenue under the Multi-Target Takeda Agreement, since no services had been performed.

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

6. Other Collaboration Agreements—Grant Agreement

The Company receives funds from a state financial assistance program, which is a conditional cost reimbursement grant and revenue is recognized as allowable costs are paid. In November 2011, Molecular was awarded a $10.6 million product development grant from CPRIT for its CD20-targeting ETB MT-3724. To date, Molecular has received $9.5 million in grant funds. The Company recognized approximately $0.1 million and $1 million in grant revenue under these awards during the three months ended June 30, 2017 and 2016, respectively. The Company recognized approximately $0.2 million and $1.5 million in grant revenue under these awards during the six months ended June 30, 2017 and 2016, respectively. Amounts collected in excess of revenue recognized are recorded as deferred revenue.

7. Balance Sheet Components

Accrued liabilities were comprised of the following:


	June 30, 2017		December 31, 2016
Accrued liabilities:
Clinical costs	$	543,940	$	408,806
Bridge note interest		443,065		201,441
Payroll related		396,482		552,612
Consulting and professional fees		1,227,201		26,061
Other accrued expenses		71,922		21,400

Total accrued liabilities	$	2,682,610	$	1,210,320

Deferred revenue was comprised of the following:


	June 30, 2017		December 31, 2016
Deferred revenue:
Grant agreement	$	2,493,263	$	620,254
Collaboration agreements		1,740,000		1,250,000

Total deferred revenue	$	4,233,263	$	1,870,254

8. Related Party Transactions

As of June 30, 2017 and December 31, 2016, the Company received an aggregate of approximately $10,000,000 and $7,315,038, respectively, from stockholders under secured convertible promissory notes (the “Notes”). All of the Notes issued in 2017 and 2016 have the same terms. The Notes are subordinate to the long-term debt due to a bank and accrue interest at a rate of 5.0% per annum, which is due with all unpaid principal on the maturity date of September 7, 2017. Accrued and unpaid interest related to the Notes totaled approximately $443,000 and $201,000 as of June 30, 2017 and December 31, 2016, respectively, and is included with accrued expenses on the balance sheet. All outstanding principal and accrued interest is automatically convertible at 80% of the fair

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

value price per share of preferred stock sold in a Qualified Equity Financing, as defined (the “Conversion Discount”). If the Notes remain outstanding beyond September 7, 2017, the Conversion Discount will automatically increase by 5% on September 8, 2017 (the “First Discount Increase Date”). Thereafter, on each consecutive three-month anniversary of the First Discount Increase Date, the Conversion Discount will automatically increase by additional successive 5% increments. If a Qualified Equity Financing does not occur or a Liquidation Event, as defined, occurs prior to September 7, 2017, the holders of the Notes have the right to convert the Notes into shares of Series C-1 Preferred Stock at $3.81 per share. The Conversion Discount represents a contingent beneficial conversion feature and will be accounted for when the contingency is resolved. The Notes are supported by an underlying note purchase agreement (the “Agreement”), which allows for aggregate principal borrowings of up to $10,000,000.

The Company incurred expenses to a stockholder for consulting fees which totaled approximately $15,000 for each of the three months ended June 30, 2017 and 2016 included in general and administrative expenses.

9. Borrowing Arrangements

As of June 30, 2017 and December 31, 2016 the Growth Capital Loan balance was $4,745,000 and $5,600,000, respectively. Interest only payments were paid monthly at an annual rate equal to 1.19% above the Prime Rate. Beginning November 1, 2016, the Company paid the first of thirty consecutive equal monthly payments of principal plus interest. The Company paid approximately $1,200,000 in principal and $129,000 in interest in the six months ended June 30, 2017 and $400,000 in principal and $142,000 in interest in the six months ended December 31, 2016. There is a final fee of $345,000 due at the loan maturity date in addition to the principal and interest payments, which is being accreted to interest expense over the life of the loan using the effective interest method. The Growth Capital Loan matures on April 30, 2019 and is secured by substantially all assets of the Company. The Company does not have any financial loan covenants related to the Growth Capital Loan. As of June 30, 2017 and December 31, 2016, the Company was in compliance with the non-financial covenants of the Growth Capital Loan.

On June 1, 2017, the Company received $2,000,000 from Threshold in the form of a promissory note at an interest rate of 1% per annum. The Company received an additional $2,000,000 on March 24, 2017. If the merger agreement with Threshold is terminated prior to March 16, 2018, or the maturity date of the promissory note, the outstanding principal of the bridge note plus all accrued and unpaid interest thereon shall become due and payable upon the earlier of (i) the consummation of a qualified financing by Molecular of at least $10,000,000, or a qualified financing (as defined in the note purchase agreement), (ii) the occurrence of a Company liquidity event, or (iii) the four-month anniversary of the termination of the merger agreement, and such amounts shall be credited against any termination fees owed by Threshold to the Company pursuant to the merger agreement. Outstanding loan amounts are unsecured obligations of the Company.

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

Future required principal payments on the Notes and the Growth Capital Loan and promissory note were as follows as of June 30, 2017:


2017	$	15,200,000
2018		2,400,000
2019		1,145,000

Total debt		18,745,000
Debt discount and deferred finance costs		(110,799	)

Total debt, net	$	18,634,201

10. Redeemable Convertible Preferred Stock

The following is a summary of the Company’s redeemable convertible preferred stock at June 30, 2017 and December 31, 2016 (collectively, the “Preferred Stock”):


					Shares Issued and Outstanding
	Par Value		Shares Authorized		June 30, 2017		December 31, 2016
Series A Preferred Stock	$	0.001		2,500,000		2,500,000		2,500,000
Series B Preferred Stock	$	0.001		2,273,531		2,273,531		2,273,531
Series C Preferred Stock	$	0.001		4,391,748		4,342,874		4,342,874

				9,165,279		9,116,405		9,116,405

The following table presents changes in the Preferred Stock:


	Series A Preferred		Series B Preferred		Series C Preferred		Total
Balance at December 31, 2016	$	3,889,257	$	5,480,130	$	16,501,938	$	25,871,325

Deemed dividends on Preferred Stock		101,871		151,260		567,292		820,423

Balance at June 30, 2017	$	3,991,128	$	5,631,390	$	17,069,230	$	26,691,748

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

11. Stock-Based Compensation

During the six months ended June 30, 2017, 17,000 options were awarded to employees to purchase shares of Molecular’s common stock, and 4,350 options were forfeited. During the six months ended June 30, 2016, 45,000 options were awarded to employees to purchase shares of Molecular’s common stock, and there were no options forfeited. Options generally vest according to a five year vesting schedule, with 20% of the shares vesting on the one year anniversary and equal monthly vesting installments thereafter.

12. Commitments and Contingencies

The Company is obligated under operating lease agreements covering the Company’s office facilities. Facilities expense under the operating leases was approximately $115,000 and $73,000 for the three months ended June 30, 2017 and 2016, respectively and approximately $205,000 and $130,000 for the six months ended June 30, 2017 and 2016, respectively.

In August, 2017, the Company executed new lease amendments and a new lease for facilities in Austin, Texas and Jersey City, New Jersey, respectively (see Note 13 – Subsequent Events).

Future minimum payments due under the operating lease agreements at June 30, 2017 were as follows:


2017 (remaining)	$	178,892
2018		489,135
2019		555,509
2020		455,529
2021		468,649
2022		197,213

	$	2,344,927

The Company leases laboratory equipment under non-cancelable capital lease agreements. As of June 30, 2017 and December 31, 2016, laboratory equipment under capital leases included in property and equipment totaled approximately $179,000 and $136,000, respectively, net of accumulated amortization of approximately $58,000 and $44,000, respectively.

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

Future minimum capital lease payments consisted of the following at June 30, 2017:


2017 (remaining)	$	26,859
2018		55,236
2019		32,982
2020		20,590

Total future minimum capital lease payments		135,667
Less: amount representing interest		(12,573	)

Total capital lease obligation		123,094
Current portion of capital lease obligations		(49,915	)

Capital Lease Obligations, non-current portion	$	73,179

13. Subsequent Events

Subsequent events have been evaluated through October 17, 2017, the date these financial statements were available to be issued.

The Merger

On August 1, 2017, the Company, Threshold, and Trojan Merger Sub, Inc., a wholly owned subsidiary of Threshold (“Merger Sub”) completed their merger transaction pursuant to which Merger Sub merged with and into the Company with the Company becoming a wholly-owned subsidiary of Threshold and the surviving corporation of the merger. On August 1, 2017, in connection with and prior to the consummation of the merger, Threshold effected an 11-for-1 reverse stock split of the shares of Threshold common stock. Each outstanding share of Molecular common stock was converted into 7.7844 shares of common stock of the post-merger combined company. As a result Threshold issued approximately 11.7 million shares of common stock to the stockholders of the Company in exchange for common shares of Molecular. Upon the consummation of the merger, Threshold changed its name from “Threshold Pharmaceuticals, Inc.” to “Molecular Templates, Inc.” For accounting purposes, the Company is considered to be acquiring Threshold in the merger.

Concurrent Financing

On August 1, 2017, the Company entered into the Financing Securities Purchase Agreement with Longitude Venture Partners III, L.P. and certain other accredited investors, pursuant to which the Company sold an aggregate of 5,793,063 units (the “Units”) having an aggregate purchase price of $40.0 million, each such Unit consisting of (i) one (1) share (the “Shares”) of our common stock and ii) a Warrant to purchase 0.50 shares of our common stock (the “Private Placement”). The Private Placement was pursuant to Equity Commitment Letter agreements entered into by and between the Company and investors in March and June 2017. The purchase price per Unit was $6.9048. The Warrants will be exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants.

MOLECULAR TEMPLATES, INC.

Notes to Condensed Financial Statements (Unaudited)

Subsequent Financing

In connection with the execution on June 23, 2017 of a collaboration and license agreement between the Company and Takeda, the Company and Threshold entered into a stock purchase agreement with the customer. Following the consummation of the Merger and Concurrent Financing, Takeda purchased 2,922,993 shares of the Company common stock, at a price per share of $6.84, for an aggregate purchase price of $20 million.

Lease Agreements

In August, 2017, the Company executed lease amendments to expand the occupied space at its Austin, Texas facility. Also in August, 2017, the Company executed a new office space lease in Jersey City, New Jersey.

EX-99.5 8 d266142dex995.htm EX-99.5 EX-99.5

Exhibit 99.5

INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS


	Page
Unaudited Pro Forma Condensed Combined Financial Statements:
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2017		2
Unaudited Pro Forma Condensed Combined Statements of Operations for the six months ended June 30, 2017 and the year ended December 31, 2016		4
Notes to Unaudited Pro Forma Condensed Combined Financial Information		6

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting under existing U.S. generally accepted accounting principles, or GAAP, and give effect to the merger of a wholly owned subsidiary of Threshold Pharmaceuticals, Inc. (“Threshold”) with and into Molecular Template, Inc. (“Molecular”). For accounting purposes, Molecular is determined to be the accounting acquirer based upon: (i) Molecular security holders are expected to own approximately 65% of the voting interests of the combined company immediately following the closing of the merger; (ii) directors appointed by Molecular will hold an equal number of board seats in the combined company as Threshold, two each, with the three remaining board seats to be independents not previously associated with either Molecular or Threshold; and (iii) Molecular management will hold all key management positions of the combined company.

The unaudited pro forma condensed combined balance sheet as of June 30, 2017 assumes that the merger took place on June 30, 2017 and combines the historical balance sheets of Threshold and Molecular as of June 30, 2017. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2016 and the six months ended June 30, 2017 assumes that the merger took place as of January 1, 2016, and combines the historical results of Threshold and Molecular for the year ended December 31, 2016 and the six months ended June 30, 2017, respectively. The historical financial statements of Threshold and Molecular have been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.

Because Molecular will be treated as the accounting acquirer, Molecular’s assets and liabilities will be recorded at their precombination carrying amounts, and the historical operations that are reflected in the financial statements will be those of Molecular. Threshold’s assets and liabilities will be measured and recognized at their fair values as of the transaction date, and consolidated with the assets, liabilities and results of operations of Molecular after the consummation of the merger.

The unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments that are described in the accompanying notes. The application of the acquisition method of accounting is dependent upon certain valuations and other studies that have yet to be completed. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed, and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements. Differences between these preliminary estimates and the final acquisition accounting expected to be completed after the closing of the merger will occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position. The actual amounts recorded as of the completion of the merger may differ materially from the information presented in these unaudited pro forma condensed combined financial statements as a result of the amount of cash used by Threshold’s operations between the signing of the Merger Agreement and the closing of the merger; the timing of closing of the merger; Threshold’s stock price at the closing of the merger; the results of certain valuations and other studies that have yet to be completed; and other changes in Threshold’s assets and liabilities that occur prior to the completion of the merger.

The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies. The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Threshold and Molecular been a combined company during the specified period.

The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with the separate Threshold and Molecular historical financial statements and their respective management’s discussion and analysis of financial condition and results of operations. Threshold’s audited historical consolidated financial statements as of and for the year ended December 31, 2016 are included in its Annual Report on Form 10-K as filed with the SEC on March 27, 2017, and the historical unaudited consolidated financial statements as of and for the six months ended June 30, 2017 are included in its Quarterly Report on Form 10-Q as filed with the SEC on July 31, 2017. Molecular’s audited historical financial statements as of and for the year ended December 31, 2016 are included in the Form S-4 as filed with the SEC on June 27, 2017. Molecular’s historical unaudited financial statements for the six months ended June 30, 2017 are included elsewhere in this document.

On August 1, 2017, Molecular entered into the Financing Securities Purchase Agreement with Longitude Venture Partners III, L.P. and certain other accredited investors, pursuant to which units (the “Units”) having an aggregate purchase price of $40.0 million were sold, each such Unit consisting of (i) one (1) share of Molecular common stock and (ii) a Warrant to purchase 0.50 shares of common stock (“Concurrent Financing”). The concurrent financing was pursuant to Equity Commitment Letter agreements entered into by and between Molecular and each investor in the concurrent financing in March and June of 2017.

Furthermore, on August 1, 2017, in connection with the Takeda License Agreement, entered into on June 23, 2017, Molecular entered into the Takeda Securities Purchase Agreement with Takeda, pursuant to which Takeda agreed to purchase shares of Molecular common stock with an aggregate purchase price of $20.0 million (“Takeda Financing”).

The unaudited pro forma condensed combined balance sheet as of June 30, 2017 also assumes that the Concurrent Financing and Takeda Financing took place on June 30, 2017. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2016 and the six months ended June 30, 2017 assumes that the Concurrent Financing and Takeda Financing took place as of January 1, 2016.

Unaudited Pro Forma Condensed Combined Balance Sheet

June 30, 2017

(in thousands)


	Threshold Pharmaceuticals Inc.			Molecular Templates Inc.			Pro Forma Merger Adjustment				Pro Forma Combined			Pro Forma Financing Adjustments			Pro Forma Combined Including Financings
Assets:
Current assets:
Cash and cash equivalents	$	16,468		$	4,609		$	(208	)	G	$	20,869		$	57,885	P	$	78,754
Marketable securities		300			—			—				300						300
Accounts receivable		—			1,500			—				1,500						1,500
Notes receivable		4,000			—			(4,000	)	I		—						—
Prepaid expenses and other current assets		93			153			—				246						246

Total current assets		20,861			6,262			(4,208	)			22,915		$	57,885			80,800
Property and equipment, net		—			417			—				417						417
Intangible assets		—			1,181			25,886		H		27,067						27,067

Total assets	$	20,861		$	7,860		$	21,678			$	50,399		$	57,885		$	108,284

Liabilities, Mezzanine Equity and Stockholders’ Deficit:
Accounts payable	$	319		$	1,241		$	—			$	1,560		$	—		$	1,560
Accrued expenses		2,161			2,683			4,737		C		9,138						9,138
								(443	)	A
Deferred revenue		—			4,233			—				4,233						4,233
Current portion of capital lease obligations		—			50			—				50						50
Current portion of long-term debt		—			2,337			—				2,337						2,337
Promissory note payable		—			4,000			(4,000	)	I		—						—
Related-party debt		—			10,000			(10,000	)	A		—						—

Total current liabilities		2,480			24,544			(9,706	)			17,318						17,318
Capital lease obligations, net of current portion		—			73			—				73						73
Warrant liabilities		1,494			46			(747	)	G		707						707
								(46	)	E
								(40	)	H
Deferred rent		—			40							40						40
Long-term debt, net of current portion		—			2,297			—				2,297						2,297

Total liabilities		3,974			27,000			(10,539	)			20,435						20,435

Mezzanine equity:
Series A Preferred stock		—			3,991			(3,991	)	D		—						—
Series B Preferred stock		—			5,632			(5,632	)	D		—						—
Series C Preferred stock		—			17,069			(17,069	)	D		—						—

Total mezzanine equity		—			26,692			(26,692	)			—						—

Stockholders’ equity (deficit) :
Common stock		72			—			16		A, D		209			9	P		218
								121		H
Additional paid-in capital		374,278			619			12,224		A		82,756			57,876	P		140,632
								26,678		D
								3,738		B
								46		E
								4,321		F
								(339,148	)	H
Accumulated other comprehensive income (loss)		—			—			(2	)	H		(2	)					(2	)
Accumulated deficit		(357,463	)		(46,451	)		(4,736	)	C		(52,999	)					(52,999	)
								(3,738	)	B
								540		G
								(1,784	)	A
								(4,321	)	F
								364,954		H

Total stockholders’ equity (deficit)		16,887			(45,832	)		58,909				29,964			57,885			87,849

Total liabilities, mezzanine equity and stockholders’ equity (deficit)	$	20,861		$	7,860		$	21,678			$	50,399		$	57,885		$	108,284

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended June 30, 2017

(in thousands, except share and per share data)


	Threshold Pharmaceuticals Inc.			Molecular Templates Inc.			Pro Forma Merger Adjustment				Pro Forma Combined			Pro Forma Financing Adjustment			Pro Forma Combined Including Financings
Revenues:	$	3,000		$	1,927		$	—			$	4,927					$	4,927
Operating expenses:
General and administrative		4,540			4,535			272		M		6,047						6,047
								(3,300	)	N
Research and development	$	2,705		$	2,008			—				4,713						4,713

Total operating expenses		7,245			6,543			(3,028	)			10,760						10,760

Loss from operations		(4,245	)		(4,616	)		3,028				(5,833	)					(5,833	)
Other income (expense), net		249			—			—				249						249
Interest income (expense), net		67			(645	)		242		J		(336	)					(336	)
Change in fair value of warrant liabilities		—			3			(3	)	L		—						—

Total other income (expense)		316			(642	)		239				(87	)					(87	)

Net loss		(3,929	)		(5,258	)		3,267				(5,920	)					(5,920	)
Deemed dividends on preferred stock		—			(820	)		820		K		—						—

Net loss attributable to common shareholders	$	(3,929	)	$	(6,078	)	$	4,087			$	(5,920	)				$	(5,920	)

															5,793,063	Q
Weighted average shares outstanding		71,584,000						(52,628,674	)	O		18,955,326			2,922,993	R		27,671,382

Basic loss per share	$	(0.05	)								$	(0.31	)				$	(0.21	)

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2016

(in thousands, except share and per share data)


	Threshold Pharmaceuticals Inc.			Molecular Templates Inc.			Pro Forma Merger Adjustment				Pro Forma Combined				Pro Forma Financing Adjustment			Pro Forma Combined Including Financings
Revenues:	$	—		$	1,880		$	—			$	1,880						$	1,880
Operating expenses:
General and administrative		7,808			4,477			976		M		13,261							13,261
Research and development	$	16,554		$	8,017			—				24,571							24,571
Loss on disposal of equipment		—			5			—				5							5

Total operating expenses		24,362			12,499			976				37,837							37,837

Loss from operations		(24,362	)		(10,619	)		(976	)			(35,957	)						(35,957	)
Other income, net		—			19			—				19							19
Interest expense, net		147			(431	)		200		J		(84	)						(84	)
Change in fair value of warrant liabilities		121			3			(3	)	L		121							121

Total other income (expense)		268			(409	)		197				56							56
Net loss		(24,094	)		(11,028	)		(779	)			(35,901	)						(35,901	)

Deemed dividends on preferred stock		—			(1,573	)		1,573		K		—							—
Net loss attributable to common shareholders	$	(24,094	)	$	(12,601	)	$	794			$	(35,901	)	3				$	(35,901	)

																5,793,063	Q
Weighted average shares outstanding		71,524,000						(52,616,017	)	O		18,907,983				2,922,993	R		27,624,039

Basic loss per share	$	(0.34	)								$	(1.89	)					$	(1.30	)

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Description of Transaction and Basis of Presentation

Description of Transaction

On March 16, 2017, Threshold and Molecular entered into an Agreement and Plan of Merger and Reorganization, (the “Merger Agreements”) pursuant to which Trojan Merger Sub Inc., a wholly owned subsidiary of Threshold, would merge with and into Molecular, with Molecular surviving as a wholly owned subsidiary of Threshold (the “Merger.”) Following the completion of the Merger, Threshold was renamed Molecular Templates, Inc. Under the terms of the merger, Threshold acquired all outstanding shares of common stock of Molecular in exchange for approximately 141 million newly issued shares of Threshold’s common stock subject to adjustments in accordance with the Merger Agreement. Immediately following the closing of the merger, the stockholders of Threshold owned approximately 34.4% of the voting interests of the combined company and the former Molecular stockholders owned approximately 65.6% of the voting interests of the combined company, subject to adjustments in accordance with the merger agreement.

On August 1, 2017, prior to the closing of the merger, Threshold completed a 1-for-11 reverse stock split. All share and per share amounts have been retrospectively adjusted for disclosure in the unaudited pro forma condensed combined financial statements.

Basis of Presentation

The unaudited pro forma combined financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and are intended to show how the merger might have affected the historical financial statements if the merger had been completed on January 1, 2016 for the purposes of the statement of operations, and as of June 30, 2017 for purposes of the balance sheet. Based on the terms of the merger, Molecular is deemed to be the acquiring company for accounting purposes and the transaction will be accounted for as a reverse acquisition under the acquisition method of accounting for business combinations in accordance with accounting principles generally accepted in the United States. Accordingly, the assets and liabilities of Threshold will be recorded as of the merger closing date at their estimated fair values.

Molecular has not yet completed a valuation analysis of the fair value of Threshold’s assets to be acquired and liabilities to be assumed. The pro forma adjustments are preliminary and based on management’s estimates of the fair value of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition. These estimates are based on the most recently available information. To the extent there are significant changes to the combined company’s business following completion of the merger, the assumptions and estimates set forth in the unaudited pro forma combined financial statements could change significantly. Accordingly, the pro forma adjustments are subject to further adjustments as additional information becomes available and as additional analyses are conducted following completion of the merger. There can be no assurances that these additional analyses will not result in material changes to the estimates of fair value. The final pro forma adjustments may include (1) changes in fair values of property and equipment, (2) changes in the fair values of intangible assets, in-process research and development (IPR&D) and goodwill based on the results of valuations and other studies that have yet to be completed and (3) other changes to assets and liabilities.

Molecular and Threshold did not record an income tax provision during the year ended December 31, 2016 and the six months ended June 30, 2017, because each company incurred net losses during those periods. Accordingly, no tax effects have been provided for the pro forma adjustments described in Note 3, “Pro Forma Adjustments.”

Treatment of Stock Options in the Merger

All Molecular stock options granted under the Molecular stock option plan (whether or not then exercisable) outstanding prior to the effective time of the merger will be exchanged for options to purchase Threshold common stock. After the effective time, all outstanding and unexercised Molecular stock options assumed by Threshold may be exercised solely for shares of Threshold common stock. The number of shares of Threshold common stock subject to each Molecular stock option assumed by Threshold shall be determined by multiplying (a) the number of shares of Molecular common stock that were subject to such Molecular stock option, as in effect immediately prior to the effective time of the merger by (b) the exchange ratio and rounding the resulting number down to the nearest whole number of shares of Threshold common stock. The per share exercise price for the Threshold common stock issuable upon exercise of each Molecular stock option assumed by Threshold shall be determined by dividing (a) the per share exercise price of Molecular common stock subject to such Molecular stock option, as in effect immediately prior to the effective time of the merger, by (b) the exchange ratio and rounding the resulting exercise price up to the nearest whole cent. The exchange of the Molecular stock options for Threshold stock options will be treated as a modification of the awards.

Threshold equity awards issued and outstanding at the time of the Merger will remain issued and outstanding. However, for accounting purposes, Threshold equity awards will be assumed to have been exchanged for equity awards of Molecular, the accounting acquirer. As of June 30, 2017, and adjusted for the 1-for-11 reverse stock split of its common stock, Threshold had outstanding stock options to purchase 975,660 shares of common stock, of which stock options to purchase 785,475 shares were vested and exercisable at a weighted average exercise price of $37.18 per share.

2. Preliminary Purchase Price

Pursuant to the merger agreement, at the closing of the merger, Threshold will issue to Molecular stockholders a number of shares of Threshold common stock representing approximately 65.6%, subject to adjustments in accordance with the merger agreement, of the outstanding shares of common stock of the combined company. The estimated preliminary purchase price, which represents the consideration transferred to Threshold stockholders in the reverse merger is calculated based on the number of shares of common stock of the combined company that Threshold stockholders will own as of the closing of the merger.

The accompanying unaudited pro forma condensed combined financial statements reflect an estimated purchase price of approximately $38.8 million, which consists of the following:


	(in thousands, except share and per share amounts)
Estimated number of shares of the combined company to be owned by Threshold stockholders		6,527,446	(1)
Multiplied by the assumed price per share of Threshold common stock	$	5.94	(2)

Estimated purchase price	$	38,773

Represents the number of shares of common stock of the combined company that Threshold stockholders would own as of the closing of the merger pursuant to the merger agreement. This amount is calculated, for purposes of these unaudited pro forma condensed combined financial statements, as 6,508,356 shares of Threshold common stock outstanding as of June 30, 2017, plus 19,090 shares of Threshold in-the-money options and warrants to purchase 19,090 shares of common stock, both adjusted for the 1-for-11 reverse stock split.

2.	For pro forma purposes, the fair value of Threshold common stock used in determining the purchase price was $5.94, which was derived from the $0.54 per share closing price of Threshold on August 1, 2017, the current price at the time of closing, adjusted for the 1-for-11 reverse stock split.

The number of shares of common stock Threshold will issue to Molecular stockholders, for purposes of these unaudited pro forma condensed combined financial statements, is calculated pursuant to the terms of the merger agreement based on Threshold’s common stock outstanding as of June 30, 2017, as follows:


Shares of Threshold common stock outstanding as of June 30, 2017	6,508,356
Shares of Threshold common stock subject to in-the-money options and warrants	19,090
Adjusted outstanding shares of Threshold common stock	6,527,446
Divided by the assumed percentage of Threshold ownership of combined company	34.4	%
Estimated adjusted total shares of common stock of combined company	18,975,133
Multiplied by the assumed percentage of Molecular ownership of combined company	65.6	%
Estimated shares of Threshold common stock issued to Molecular upon closing of merger	12,447,687

Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Threshold based on their estimated fair values as of the merger closing date. The excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.

The allocation of the total preliminary estimated purchase price to the acquired assets and liabilities assumed of Threshold based on the estimated fair values as of June 30, 2017 is as follows (in thousands):


Cash, cash equivalents and marketable securities	$	16,768
Prepaid expenses and other currents assets		93
IPR&D		25,886
Accounts payable, collaboration payable, accrued expenses		(2,480	)
Warrant liability		(1,494	)

Net assets acquired	$	38,773

Molecular anticipates that the ultimate purchase price allocation and fair values of current assets and liabilities, intangible assets and long-term liabilities will differ from the preliminary assessment outlined above. Any changes to the initial estimates of the fair value of the acquired assets and assumed liabilities will be recorded as adjustments to those assets and liabilities, and residual amounts will be allocated to goodwill if net assets acquired are determined to have an aggregate fair value less than the purchase price.

The application of the acquisition method of accounting is dependent upon certain valuations and other studies that have yet to be completed. The purchase price allocation will remain preliminary until Molecular management determines the fair values of assets acquired and liabilities assumed. The final determination of the purchase price and fair values of assumed assets and liabilities is anticipated to be completed as soon as practicable after completion of the merger and will be based on the fair values of the assets acquired and liabilities assumed as of the merger closing date. The final amounts of the fair values of assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma condensed combined financial statements. The final values may include (1) changes in fair values of property and equipment, (2) changes in allocations to goodwill and IPR&D based on the results of certain valuations and other studies that have yet to be completed and (3) other changes to assets and liabilities.

3. Pro Forma Adjustments

The unaudited pro forma condensed combined financial statements include pro forma adjustments that are (1) directly attributable to the Merger, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the results of operations of the combined company.

Based on Molecular management’s review of Threshold’s summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of Threshold to conform to the accounting policies of Molecular are not expected to be significant.

The unaudited pro forma condensed combined financial statements reflect the effect of the Threshold 1-for-11 reverse stock split.

The following pro forma adjustments included in the accompanying pro forma condensed consolidated balance sheet assumes the merger was consummated as of June 30, 2017. These unaudited pro forma adjustments are based on preliminary estimates and may change significantly as additional information is obtained.

To reflect the conversion of all outstanding principal ($10.0 million) and accrued but unpaid interest (approximately $0.4 million) of Molecular’s convertible promissory notes to Molecular series C-1 preferred stock at a conversion price of $3.36 per share. Under the original terms of the convertible promissory notes, the conversion price was $3.81. The merger does not qualify as a qualified equity financing, but the holders of the Molecular notes have agreed to convert such notes based upon an agreed-upon adjusted conversion price of $3.36 per share. The conversion was accounted for as an induced conversion and the excess of the fair value of the securities issued over the fair value of securities issuable pursuant to the original conversion terms of approximately $1.8 million was reflected through accumulated deficit. The pro forma adjustment reflecting the inducement is not reflected in the accompanying unaudited pro forma condensed consolidated statement of operations as the amount is not expected to have a continuing effect on the operating results of the combined company.

To reflect stock compensation expense related to the accelerated vesting of stock option awards to employees of Threshold upon closing of the merger of approximately $2.3 million as well as stock compensation expense of approximately $1.4 million related to the modification of the term of the awards. As of the close of the merger, all outstanding options will be fully vested with no requisite future service. These expenses will be reflected in Threshold’s statements of operations. This pro forma adjustment is not reflected in the unaudited pro forma condensed combined statement of operations because these amounts are not expected to have a continuing effect on the operating results of the combined company.

To reflect the accrued liabilities that will be directly attributable to the closing of the merger, including approximately $2.7 million in severance obligations for Threshold employees that will be reflected in the Threshold statements of operations prior to the closing of the merger, and estimated transaction costs to complete the merger of approximately $1.6 million for Threshold and approximately $0.4 million for Molecular. These pro forma adjustments are not reflected in the unaudited pro forma condensed combined statement of operations as these amounts are not expected to have a continuing effect on the operating results of the combined company.

To reflect the conversion of Molecular’s series A preferred stock, series B preferred stock, and series C preferred stock (collectively, the Preferred Stock) and accrued preferred dividends into Molecular common stock, in accordance with the terms of Molecular’s Amended and Restated Certificate of Incorporation.

To reflect the cashless exercise of outstanding Molecular warrants based on an exercise price of $3.0693, in accordance with the warrant agreement.

To reflect the stock-based compensation expense related to a modification of the Molecular options as a result of the merger. The total compensation cost recognized at the date of the merger for vested options is approximately $4.3 million.

To reflect the purchase of warrants to purchase 377,272 shares, after adjusting for the 1-for-11 reverse stock split, of Threshold’s common stock by Threshold from holders of such warrants who have provided request to put the warrants to Threshold as of this writing. Under the terms of the warrant agreement, upon the consummation of a merger, the warrant holder has a put right requiring Threshold to purchase the warrant by paying cash equal to the Black Scholes fair value of the warrant at the date of exercise, as defined in the warrant agreement. To date, half of the warrant holders have exercised their right with respect to the put.

To reflect the application of purchase accounting under the acquisition method and elimination of Threshold’s historical stockholders’ equity balances, including additional paid-in capital and accumulated deficit, after considering the effects of the pro forma adjustments described in item B, C and G that attributable to Threshold. See Note 2, “Preliminary Purchase Price.”

To reflect the elimination of the $4.0 million promissory note payable by Molecular to Threshold upon closing of the merger.

The following pro forma adjustments included in the accompanying pro forma condensed consolidated statements of operations for the six months ended June 30, 2017 and the year ended December 31, 2016 assumes the Merger was consummated as of January 1, 2016, and only reflects those transactions or events that are expected to have a continuing impact on the combined company’s results of operations.

To reflect the reduction in interest expense resulting from the conversion of Molecular convertible promissory notes to Molecular Series C-1 preferred stock and then to Molecular common stock. See adjustment A above.

To remove dividends on Preferred Stock resulting from the conversion of the Preferred Stock and preferred dividends to common stock. See adjustment D above.

To reflect the cashless exercise of all outstanding Molecular warrants. See adjustment E above.

To reflect increase to stock compensation expense related to the modification of Molecular unvested options. Under the assumption that the Merger was consummated as of January 1, 2016, the modification is expected to increase stock compensation in 2016 by approximately $0.3 million and during the six months ended June 30, 2017 by approximately $1.0 million, and have immaterial effects thereafter.

To remove merger related transaction costs of $3.3 million incurred during the six months ended June 30, 2017. See adjustment C above.

To reflect the impact of the 1-for-11 reverse stock split, the conversion of Molecular preferred shares and promissory notes into common stock, and issuance of shares for the merger, on the Threshold’s basic and diluted weighted average number of common shares outstanding for the period referenced in the statement.

The following pro forma adjustments reflects the effect of the anticipated $40 million form the concurrent financing and the $20.0 million equity financing by Takeda on the unaudited condensed balance sheet and earnings per share of the combined company.

To reflect the anticipated $40 million concurrent financing net of estimated transaction costs of $2.1 million and anticipated $20.0 million equity financing by Takeda. In connection with the concurrent financing, Molecular anticipates issuing warrants to purchase approximately 88,000 shares of common stock of the combined company as investment banking fees related to the concurrent financing. Pursuant to guidance in ASC 480 “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives and Hedging”, the warrant instruments will be classified as equity instruments based on a preliminary analysis of the anticipated terms of the warrants. The fair value of the warrants, determined based on a Black-Scholes-Merton option pricing model, represent a direct cost of the equity financing and, therefore, are recognized as a reduction of the related financing. Since the warrants are expected to be classified as equity instruments, the effect of the warrant issuance would be an allocation of additional paid in capital assigned in the equity raise to additional paid in capital assigned to the warrants with no effect on total additional paid in capital.

To reflect the common stock issued for the concurrent financing entered into on August 1, 2017 with Longitude Venture Partners III, L.P. and certain other accredited investors, pursuant to which an aggregate of 5,793,063 units (the “Units”) having an aggregate purchase price of $40.0 million, each such Unit consisting of (i) one (1) share of Molecular common stock and (ii) a Warrant to purchase 0.50 shares of common stock. The concurrent financing was pursuant to Equity Commitment Letter agreements entered into by and between Molecular and investors in March and June of 2017. The purchase price per Unit was $6.9048. The Warrants will be exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423, subject to certain adjustments as specified in the Warrants.

To reflect the common stock issued for the Takeda financing entered into on August 1, 2017 in connection with the execution Takeda License Agreement, on June 23, 2017, pursuant to which 2,922,993 shares of Molecular common stock was sold to Takeda at a price per share of $6.8423 having an aggregate purchase price of $20.0 million.

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Molecular Templates, Inc.

Dated: October 17, 2017

/s/ Eric E. Poma, Ph.D.

Name: Eric E. Poma, Ph.D.

Title: Chief Executive Officer