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falseFY0001637890The operating loss arises from the Company’s loss for the period before deduction of financial income, financial expenses and income taxes. The purpose of this measure by Management is to identify the Company’s results in connection with its operating activities.For 2022, 2021 and 2020, the Company does not have any non-controlling interests and the losses for the year are fully attributable to owners of the parent.Pursuant to Belgian law (“CCA”), the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of the Company’s standalone non-consolidated statutory financial statements of Celyad Oncology SA prepared under Belgian GAAP, and not on the basis of IFRS consolidated financial statements. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
20-F
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                
to
                    
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number
001-37452
 
 
CELYAD ONCOLOGY SA
(Exact name of Registrant as specified in its charter and translation of Registrant’s name into English)
 
 
Belgium
(Jurisdiction of incorporation or organization)
Rue Edouard Belin 2
1435 Mont-Saint-Guibert, Belgium
(Address of principal executive offices)
Michel Lussier, permanent representative of Mel Management SRL
Interim Chief Executive Officer
Celyad Oncology SA
Rue Edouard Belin 2
1435 Mont-Saint-Guibert, Belgium
Tel: +32 10 394 100 Fax: +
32
10 394 141
(Name, Telephone,
E-mail
and/or Facsimile number and Address of Company Contact Person)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
Title of each class
  
Trading
Symbol
  
Name of each exchange
on which registered
American Depositary Shares, each representing one ordinary share, no nominal value per share
  
CYAD
  
The Nasdaq Stock Market LLC
Ordinary shares, no nominal value per share*
     
The Nasdaq Stock Market LLC*
Title of each class
  
Trading
Symbol
  
Name of each exchange
on which registered
American Depositary Shares, each representing one ordinary share, no nominal value per share
  
CYAD
  
The Nasdaq Stock Market LLC
Ordinary shares, no nominal value per share*
     
The Nasdaq Stock Market LLC
*
 
*
Not
for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.
Ordinary shares, no nominal value per share: 22,593,956 as of December 31, 2022
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☐  Yes    ☒  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act. (Check one):
 
Large accelerated filer  ☐     Accelerated filer  ☐     
Non-accelerated filer  ☒
     Emerging growth company  ☐  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.  ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b).  
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP ☐           International Financial Reporting Standards as issued         Other   ☐
          by the International Accounting Standards Board  ☒        
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item  17    ☐  Item 18
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes    ☒  No
 
 
 


Table of Contents

TABLE OF CONTENTS

 

     Page  

SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

     1  

INTRODUCTION

     2  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     3  

PART I

     5  

Item 1.

  Identity of Directors, Senior Management and Advisers      5  

Item 2.

  Offer Statistics and Expected Timetable      5  

Item 3.

  Key Information      5  
  A. [Reserved]      5  
  B. Capitalization and Indebtedness      5  
  C. Reasons for the Offer and Use of Proceeds      5  
  D. Risk Factors      5  

Item 4.

  Information on the Company      51  
  A. History and Development of the Company      51  
  B. Business Overview      51  
  C. Organizational Structure.      89  
  D. Property, Plants and Equipment.      89  

Item 4A.

  Unresolved Staff Comments.      90  

Item 5.

  Operating and Financial Review and Prospects      90  
  A. Operating Results      92  
  B. Liquidity and Capital Resources      101  
  C. Research and Development      106  
  D. Trend Information      106  
  E. Critical Accounting Estimates      106  
  F. Safe Harbor.      106  

Item 6.

  Directors, Senior Management and Employees      106  
  A. Directors and Senior Management.      106  
  B. Compensation      111  
  C. Board Practices      119  
  D. Employees      121  
  E. Share Ownership      121  

Item 7.

  Major Shareholders and Related Party Transactions      121  
  A. Major shareholders      121  
  B. Related Party Transactions      123  
  C. Interest of Experts and Counsel      126  

Item 8.

  Financial Information      126  
  A. Consolidated Statements and Other Financial Information Consolidated Financial Statements      126  
  B. Significant Changes      126  

Item 9.

  The Offer and Listing      127  
  A. Offer and Listing Details      127  
  B. Plan of Distribution      127  
  C. Markets.      127  
  D. Selling Shareholders      127  
  E. Dilution      127  
  F. Expenses of the Issue      127  

Item 10.

  Additional Information      127  
  A. Share Capital      127  
  B. Memorandum and Articles of Association      127  

 

i


Table of Contents
  C. Material Contracts      127  
  D. Exchange Controls      128  
  E. Taxation      128  
  F. Dividends and Paying Agents      138  
  G. Statement by Experts      138  
  H. Documents on Display      138  
  I. Subsidiary Information      138  

Item 11.

  Quantitative and Qualitative Disclosures About Market Risk      138  

Item 12.

  Description of Securities Other than Equity Securities      140  
  A. Debt Securities      140  
  B. Warrants and Rights      140  
  C. Other Securities      140  
  D. American Depositary Shares      140  

PART II

     142  

Item 13.

  Defaults, Dividend Arrearages And Delinquencies      142  

Item 14.

  Material Modifications to the Rights of Security Holders and Use of Proceeds      142  

Item 15.

  CONTROLS AND PROCEDURES      142  

Item 16.

  Reserved      143  

Item 16A.

  Audit Committee Financial Expert      143  

Item 16B.

  Code of Ethics      143  

Item 16C.

  Principal Accountant Fees and Services      143  

Item 16D.

  Exemptions from the Listing Standards for Audit Committees      144  

Item 16E.

  Purchases of Equity Securities by the Issuer and Affiliated Purchasers      145  

Item 16F.

  Change in Registrant’s Certifying Accountant      145  

Item 16G.

  Corporate Governance      145  

Item 16H.

  Mine Safety Disclosure      146  

Item 16I.

  Disclosure Regarding Foreign Jurisdictions that Prevent Inspections      146  

PART III

     147  

Item 17.

  Financial Statements      147  

Item 18.

  FINANCIAL STATEMENTS      147  

Item 19.

  Exhibits      147  

Note 1: The Company

     F-10  

Note 2: General information and Statement of Compliance

     F-10  

Note 3: Accounting Principles

     F-12  

Foreign currency translation

     F-12  

Revenue

     F-13  

Other income

     F-14  

Intangible assets

     F-15  

Property, plant and equipment

     F-17  

Leases

     F-18  

Impairment of non-financial assets

     F-19  

Cash and cash equivalents

     F-19  

Financial assets

     F-19  

Financial liabilities

     F-20  

Provisions

     F-21  

Income taxes

     F-23  

Earnings (loss) per share

     F-24  

Equity

     F-24  

Assets held for sale

     F-24  

Note 4: Risk Management

     F-25  

Note 5: Critical accounting estimates and judgments

     F-26  

Note 6: Operating segment information

     F-28  

Note 7: Intangible assets

     F-30  

Note 8: Property, plant and equipment

     F-33  

Note 9: Non-current trade receivables and other non-current assets

     F-34  

Note 10: Inventories and Work in Progress

     F-35  

Note 11: Trade, other receivables and other assets

     F-35  

 

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Note 12: Short-term investment

     F-36  

Note 13: Cash and cash equivalents

     F-36  

Note 14: Investment in Subsidiaries

     F-36  

Note 15: Share Capital

     F-37  

Note 16: Share-based payments

     F-41  

Note 17: Post-employment Benefits

     F-45  

Note 18: Other reserves

     F-47  

Note 19: Recoverable Cash advances

     F-48  

Note 20: Due dates of the Financial Liabilities

     F-50  

Note 21: Other non-current liabilities

     F-50  

Note 22: Trade payables and other current liabilities

     F-51  

Note 23: Financial instruments

     F-51  

Note 24: Changes in liabilities arising from financial activities

     F-55  

Note 25: Revenues

     F-56  

Note 26: Operating expenses

     F-56  

Note 27: Employee Benefit Expenses

     F-58  

Note 28: Other Income and Other Expenses

     F-59  

Note 29: Change in fair value of contingent consideration and impairment of oncology intangible assets

     F-61  

Note 30: Leases

     F-62  

Note 31: Financial income and expenses

     F-64  

Note 32: Income Tax

     F-64  

Note 33: Deferred taxes

     F-65  

Note 34: Commitments

     F-66  

Note 35: Relationships with related Parties

     F-69  

Note 36: Loss per share

     F-70  

Note 37: Events after the close of the fiscal Year

     F-70  

EXHIBIT INDEX

     EX-1  

 

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SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous material and other risks and uncertainties, including those described in Item 3.D. “Risk Factors” in this Report. The principal risks and uncertainties affecting our business include the following:

 

   

We, or licensees of our intellectual property, may conduct clinical programs in the future. Initial success in our future clinical trials may not be indicative of results obtained when these trials are completed. Furthermore, success in early clinical trials may not be indicative of results obtained in later trials.

 

   

We have obtained and will seek to obtain significant funding from the Walloon Region. The terms of the agreements signed with the Region may hamper our ability to partner part or all of our future products.

 

   

We rely and will continue to rely on collaborative partners regarding the development of any future research programs and future product candidates.

 

   

We will rely on third parties to conduct, supervise and monitor any future clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize any product candidates and our business could be substantially harmed.

 

   

Our patents and other intellectual property rights portfolio are relatively young and may not adequately protect our research programs and product candidates, which may impede our ability to compete effectively.

 

   

We may infringe on the patents or intellectual property rights of others and may face patent litigation, which may be costly and time consuming.

 

   

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

 

   

We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our technologies or product candidates.

 

   

We are highly dependent on our key personnel, and if we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

 

   

We have incurred net losses in each period since our inception and anticipate that we will continue to incur net losses in the future.

 

   

We may need substantial additional funding, which may not be available on acceptable terms when needed, if at all.

 

   

Our net losses and significant cash used in operating activities have raised doubt regarding our ability continue as a going concern.

 

   

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to any product candidates or technologies.

 

   

If securities or industry analysts do not publish research or publish inaccurate research or unfavorable research about our business, the price of the ordinary shares and the ADSs and trading volume could decline.

 

   

The market price of the shares could be negatively impacted by actual or anticipated sales of substantial numbers of ordinary shares or ADSs.

 

   

A public market for our shares may not be sustained.

 

   

The market price of the shares may fluctuate widely in response to various factors.

 

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INTRODUCTION

Unless otherwise indicated, “Celyad,” “Celyad Oncology”, “the Company,” “our company,” “the Group,” “we,” “us” and “our” refer to Celyad Oncology SA and its consolidated subsidiaries.

We own various trademark registrations and applications, and unregistered trademarks and service marks, including “CELYAD”, “C-CATHez” and our corporate logo. All other trademarks or trade names referred to in this Annual Report on Form 20-F are the property of their respective owners. Trade names, trademarks and service marks of other companies appearing in this Annual Report on Form 20-F are the property of their respective holders. Solely for convenience, the trademarks and trade names in this Annual Report on Form 20-F may be referred to without the ® and symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us, any other companies.

Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our consolidated financial statements are presented in euros. All references in this Annual Report on Form 20-F to “$,” “US$,” “U.S.$,” “U.S. dollars,” “dollars” and “USD” mean U.S. dollars and all references to “€”, “EUR”, and “euros” mean euros, unless otherwise noted. Throughout this Annual Report on Form 20-F, references to ADSs mean ADSs or ordinary shares represented by ADSs, as the case may be.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F, or Annual Report, contains forward-looking statements. All statements other than present and historical facts and conditions contained in this Annual Report, including statements regarding our future results of operations and financial positions, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this Annual Report, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

   

Our reliance on the success of licensing our current technologies and patent portfolio or any product candidates;

 

   

The implementation of our business model and strategic plans for our business and intellectual property portfolio;

 

   

The scope of protection we are able to establish and maintain for intellectual property rights covering any product candidates and current or future technology;

 

   

Our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights and proprietary technology of third parties;

 

   

Cost associated with enforcing or defending intellectual property infringement, misappropriation or violation; product liability; and other claims;

 

   

Regulatory development in the United States, the European Union (“EU”), and other jurisdictions;

 

   

The commercialization of any product candidates that we or a party to whom we license our intellectual property develop, if approved;

 

   

The pricing and reimbursement of any product candidates that we or a party to whom we license our intellectual property develop, if approved;

 

   

Estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

   

Our ability to obtain additional financing, if necessary, on attractive terms or at all;

 

   

The potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

 

   

Our ability to maintain and establish collaborations or obtain additional grant funding;

 

   

The rate and degree of market acceptance of any product candidates, if approved;

 

   

Our financial performance;

 

   

Developments relating to our competitors and our industry, including competing therapies;

 

   

Our ability to effectively manage our anticipated growth;

 

   

Our ability to attract and retain qualified employees and key personnel;

 

   

Our ability to build our finance infrastructure, improve our accounting systems and controls and remedy the material weakness identified in our internal control over financial reporting;

 

   

Statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance;

 

   

Our expectations regarding our passive foreign investment company (PFIC) status; and

 

   

Other risks and uncertainties, including those listed in the section of this annual report titled “Item 3.D.—Risk Factors.”

 

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You should refer to the section of this Annual Report titled “Item 3.D.—Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this Annual Report and the documents that we reference in this Annual Report with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

This Annual Report contains market data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity and market size information included in this Annual Report is generally reliable, such information is inherently imprecise.

 

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PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3.

KEY INFORMATION

A. [Reserved]

Not applicable.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business faces significant risks. You should carefully consider all of the information set forth in this Annual Report and in our other filings with the U.S. Securities and Exchange Commission, or the SEC, including the following risk factors which we face, and which are faced by our industry. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this report and our other SEC filings. See “Special Note Regarding Forward-Looking Statements” above.

Risks Related to Product Development, Regulatory Approval and Commercialization

We are heavily dependent on licensing our patent portfolio and product candidates and the regulatory approval of those and any future product candidates that we or a third party to whom we license our intellectual property develop, and subsequent commercial success of such product candidates, both of which may never occur.

We are a biotechnology company with no products approved by regulatory authorities or available for commercial sale. We may be unable to develop or commercialize a product, product candidate or research program, or may cease some of our operations, which may have a material adverse effect on our business.

We have generated limited revenue to date and do not expect to generate any revenue from product sales for the foreseeable future. As a result, our future success is currently dependent upon the licensing and regulatory approval and commercial success of any current product candidates and future CAR T-cell therapy product candidates that we or a third party to whom we license our intellectual property develop. Our ability to generate revenues in the near term will depend on our ability to obtain regulatory approval and successfully commercialize any future product candidates or license our patent portfolio and product candidates. We, or our licensing partners, may experience delays in obtaining regulatory approval in the United States for such clinical candidates, if they are approved at all, and the price of our ordinary shares and/or ADSs may be negatively impacted. Even if we, or our licensing partners, receive regulatory approval, the timing of the commercial launch of any product candidates in the United States is dependent upon a number of factors, including, but not limited to, hiring sales and marketing personnel, pricing and reimbursement timelines, the production of sufficient quantities of commercial drug product and implementation of marketing and distribution infrastructure.

 

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In addition, we have incurred and expect to continue to incur significant expenses as we continue to strengthen our research efforts. The success of any product candidates, if approved, and revenue from commercial sales, will depend on several factors, including:

 

   

Execution of an effective sales and marketing strategy for the commercialization of any product candidates;

 

   

Acceptance by patients, the medical community and third-party payors;

 

   

Our success in educating physicians and patients about the benefits, administration and use of any product candidates;

 

   

The incidence and prevalence of the indications for which any product candidates are approved in those markets in which the candidate(s) are approved;

 

   

The incidence and severity of side effects, if any, experienced by patients treated with any product candidates;

 

   

The availability, perceived advantages, cost, safety and efficacy of alternative treatments, including potential alternate treatments that may currently be available or in development or may later be available or in development or approved by regulatory authorities;

 

   

Maintaining compliance with regulatory requirements, including, good laboratory practices (“GLPs”); and

 

   

Obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity and otherwise protecting our rights in our intellectual property portfolio.

We may also fail in our efforts to develop and commercialize product candidates. If this were to occur our development costs may increase and our ability to generate revenue or profits, or to raise additional capital, could be impaired.

The achievement of milestones (such as those related to research and development, scientific, clinical, regulatory and business) will trigger payment obligations towards Celdara, Dartmouth and Horizon Discovery, which will negatively impact our profitability.

We do not currently have any ongoing clinical programs. If we initiate any clinical development programs, initial success in any future clinical trials, by us or our licensing partners, may not be indicative of results obtained when these trials are completed. Furthermore, success in early clinical trials may not be indicative of results obtained in later trials.

Trial designs and results from previous or ongoing trials are not necessarily predictive of future clinical trial results, and initial or interim results may not continue or be confirmed upon completion of a trial. Any positive data from early trials may not continue or occur for future patients in any future clinical trials we or our licensing partners may undertake, and results may not be repeated or observed in ongoing or future trials involving any product candidates.

In December 2020, we made the strategic decision to discontinue the development of our first-generation autologous NKG2D CAR T candidate CYAD-01 for the treatment of relapsed / refractory acute myeloid leukemia (AML) and myelodysplastic syndromes (MDS) based on clinical futility analysis of the data from the completed Phase 1 THINK trial and data from the Phase 1 DEPLETHINK trial which did not achieve the necessary internal clinical activity threshold set for the program to move into Phase 2 clinical development. We instead focused our clinical development efforts instead on our two other NKG2D-based CAR T-cell assets, CYAD-02 and CYAD-101.

 

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In April 2021, enrollment into the alloSHRINK study was discontinued, based on results from the dose-escalation cohorts and expansion segment, which allowed us to define the best treatment scheme for CYAD-101 to be used in the KEYNOTE-B79 study. In August 2022, we announced that we would seek partnerships to further continue the development of our last autologous candidate CYAD-02, following encouraging results from the dose-escalation cohorts shared in December 2021, in order to focus on allogeneic candidates. Recruitment in the KEYNOTE-B79 trial was initiated in December 2021. In February 2022, we announced our decision to voluntarily pause CYAD-101-002 trial to investigate reports of two fatalities that presented with similar pulmonary findings and evaluate any similar events in additional patients treated on study. On March 1, 2022, we were informed via-email communication from the FDA that the CYAD-101-002 trial had been placed on clinical hold due to insufficient information to assess risk to study subjects.

In June 2022, we submitted our complete response to the Clinical Hold to the FDA stating our intent to amend the eligibility criteria to exclude patients who have bilateral lung metastases and patients who have received treatment with epidermal growth factor receptor (EGFR) targeting monoclonal antibodies within the previous 9 months prior to trial recruitment. In July 2022, based on that complete response, we received notification that the FDA lifted the Clinical Hold on the trial. In October 2022, we made the decision to discontinue the development of CYAD-101 based on a strategic, financial and medical review, taking into account the costs associated with the pursuit of the program and the delays to reach key medical milestones following the resolution of the previous Clinical Hold.

In November 2020, we initiated the dose-escalation Phase 1 IMMUNICY-1 trial evaluating CYAD-211. On December 21, 2022, based on available data from 6 cohorts which did not achieve the necessary internal clinical activity threshold set for the program to move into Phase 2 clinical development, the Company announced that, based on a strategic and financial review, the development of CYAD-211 would be discontinued.

There is a high failure rate for drugs and biologics proceeding through clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical trials even after achieving promising results in earlier stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

In previous clinical programs involving T cell-based immunotherapies, some patients experienced serious adverse events. Any future product candidates we or our licensing partners develop may demonstrate a similar effect or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.

In previous and ongoing clinical trials involving CAR T-cell products by other companies or academic researchers, many patients experienced side effects such as neurotoxicity and CRS, which have in some cases resulted in clinical holds in ongoing clinical trials of CAR T product candidates. There have been life threatening events related to severe neurotoxicity and CRS, requiring intense medical intervention such as intubation or pressor support, and in several cases, resulted in death. Severe neurotoxicity is a condition that is currently defined clinically by cerebral edema, confusion, drowsiness, speech impairment, tremors, seizures, or other central nervous system side effects, when such side effects are serious enough to lead to intensive care. In some cases, severe neurotoxicity was thought to be associated with the use of certain lymphodepletion preconditioning regimens used prior to the administration of the CAR T-cell products. CRS is a condition that is currently defined clinically by certain symptoms related to the release of cytokines, which can include fever, chills, low blood pressure, when such side effects are serious enough to lead to intensive care with mechanical ventilation or significant vasopressor support. The exact cause or causes of CRS and severe neurotoxicity in connection with treatment of CAR T-cell products and product candidates is not fully understood at this time. In addition, patients have experienced other adverse events in these studies, such as a reduction in the number of blood cells (in the form of neutropenia, thrombocytopenia, anemia or other cytopenias), febrile neutropenia, chemical laboratory abnormalities (including elevated liver enzymes), and renal failure.

Undesirable side effects caused by any of our product candidates or other T cell-based immunotherapy product candidates, could cause us, our licensing partners, or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. For example, on February 28, 2022, we announced our decision to voluntarily pause our Phase 1b KEYNOTE-B79 trial evaluating CYAD-101 administered concurrently with FOLFOX chemotherapy followed by MSD’s anti-PD-1 therapy, KEYTRUDA® (pembrolizumab) in patients with refractory metastatic colorectal cancer following reports of two fatalities that presented with similar pulmonary findings. We investigated

 

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these reports and evaluated if there were any similar events in additional patients treated on study. Subsequently, on March 1, 2022, we were informed via e-mail communication from the FDA that the KEYNOTE-B79 trial has been placed on clinical hold due to insufficient information to assess risk to study subjects. The FDA lifted this clinical hold in July 2022 following our revision of the eligibility criteria for KEYNOTE-B79. We discontinued our development of CYAD-101 in October 2022 based on strategic considerations, including the delay to reaching milestones following the resolution of this clinical hold. No new safety concerns contributed to our decision to discontinue CYAD-101. Results of any of our, or our licensing partner’s future trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics in product candidates. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete future trials or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from T cell-based immunotherapies are not normally encountered in the general patient population and by medical personnel. If we develop future product candidates, we expect to have to train medical personnel regarding any T cell-based immunotherapy product candidates to understand their side effects for both our planned clinical trials and upon any commercialization of any T cell-based immunotherapy product candidates. Inadequate training in recognizing or managing the potential side effects of T cell-based immunotherapy product candidates could result in patient deaths. Any of these occurrences could have a material adverse effect on our business, financial condition and prospects.

We, or any future licensing partners, may encounter substantial delays in future clinical trials or may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Before obtaining regulatory approval or marketing authorization from regulatory authorities for the sale of any product candidates, if at all, we, or our licensing partners, must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

 

   

Delays in raising, or inability to raise, sufficient capital to fund the planned clinical trials;

 

   

Delays in reaching a consensus with regulatory agencies on trial design;

 

   

Identifying, recruiting and training suitable clinical investigators;

 

   

Delays in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites;

 

   

Delays in obtaining required Investigational Review Board, or IRB, or ethics committee approval at each clinical trial site, or institutional biosafety committee, or IBC, approval, if applicable;

 

   

Delays in recruiting suitable patients to participate in our clinical trials;

 

   

Delays due to changing standard of care for the diseases we, or our licensing partners, are studying;

 

   

Adding new clinical trial sites;

 

   

Imposition of a clinical hold by regulatory agencies, including after an inspection of clinical trial operations or trial sites;

 

   

Failure by CROs, other third parties, our licensing partners or us to adhere to clinical trial requirements;

 

   

Catastrophic loss of product candidates due to shipping delays or delays in customs in connection with delivery to foreign countries for use in clinical trials;

 

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Failure to perform in accordance with the FDA’s GCPs or applicable regulatory guidelines in other countries;

 

   

Delays in the testing, validation, manufacturing and delivery of product candidates to the clinical sites;

 

   

Delays in having patients complete participation in a trial or return for post-treatment follow-up;

 

   

Clinical trial sites or patients dropping out of a trial;

 

   

Occurrence of serious adverse events associated with the drug product candidate that are viewed to outweigh its potential benefits;

 

   

Disagreement with regulators on proposed protocols for such clinical trials;

 

   

Delays in patient enrollment; or

 

   

Changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.

Any inability for us or our licensing partners to successfully complete preclinical and clinical development could result in additional costs to us or impair our or our licensing partners’ ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. Clinical trial delays could also shorten any periods during which we or our licensing partners may have the exclusive right to commercialize any product candidates or allow our competitors to bring products to market before we or our licensing partners do, which could impair our or our licensing partners’ ability to successfully commercialize product candidates and may harm our business and results of operations.

If the results of any future clinical trials are inconclusive or if there are safety concerns or adverse events associated with any of our product candidates, we may:

 

   

Be delayed in obtaining marketing approval for those product candidates, if at all;

 

   

Obtain approval for indications or patient populations that are not as broad as intended or desired;

 

   

Obtain approval with labelling that includes significant use or distribution restrictions or safety warnings;

 

   

Be subject to changes in the way the product is administered;

 

   

Be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

 

   

Have regulatory authorities withdraw their approval of the product or impose restrictions on our distribution in the form of a risk evaluation and mitigations strategy, or REMS, program;

 

   

Be subject to the addition of labelling statements, such as warnings or contraindications;

 

   

Be sued; or

 

   

Experience damage to our reputation.

Any product candidates could potentially cause other adverse events that have not yet been predicted. As described above, any of these events could prevent us or our licensing partners from achieving or maintaining market acceptance of product candidates and impair our or our licensing partners’ ability to commercialize those products if they are ultimately approved by applicable regulatory authorities.

 

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Any product candidates that we or any future licensing partners develop may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.

As with most biological drug products, use of any of our product candidates could be associated with side effects or adverse events which can vary in severity from minor reactions to death and in frequency from infrequent to prevalent. Undesirable side effects or unacceptable toxicities caused by our product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials. For example, on February 28, 2022, we announced our decision to voluntarily pause our Phase 1b KEYNOTE-B79 trial evaluating CYAD-101 administered concurrently with FOLFOX chemotherapy followed by MSD’s anti-PD-1 therapy, KEYTRUDA® (pembrolizumab) in patients with refractory metastatic colorectal cancer following reports of two fatalities that presented with similar pulmonary findings. We investigated these reports and evaluated if there were any similar events in additional patients treated on study. Subsequently, on March 1, 2022, we were informed via e-mail communication from the FDA that the KEYNOTE-B79 trial has been placed on clinical hold due to insufficient information to assess risk to study subjects. The FDA lifted this clinical hold in July 2022 following our revision of the eligibility criteria for KEYNOTE-B79. We discontinued our development of CYAD-101 in October 2022 based on strategic considerations, including the delay to reaching milestones following the resolution of this clinical hold. No new safety concerns contributed to our decision to discontinue CYAD-101. The FDA, EMA, or comparable foreign regulatory authorities could delay or deny approval of any product candidates for any or all targeted indications and negative side effects could result in a more restrictive label for any product that is approved. Side effects such as toxicity or other safety issues associated with the use of product candidates could also require us or our collaborators to perform additional studies or halt development or sale of these product candidates.

Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial, or could result in potential product liability claims. In addition, these side effects may not be appropriately or timely recognized or managed by the treating medical staff. Any of these occurrences may materially and adversely harm our business, financial condition and prospects.

Additionally, if one or more of our product candidates receive marketing approval, and we or others later identify undesirable side effects caused by such products, including during any long-term follow-up observation period recommended or required for patients who receive treatment using our products, a number of potentially significant negative consequences could result, including:

 

   

Regulatory authorities may withdraw approvals of or revoke licenses for such product;

 

   

Regulatory authorities may require additional warnings on the label;

 

   

We may be required to create a REMS program 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;

 

   

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

 

   

Our reputation may suffer.

Any of the foregoing could prevent us from achieving or maintaining market acceptance of the particular drug product candidate, if approved, and could significantly harm our business, results of operations, and prospects.

 

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Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials as well as data from any interim analysis of ongoing clinical trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development.

Clinical testing is expensive and can take many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Although product candidates may demonstrate promising results in early clinical (human) trials and preclinical (animal) studies, they may not prove to be effective in subsequent clinical trials. For example, testing on animals may occur under different conditions than testing in humans and therefore the results of animal studies may not accurately predict human experience. Likewise, early clinical trials may not be predictive of eventual safety or effectiveness results in larger-scale pivotal clinical trials. The results of preclinical studies and previous clinical trials as well as data from any interim analysis of ongoing clinical trials of any of our product candidates, as well as studies and trials of other products with similar mechanisms of action to our product candidates, may not be predictive of the results of ongoing or future clinical trials. Drug product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and earlier clinical trials. In addition to the safety and efficacy traits of any drug product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. Based upon negative or inconclusive results, we or our collaborators may decide, or regulators may require it, to conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval.

The regulatory approval processes of the FDA, EMA and other comparable regulatory authorities is lengthy, time-consuming, and inherently unpredictable, and we may experience significant delays in the clinical development and regulatory approval, if any, of any product candidates.

The research, testing, manufacturing, labelling, approval, selling, import, export, marketing, and distribution of drug products, including biologics, are subject to extensive regulation by the FDA, EMA and other comparable regulatory authorities. We are not permitted to market any biological drug product in the United States until we receive a license from the FDA for our biologics license application (“BLA”), or an approval of our marketing authorization application (“MAA”) from the EMA. We have not previously submitted a BLA to the FDA, MAA to the EMA, or similar approval filings to comparable foreign authorities. A BLA must include extensive preclinical and clinical data and supporting information to establish that the drug product candidate is safe, pure, and potent for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing, and controls for the product, and the manufacturing facilities must complete a successful pre-license inspection. We expect the nature of any of our product candidates to create further challenges in obtaining regulatory approval. For example, the FDA and EMA have limited experience with commercial development of genetically modified T-cell therapies for cancer. The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support licensure. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain licensure of the product candidates based on the completed clinical trials. Accordingly, the regulatory approval pathway for any of our product candidates may be uncertain, complex, expensive, and lengthy, and approval may not be obtained.

Obtaining and maintaining regulatory approval of any product candidates in one jurisdiction does not mean that we, or our licensing partners, will be successful in obtaining regulatory approval of those product candidates in other jurisdictions.

If we or our licensing partners obtain and maintain regulatory approval of any product candidates in one jurisdiction, such approval does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA or EMA grants marketing approval of a drug product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the drug product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the EU or in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions, a drug product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for any future products is also subject to approval.

Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of any future products in certain countries. If we or our licensing partners fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

 

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We may seek designation for our TIM and/or shRNA technologies as designated platform technologies, but we might not receive such designation, and even if we do, such designation may not lead to a faster regulatory review or approval process.

We may seek designation for our T cell receptor inhibitory molecule (“TIM”) and/or short hairpin ribonucleic acids (“shRNA”) technologies as designated platform technologies. Under the Food and Drug Omnibus Reform Act of 2022 (“FDORA”), a platform technology incorporated within or utilized by a drug or biological product is eligible for designation as a designated platform technology if (1) the platform technology is incorporated in, or utilized by, a drug approved under an BLA; (2) preliminary evidence submitted by the sponsor of the approved or licensed drug, or a sponsor that has been granted a right of reference to data submitted in the application for such drug, demonstrates that the platform technology has the potential to be incorporated in, or utilized by, more than one drug without an adverse effect on quality, manufacturing, or safety; and (3) data or information submitted by the applicable person indicates that incorporation or utilization of the platform technology has a reasonable likelihood to bring significant efficiencies to the drug development or manufacturing process and to the review process. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an investigational new drug (“IND”) application for a drug that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original BLA for a drug that uses or incorporates the platform technology. Even if we believe TIM or shRNA meets the criteria for such designation, the FDA may disagree and instead determine not to grant such designation. In addition, the receipt of such designation for a platform technology does not ensure that a drug will be developed more quickly or receive FDA approval. Moreover, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation.

A Breakthrough Therapy Designation by the FDA for any product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that those product candidates will receive marketing approval.

We may seek a Breakthrough Therapy Designation for some of our product candidates. A breakthrough therapy is defined as a product that is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drug product candidates designated as breakthrough therapies by the FDA may also be eligible for accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a drug product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product candidates no longer meet the conditions for designation.

A Fast Track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.

We may seek Fast Track designation for some of our product candidates. If a product is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet medical needs for this condition, the product sponsor may apply for Fast Track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular drug product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from any ongoing clinical development program.

 

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We may seek orphan drug designation for some of our product candidates, and we may be unsuccessful or may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.

As part of our business strategy, we may seek orphan drug designation for some of our product candidates, and we may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and the EU, may designate products for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a product intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the product will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.

Similarly, in the EU, after recommendation from the EMA’s Committee for Orphan Medicinal Products, the European Commission grants an orphan medicinal product designation in respect of a product if its sponsor can establish that the product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the EU and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized for marketing in the EU (or, if such a method has been authorized, the product in question would be of a significant benefit to those affected by that condition). Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the product in the EU would generate sufficient return to justify the necessary investment in developing the product. In the EU, orphan medicinal product designation entitles a party to financial incentives such as reduction of fees or fee waivers.

Generally, if a drug product candidate with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same product and indication for that time period, except in limited circumstances. The applicable period is seven years in the United States and ten years in the EU. The EU exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan medicinal product designation, including if the product is sufficiently profitable so that market exclusivity is no longer justified.

Even if we or our collaborators obtain orphan drug exclusivity for a future product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition or the same products can be approved for different conditions. If one of our product candidates that receives an orphan drug designation is approved for a particular indication or use within the rare disease, the FDA may later approve the same product for additional indications or uses within that rare disease that are not protected by our exclusive approval. Even after an orphan drug is approved, the FDA can subsequently approve the same product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. Orphan drug designation neither shortens the development time or regulatory review time of a product nor gives the product any advantage in the regulatory review or approval process. While we may seek orphan drug designation for product candidates, we may never receive such designations. Even if we do receive such designations, there is no guarantee that we will enjoy the benefits of those designations.

 

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Even if we receive regulatory approval of any product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expenses and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with those product candidates.

If any product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements, including ensuring that quality control and manufacturing procedures conform to current cGMP regulations and applicable product tracking and tracking requirements, and in certain cases current Good Tissue Practices (“cGTP”) regulations. As such, we and any of our CMOs will be subject to continual review and inspections to assess compliance, to the extent applicable, with cGMP and adherence to commitments made in any BLA, other marketing application, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control.

Any regulatory approvals that we or our licensing partners receive for any product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the drug product candidate. Additionally, under FDORA, sponsors of approved drugs and biologics must provide 6 months’ notice to the FDA of any changes in marketing status, such as the withdrawal of a drug, and failure to do so could result in the FDA placing the product on a list of discontinued products, which would revoke the product’s ability to be marketed. The FDA may also require a REMS program as a condition of approval of our product candidates, which could entail requirements for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves a product candidate, we will have to comply with requirements including submissions of safety and other post-marketing information and reports, establishment registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval.

The FDA may seek consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with any product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

   

Restrictions on the marketing or manufacturing of future products, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

   

Fines, untitled or warning letters, or holds on clinical trials;

 

   

Refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;

 

   

Product seizure or detention, or refusal to permit the import or export of our product candidates; and

 

   

Injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. The policies

 

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of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

Even if we obtain regulatory approval of any product candidates, the products may not gain market acceptance among physicians, patients, hospitals and others in the medical community.

Our product candidates may not become broadly accepted by physicians, patients, hospitals, and others in the medical community. Numerous factors will influence whether any of our product candidates are accepted in the market, including:

 

   

The clinical indications for which those product candidates are approved;

 

   

Physicians, hospitals, and patients considering those product candidates as a safe and effective treatment;

 

   

The potential and perceived advantages of those product candidates over alternative treatments;

 

   

The prevalence and severity of any side effects;

 

   

Product labelling or product insert requirements of the FDA, EMA, or other regulatory authorities;

 

   

Limitations or warnings contained in the labelling approved by the FDA or EMA;

 

   

The timing of market introduction of those product candidates as well as competitive products;

 

   

The cost of treatment in relation to alternative treatments;

 

   

The availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;

 

   

The willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors and government authorities;

 

   

Relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and

 

   

The effectiveness of our sales and marketing efforts.

In addition, although we do not plan to utilize embryonic stem cells in any product candidates, adverse publicity due to the ethical and social controversies surrounding the therapeutic use of such technologies, and reported side effects from any clinical trials using these technologies or the failure of such trials to demonstrate that these therapies are safe and effective may limit market acceptance of any of these product candidates due to the perceived similarity between our product candidates and these other therapies. If any of our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, or others in the medical community, we will not be able to generate significant revenue.

Even if our future products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

 

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Any product candidates we develop, or technologies we license, will be biologics, which are complex to manufacture, and we or our licensing partners may encounter difficulties in production, particularly with respect to process development or scaling-out of manufacturing capabilities. If we, our licensing partners, or any of our third-party manufacturers encounter such difficulties, the ability to provide supply of these product candidates for clinical trials or products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

Our patent portfolio and research and development focus on biologics and the process of manufacturing these types of products is complex, highly-regulated and subject to multiple risks. The manufacture of any product candidates derived from our intellectual property or that we develop may involve complex processes, including harvesting cells from patients, selecting and expanding certain cell types, engineering or reprogramming the cells in a certain manner to create CAR T-cells, expanding the cell population to obtain the desired dose, and ultimately infusing the cells back into a patient’s body. As a result of the complexities, the cost to manufacture these product candidates is higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is more difficult to reproduce. The manufacturing process for these product candidates is susceptible to product loss or failure due to logistical issues associated with the collection of blood cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping the final product back to the patient, and infusing the patient with the product, manufacturing issues associated with the differences in patient starting materials, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. Because some of these product candidates may be manufactured for each particular patient, we, or our partners, would be required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process, and back to the patient. Maintaining such a chain of identity is difficult and complex and failure to do so could result in adverse patient outcomes, loss of product, or regulatory action including withdrawal of products from the market. Further, as product candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause these product candidates to perform differently and affect the results of ongoing clinical trials or other future clinical trials.

Developing a commercially viable processes for the manufacture of these types of product candidates is a difficult and uncertain task, and there are risks associated with scaling to the level required for later-stage clinical trials and commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. We may ultimately be unable to reduce the cost of goods for any of our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized.

In addition, the manufacturing process for any of our product candidates are subject to regulatory authorities’ approval processes, and we will need to make sure that we, or our licensing partners or the appointed CMOs if any, are able to meet all regulatory authorities’ requirements on an ongoing basis. If we, or our licensing partners or the appointed CMOs are unable to reliably produce product candidates to specifications acceptable to the regulatory authorities, we or our licensing partners may not obtain or maintain the approvals we need to commercialize such product candidates. Even if we or our licensing partners obtain regulatory approval for any of these product candidates, there is no assurance that either we, our licensed partners or the appointed CMOs will be able to manufacture the approved product to specifications acceptable to the regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could have an adverse effect on our business, financial condition, results of operations and growth prospects.

 

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We may face competition from biosimilars, which may have a material adverse impact on the future commercial prospects of any product candidates we pursue.

Even if we are successful in achieving regulatory approval to commercialize a drug product candidate faster than our competitors, we may face competition from biosimilars. The Biologics Price Competition and Innovation Act of 2009, or BPCI Act, created an abbreviated approval pathway for biological products that are demonstrated to be biosimilar to, or interchangeable with, an FDA-approved biological product. “Biosimilarity” means that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components and there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency of the product. To meet the higher standard of “interchangeability,” an applicant must provide sufficient information to show biosimilarity and demonstrate that the biological product can be expected to produce the same clinical result as the reference product in any given patient and, if the biological product is administrated more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch.

A reference biological product is granted 12 years of 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 first licensure. First licensure typically means the initial date the particular product at issue was licensed in the United States. This does not include a supplement for the biological product or 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 that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device, or strength, unless that change is a modification to the structure of the biological product and such modification changes our 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.

This data exclusivity does not prevent another company from developing a product that is highly similar to the innovative product, generating its own data, and seeking approval. Data exclusivity only assures that another company cannot rely upon the data within the application for the reference biological product to support the biosimilar product’s approval.

In the EU, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals published by the EMA. In the EU, a competitor may reference the data supporting approval of an innovative biological product in its application for a biosimilar product, but will not be able do so until eight years after the time of approval of the innovative product and will not be able to get its biosimilar on the market until 10 years from the aforementioned approval. This 10-year marketing exclusivity period will be extended to 11 years if, during the first eight of those 10 years, the marketing authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing biosimilars in other countries that could compete with any of our future products.

If competitors are able to obtain marketing approval for biosimilars referencing our future products, our future products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.

Nearly all aspects of our activities are subject to substantial regulation. No assurance can be given that any of our product candidates will fulfill regulatory compliance. Failure to comply with such regulations could result in delays, suspension, refusals, fines and withdrawal of approvals.

The international pharmaceutical and medical technology industry is highly regulated by government bodies (hereinafter the “Competent Authorities”) that impose substantial requirements covering nearly all aspects of our current and potential future activities notably on research and development, manufacturing, preclinical tests, clinical trials, labelling, marketing, sales, storage, record keeping, promotion and pricing of our research programs and product candidates. Compliance with standards laid down by local Competent Authorities is required in each country where we, or any of our partners or licensees, conduct said activities in whole or in part. The Competent Authorities notably include the EMA in the EU and the FDA in the United States.

There can be no assurance that any of our product candidates will fulfill the criteria required to obtain necessary regulatory authorization to access the market. Also, at this time, we cannot guarantee or know the exact nature, precise timing and detailed costs of the efforts that will be necessary to complete the remainder of the development of our research programs or product candidates.

 

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The specific regulations and laws, as well as the time required to obtain Competent Authorities approvals, may vary from country to country, but the general regulatory procedures are similar in the EU and the United States. Each Competent Authority may impose its own requirements, may discontinue an approval, may refuse to grant approval, or may require additional data before granting approval, notwithstanding that approval may have been granted by one or more other Competent Authorities. Competent Authority approval may be delayed, limited or denied for a number of reasons, most of which are beyond our control. Such reasons include the production process or site not meeting the applicable requirements for the manufacture of regulated products, or the products not meeting applicable requirements for safety or efficacy during the clinical development stage or after marketing. No assurance can be given that clinical trials will be approved by Competent Authorities or that products will be approved for marketing by Competent Authorities in any pre-determined indication or intended use. Competent Authorities may disagree with our interpretation of data submitted for their review. Even after obtaining approval for clinical trials or marketing, products will be subject to ongoing regulation and evaluation of their benefit/safety or risk/performance ratio; a negative evaluation of the benefit/safety or risk/performance ratio could result in a potential use restriction and/or withdrawal of approval for one or more products. At any time, Competent Authorities may require discontinuation or holding of clinical trials or require additional data prior to completing their review or may issue restricted authorization or authorize products for clinical trials or marketing for narrower indications than requested or require further data or studies be conducted and submitted for their review. There can be no guarantee that such additional data or studies, if required, will corroborate earlier data.

Research programs and any of our product candidates must undergo rigorous preclinical tests and clinical trials, the start, timing of completion, number and results of which are uncertain and could substantially delay or prevent the products from reaching the market.

Preclinical tests and clinical trials are expensive and time-consuming, and their results are uncertain. We, our collaborative partners or other third parties may not successfully complete the preclinical tests and clinical trials of the research programs and product candidates. Failure to do so may delay or prevent the commercialization of products. We cannot guarantee that our research programs and any product candidates will demonstrate sufficient safety or efficacy or performance in our, or our partners’, preclinical tests and clinical trials to obtain marketing authorization in any given territory or at all, and the results from earlier preclinical tests and clinical trials may not accurately predict the results of later-stage preclinical tests and clinical trials. At any stage of development, based on a review of available preclinical and clinical data, the estimated costs of continued development, market assessments and other factors, the development of any of our research programs and any product candidates may be suspended or discontinued.

We and our collaborative partners are, or may become subject to, numerous ongoing regulatory obligations, such as data protection, environmental, health and safety laws and restrictions on the experimental use of animals and/or human beings. The costs of compliance with applicable regulations, requirements or guidelines could be substantial,

and failure to comply could result in sanctions, including fines, injunctions, civil penalties, denial of applications for marketing authorization of any of our future products, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly increase our or our collaborative partners’ costs or delay the development and commercialization of our product candidates.

We may face significant competition and technological change which could limit or eliminate the market opportunity for any product candidates.

The market for pharmaceutical products is highly competitive. Our competitors include many established pharmaceutical, biotechnology, universities and other research or commercial institutions, many of which have substantially greater financial, research and development resources than us. The fields in which we operate are characterized by rapid technological change and innovation. There can be no assurance that our competitors are not currently developing or will not in the future develop technologies and products that are equally or more effective and/or are more economical as any current or future technology or product of ours. Competing products may gain faster or greater market acceptance than any of our future products and medical advances or rapid technological development by competitors may result in our product candidates becoming non-competitive or obsolete before we are able to recover our research and development and commercialization expenses. If we or our product candidates do not compete effectively, it may have a material adverse effect on our business.

 

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The price setting, the availability and level of adequate reimbursement by third parties, such as insurance companies, governmental and other healthcare payers is uncertain and may impede on our ability to generate sufficient operating margins to offset operating expenses.

In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all, or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Our commercial performance will depend in part on the conditions for setting the sales price of our future products by the relevant public commissions and bodies and the conditions of their reimbursement by the health agencies or insurance companies in the countries where we intend to market any future products. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.

There has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several U.S. Congressional inquiries and proposed, and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, and review the relationship between pricing and manufacturer patient programs. At a federal level, President Biden signed an Executive Order on July 9, 2021, affirming the administration’s policy to (i) support legislative reforms that would lower the prices of prescription drug and biologics, including by allowing Medicare to negotiate drug prices, by imposing inflation caps, and, by supporting the development and market entry of lower-cost generic drugs and biosimilars; and (ii) support the enactment of a public health insurance option. Among other things, the Executive Order also directs HHS to provide a report on actions to combat excessive pricing of prescription drugs, enhance the domestic drug supply chain, reduce the price that the Federal government pays for drugs, and address price gouging in the industry; and directs the FDA to work with states and Indian Tribes that propose to develop section 804 Importation Programs in accordance with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and the FDA’s implementing regulations. FDA released such implementing regulations on September 24, 2020, which went into effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. On September 25, 2020, CMS stated drugs imported by states under this rule will not be eligible for federal rebates under Section 1927 of the Social Security Act and manufacturers would not report these drugs for “best price” or Average Manufacturer Price purposes. Since these drugs are not considered covered outpatient drugs, CMS further stated it will not publish a National Average Drug Acquisition Cost for these drugs. If implemented, importation of drugs from Canada may materially and adversely affect the price we receive for any of our product candidates. Further, on November 20, 2020, CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates would have been calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. However, on December 29, 2021, CMS rescinded the Most Favored Nations rule. Additionally, on November 30, 2020, HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Pursuant to court order, the removal and addition of the aforementioned safe harbors were delayed, and recent legislation imposed a moratorium on implementation of the rule until January 1, 2026. The Inflation Reduction Act of 2022 (the “IRA”) delayed implementation of this rule to January 1, 2032.

Further, on December 31, 2020, CMS published a new rule, effective January 1, 2023, requiring manufacturers to ensure the full value of co-pay assistance is passed on to the patient or these dollars will count toward the Average Manufacturer Price and Best Price calculation of the drug. On May 21, 2021, PhRMA sued the HHS in the U.S. District Court for the District of Columbia, to stop the implementation of the rule claiming that the rule contradicts federal law surrounding Medicaid rebates. It is unclear how the outcome of this litigation will affect the rule. We cannot predict how the implementation of and any further changes to this rule will affect our business.

 

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In August 2022, the IRA was signed into law. The IRA includes several provisions that will impact our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D beneficiaries, impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy benefit manager rebates to beneficiaries. The effect of IRA on our business and the healthcare industry in general is not yet known.

Although a number of these and other proposed measures may require authorization through additional legislation to become effective, and the Biden administration may reverse or otherwise change these measures, both the Biden administration and Congress have indicated that they will continue to seek new legislative measures to control drug costs.

We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. Federal Government will pay for healthcare drugs and services, which could result in reduced demand for any of our product candidates or additional pricing pressures.

Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain drug access and marketing cost disclosure and transparency measures, and designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, financial condition, results of operations and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our drugs or put pressure on our drug pricing, which could negatively affect our business, financial condition, results of operations and prospects.

The current context of healthcare cost control and economic and financial crisis that most countries are currently facing, coupled with the increase in health care budgets caused by the aging population creates extra pressure on health care spending in most if not all countries. Consequently, pressure on sales prices and reimbursement levels is intensifying owing in particular to:

 

   

Price controls imposed by many states;

 

   

The increasing reimbursement limitations of some products under budgetary policies;

 

   

The heightened difficulty in obtaining and maintaining a satisfactory reimbursement rate for medicines.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the EU 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. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. 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 our product candidates. Historically, products launched in the EU do not follow price structures of the U.S. and generally prices tend to be significantly lower.

Obtaining adequate pricing decisions that would generate return on the investment incurred for the development of the product candidates developed by us are therefore uncertain. Our ability to manage our expenses and cost structure to adapt to increased pricing pressure is untested and uncertain.

 

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All of these factors will have a direct impact on our ability to make profits on the products in question. The partial/no reimbursement policy of medicines could have a material adverse effect on the business, prospects, financial situation, earnings and our growth.

Changes in regulatory approval policies or enactment of additional regulatory approval requirements may delay or prevent any of our product candidates from being marketed.

The regulatory clearance process is expensive and time consuming and the timing of marketing is difficult to predict. Once marketed, products may be subject to post-authorization safety studies or other pharmacovigilance or vigilance activities or may be subject to limitations on their uses or may be withdrawn from the market for various reasons, including if they are shown to be unsafe or ineffective, or when used in a larger population that may be different from the trial population studied prior to market introduction of the product.

Any product candidates we or our licensing partners develop may become subject to changes in the regulatory framework or market conditions. Regulatory guidelines may change during the course of product development and review process, making the chosen development strategy suboptimal. Market conditions may change resulting in the emergence of new competitors or new treatment guidelines which may require alterations in the development strategy. These factors may result in significant delays, increased trial costs, significant changes in commercial assumptions or failure of the products to obtain marketing authorization.

Changes in funding for the FDA and other government agencies, including from government shutdowns or other disruptions to these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, the ability to hire and retain key personnel, the ability to accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may slow the time necessary for new products to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. Our business depends upon the ability of the FDA to accept and review our, or our partners’, potential regulatory filings. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process these regulatory submissions, which could have a material adverse effect on our ability to advance clinical development of these product candidates. Further, future shutdowns of other government agencies, such as the SEC, may also impact our business through review of our public filings and our ability to access the public markets.

Since March 2020 when foreign and domestic inspections of facilities were largely placed on hold, the FDA has been working to resume pre-pandemic levels of inspection activities, including routine surveillance, bioresearch monitoring and pre-approval inspections. Should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, and the FDA does not determine a remote interactive evaluation to be adequate, the agency has stated that it generally intends to issue, depending on the circumstances, a complete response letter or defer action on the application until an inspection can be completed. During the COVID-19 public health emergency, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the ongoing COVID-19 pandemic and may experience delays in their regulatory activities.

 

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We are subject to inspection and shall be subject to market surveillance by the FDA, EMA and other Competent Authorities for compliance with regulations that prohibit the promotion of future products for a purpose or indication other than those for which approval has been granted.

While a product manufacturer may not promote a product for such “off label” use, doctors are allowed, in the exercise of their professional judgment in the practice of medicine, to use a product in ways not approved by Competent Authorities. Off-label marketing regulations are subject to varying evolving interpretations.

Post-approval manufacturing and marketing of any future products of ours may show different safety and efficacy profiles to those demonstrated in the data on which approval to test or market said products was based. Such circumstances could lead to the withdrawal or suspension of approval, which could have a material adverse effect on our business, financial condition, operating results or cash flows. In addition, Competent Authorities may not approve the labelling claims or advertisements that are necessary or desirable for the successful commercialization of any future products we seek to develop.

Competent Authorities have broad enforcement power, and a failure by us or our collaboration partners to comply with applicable regulatory requirements can, among other things, result in recalls or seizures of products, operating and production restrictions, withdrawals of previously approved marketing applications, total or partial suspension of regulatory approvals, refusal to approve pending applications, warning letters, injunctions, penalties, fines, civil proceedings, criminal prosecutions and imprisonment.

We may fail to comply with evolving European and other privacy laws.

The collection and use of personal data in the EU is governed by Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the “GDPR”). The GDPR imposes a broad range of strict requirements on companies subject to the GDPR, such as us, including requirements relating to having legal bases for processing personal information (i.e. information relating to identified or identifiable individuals) and transferring such information outside the European Economic Area (the “EEA”), including to the United States, providing details to those individuals regarding the processing of their personal information, keeping personal information secure, having data processing agreements with third parties who process personal information, responding to individuals’ requests to exercise their rights in respect of their personal information, reporting security breaches involving personal data to the competent national data protection authority and affected individuals, appointing data protection officers, conducting data protection impact assessments, and record-keeping. The GDPR focuses strongly on accountability of data controllers (such as us) and requires us to take all technical and organizational measures (privacy by design and by default) to ensure that we meet our obligations. Failure to comply with the requirements of the GDPR, and the related national data protection laws of the EU Member States, may result in fines and other administrative penalties, including potential fines of up to €10,000,000 or up to 2% of our total worldwide annual turnover for certain comparatively minor offenses, or up to €20,000,000 or up to 4% of our total worldwide annual turnover for more serious offenses. In addition, further to the UK’s exit from the EU on January 31, 2020, the GDPR ceased to apply in the UK at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the UK’s European Union (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020, but subject to certain UK specific amendments) into UK law, referred to as the UK GDPR. The UK GDPR and the UK Data Protection Act 2018 set out the UK’s data protection regime, which is independent from but aligned to the EU’s data protection regime. The UK Government has announced plans to reform its data protection legal framework in its Data Reform Bill but those have been put on hold. Non-compliance with the UK GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. Although the UK is regarded as a third country under the EU’s GDPR, the European Commission has now issued a decision recognizing the UK as providing adequate protection under the EU GDPR and, therefore, transfers of personal data originating in the EU to the UK remain unrestricted. Like the EU GDPR, the UK GDPR restricts personal data transfers outside the UK to countries not regarded by the UK as providing adequate protection. The UK government has confirmed that personal data transfers from the UK to the EU remain free flowing. Given this robust new legislative framework and the nascent jurisprudence developing in our wake, we face considerable uncertainty as to the correct interpretation and implementation of the GDPR requirements and may be unsuccessful in implementing all technical and organizational measures required by data protection authorities or courts.

In addition to the direct applicability of the GDPR per se, national laws of EU Member States are also in the process of being adapted to the requirements of the GDPR, notably in areas where the GDPR gives leeway to EU Member States to fill in the gaps-thereby implementing national laws which may partially deviate from the GDPR and impose different obligations from country to country, so that we cannot expect to operate in a uniform legal landscape in the EU. Thus, in the field of handling genetic data for instance, the GDPR specifically allows national laws to impose additional and more specific requirements or restrictions, and European laws have historically differed quite substantially in this field, leading to additional uncertainty.

 

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We must also ensure that we maintain adequate safeguards to enable the transfer of personal data outside of the EEA in compliance with European data protection laws, in particular to the United States. The EU-U.S. and the Swiss-U.S. Privacy Shield frameworks allowed U.S. companies that self-certify to the U.S. Department of Commerce and publicly commit to comply with specified requirements to import personal data from the EU and Switzerland. In 2020, the Court of Justice of the EU (“ESJ”) invalidated the EU-U.S. Privacy Shield, which was one of the primary mechanisms used by U.S. companies to import personal information from Europe in compliance with the GDPR’s cross-border data transfer restrictions, and raised questions about whether the European Commission’s Standard Contractual Clauses, or SCCs, one of the primary alternatives to the Privacy Shield, can lawfully be used for personal information transfers from Europe to the United States or most other countries. Similarly, the Swiss Federal Data Protection and Information Commissioner has opined that the Swiss-U.S. Privacy Shield is inadequate for transfers of data from Switzerland to the U.S., and the UK Information Commissioner’s Office has stated that the Privacy Shield framework is inadequate for transfers from the UK to the U.S. The ECJ ruled that transfers made pursuant to the SCCs need to be assessed on a case-by-case basis to ensure the law in the recipient country provides “essentially equivalent” protections to safeguard the transferred personal data as the EU, and required businesses to adopt supplementary measures if such standard is not met.

On March 25, 2022, the European Commission and the U.S. announced to have reached a political agreement on a new “Trans-Atlantic Data Privacy Framework”, which will replace the invalidated Privacy Shield and on December 13, 2022, the EC published a draft adequacy decision on the Trans-Atlantic Data Privacy Framework.

On June 4, 2021, the European Commission issued new forms of SSCs for data transfers from controllers or processors in the EEA (or otherwise subject to the GDPR) to controllers or processors established outside the EEA. The new form of SCCs account for the CJEU’s decision and other developments, and need to be put in place for new contracts involving the transfer of personal data from the EU to a third country since September 27, 2021, and incorporated into existing contracts since December 27, 2022. The new standard contractual clauses do not apply to the U.K., but the U.K. Information Commissioner’s Office has published its own transfer mechanism, the International Data Transfer Agreement (“U.K. IDTA”), which entered into force on 21 March 2022, and enables data transfers originating from the U.K. It requires a similar assessment of the data protection provided in the importer’s country. The U.K. IDTA needs to be concluded in new contracts involving the transfer of personal data from the U.K. since 22 September 2022. The new standard contractual clauses may impact our business as companies based in Europe and in the United States may be reluctant to utilize the new clauses to legitimize transfers of personal information to third countries given the burdensome requirements of transfer impact assessments and the substantial obligations that the new standard contractual clauses impose upon exporters. If we are investigated by a European or UK data protection authority, we may face fines and other penalties. Any such investigation or charges by European or UK data protection authorities could have a negative effect on our existing business and on our ability to attract and retain new clients or pharmaceutical partners. We may also experience hesitancy, reluctance, or refusal by European or multi-national clients or pharmaceutical partners to continue to use our products due to the potential risk exposure as a result of the current (and, in particular, future) data protection obligations imposed on them by certain data protection authorities in interpretation of current law, including the GDPR. Such clients or pharmaceutical partners may also view any alternative approaches to compliance as being too costly, too burdensome, too legally uncertain, or otherwise objectionable and therefore decide not to do business with us. Any of the foregoing could materially harm our business, prospects, financial condition, and results of operations.

Risks Related to Our Reliance on Third Parties

We have obtained and will seek to obtain significant funding from the Walloon Region. The terms of the agreements signed with the Region may hamper our ability to partner part or all of our products.

We contracted over the past year numerous funding agreements with the Walloon Region to partially finance our research and development programs. Under the terms of the agreements, we would need to obtain the consent of the Walloon Region for any out-licensing agreement or sale to a third party of any or all of our products, prototypes or installations which may reduce our ability to partner or sell part or all of our products.

 

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Furthermore, when the research and development programs partially financed by us enter in “exploitation phase”, we have to start reimbursing the funding received. We may not be able to reimburse such funding under the terms of the agreements or such reimbursement may jeopardize the funding of our clinical and scientific activities.

We rely and will continue to rely on collaborative partners regarding the development of our research programs and any product candidates.

We are and expect to continue to be dependent on collaborations with partners relating to the development and commercialization of our existing and future research programs and product candidates. We had, have and will continue to have discussions on potential partnering opportunities with various pharmaceutical and medical device companies. If we fail to enter into or maintain collaborative agreements on reasonable terms or at all, our ability to develop our existing or future research programs and any future product candidates could be delayed, the commercial potential of our research programs and products could change, and our costs of development and commercialization could increase.

Our dependence on collaborative partners subjects it to a number of risks, including, but not limited to, the following:

 

   

We may not be able to control the amount or timing of resources that collaborative partners devote to our research programs and any of our product candidates;

 

   

We may be required to relinquish significant rights, including intellectual property, marketing and distribution rights;

 

   

We rely on the information and data received from third parties regarding our research programs and any of our product candidates and will not have control of the process conducted by the third party in gathering and composing such data and information. We may not have formal or appropriate guarantees from our contract parties with respect to the quality and the completeness of such data;

 

   

A collaborative partner may develop a competing product either by itself or in collaboration with others, including one or more of our competitors;

 

   

Our collaborative partners’ willingness or ability to complete their obligations under our collaboration arrangements may be adversely affected by business combinations or significant changes in a collaborative partner’s business strategy; and/or

 

   

We may experience delays in, or increases in the costs of, the development of our research programs and any product candidates due to the termination or expiration of collaborative research and development arrangements.

If we, or our licensing partners, initiate any clinical development programs, we or our licensing partners will rely on third parties to conduct, supervise and monitor such clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we or our licensing partners may not be able to obtain regulatory approval for or commercialize any product candidates and our business could be substantially harmed.

We or our licensing partners will rely on clinical research organizations, or CROs, clinical investigators and clinical trial sites to ensure any future clinical trials are conducted properly and on time. Even if we, or our licensing partners, have agreements in place governing their activities, we or our licensing partners will have limited influence over their actual performance. We or our licensing partners will control only certain aspects of the CROs’ activities. Nevertheless, we or our licensing partners will be responsible for ensuring that each of our product candidate clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and reliance on these third parties does not relieve us or our licensing partners of our or their regulatory responsibilities.

 

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We or our licensing partners and these third parties are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA, the Competent Authorities of the Member States of the EEA, and comparable foreign regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we, our licensing partners or these third parties fail to comply with applicable GCPs, the clinical data generated in any future clinical trials we or our licensing partners conduct may be deemed unreliable and the FDA, the EMA, or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that such clinical trials did not comply with GCPs. In addition, our or our licensing partners’ future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of any product candidates. Accordingly, if our or our licensing partners’ CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we or our licensing partners may be required to repeat such clinical trials, which would delay the regulatory approval process.

These third parties are not our nor our licensing partners’ employees, and we and our licensing partners are therefore unable to directly monitor whether or not they devote sufficient time and resources to our or our licensing partners’ clinical and preclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities that could harm our competitive position. If these third parties do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to the clinical protocols or regulatory requirements, or for any other reasons, our or our licensing partners’ clinical trials may be extended, delayed or terminated, and we or our licensing partners may not be able to obtain regulatory approval for, or successfully commercialize, the product candidates. If any such event were to occur, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

If any of our relationships with these third-party CROs terminate, we or our licensing partners may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Further, switching or adding additional CROs involves additional costs and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which could materially impact our or our licensing partners’ ability to meet desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

Cell-based therapies rely on the availability of specialty raw materials, which may not be available to us on acceptable terms or at all.

Engineered-cell therapies require many specialty raw materials, some of which are manufactured by small companies with limited resources and experience to support a commercial product. The suppliers may be ill-equipped to support our needs, especially in non-routine circumstances like an FDA inspection or medical crisis, such as widespread contamination, or a pandemic such as COVID-19. We also do not have contracts with many of these suppliers, and may not be able to contract with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key raw materials to support clinical or commercial manufacturing. The global impact on supply chains has been one such example seen during 2021 where many supplies were reduced in availability for a short period of time.

In addition, some raw materials are currently available from a single supplier, or a small number of suppliers. We cannot be sure that these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose.

Since the beginning of the COVID-19 pandemic, several vaccines for COVID-19 were granted Emergency Use Authorization by the FDA and a number of those later received marketing approval. The resultant demand for vaccines and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing slots for the products needed for any future clinical trials, which could lead to delays in these trials.

 

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Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent protection for any products we develop and for our technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize any product candidates we may develop, and our technology may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our product candidates, their respective components, formulations, combination therapies, methods used to manufacture them and methods of treatment and development that are important to our business. If we do not adequately protect our intellectual property rights, competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel product candidates that are important to our business; we may in the future also license or purchase patent applications filed by others. If we are unable to secure or maintain patent protection with respect to our technology and any proprietary products and technology we develop, our business, financial condition, results of operations, and prospects could be materially harmed.

If the scope of the patent protection we or our potential licensors obtain is not sufficiently broad, we may not be able to prevent others from developing and commercializing technology and products similar or identical to ours. The degree of patent protection we require to successfully compete in the marketplace may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect any product candidates or otherwise provide any competitive advantage. In addition, to the extent that we license intellectual property in the future, we cannot assure you that those licenses will remain in force. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed (21 years if first filed as a provisional application). Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

Even if they are unchallenged, our patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one or more of our product candidates but that uses a formulation and/or a device that falls outside the scope of our patent protection. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business. We currently own or have exclusively in-licensed all of our patents or patent applications. Similar risks would apply to any patents or patent applications that we may own and those which we may license in the future. In many cases, in-licensed intellectual property is at greater risk, as we may not have access to all information or to prosecution and other aspects of the acquisition, maintenance and enforcement of the in-licensed intellectual property.

Patent positions of life sciences companies can be uncertain and involve complex factual and legal questions. No consistent policy governing the scope of claims allowable in the fields of antibodies and radiopharmaceuticals has emerged in the United States. The scope of patent protection in jurisdictions outside of the United States is also uncertain. Changes in either the patent laws or their interpretation in any jurisdiction that we seek patent protection may diminish our ability to protect our inventions, maintain and enforce our intellectual property rights; and, more generally, may affect the value of our intellectual property, including the narrowing of the scope of our patents and any that we may license.

 

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The patent prosecution process is complex, expensive, time-consuming and inconsistent across jurisdictions. We may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent rights at a commercially reasonable cost or in a timely manner. In addition, we may not pursue or obtain patent protection in all relevant markets. It is possible that we will fail to identify important patentable aspects of our research and development efforts in time to obtain appropriate or any patent protection. While we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development efforts, including for example, our employees, corporate collaborators, external academic scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby endangering our ability to seek patent protection. In addition, publications of discoveries in the scientific and scholarly literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not until issuance as a patent. Consequently, we cannot be certain that we were the first to file for patent protection on the inventions claimed in our patents or pending patent applications.

The issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Further, the scope of the invention claimed in a patent application can be significantly reduced before the patent is issued, and this scope can be reinterpreted after issuance. Even where patent applications we currently own, license, or that we may license in the future issue as patents, they may not issue in a form that will provide us with adequate protection to prevent competitors or other third parties from competing with us, or otherwise provide us with a competitive advantage. Any patents that eventually issue may be challenged, narrowed or invalidated by third parties. Consequently, we do not know whether any of our product candidates will be protectable or remain protected by valid and enforceable patent rights. Our competitors or other third parties may be able to evade our patent rights by developing alternative technologies or products in a non-infringing manner.

The issuance or grant of a patent is not irrefutable as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. There may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. We may in the future, become subject to a third-party pre-issuance submission of prior art or opposition, derivation, revocation, re-examination, post-grant and inter partes review, or interference proceeding and other similar proceedings challenging our patent rights or the patent rights of others in the U.S. Patent and Trademark Office, or the USPTO, or other foreign patent office. An unfavorable determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or extinguish our ability to manufacture or commercialize products without infringing third-party patent rights.

In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Moreover, some of our owned and in-licensed patents and patent applications are, and may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we or our licensors may need the cooperation of any such co-owners of our owned and in-licensed patents in order to enforce such patents against third parties, and such cooperation may not be provided to us or our licensors. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

We may infringe on the patents or intellectual property rights of others and may face patent litigation, which may be costly and time consuming.

Our success will depend in part on our ability to operate without infringing or misappropriating the intellectual property rights of others. We cannot guarantee that our activities will not infringe on the patents or other intellectual property rights owned by others. We may expend significant time and effort and may incur substantial costs in litigation if it is required to defend against patent or other intellectual property right suits brought against us regardless of whether the claims have any merit. Additionally, we cannot predict whether we will be successful in any litigation. If we are found to infringe the patents or other intellectual property rights of others, we may be subject to substantial claims for damages, which could materially impact our cash flow and financial position. We may also be required to cease development, use or sale of the relevant research program, product candidate or process or it may be required to obtain a license to the disputed rights, which may not be available on commercially reasonable terms, if at all.

 

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There can be no assurance that we are even aware of third-party rights that may be alleged to be relevant to any particular product candidate, method, process or technology.

We may spend significant time and effort and may incur substantial costs if required to defend against any infringement claims or to assert our intellectual property rights against third parties. The risk of such a claim by a third party may be increased by our public announcement regarding our research programs and product candidates. We may not be successful in defending our rights against such claims and may incur as a consequence thereof significant losses, costs or delays in our intended commercialization plans as a result thereof.

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

We are dependent on patents, know-how, and proprietary technology, both our own and licensed from others. We license technology from the Trustees of Dartmouth College, or Dartmouth College. Dartmouth College may terminate our license, if we fail to meet a milestone within the specified time period, unless we pay the corresponding milestone payment. Dartmouth College may terminate either the license in the event we default or breach any of the provisions of the applicable license, subject to 30 days’ prior notice and opportunity to cure. In addition, the license automatically terminates in the event we become insolvent, make an assignment for the benefit of creditors or file, or have filed against us, a petition in bankruptcy. Furthermore, Dartmouth College may terminate our license, after April 30, 2024, if we fail to meet the specified minimum net sales obligations for any year, unless we pay to Dartmouth College the royalty, we would otherwise be obligated to pay had we met such minimum net sales obligation. We also license technology from Horizon Discovery Limited, or Horizon Discovery. Horizon Discovery may terminate our license in case of insolvency, material breach or force majeure. Any termination of these licenses or any of our other licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates. Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including those relating to:

 

   

The scope of rights granted under the license agreement and other interpretation-related issues;

 

   

Whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;

 

   

Our right to sublicense patent and other rights to third parties under collaborative development relationships;

 

   

The amount and timing of milestone and royalty payments;

 

   

Whether we are complying with our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates; and

 

   

The allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by us and our partners and by our licensors.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as it is for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.

These agreements impose numerous obligations, such as diligence and payment obligations. Our licenses may be terminated if we are unable to meet the payment obligations under the agreements (notably if we are unable to obtain additional financing).

 

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We are generally also subject to all of the same risks with respect to protection of intellectual property that we license, as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize products could suffer.

If we fail to comply with our obligations under our patent licenses with third parties, we could lose license rights that are important to our business.

We are a party to license agreements with Dartmouth College and Horizon Discovery and others, pursuant to which we in-license key patent and patent applications for use in one or more of our product candidates. These existing licenses impose various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the licensors may have the right to terminate the licenses, in which event we would not be able to develop or market the products covered by such licensed intellectual property.

We rely on certain of our licensors to file and prosecute patent applications and maintain patents and otherwise protect the intellectual property we license from them and may continue to do so in the future. We have limited control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we cannot be certain that such activities by these licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We have limited control over the manner in which our licensors initiate an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that is licensed to us. It is possible that any licensors’ infringement proceeding or defense activities may be less vigorous than had we conducted them ourselves.

We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of product candidates.

The patent application process is expensive and time-consuming, and we and our current or future licensors and licensees may not be able to apply for or prosecute patents on certain aspects of our product candidates or deliver technologies at a reasonable cost, in a timely fashion, or at all. It is also possible that we or our current licensors, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. Under our existing license agreements with the Trustees of Dartmouth College, we have the right, but not the obligation, to enforce our licensed patents. If our current licensors, or any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised and we might not be able to prevent third parties from making, using, and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods, and know-how. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial condition and operating results.

We currently have issued patents and patent applications directed to our potential future product candidates and medical devices, and we anticipate that we will file additional patent applications in several jurisdictions, including several EU countries and the United States, as appropriate.

However, we cannot predict:

 

   

If and when any patents will issue from patent applications;

 

   

The degree and range of protection any issued patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents;

 

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Whether others will apply for or obtain patents claiming aspects similar to those covered by our patents and patent applications; or

 

   

Whether we will need to initiate litigation or administrative proceedings to defend our patent rights, which may be costly whether we win or lose.

We cannot be certain, however, that the claims in our pending patent applications will be considered patentable by patent offices in various countries, or that the claims of any of our issued patents will be considered valid and enforceable by local courts.

The strength of patents in the biotechnology and pharmaceutical field can be uncertain, and evaluating the scope of such patents involves complex legal and scientific analyses. The patent applications that we own, or in-licenses may fail to result in issued patents with claims that cover our product candidates or uses thereof in the EU, in the United States or in other jurisdictions. Even if the patents do successfully issue, third parties may challenge the validity, enforceability, or scope thereof, which may result in such patents being narrowed, invalidated, or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing their products to avoid being covered by our claims. If the breadth or strength of protection provided by the patent applications, we hold with respect to our product candidates is threatened, this could dissuade companies from collaborating with us to develop, and could threaten our ability to commercialize, our product candidates. Further, because patent applications in most countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates.

Patents have a limited lifespan. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Further, the extensive period of time between patent filing and regulatory approval for a drug product candidate limits the time during which we can market a drug product candidate under patent protection, which may particularly affect the profitability of our early-stage product candidates. If we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Without patent protection for our product candidates, we may be open to competition from biosimilar versions of our product candidates.

Third-party claims of intellectual property infringement against us or our collaborators may prevent or delay our product discovery and development efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. This reform adds uncertainty to the possibility of challenge to our patents in the future.

Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.

Although we have conducted analyses of the patent landscape with respect to our product candidates, and based on these analyses, we believe that we will be able to commercialize our product candidates, third parties may nonetheless assert that we infringe their patents, or that we are otherwise employing their proprietary technology without authorization, and may sue us. There may be third-party patents of which we are currently unaware with claims to compositions, formulations, methods of manufacture, or methods of use or treatment that cover our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies or the manufacture, use, or sale of our product candidates infringes

 

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upon these patents. If any such third-party patents were held by a court of competent jurisdiction to cover our technologies or product candidates, the holders of any such patents may be able to block our ability to commercialize the applicable drug product candidate unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

Third parties asserting their patent rights against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

We may not be able to protect our 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 laws in the EU or the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries, or from selling or importing products made using our inventions in and into other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in a number of jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in some jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming, and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To address such infringement, we may be required to file patent infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding or a declaratory judgment action against us, a court may decide that one or more of our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceeding could put one or more of our or of our licensors’ patents at risk of being invalidated, held unenforceable, interpreted narrowly,

 

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or amended such that they do not cover our product candidates. Such results could also increase the risk that pending patent applications of our or our licensors may not issue. Defense of these claims, regardless of their merit, would involve substantial litigation expense and could create a substantial diversion of employee resources from our business. Interference or derivation proceedings provoked by third parties may be necessary to determine the priority of inventions with respect to, or the correct inventorship of, our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation, interference, or derivation proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees.

Furthermore, because of the substantial amount of discovery required in some jurisdictions in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information, and our inability to maintain the confidentiality of that information, due to unauthorized disclosure or use, or other event, could have a material adverse effect on our business.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce, and any other elements of our product discovery and development processes that involve proprietary know-how, information, or technology that is not covered by patents. Trade secrets, however, may be difficult to protect. We seek to protect our proprietary processes, in part, by entering into confidentiality agreements with our employees, consultants, outside scientific advisors, contractors and collaborators. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, outside scientific advisors, contractors, and collaborators might intentionally or inadvertently disclose our trade secret information to competitors. In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, or misappropriation of our intellectual property by third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results and financial condition.

We are increasingly dependent on information technology systems and our systems and infrastructure face the risk of cyber-attacks, theft, tampering or other intrusions.

Our intellectual property and other sensitive company information are dependent on sophisticated information technology systems and are potentially vulnerable to cyber-attack, viruses, misappropriation, or misuse by authorized individuals. A variety of important processes relating to the research & development, clinical operations and production of our products depend heavily on our information systems, including on premises systems, cloud-based systems, or systems of third-party providers to whom we outsource certain business functions, including the storage and transfer of critical, confidential, sensitive, or personal information regarding clinical trial subjects, employees and others.

If our data systems are compromised, our business operations may be impaired, we may lose profitable opportunities, or the value of those opportunities may be diminished, and we may lose value or revenue because of unlicensed use of our intellectual property or confidential or proprietary information.

If personal information of our employees or clinical subjects is misappropriated, our reputation may be injured resulting in loss of business and/or morale, and we may incur costs to remediate possible injury to those individuals or be required to pay fines or take other action with respect to judicial or regulatory actions arising out of such incidents.

 

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Data privacy or security breaches by employees and individuals with permitted access to our systems, including in some cases third-party service providers to which we may outsource certain business functions, may also pose a risk that sensitive data, including intellectual property or personal information, will be exposed to unauthorized persons or to the public.

Cyber-attacks are increasing in frequency, sophistication, and intensity, and opportunistically in response to the implementation of remote working arrangements in the context of COVID-19. These cyber-attacks are made by groups and individuals with a wide range of expertise and motives (including, but not limited to, industrial espionage). Cyber-attacks could include the deployment of harmful malware, denial of service attacks, worms, social engineering, including phishing, smishing, vishing, impersonation, and other means to collect user credentials, access systems, affect service reliability and threaten data confidentiality, integrity, and availability.

Cyber-attacks could significantly impact the availability of data systems that are essential to conducting routine business operations across the company, including product manufacturing or clinical development, and the recovery efforts could be time consuming and costly.

The development and maintenance of systems to safeguard against such attacks is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly more sophisticated. Moreover, the costs related to these security measures are expected to continue to increase.

While we have invested to protect our data and other information and continue to upgrade and enhance our systems to keep pace with continuing changes in information processing technology, the possibility of a future data compromise cannot be eliminated entirely, and risks associated with intrusion, exposure, tampering, and theft remain. With respect to attack vectors that are currently unknown, the risk that our defenses are inadequate is significant.

Although we have not, to date, detected any material breaches of our information technology systems, data systems or personal information, the risk of such breaches remains and cannot be completely negated.

Issued patents covering our potential future product candidates could be found invalid or unenforceable if challenged in court or before relevant authority.

If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our drug product candidate is invalid or unenforceable. Third parties may also raise similar claims before administrative bodies, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post grant review, oppositions and derivation proceedings. Such proceedings could result in revocation or amendment to our or those of our licensing partners’ patents in such a way that the patent no longer covers and protects the relevant drug product candidate(s). The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.

Changes in U.S. and foreign patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves, both technological and legal complexity, and is therefore costly, time-consuming, and inherently uncertain. Numerous recent changes to the patent laws and proposed changes to the rules of the USPTO may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, or AIA, enacted in 2011 involves significant changes in patent legislation. An important change introduced by the AIA 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 files a patent application with the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.

 

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Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States 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 our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

In addition, recent court rulings in cases such as Association for Molecular Pathology v. Myriad Genetics, Inc. (Myriad I); BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litig. (Myriad II); and Promega Corp. v. Life Technologies Corp. have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. For example, in Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to naturally-occurring substances are not patentable. Although we do not believe that any of the patents owned or licensed by us will be found invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congress, or the USPTO may impact the value of our patents.

Our European patents and patent applications could be challenged in the recently created Unified Patent Court (UPC) for the European Union, that is expected to be fully ratified in 2023. We may decide to opt out our European patents and patent applications from the UPC. However, if certain formalities and requirements are not met, our European patents and patent applications could be challenged for non-compliance and brought under the jurisdiction of the UPC. We cannot be certain that our European patents and patent applications will avoid falling under the jurisdiction of the UPC, if we decide to opt out of the UPC. Under the UPC, a granted European patent would be valid and enforceable in numerous European countries. A successful invalidity challenge to a European patent under the UPC would result in loss of patent protection in those European countries. Accordingly, a single proceeding under the UPC could result in the partial or complete loss of patent protection in numerous European countries, rather than in each validated European country separately as such patents always have been adjudicated. Such a loss of patent protection could have a material adverse impact on our business and our ability to commercialize our technology and product candidates and, resultantly, on our business, financial condition, prospects and results of operations.

We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.

Certain of our key patent families have been filed in the United States; however, we have less robust intellectual property rights outside the United States, and, in particular, we may not be able to pursue patent coverage of our product candidates in certain countries outside of the United States. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. The breadth and strength of our patents issued in foreign jurisdictions or regions may not be the same as the corresponding patents issued in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to certain territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Most of our patent portfolio is at the very early stage. We will need to decide whether and in which jurisdictions to pursue protection for the various inventions in our portfolio prior to applicable deadlines.

 

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protections, particularly those relating to drug and biopharmaceutical products. This difficulty with enforcing patents could make it difficult for us to stop the infringement of our patents or marketing of competing products otherwise generally in violation of our proprietary rights. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and contractors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, those agreements may not be honored and may not effectively assign intellectual property rights to us. Moreover, there may be some circumstances, where we are unable to negotiate for such ownership rights. Disputes regarding ownership or inventorship of intellectual property can also arise in other contexts, such as collaborations and sponsored research. If we are subject to a dispute challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time-consuming. If we were unsuccessful, we could lose valuable rights in intellectual property that we regard as our own.

The intellectual property landscape around our potential product candidates is crowded, and third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. We are aware of certain third-party patents and third-party patent applications in this landscape that may, if issued as patents, be asserted to encompass our technology.

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.

Many of our employees were previously employed at other biotechnology and pharmaceutical companies, including our competitors or potential competitors, in some cases until recently. We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of these former employers or competitors. In addition, we may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, financial condition and results of operations.

 

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If we do not obtain patent term extension and data exclusivity for any product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any potential future product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply for a patent extension within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we believe we are entitled to, our competitors may obtain approval of competing products sooner than we would expect, and our business, financial condition, results of operations, and prospects could be materially harmed.

Risks Related to Our Organization, Structure and Operation

Our licensing partners are subject to high standards of manufacturing in accordance with cGMPs and other manufacturing regulations. Complying with these requirements will require them to expend significant time, money and effort and any failure to comply could have an adverse effect on our business.

Our current or future licensing partners must continuously adhere to cGMPs and corresponding manufacturing regulations of Competent Authorities. In complying with these regulations, our licensing partners must expend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that the products meet applicable specifications and other regulatory requirements. Their failure to comply with these requirements could result in an enforcement action against them, including the seizure of products and shutting down of production. Our licensing partners may also be subject to audits by the Competent Authorities. If any of our licensing partners fail to comply with cGMPs or other applicable manufacturing regulations, our ability to develop and commercialize the products could suffer significant interruptions, which could have an adverse effect on our business.

We are highly dependent on our key personnel, and if we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract, motivate and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on members of our Executive Committee, and our scientific and medical personnel. The loss of the services of any members of our Executive Committee, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements, could result in delays in product development and harm our business.

Competition for skilled personnel in the biotechnology and pharmaceutical industries is intense and the turnover rate can be high, which may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain with us, in addition to salary and cash incentives, we have provided warrants that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by movements in our share price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. We do not maintain “key man” insurance policies on the lives of all of these individuals or the lives of any of our other employees.

 

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The improper conduct of employees, agents, contractors, consultants or collaborators could adversely affect our reputation and business, prospects, operating results, and financial condition.

We cannot ensure that our compliance controls, policies, and procedures will in every instance protect it from acts committed by our employees, agents, contractors, or collaborators that would violate the laws or regulations of the jurisdictions in which it operates, including, without limitation, healthcare, employment, foreign corrupt practices, environmental, competition, and patient privacy and other privacy laws and regulations. Such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties, and could adversely impact our ability to conduct business, operating results, and reputation. In particular, our business activities may be subject to anti-bribery or anti-corruption laws, regulations or rules of countries in which it operates, including the Foreign Corrupt Practices Act, or FCPA, or the U.K. Bribery Act.

Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.

We have limited experience in sales, marketing and distribution.

Given our stage in development, we have never marketed a product and have therefore limited experience in the fields of sales, marketing and distribution of therapies. As a consequence, we will have to acquire marketing skills and develop our own sales and marketing infrastructure and would need to incur additional expenses, mobilize management resources, implement new skills and take the time necessary to set up the appropriate organization and structure to market the relevant product(s), in accordance with applicable laws.

While several of our managers have commercialized and launched high technology medical products there can be no assurance that the existing limited experience would be sufficient to effectively commercialize any or all of our product candidates. We may not be able to attract qualified sales and marketing personnel on acceptable terms in the future and therefore may experience constraints that will impede the achievement of our commercial objectives. Such events could have a material adverse effect on our business, prospects, financial situation, earnings and growth.

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our shareholders, and cause it to incur debt or assume contingent liabilities, and subject it to other risks.

We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

   

Increased operating expenses and cash requirements;

 

   

The assumption of additional indebtedness or contingent liabilities;

 

   

The issuance of our equity securities;

 

   

Assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

 

   

The diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;

 

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Retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

 

   

Risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals; and

 

   

Our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

We are subject to certain covenants as a result of certain non-dilutive financial support received to date.

We have received some non-dilutive financial supports from the Walloon Region to support various research programs. The support has been granted in the form of recoverable cash advances, or RCAs, and subsidies.

In the event we decide to exploit any discoveries or products from the research funded by under an RCA, the relevant RCA becomes refundable; otherwise, the RCA is not refundable. We own the intellectual property rights which result from the research programs partially funded by the Region, unless it decides not to exploit, or cease to exploit, the results of the research in which case the results and intellectual property rights are transferred to the Region. Subject to certain exceptions, however, we cannot grant to third parties, by way of license or otherwise, any right to use the results without the prior consent of the Region. We also need the consent of the Region to transfer an intellectual property right resulting from the research programs or a transfer or license of a prototype or installation. Obtaining such consent from the Region could give rise to a review of the applicable financial terms. The RCAs also contain provisions prohibiting us from conducting research for any other person which would fall within the scope of a research program of one of the RCAs. Most RCAs provide that this prohibition is applicable during the research phase and the decision phase, but a number of RCAs extend it beyond these phases.

Subsidies received from the Region are dedicated to funding research programs and patent applications and are not refundable. We own the intellectual property rights which result from the research programs or with regard to a patent covered by a subsidy. Subject to certain exceptions, however, we cannot grant to third parties, by way of license, transfer or otherwise, any right to use the patents or research results without the prior consent of the Region. In addition, certain subsidies require that we exploit the patent in the countries where the protection was granted and to make an industrial use of the underlying invention. In case of bankruptcy, liquidation or dissolution, the rights to the patents covered by the patent subsidies will be assumed by the Region by operation of law unless the subsidy is reimbursed. Furthermore, we would lose our qualification as a small or medium-sized enterprise, the patent subsidies will terminate, and no additional expenses will be covered by such patent subsidies. In 2022 and beyond, we will be required to make exploitation decisions on our remaining outstanding RCA related to the CAR T platform.

Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we are operating in an increasingly demanding regulatory environment that requires us to comply with, among other things, the Sarbanes-Oxley Act of 2002 and related rules and regulations of the Securities and Exchange Commission’s substantial disclosure requirements, accelerated reporting requirements and complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

Management identified no material weakness as of December 31, 2022. See “Item 15—Controls and Procedures” of this Annual Report for further discussion of management’s assessment of the effectiveness of our internal control over financial reporting. Section 404 of the Sarbanes-Oxley Act requires that we include a report of management on our internal control over financial reporting in our Annual Report on Form 20-F.

 

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Assessing our procedures to improve our internal control over financial reporting is an ongoing process. We can provide no assurance that we will not have material weaknesses in the future. Any additional material weaknesses we identify could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to remedy the material weaknesses and continue to conclude that our internal control over financial reporting is ineffective, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of the ADSs could decline, and we could be subject to sanctions or investigations by the NASDAQ Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

We may not be able to maintain compliance with the continued listing requirements of NASDAQ, or may choose to delist from the NASDAQ Global Market, which could negatively affect the liquidity and trading prices of our ordinary shares.

Our ADSs are listed on the Nasdaq Global Market. In order to maintain that listing, we must satisfy minimum financial and other requirements including, without limitation, a requirement that our closing bid price must not fall below $1.00 per ADS for 30 consecutive business days. In the event that it was necessary to regain compliance with this closing bid price requirement, we would be permitted 180 days in which to do so and would need to demonstrate that we had maintained a closing bid price of a minimum of $1.00 per ADS for 10 consecutive business days. In the event that we were unable to regain compliance during this initial 180 day period, or a possible further 180 day period, we may need to implement reverse stock splits or change the ratio of ADSs to ordinary shares or take other measures in order to regain compliance with this closing bid price requirement. If we fail to continue to meet all applicable continued listing requirements for Nasdaq in the future and Nasdaq determines to delist our ADSs,

We may also consider voluntarily delisting our ADSs from the NASDAQ Stock Market by filing a Form 25 with the Securities and Exchange Commission. Therefore, our ADSs would be delisted from the NASDAQ Global Market. Following such delisting, we may also deregister our ADSs under the Exchange Act and become a non-reporting company under the Exchange Act by filing a Form 15, Notice of Termination of Registration and Suspension of Duty to File, to terminate its reporting obligations under the Exchange Act. If we were to file a Form 15, our obligation to file reports would be suspended. Delisting and deregistration of the Company’s ADSs could negatively affect the liquidity and trading prices of our ordinary shares.

Our international operations subject it to various risks, and our failure to manage these risks could adversely affect our results of operations.

We face significant operational risks as a result of doing business internationally, such as:

 

   

Fluctuations in foreign currency exchange rates;

 

   

Potentially adverse and/or unexpected tax consequences, including penalties due to the failure of tax planning or due to the challenge by tax authorities on the basis of transfer pricing and liabilities imposed from inconsistent enforcement;

 

   

Potential changes to the accounting standards, which may influence our financial situation and results;

 

   

Becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations (including those relating to corporate taxation and sales taxes);

 

   

Reduced protection of, or significant difficulties in enforcing, intellectual property rights in certain countries;

 

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Difficulties in attracting and retaining qualified personnel;

 

   

Restrictions imposed by local labor practices and laws on our business and operations, including unilateral cancellation or modification of contracts; and

 

   

Rapid changes in global government, economic and political policies and conditions, political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events, and potential failure in confidence of our suppliers or customers due to such changes or events; and tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers.

We incur portions of our expenses, and may in the future derive revenues, in currencies other than the euro, in particular, the U.S. dollar. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the euro. Therefore, for example, an increase in the value of the euro against the U.S. dollar could be expected to have a negative impact on our revenue and earnings growth as U.S. dollar revenue and earnings, if any, would be translated into euros at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows.

We or third parties upon whom we depend may be adversely affected by natural disasters and/or global health pandemics, and our business, financial condition and results of operations could be adversely affected.

The occurrence of unforeseen or catastrophic events, including extreme weather events and other natural disasters, man-made disasters, or the emergence of epidemics or pandemics, depending on their scale, may cause different degrees of damage to the national and local economies and could cause a disruption in our operations and have a material adverse effect on our financial condition and results of operations. Man-made disasters, pandemics, and other events connected with the regions in which we operate could have similar effects. If a natural disaster, health pandemic, or other event beyond our control occurred that prevented us from using all or a significant portion of our office and/or lab spaces, damaged critical infrastructure, such as our manufacturing facilities or our manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult for us to continue our business for a substantial period of time.

Unsuccessful management of environmental, social and governance matters could adversely affect our reputation and we may experience difficulties to meet the expectations of our stakeholders.

Companies are increasingly expected to behave in a responsible manner on a variety of environmental, social and governance (ESG) matters, by governmental and regulatory authorities, counterparties such as vendors and suppliers, customers, investors, the public at large and others. This context, driven in part by a rapidly changing regulatory framework, is raising new challenges and influencing strategic decisions that companies must take if they wish to optimize their positive impact and mitigate their negative impact on ESG matters. Furthermore, this increased focus on sustainability may result in new laws, regulations and requirements that could cause disruptions in or increased costs associated with our business.

We may be unable to meet the ever more demanding criteria used by rating agencies in their ESG assessments process, leading to a downgrading in our rating. Financial investments in companies which perform well in ESG assessments are increasingly popular, and major institutional investors have made known their interest in investing in such companies. Moreover, despite the voluntary nature of such efforts, we may receive pressure from external sources, such as lenders, investors or other groups, to adopt more aggressive climate or other ESG-related initiatives; however, we may not agree that such initiatives will be appropriate for our business, and we may not be able to implement such initiatives because of potential costs or technical or operational obstacles. Depending on ESG assessments and on the rapidly changing views on acceptable levels of action across a range of ESG topics from investors, we may be unable to meet society’s or investors’ expectations, our reputation may be harmed, we may face increased compliance or other costs and demand for securities issued by us and our ability to participate in the debt and equity markets may decrease.

 

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Risks Related to Our Financial Position and Need for Capital

We have incurred net losses in each period since our inception and anticipate that we will continue to incur net losses in the future.

We are not profitable and have incurred losses in each period since our inception. For the years ended December 31, 2022, 2021 and 2020, we incurred a loss for the year of €40.9 million, €26.5 million and €17.2 million, respectively. As of December 31, 2022, we had an accumulated deficit of €349.9 million. We expect this accumulated deficit to increase as we continue to incur significant research and development and other expenses related to our ongoing operations. Consequently, our net assets decreased and the Board of Directors was required to comply with the Article 7:228 of the Belgian Code on Companies and Associations from the date of our financial statements for the year ended December 31, 2022. Per Article 7:228, if a company’s net assets have dropped below half of its share capital, then a shareholders’ meeting must be convened within two months after the date on which such loss was (or should have been) determined, which will determine whether the company will continue to exist or be wound up. In March 2023, the Board of Directors acknowledged that our net assets have fallen below half of our share capital. We are therefore complying with the Article 7:228, and a shareholders’ meeting shall be convened within two months from the date of this annual report in order to decide on our continuity or winding up. We can provide no assurance that shareholders will approve our proposal to continue operations that we plan to put forth at this meeting.

Our main assets are intellectual property rights concerning technologies that have not led to commercialization of any product. We have never been profitable and have never commercialized any products.

Even if we succeed in commercializing one or more of any future product candidates, we will continue to incur losses for the foreseeable future relating to our substantial research and development expenditures to develop our technologies. We anticipate that our expenses will increase substantially if and as we:

 

   

Commence and perform research and development and related regulatory activities for any future product candidates;

 

   

Initiate preclinical studies of any new product candidates;

 

   

Make milestone or other payments under any in-license agreements;

 

   

Maintain, protect and expand our intellectual property portfolio; and

 

   

Maintain and upgrade internal controls.

We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.

Our prior losses and expected future losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital. Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance.

 

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We may need substantial additional funding, which may not be available on acceptable terms when needed, if at all.

Our operations have required substantial amounts of cash since inception. In 2022, we decided implemented a strategic shift from an organization focused on clinical development to one prioritizing R&D discovery and the monetization of its intellectual property (IP) portfolio through partnerships, collaborations and license agreements. In that framework, we decided to discontinue the clinical development of our product candidates, including our clinical trials for CYAD-211, CYAD-101 and CYAD-02. We expect to continue spending substantial amounts to implement our activities.

As of December 31, 2022, the Company had cash and cash equivalents of €12.4 million and no short-term investments.

Based on our current scope of activities, we estimates that our cash and cash equivalents as of December 31, 2022 should be sufficient to fund operating expenses and capital expenditure requirements into the fourth quarter of 2023.

However, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.

The achievement of milestones (R&D, scientific, clinical, regulatory, business) will trigger payment obligations towards Celdara, Dartmouth and Horizon, which will negatively impact our profitability and may require material additional funding.

We contracted over the past year numerous funding agreements with the Walloon Region to partially finance its research and development programs. Under the terms of the agreements, we would need to obtain the consent of the Walloon Region for any out-licensing agreement or sale to a third party of any or all of our products, prototypes or installations which may reduce our ability to partner or sell part or all of our products.

We may not be able to reimburse such funding under the terms of the agreements or such reimbursement may jeopardize the funding of our clinical and scientific activities

Our ability to raise additional funds will depend on financial, economic and market conditions and other factors, over which we may have no or limited control, including the current geopolitical tension and military conflict between Russia and Ukraine, and we cannot guarantee that additional funds will be available to it when necessary, on commercially acceptable terms, if at all. If the necessary funds are not available, we may need to seek funds through collaborations and licensing arrangements, which may require us to reduce or relinquish significant rights to our research programs and product candidates, to grant licenses on our technologies to partners or third parties or enter into new collaboration agreements, the terms could be less favorable to us than those we might have obtained in a different context. If adequate funds are not available on commercially acceptable terms when needed, we may be forced to delay, reduce or terminate the development or commercialization of all or part of our research programs or product candidates or we may be unable to take advantage of future business opportunities.

Our net losses and significant cash used in operating activities have raised doubt regarding our ability to continue as a going concern.

We have a limited operating history and have experienced net losses and significant cash used in operating activities in each period since inception. We expect to continue to incur net losses and have significant cash outflows for at least the next year. As of December 31, 2022, we had cash and cash equivalents of €12.4 million and no short-term investments and an accumulated deficit of €349.9 million.

Our cash and cash equivalents and accumulated deficit, among other factors, raise doubt about our ability to continue as a going concern. Our inability to continue as a going concern could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. Future reports on our financial statements may also include an explanatory paragraph with respect to our ability to continue as a going concern. We have not been profitable since inception, and it is possible we will never achieve profitability. There is no substantial source of revenues, much less profits, to sustain our present activities, and there can be no assurance as to when substantial revenues will likely be available, an outcome which may not occur.

 

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Based on our current level of operating expenditures, we expect our cash position as of December 31, 2022, to be able to fund our operations into the fourth quarter of 2023 but we will require significant additional cash resources to launch new development phases of existing projects in our pipeline. In addition, this period could be shortened if there are any significant increases in planned spending on development programs or more rapid progress of development programs than anticipated. Other financing may not be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our product candidates or technologies.

We may seek additional funding through a combination of equity offerings, debt financings, collaborations and/or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. The incurrence of indebtedness and/or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur additional debt and/or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the possibility of such issuance, may cause the market price of the Shares to decline. In the event that we enter into collaborations and/or licensing arrangements in order to raise capital, it may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms.

We may be exposed to significant foreign exchange risk.

We incur portions of our expenses, and may in the future derive revenues, in currencies other than the euro, in particular, the U.S. dollar. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the euro. Therefore, for example, an increase in the value of the euro against the U.S. dollar could be expected to have a negative impact on our revenue and earnings growth as U.S. dollar revenue and earnings, if any, would be translated into euros at a reduced value.

The investment of our cash and cash equivalents may be subject to risks that may cause losses and affect the liquidity of these investments.

As of December 31, 2022, we had cash and cash equivalents of €12.4 million and no short-term investments. We historically have invested substantially all of our available cash and cash equivalents in corporate bank accounts. Pending their use in our business, we may invest the net proceeds of our global offerings in investments that may include corporate bonds, commercial paper, certificates of deposit and money market funds. These investments may be subject to general credit, liquidity, and market and interest rate risks. We may realize losses in the fair value of these investments or a complete loss of these investments, which would have a negative effect on our financial statements.

Risks Related to Ownership of Our Ordinary Shares and American Depositary Shares (“ADS”)

If securities or industry analysts do not publish research or publish inaccurate research or unfavorable research about our business, the price of the ordinary shares and the ADSs and trading volume could decline.

The trading market for the ordinary shares and the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts cover our company, the trading price for the ordinary shares and the ADSs would be negatively impacted. If one or more of the analysts who covers us downgrades the ordinary shares or the ADSs or publishes incorrect or unfavorable research about our business, the price of the ordinary shares and the ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, or downgrades the ordinary shares or the ADSs, demand for the ADSs and ordinary shares could decrease, which could cause the price of the ADSs and ordinary shares or trading volume to decline.

 

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The market price of the shares could be negatively impacted by actual or anticipated sales of substantial numbers of ordinary shares or ADSs.

Sales of a substantial number of Shares in the public markets, or the perception that such sales might occur, might cause the market price of the Shares to decline. We cannot make any prediction as to the effect of any such sales or perception of potential sales on the market price of the Shares.

A public market for our shares may not be sustained.

We cannot guarantee the extent to which a liquid market for our ordinary shares or ADSs will be sustained. In the absence of such liquid market for our ordinary shares or ADSs, the price of our ordinary shares or ADSs could be influenced. The liquidity of the market for our ordinary shares or ADSs could be affected by various causes, including the factors identified in the next risk factor (below) or by a reduced interest of investors in biotechnology sector.

The market price of the shares may fluctuate widely in response to various factors.

A number of factors may significantly affect the market price of our ordinary shares or ADSs. The main factors are changes in our operating results and those of our competitors, announcements of technological innovations or results concerning our product candidates, changes in earnings estimates by analysts.

Other factors which could cause the price of the shares to fluctuate or could influence our reputation include, amongst other things:

 

   

Public information regarding actual or potential results relating to products and product candidates under development by our competitors;

 

   

Actual or potential results relating to our product candidates;

 

   

Developments concerning intellectual property rights, including patents;

 

   

Regulatory and medicine pricing and reimbursement developments in Europe, the United States and other jurisdictions;

 

   

Any publicity derived from any business affairs, contingencies, litigation or other proceedings, our assets (including the imposition of any lien), our management, or our significant shareholders or collaborative partners;

 

   

Divergences in financial results from stock market expectations;

 

   

Changes in the general conditions in the pharmaceutical industry and general economic, financial market and business conditions in the countries in which we operate; and

 

   

Any publicity derived from data protection or cybersecurity breaches.

In addition, stock markets have from time-to-time experienced extreme price and volume volatility which, in addition to general economic, financial and political conditions, could affect the market price for the Shares regardless of the operating results or our financial condition. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that can often been unrelated to the operating performance of particular companies.

 

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We have no present intention to pay dividends on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of the securities increases.

We have no present intention to pay dividends in the foreseeable future. Any recommendation by our Board of Directors to pay dividends will depend on many factors, including our financial condition (including losses carried-forward), results of operations, legal requirements and other factors. Furthermore, pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated statutory accounts prepared in accordance with Belgian accounting rules. In addition, in accordance with Belgian law and our Articles of Association, we must allocate each year an amount of at least 5% of our annual net profit under our non-consolidated statutory accounts to a legal reserve until the reserve equals 10% of our share capital. Therefore, we are unlikely to pay dividends or other distributions in the foreseeable future. If the price of the securities or the underlying ordinary shares declines before we pay dividends, investors will incur a loss on their investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.

Takeover provisions in the national law of Belgium may make a takeover difficult.

Public takeover bids on our shares and other voting securities, such as warrants or convertible bonds, if any, are subject to the Belgian Act of 1 April 2007 on public takeover bids, as amended and implemented by the Belgian Royal Decree of April 27, 2007, or Royal Decree, and to the supervision by the Belgian Financial Services and Markets Authority, or FSMA. Public takeover bids must be made for all of our voting securities, as well as for all other securities that entitle the holders thereof to the subscription to, the acquisition of or the conversion into voting securities. Prior to making a bid, a bidder must issue and disseminate a prospectus, which must be approved by the FSMA. The bidder must also obtain approval of the relevant competition authorities, where such approval is legally required for the acquisition of us. The Belgian Act of 1 April 2007 provides that a mandatory bid will be required to be launched for all of our outstanding shares and securities giving access to ordinary shares if a person, as a result of our own acquisition or the acquisition by persons acting in concert with it or by persons acting on their account, directly or indirectly holds more than 30% of the voting securities in a company that has our registered office in Belgium and of which at least part of the voting securities are traded on a regulated market or on a multilateral trading facility designated by the Royal Decree. The mere fact of exceeding the relevant threshold through the acquisition of one or more shares will give rise to a mandatory bid, irrespective of whether or not the price paid in the relevant transaction exceeds the current market price.

There are several provisions of Belgian company law and certain other provisions of Belgian law, such as the obligation to disclose important shareholdings and merger control, which may apply to us and which may make an unfriendly tender offer, merger, change in management or other change in control, more difficult. These provisions could discourage potential takeover attempts that third parties may consider and thus deprive the shareholders of the opportunity to sell their shares at a premium (which is typically offered in the framework of a takeover bid).

We may be at an increased risk of securities class action litigation.

Historically, securities class action litigation has often been brought against a company following a decline in the market price of that company’s securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Holders of the shares outside Belgium and France may not be able to exercise pre-emption rights (notice for non-Belgian resident investors).

In the event of an increase in our share capital in cash, holders of shares are generally entitled to full pre-emption rights unless these rights are excluded or limited either by a resolution of the general meeting, or by a resolution of the Board of Directors (if the Board of Directors has been authorized by the general meeting in the articles of association to increase the share capital in that manner). Certain holders of shares outside Belgium or France may not be able to exercise pre-emption rights unless local securities laws have been complied with. In particular, U.S. holders of the shares may not be able to exercise pre-emption rights unless a registration statement under the Securities Act is declared effective with respect to the shares issuable upon exercise of such rights or an exemption from the registration requirements is available. We do not intend to obtain a registration statement in the U.S. or to fulfil any requirement in other jurisdictions (other than Belgium and France) in order to allow shareholders in such jurisdictions to exercise their pre-emptive rights (to the extent not excluded or limited).

 

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We have been subject to an investigation by the Belgian Financial Services and Markets Authority.

The Belgian Financial Services and Markets Authority, or the FSMA, opened an investigation against us on April 22, 2014. Such investigation was related to whether we had failed to timely disclose inside information to the market in relation to the Investigational New Drug, or IND, clearance from the FDA for our CHART-2 Phase III heart-failure trial received on December 26, 2013, and reported on January 9, 2014. In April 2015, we notified the FSMA our agreement to settle our investigation by paying the proposed settlement amount of €175,000. Although such settlement does not provide for any admission of guilt on our part, the fact that we have entered into a settlement with the FSMA could cause investors to have a negative perception of our governance structure, which would have a material adverse effect on our business. Further, any future allegations (based on other facts and circumstances) that we failed to comply with applicable securities laws, whether or not true, may subject it to fines, claims and/or sanctions, which could impair our ability to offer our securities or restrict trading in our securities. The occurrence of any of the foregoing could have a material adverse effect on the trading price of our securities and our business.

Fluctuations in the exchange rate between the U.S. dollar and the euro may increase the risk of holding the ADSs.

Our ordinary shares currently trade on Euronext Brussels and Euronext Paris in euros, while the ADSs trade on NASDAQ in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the euro may result in differences between the value of the ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such differences. In addition, as a result of fluctuations in the exchange rate between the U.S. dollar and the euro, the U.S. dollar equivalent of the proceeds that a holder of the ADSs would receive upon the sale in Belgium of any ordinary shares withdrawn from the depositary upon calculation of the corresponding ADSs and the U.S. dollar equivalent of any cash dividends paid in euros on our ordinary shares represented by the ADSs could also decline.

Holders of the ADSs are not treated as shareholders of our company.

Holders of the ADSs are not treated as shareholders of our company, unless they cancel the ADSs and withdraw our ordinary shares underlying the ADSs. The depositary (or its nominee) is the shareholder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as shareholders of our company, other than the rights that they have pursuant to the deposit agreement.

Our shareholders residing in countries other than Belgium may be subject to double withholding taxation with respect to dividends or other distributions made by us.

Any dividends or other distributions we make to shareholders will, in principle, be subject to withholding tax in Belgium at a rate of 30%, except for shareholders which qualify for an exemption of withholding tax such as, among others, qualifying pension funds or a company qualifying as a parent company within the meaning of the Council Directive (90/435/EEC) July 23, 1990, known as the Parent-Subsidiary Directive, or that qualify for a lower withholding tax rate or an exemption by virtue of a tax treaty. Various conditions may apply and shareholders residing in countries other than Belgium are advised to consult their advisers regarding the tax consequences of dividends or other distributions made by us. Our shareholders residing in countries other than Belgium may not be able to credit the amount of such withholding tax to any tax due on such dividends or other distributions in any other country than Belgium. As a result, such shareholders may be subject to double taxation in respect of such dividends or other distributions. Belgium and the United States have concluded a double tax treaty concerning the avoidance of double taxation, or the U.S.-Belgium Tax Treaty. The U.S.-Belgium Tax Treaty reduces the applicability of Belgian withholding tax to 15%, 5% or 0% for U.S. taxpayers, provided that the U.S. taxpayer meets the limitation of benefits conditions imposed by the U.S.-Belgium Tax Treaty. The Belgian withholding tax is generally reduced to 15% under the U.S.-Belgium Tax Treaty. The 5% withholding tax applies in case where the U.S. shareholder is a company which holds at least 10% of the shares in the company. A 0% Belgian withholding tax applies when the shareholder is a company which has held at least 10% of the shares for at least 12 months, or is, subject to certain conditions, a U.S. pension fund. The U.S. shareholders are encouraged to consult their own tax advisers to determine whether they can invoke the benefits and meet the limitation of benefits conditions as imposed by the U.S.-Belgium Tax Treaty.

 

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U.S. holders of the ADSs may suffer adverse tax consequences if we are characterized as a PFIC for any taxable year.

Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the average quarterly value of our assets is attributable to assets that produce passive income or are held for the production of passive income, including cash, we would be characterized as a passive foreign investment company (PFIC), for U.S. federal income tax purposes. Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of cash, including the funds raised in offerings of the ADSs. If we are characterized as a PFIC, U.S. holders (as defined below under “Taxation – Material Income Tax Considerations – Certain Material U.S. Federal Income Tax Considerations to U.S. Holders”) of the ADSs may suffer adverse tax consequences, including having gains realized on the sale of the ADSs treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on the ADSs by individuals who are U.S. holders, and having interest charges apply to distributions by us and the proceeds of sales of the ADSs.

Based on our past and current projections of our income and assets, we do not expect to conclude that we were a PFIC for the taxable year ended December 31, 2022. A separate factual determination as to whether we are or have become a PFIC must be made each year (after the close of such year). For purposes of the PFIC asset test, the value of our assets will generally be determined by reference to our market capitalization. Since our projections may differ from our actual business results and our market capitalization and value of our assets may fluctuate substantially, we cannot assure you that we were not a PFIC for our taxable year ended December 31, 2022 and that we will not be or become a PFIC in the current taxable year or any future taxable year. Our status as a PFIC also depends on the interpretation of the rules governing the PFIC income and asset tests, which are subject to uncertainty (including with respect to the characterization of income from government grants, for which direct legal authority does not exist). Each U.S. holder is strongly urged to consult his, her or its tax advisor regarding the application of these rules and the availability of any potential elections.

Future sales of ordinary shares or ADSs by existing shareholders could depress the market price of the ADSs.

If our existing shareholders sell, or indicate an intent to sell, substantial amounts of ordinary shares or ADSs in the public market, the trading price of the ADSs could decline significantly. In the future we may file one or more registration statements with the SEC covering ordinary shares available for future issuance under our equity incentive plans. Upon effectiveness of such registration statements, any shares subsequently issued under such plans will be eligible for sale in the public market, except to the extent that they are restricted by the lock-up agreements referred to above and subject to compliance with Rule 144 in the case of our affiliates. Sales of a large number of the shares issued under these plans in the public market could have an adverse effect on the market price of the ADSs and the ordinary shares.

We are a Belgian public limited liability company, and shareholders of our company may have different and, in some cases, more limited shareholder rights than shareholders of a U.S. listed corporation.

We are a public limited liability company incorporated under the laws of Belgium. Our corporate affairs are governed by Belgian corporate and securities law. The rights provided to our shareholders under Belgian corporate law and our articles of association differ in certain respects from the rights that you would typically enjoy as a shareholder of a U.S. corporation under applicable U.S. federal and state laws. Under Belgian corporate law, other than certain information that we must make public and except in certain limited circumstances, our shareholders may not ask for an inspection of our corporate records, while under Delaware corporate law any shareholder, irrespective of the size of its shareholdings, may do so. Shareholders of a Belgian corporation have more limited rights to initiate a derivative action, a remedy typically available to shareholders of U.S. companies, in order to enforce a right of our Company, in case we fail to enforce such right ourselves.

 

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A liability action can be instituted for our account by one or more of our shareholders who, individually or together, hold securities representing at least 1.0% of the votes or a part of the capital worth at least €1.25 million and have not approved of the discharge from liability that was granted to the directors. If the court orders the directors to pay damages, they are due to us, though the amounts advanced by the minority shareholders (for example attorney’s fees) are to be reimbursed by us. If the action is disallowed, the minority shareholders may be ordered to pay the costs, and should there be grounds therefor, to pay damages to the directors, for example for having conducted provocative and reckless legal proceedings.

In addition, a majority of our shareholders present or represented at our meeting of shareholders may release a director from any claim of liability we may have, provided that the financial position is accurately reflected in the annual accounts. This includes a release from liability for any acts of the directors beyond their statutory powers or in breach of the Belgian Code on Companies and Associations, provided that the relevant acts were specifically mentioned in the convening notice to the meeting of shareholders deliberating on the discharge. In contrast, most U.S. federal and state laws prohibit a company or its shareholders from releasing a director from liability altogether if he or she has acted in bad faith or has breached his or her duty of loyalty to us. Finally, Belgian corporate law does not provide any form of appraisal rights in the case of a business combination. As a result of these differences between Belgian corporate law and our articles of association, on the one hand, and the U.S. federal and state laws, on the other hand, in certain instances, you could receive less protection as an ADS holder of our company than you would as a shareholder of a listed U.S. company.

Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.

ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to your right to cancel your ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting, or we are paying a dividend on our ordinary shares.

In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary shares when you owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.

As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.

We are a non-accelerated filer under the Exchange Act and we are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements. In addition, we cannot predict if investors will find our ordinary shares less attractive because we are not required to comply with the auditor attestation requirements. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and the trading price for our ordinary shares may be negatively affected.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company. This may limit the information available to holders of ADSs or ordinary shares.

We are a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently make annual and semi-annual filings with respect to our listing on Euronext Brussels and Euronext Paris, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic issuers and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there will be less publicly available information concerning our company than there would be if we were not a foreign private issuer.

 

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As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from NASDAQ corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

As a foreign private issuer listed on NASDAQ, we are subject to corporate governance listing standards. However, rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in Belgium, which is our home country, may differ significantly from corporate governance listing standards. For example, neither the corporate laws of Belgium nor our articles of association require a majority of our directors to be independent and we could include non-independent directors as members of our Nomination and Remuneration Committee, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. Currently, we intend to follow home country practice to the maximum extent possible. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers. See “Item 16G—Corporate Governance.”

In accordance with Belgian law, we have elected to have double voting rights attach to fully paid-up ordinary shares held of record in the name of the same shareholder for a period of at least two consecutive years, and our significant shareholders and affiliates who are entitled or may become entitled to such double voting rights may be able to exercise an increased direct controlling influence on us.

In accordance with Belgian law, we have elected to have double voting rights attach to each fully paid-up ordinary share of companies listed on a regulated market (such as the Euronext Brussels and Euronext Paris, where our ordinary shares are listed) that is held of record in the name of the same shareholder for a period of at least two consecutive years. However, under Belgian law, non-registered ordinary shares in the form of ADSs, and dematerialized shares, are not eligible for double voting rights. To our knowledge, among our significant shareholders, double voting rights currently only attach to 2,368,025 ordinary shares as of December 31, 2022, including to the 2,295,701 shares of Tolefi SA.

Furthermore, our current 5% or greater shareholders and affiliated entities, including Fortress Investment Group, may become entitled to double voting rights in the future in which case, our ownership may become concentrated in the hands of our significant shareholders. If they become entitled to double voting rights, these shareholders would have a significant influence over all matters that require approval by our shareholders, such as the election of directors and approval of significant corporate transactions. Such corporate action might be taken even if other shareholders, including those who purchase ordinary shares or ADSs in this offering, oppose them.

This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other shareholders may view as beneficial. This concentrated control will limit your ability to influence corporate matters for the foreseeable future and potentially in perpetuity. This concentrated control could also discourage a potential investor from acquiring our ADSs or ordinary shares and might harm the market price of our ADSs or ordinary shares. We cannot predict whether the concentrated control of our shareholders who held our ordinary shares prior to the completion of this offering, including our executive officers, employees and directors and their affiliates, will result in a lower or more volatile market price of our ADSs or ordinary shares or in adverse publicity or other adverse consequences.

We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2022. In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. For example, if more than 50% of our securities are held by U.S. residents and more than 50% of the members of our Executive Committee or members of our Board of Directors are residents or citizens of the United States, we could lose our foreign private issuer status.

 

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The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, rather than IFRS, and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion of our financial statements to U.S. GAAP could involve significant time and cost. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

It may be difficult for investors outside Belgium to serve process on, or enforce foreign judgments against, us or our directors and senior management.

We are a Belgian public limited liability company Less than a majority of the members of our Board of Directors and members of our Executive Committee are residents of the United States. All or a substantial portion of the assets of such non-resident persons and most of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process upon such persons or on us or to enforce against them or us a judgment obtained in U.S. courts. Original actions or actions for the enforcement of judgments of U.S. courts relating to the civil liability provisions of the federal or state securities laws of the United States are not directly enforceable in Belgium.

The United States and Belgium do not currently have a multilateral or bilateral treaty providing for reciprocal recognition and enforcement of judgments, other than arbitral awards, in civil and commercial matters. In order for a final judgment for the payment of money rendered by U.S. courts based on civil liability to produce any effect on Belgian soil, it is accordingly required that this judgment be recognized or be declared enforceable by a Belgian court in accordance with Articles 22 to 25 of the 2004 Belgian Code of Private International Law. Recognition or enforcement does not imply a review of the merits of the case and is irrespective of any reciprocity requirement. A U.S. judgment will, however, not be recognized or declared enforceable in Belgium if it infringes upon one or more of the grounds for refusal that are exhaustively listed in Article 25 of the Belgian Code of Private International Law. Actions for the enforcement of judgments of U.S. courts might be successful only if the Belgian court confirms the substantive correctness of the judgment of the U.S. court and is satisfied that:

 

   

The effect of the enforcement judgment is not manifestly incompatible with Belgian public policy;

 

   

The judgment did not violate the rights of the defendant;

 

   

The judgment was not rendered in a matter where the parties transferred rights subject to transfer restrictions with the sole purpose of avoiding the application of the law applicable according to Belgian international private law;

 

   

The judgment is not subject to further recourse under U.S. law;

 

   

The judgment is not compatible with a judgment rendered in Belgium or with a subsequent judgment rendered abroad that might be recognized in Belgium;

 

   

A claim was not filed outside Belgium after the same claim was filed in Belgium, while the claim filed in Belgium is still pending;

 

   

The Belgian courts did not have exclusive jurisdiction to rule on the matter;

 

   

The U.S. court did not accept its jurisdiction solely on the basis of either the nationality of the plaintiff or the location of the disputed goods; and

 

   

The judgment submitted to the Belgian court is authentic.

 

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In addition to recognition or enforcement, a judgment by a federal or state court in the United States against us may also serve as evidence in a similar action in a Belgian court if it meets the conditions required for the authenticity of judgments according to the law of the state where it was rendered. The findings of a federal or state court in the United States will not, however, be taken into account to the extent they appear incompatible with Belgian public policy.

We may be subject at an increased risk of securities class action litigation.

Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Tax law changes could adversely affect our shareholders and our business and financial condition.

We and our subsidiaries are subject to income and other taxes in Belgium, the United States, and other tax jurisdictions throughout the world. Tax laws and rates in these jurisdictions are subject to change. Our financial condition can be impacted by a number of complex factors, including, but not limited to: (i) interpretations of existing tax laws; (ii) the tax impact of existing or future legislation; (iii) changes in accounting standards; and (iv) changes in the mix of earnings in the various tax jurisdictions in which we operate. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge our shareholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our ordinary shares or ADSs.

 

ITEM 4.

INFORMATION ON THE COMPANY

A. History and Development of the Company

Our legal and commercial name is Celyad Oncology SA. On June 10, 2020, we rebranded Celyad SA as Celyad Oncology SA to better reflect our ambition to pioneer CAR T-cell therapies for cancer and more accurately reflect our team’s expertise in developing innovative cell therapies against cancer. We are a limited liability company incorporated in the form of a naamloze vennootschap/société anonyme under Belgian law. We are registered with the Register of Legal Entities (RPM Nivelles) under the enterprise number 891.118.115. We were incorporated in Belgium on July 24, 2007, for an unlimited duration. Our fiscal year ends December 31.

Our principal executive and registered offices are located at rue Edouard Belin 2 1435 Mont-Saint-Guibert, Belgium and our telephone number is +32 10 394 100. Our agent for service of process in the United States is Celyad Inc., World Financial District, 60 Broad Street, Suite 3502, New York, NY 10004. We also maintain a website at www.celyad.com. The reference to our website is an inactive textual reference only and the information contained in, or that can be accessed through, our website is not a part of this Annual Report.

Our actual capital expenditures related to Property, Plant and Equipment, excluding the impact of recognition of right of use assets for the years ended December 31, 2020, 2021 and 2022, amounted to €0.2 million, €0.3 million and €0.1 million, respectively. These capital expenditures primarily consisted of the acquisition of laboratory equipment and the refurbishment of research and development laboratories located in Belgium. The Company expects its capital expenditures to increase in absolute terms in the near term as the Company continues to advance its research and development programs and will relocate its corporate offices in another location in Belgium through the year 2023.

The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as Celyad Oncology SA, that file electronically with the SEC.

B. Business Overview

We are a biotechnology company focused on the discovery and development of innovative technologies for chimeric antigen receptor T-cell (CAR T) therapies. Our goal is to discover and develop proprietary technology platforms to support the development of next-generation CAR T-cell therapy candidates. The Company is focusing on opportunities to fully harness the true potential of its proprietary technology platforms and intellectual property.

 

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Over the past decades, immunotherapy has become an important treatment option for cancer indications. Within the field of immuno-oncology, chimeric antigen receptor (CAR) T-cell therapy is emerging as a realistic treatment paradigm for patients with advanced disease.

Our differentiated strategy includes the development of technologies and platforms to tackle the current major limitations of CAR T-cell therapies.

Allogeneic cell therapy

The majority of CAR T-cell therapies in clinical testing worldwide, including the marketed products, are autologous in nature which means that CAR T-cells are derived from the patients themselves, by collection of the patient’s immune cells in the blood through a process called leukapheresis, and are then engineered and reintroduced back into the patient via intravenous infusion. Autologous approaches thereby come with a lag time (weeks to months) between collection of the patient’s T-cells and infusion of the CAR T-cell product. Since the patients are of varying age and clinical history, the quality of the initial apheresis product varies and this likely contributes to major variance in the quality of the final product. Moreover, there is a logistical challenge in shipping cells from the medical center to the cell production facilities which means that patients with advanced diseases have a significant possibility of disease progression before they receive the CAR T-cells.

Allogeneic CAR T-cells are prepared in advance from healthy donors and are stored frozen until a patient requires treatment. Hence, allogeneic CAR T-cells are available when required and lack the inherent variability of autologous CAR T-cells. Whilst attractive, the main downside of the allogeneic approach is potential life-threatening toxicity in the form of graft-versus-host disease (“GvHD”) that is mediated by the recognition of patient tissues by the T-cell receptor (“TCR”) present on the allogeneic CAR T-cells. At the center of allogeneic CAR T-cell therapy, the goal is then to eliminate or blunt the signaling of the TCR through engineering with a specific technology. By reducing the signaling of the TCR, the engineered allogeneic CAR T-cells fail to recognize the patient’s healthy tissue as foreign, which avoids GvHD.

Of late, gene-editing technology has enabled the genome-level ablation of components of the TCR thereby enabling banks of allogeneic CAR T-cells lacking GvHD potential to be produced and these are now moving into clinical testing in B-cell malignancies with some preliminary success. However, off-target editing remains a concern to developers and regulators while the practical hurdles to deliver a gene-edited T-cell product are significant including the availability of specific clinical grade reagents and manufacturing strategies in place to enrich the edited T-cells.

Over the past few years, as the CAR T landscape has shifted towards pursuing off-the-shelf approaches, we have continued to steadily progress our allogeneic CAR T-cell franchise and programs by exploring two proprietary, non-gene edited technologies to target the TCR complex: the TIM which has been validated in the clinic with CYAD-101 and the shRNA which has been validated in the clinic with CYAD-211.

Targets for broad indications

As of the date of this Annual Report, six autologous CAR T-cells specific for the cluster of differentiation 19 (CD19) or for the B-cell maturation antigen (BCMA) are approved in the United States and in Europe. In addition, one CD19-specific CAR T-cell product is approved in China, and one CD19-specific CAR T-cell product has received authorization in Spain under the “hospital exemption” approval pathway, for a total of eight approved CAR T-cell products as of today. All of them aim to treat a very limited number of B-cell malignancies in which those approaches have shown durable clinical benefit. However, for other malignancies, CAR T-cell therapy has yet to show similar clinical efficacy. The paucity of specific tumor antigens expressed broadly on tumor cells but not on healthy cells, and the strong immunosuppressive and complex microenvironment characterizing the large majority of cancer indications, have limited the success of those approaches to other indications.

In addition, an inherent downside of CAR T-cells targeting a single antigen is that cells not expressing the antigen will not be targeted, which may lead to resistance or relapse after a first response of short duration. Moreover, by applying selective pressure, loss of target antigen expression can occur, also eventually resulting in relapse. Subsequent rescue by administration of CAR T-cells with different antigen-specificity indicates that those tumor cells are still sensitive to CAR T treatment and points towards a multi-target strategy.

 

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We have developed several CAR T-cell product candidates that were based on NKG2D, a receptor expressed on natural killer (NK) and T-cells, that binds to eight stress-induced ligands broadly expressed on tumor cells across most solid tumors and hematological malignancies. Two autologous product candidates, CYAD-01 and CYAD-02, and an allogeneic counterpart of CYAD-01, CYAD-101, were evaluated in clinical studies between 2016 and 2022. All collected data have shown a tolerable safety profile and has demonstrated some levels of clinical activity in acute myeloid leukemia, myelodysplastic syndrome and colorectal cancer patients.

Persistence, activity and infiltration of CAR T-cells

Unlike B-cell malignancies, solid cancers, and some hematological indications, sculpt a tumor microenvironment (TME) that not only restricts lymphocyte trafficking and access to the entire mass of the tumor, but also downregulates the activity, expansion and persistence of the CAR T-cells at the tumor site. The TME represents an intricate cellular and molecular immunosuppressive network formed by aberrant vasculature, stromal cells, immunosuppressive immune cells and extracellular matrix containing inhibitory factors and characterized by oxidative stress, nutritional depletion, acidic pH and hypoxia.

To face those challenges, additional engineering of CAR T-cells and the use of combination therapies hold the potential to endow therapeutic cell products with novel attributes necessary to overcome immunosuppressive aspects of TME.

Central to our pipeline is a cutting-edge all-in-one vector approach where we focus on using a single vector to generate CAR T-cells to simplify the design and development of our cell therapy candidates. The all-in-one vector approach encodes multiple components of the CAR construct simultaneously, including the CAR, shRNA targeting genes involved in alloreactivity, persistence, anti-tumor activity or ability to evade complex or immunosuppressive tumor microenvironments, cell selection marker to assist with the enrichment of the manufactured cells and potential therapeutic add-ons such as cytokines. This single transduction, plug and play approach to CAR T-cell development has the potential to streamline process development and manufacturing while broadening the potential applicability of our candidates.

WHAT DIFFERENTIATES CELYAD ONCOLOGY?

The level of activity in the CAR T-cell landscape across the globe has expended rapidly over the last few years. The challenges in immuno-oncology are significant. Most tumors develop undetected over years, fine tuning their capacity to resist treatment, before exploding with clinically relevant disease that rapidly overcomes standard treatment paradigms. Immune-based therapies, including CAR T therapies, are now delivering clinically relevant responses in certain, limited malignancies. The hope is that this initial clinical success with CAR T-cell therapy can be further developed to be effective against a much broader range of cancer.

Scientific progress within the field of cancer immunotherapy has led to seven CAR T-cell therapy approvals, including Kymriah (tisagenlecleucel) developed by Novartis Pharmaceuticals, Yescarta (axicabtagene ciloleucel) developed by Kite Pharma/Gilead, Tecartus (brexucabtagene autoleucel) developed by Kite Pharma/Gilead, Breyanzi (lisocabtagene maraleucel) developed by Juno Therapeutics/Celgene/Bristol Myers Squibb, Abecma (idecabtagene vicleucel) developed by Bluebird/Celgene/Bristol Myers Squibb, Carvykti (Ciltacabtagene autoleucel) developed by Legend Biotech/Janssen Biotech and Carteyva (Relmacabtagene autoleucel) developed by JW Therapeutics. While Carteyva has been approved only in China, all the other six therapies have been approved in the U.S. by the FDA and in Europe by the EMA. In addition, ARI-0001 (CART19-BE-01), developed at Hospital Clínic de Barcelona (Spain), received authorization from the Spanish Agency of Medicines and Medical Devices under the “hospital exemption” approval pathway.

These historic approvals have driven CAR T-cell funding to new heights and CAR T-cell market is expected to potentially generate substantial market value within the next five years.

 

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Figure 1: CAR T-cell market increase

 

LOGO

As of the date of this Annual Report, our competitors with the adoptive cell therapy landscape, including CAR Ts, TCRs and NK-based cell therapies include but is not limited to 2seventy bio, Inc., Adicet Bio, Inc, Adaptimmune Therapeutics plc, Alaunos Therapeutics Inc., Allogene Therapeutics Inc., AlloVir, Inc, Arcellx, Inc., Atara Biotherapeutics, Inc., Autolus Therapeutics plc, Beam Therapeutics Inc., Bellicum Pharmaceuticals, Inc., Caribou Biosciences, Inc., CARsgen Therapeutics Co. Ltd., Cellectis S.A., Cellular Biomedicine Group, Celularity, Inc., Century Therapeutics, Inc., CRISPR Therapeutics, Inc., Editas Medicines, Inc, Fate Therapeutics, Inc., Gracell Biotechnologies Inc., Immatics Biotechnologies GmbH, ImmunityBio, Inc., Intellia Therapeutics, Inc., Juno Therapeutics, Inc. (acquired by Celgene Corporation, in turn acquired by Bristol Myers Squibb), Kite Pharma, Inc. (acquired by Gilead Sciences, Inc.), Legend Biotech USA, Inc., Lyell Immunopharma, Inc., Medigene AG, Mustang Bio, Inc., Nkarta Therapeutics, Inc., Novartis AG, Poseida Therapeutics, Inc., Precigen, Inc., Precision Biosciences, Inc., Sana Biotechnology, Inc., SQZ Biotech, Inc., TC BioPharm Ltd., TCR2 Therapeutics, Inc., and Tmunity Therapeutics, Inc. (acquired by Kite/Gilead).

The multi billion-dollar CAR T-cell therapy market would not have been possible without the remarkable efficacy of the early CAR T therapies in treating several types of blood cancers. Ranging from small start-ups to very large companies, CAR T-cell companies are proliferating in all healthcare markets worldwide.

As stated above (see Item 4.B), all approved CAR T-cell products are directed against antigens specific for a very limited number of B-cell malignancies in which those approaches have shown durable clinical benefit. However, CAR T-cell therapy has yet to show similar clinical efficacy for other malignancies, including solid cancer indications. Moreover, all approved products are of autologous origin, which comes with a number of limitations including manufacturing and timing constraints, which are not appropriate for broad indications.

Our expertise in oncology, our proprietary technologies, and our differentiated approach to developing innovative technologies for CAR T-cell therapies is providing the tools with which to tackle some of the challenges, including the difficulty of targeting a broad array of hematological and solid tumors. Our solutions include:

 

  1.

shRNA platform to design next-generation CAR T-cells

In 2021 and 2022, we validated the use of our proprietary shRNA technology as a novel allogeneic platform through our first shRNA-based allogeneic candidate, CYAD-211. CYAD-211 is an allogeneic BCMA-targeting CAR T-cell product candidate employing a single shRNA targeting the CD3z component of the TCR complex to prevent alloreactivity. This validation was established through clinical data generated from the IMMUNICY-1 trial evaluating CYAD-211 (see below in Item 4.B). Additionally, our shRNA technology was also incorporated in the autologous NKG2D-based CAR T-cell candidate, CYAD-02, to improve cell persistence by preventing ligand-mediated fratricide, and was validated in the clinic with data generated from the CYCLE-1 trial (see below in Item 4.B).

The initial clinical validation of the shRNA technology has provided an important milestone event for the Company. The power and versatility of the shRNA platform, including the ability to multiplex and modulate the levels of gene expression, which allows to optimize CAR T-cell features, persistence, efficacy or ability to evade complex or immunosuppressive tumor microenvironments, for both allogeneic or autologous products, continues to support its strength, value, and potential differentiation within the cell therapy landscape (see below in Item 4.B).

 

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  2.

Beyond CD19 and BCMA

We are currently developing several technologies and future CAR T-cell candidates by exploring underestimated targets including NKG2D ligands and B7-H6 (see below in Item 4.B This would allow to target a broad range of cancers including solid cancer indications and other hematological indications for which no validated target exists as of today.

In addition, we are also exploring multi-targeting approaches, which could be used to decrease risk of relapse or resistance often observed with traditional single-targeting CAR T approaches (see below in Item 4.B).

Through these approaches, we are proposing different solutions, tackling the major current limitations of CAR T-cell therapies as detailed above in Item 4.B.

More recently, a number of studies have built on the success of CAR T-cell therapy in cancer to branch out to other disease areas such as cardiometabolic disorders, autoimmune disease, fibrosis, cellular senescence and infectious pathologies. It is important to mention that the shRNA platform currently developed at Celyad Oncology, as well as the targets explored, could be eventually extended beyond cancer indications. We therefore strongly believe our differentiated strategy could pave the way to a new era of cell therapies.

OUR ACTIVITIES AND R&D

Allogeneic CAR T-cells:

We are working to advance the field of allogeneic CAR T-cell therapy by exploring two proprietary, non-gene edited technology platforms to target the TCR complex. In adoptive cell therapy, the infusion of donor-derived T-cells to cancer patients with a different background than that of the donor may lead to multiple reactions. These reactions include the donor cells attacking the patient’s healthy tissue, known as Graft-versus-Host Disease, or GvHD, as well as the rejection of the therapy by the patient’s immune system known as Host-versus-Graft, or HvG, reaction.

Since the TCR, a molecule present on the surface of T cells, is principally responsible for GvHD, the goal of “off-the-shelf” allogeneic cell therapies is to eliminate or blunt the signaling of the TCR through engineering with a specific technology.

Our non-gene edited technologies target the TCR specifically without extensive genetic manipulation. Through the co-expression of our non-gene edited technologies with a specific CAR of interest, we can design cell therapy candidates intended to inhibit the function of the TCR while allowing the T-cells to target the cancer. We believe this unique strategy offers a streamlined approach in advancing the allogeneic CAR T-cell landscape.

Dual CAR T platform:

The targeting of a single antigen by CAR T-cells, has been shown to be problematic in certain malignancies, whereas efficacy of CAR T-cell therapy has not been observed in other cases. The reasons behind the possible failure of single targeting CAR T-cells are multi-factorial and include the tumor microenvironment, antigen escape or loss among others. With a multi- or dual-targeting CAR, several antigens can be targeted together by the same CAR product so that if there is a loss of one antigen, there are still others that can work to kill the cancer cells.

We therefore developed a dual CAR platform focusing on the NKG2D receptor. The NKG2D receptor specifically targets NKG2D ligands (NKG2DL) that are induced by different stress responses. This offers a very different strategy from dual CAR T-cells that target similar antigens such as CD19/CD20. By targeting NKG2DL a broader range of antigens can be targeted simultaneously, that are not limited to only one specific tumor indication. The antigens are associated with both the tumor microenvironment as well as the tumor tissue itself. Thus the application of NKG2D based dual CAR T-cells is suitable not only in situations where antigen escape and/or loss may occur, but in situations where multiple organs are impacted, such as is the case of metastatic and advanced solid cancers. These malignancies are very difficult to target with conventional means, and use of a NKG2D-based dual CAR platform may offer a much needed alternative.

 

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As part of our efforts to identify new targets expressed by a broad range of indications, we are currently developing B7-H6-targeting immunotherapies. In cancers, B7-H6 expression is associated with tumor progression, poor prognosis and lymph node metastasis. B7-H6 may be used to recognize and kill tumor cells, and we believe it is an underappreciated target that could change the paradigm of cell therapy due to its broad expression in a large variety of cancers and absence from healthy cells.

Our Proprietary Short Hairpin RNA (shRNA) Technology:

shRNA is a small piece of RNA that can decrease gene expression, effectively turning genes off. shRNA is a dynamic, innovative technology that allows, among others, for the development of allogeneic CAR T-cells through the modulation of gene expression of the TCR without the need for gene-editing. Beyond its use to generate allogeneic cell therapies, shRNA can be used to modulate other genes, including essential functional genes and genes whose partial expression is required, to provide broad therapeutic functionalities. We are currently engineering T-cells for specific desired features, including increased persistence, enhanced antitumor activity, ability to evade complex or immunosuppressive tumor microenvironments or potentially improved tolerability. We believe that shRNA offers us the ability to design and develop next-generation, non-gene edited allogeneic CAR T therapies with any CAR across a broad array of targets.

Furthermore, we have successfully multiplexed the shRNA technology to enable the targeting of multiple targets in parallel using our all-in-one vector system. This is of great importance as in most cases a single target will offer only limited uses. For example, in the case of allogeneic candidates, one target is needed to combat GvHD and additional targets are needed to combat recognition by the host immune system, in order to improve cell persistence. Similarly, immune checkpoint inhibitors are important targets for downregulation since multiple tumors have been shown to express the ligands to these receptors. As immune checkpoint inhibitors can suppress T-cell cytotoxicity, they could be involved in the inhibition of CAR T-cell responses, or other T-cell mediated responses. Immune checkpoint inhibitors encompass a group of multiple receptors that include PD-1, LAG-3 and many others. The large number of candidates for down regulation at once makes these perfect candidate targets for our shRNA technology.

Next to the ability to downregulate the target (or targets) of interest, the dynamic range that can be achieved using the shRNA multiplexed platform means that the expression of each candidate protein can be modulated. This is of importance in instances when a reduction in the protein expression is of benefit rather than complete removal of the protein expression. There are multiple proteins within T-cells that play crucial roles in the skewing of T-cell functionality, efficacy, persistence and survival, that need to be down-tuned rather than simply removed. This is, for example, the case when HLA class I is completely removed. Removal of this protein leads to recognition of the cell by host NK cells, which in turn will lead to low cell persistence. Modulating the protein expression to such an extent that it is not targeted by NK cells can help the engineered cells evade the host immune system.

Currently the shRNA multiplexing platform has been validated to include up to 4 different targets in a plug and play manner.

shRNA Armored CAR T (shARC) Platform:

In addition, we are developing an armored CAR franchise in conjunction with our shRNA technology, referred to as shRNA Armored CAR T platform, or shARC. The shARC platform uses our shRNA technology in combination with a CAR and a specific cytokine to enhance the anti-tumor effects of the cell therapy and optimize the potential treatment for cancer patients. Initial efforts using the shARC platform have been centered on the use of shRNA technology to knockdown CD3z for the generation of allogeneic CAR T-cells in combination with the co-expression of the pro-inflammatory cytokine IL-18.

 

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CLINICAL PROGRAMS

Entering 2022, Celyad Oncology was investigating a diversified pipeline of next-generation allogeneic and autologous CAR T candidates:

CYAD-101

 

LOGO    CYAD-101 is an investigational, non-gene edited allogeneic CAR T candidate engineered to co-express the chimeric antigen receptor based on NKG2D, the novel inhibitory peptide TIM and a truncated CD19 selection marker. The product candidate leverages our All-In-One vector approach with a single transduction, avoiding multiple genetic modifications and costs associated with additional GMP grade materials. TIM inhibits CD3z and reduces signaling of the TCR complex, which reduces the potential for GvHD.

alloSHRINK Phase 1 Trial Overview

In December 2018, we initiated the Phase 1 alloSHRINK trial, an open-label trial assessing the safety and clinical activity of three consecutive administrations of CYAD-101 every two weeks administered following preconditioning chemotherapy in patients with refractory unresectable mCRC. The dose-escalation segment of the trial evaluated the administrations of CYAD-101 concurrently with FOLFOX (combination of 5-fluorouracil, leucovorin and oxaliplatin) chemotherapy regimen at three dose levels (1×108, 3×108, 1×109 cells per infusion). In December 2020, we began enrollment in the expansion cohort of the alloSHRINK trial, which evaluated three infusions of CYAD-101 at the recommended dose of 1×109 cells per infusion of CYAD-101 concurrently with FOLFIRI (combination of 5-fluorouracil, leucovorin and irinotecan) preconditioning chemotherapy for the treatment of advanced mCRC.

Phase 1 alloSHRINK Clinical Trial Data

Initial positive data from the alloSHRINK trial were reported both at the Society for Immunotherapy of Cancer (SITC) 2019 and American Society of Clinical Oncology 2020 conferences. In January 2021, we reported additional translational data for the alloSHRINK trial at the American Society of Clinical Oncology 2021 Gastrointestinal Cancers Symposium.

A total of 15 patients with relapsed/refractory mCRC who progressed after previous treatment with oxaliplatin-based or irinotecan-based chemotherapies were enrolled in the alloSHRINK Phase 1 dose-escalation trial. The number of prior therapies received by patients enrolled in the trial ranged from one to six with a mean of three.

Data from the trial showed that CYAD-101 following preconditioning chemotherapy was observed to be generally well-tolerated with no GvHD observed, no dose-limiting toxicities reported, no patient discontinuation due to treatment-related adverse events and no treatment-related adverse events greater than Grade 3. Results also showed two patients achieved a partial response (PR) according to RECIST 1.1 criteria, including one patient with a KRAS-mutation.

 

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Nine patients achieved stable disease (SD), with seven patients demonstrating disease stabilization lasting more than or equal to three months of duration, with a disease control rate of 73%.

 

LOGO

Median progression free survival (mPFS) for this segment of the trial was 3.9 months, and median overall survival (mOS) was 10.6 months. No correlation was observed between clinical responses and the degree of human leukocyte antigen (HLA) matching between patients and CYAD-101 donor cells, indicating that CYAD-101 may be able to be used in a broad patient population regardless of the HLA haplotype.    

Data from the alloSHRINK trial also showed a tumor burden decrease in eight out of 15 evaluable patients, including six of nine patients at dose level 3. Clinical activity was observed across all dose levels. There was no obvious correlation between response, dose-levels nor baseline characteristics.

 

LOGO    Of four patients treated at the highest dose level of 1×109 CYAD-101 cells per infusion available for analysis, three patients who achieved either a confirmed PR or SD also showed hyper-expanded TCR repertoire post-treatment through the emergence of new T cell clones in the peripheral blood T cell repertoire, while one patient with progressive disease displayed no evidence of new T cell clones.

Cytokine modulation was also observed after the first and second infusions of CYAD-101 in the patient who achieved a confirmed PR from the highest dose level.

 

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All 15 patients from the dose-escalation segment of the alloSHRINK trial were dosed from a single cell bank of CYAD-101 that was generated in advance from two manufacturing runs each using a fraction of an apheresis from a single healthy donor.

Preliminary data from the dose expansion cohort evaluating CYAD-101 (1×109 cells per infusion) following FOLFIRI (combination of 5-fluorouracil, leucovorin and irinotecan) preconditioning chemotherapy showed CYAD-101 was generally well-tolerated with no dose limiting toxicities or evidence of GvHD. Overall, nine out of ten evaluable mCRC patients showed stable disease at first tumor assessment. Data also showed shorter persistence of CYAD-101 cells observed after FOLFIRI preconditioning as compared to FOLFOX preconditioning.

In 2021, based on better cell kinetic data and clinical activity data from the alloSHRINK dose-escalation segment of CYAD-101 following FOLFOX preconditioning, the Company submitted a protocol amendment to regulatory agencies to modify the Phase 1b KEYNOTE-B79 trial to incorporate FOLFOX as preconditioning chemotherapy.

Following the decision to use FOLFOX in the KEYNOTE-B79 study, enrollment into the alloSHRINK study was discontinued in April 2021. Patients have continued to be followed up as required by protocol. As of December 31, 2022, four patients remained in follow-up.

Phase 1b CYAD-101-002 (KEYNOTE-B79) Trial Overview

In September 2020, we announced a clinical trial collaboration with MSD, a tradename of Merck. The CYAD-101-002 trial was designed to evaluate CYAD-101 following FOLFOX preconditioning chemotherapy, with Merck’s anti-PD1 therapy, KEYTRUDA® (pembrolizumab), in refractory mCRC patients with MSS / pMMR disease. In December 2021, we announced the first patient was dosed in the trial. In February 2022, we announced our decision to voluntarily pause the CYAD-101-002 trial to investigate reports of two fatalities that presented with similar pulmonary findings and evaluate any similar events in additional patients treated on study. On March 1, 2022, we were informed via-email communication from the FDA that the CYAD-101-002 trial had been placed on clinical hold due to insufficient information to assess risk to study subjects.

In June 2022, we submitted our complete response to the Clinical Hold to the FDA stating our intent to amend the eligibility criteria to exclude patients who have bilateral lung metastases and patients who have received treatment with epidermal growth factor receptor (EGFR) targeting monoclonal antibodies within the previous 9 months prior to trial recruitment. In July 2022, based on that complete response, we received notification that the FDA lifted the Clinical Hold on the trial.

In October 2022, we announced that, based on a strategic, financial and medical review, taking into account the costs associated with the pursuit of the program and the delays to reach key medical milestones following the resolution of the previous Clinical Hold, the Company had decided to discontinue the development of CYAD-101. There were no new safety concerns leading to this decision. As the decision to pause the study was taken before any patients had completed their first full cycle of treatment, we do not have follow-up disease assessment data to make any evaluation of the efficacy of the FOLFOX, CYAD-101 and pembrolizumab treatment.

 

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CYAD-211

 

LOGO    CYAD-211 is an investigational shRNA-based allogeneic CAR T candidate for the treatment of relapsed or refractory multiple myeloma (r/r MM). CYAD-211 is engineered to co-express a BCMA chimeric antigen receptor and a single shRNA hairpin which interferes with the expression of the CD3z component of the TCR complex

Phase 1 IMMUNICY-1 Trial Overview

In November 2020, we initiated the dose-escalation Phase 1 IMMUNICY-1 trial evaluating CYAD-211.

IMMUNICY-1 is an open-label Phase 1, dose-escalation trial that has evaluated the safety and clinical activity of a single infusion of CYAD-211 following preconditioning with CyFlu chemotherapy -cyclophosphamide and fludarabine in patients with r/r MM. The trial was initially designed to evaluate multiple dose levels of CYAD-211: 3x107, 1x108 and 3x108 cells per infusion following preconditioning chemotherapy cyclophosphamide (300 mg/m² for 3 days) and fludarabine (30 mg/m² for 3 days). Following protocol amendments, additional patients were treated with enhanced lymphodepletion (eLD) with higher doses of cyclophosphamide (500 and 750mg/m² for 3 days) and fludarabine (30mg/m² for 4 days) and three patients were treated with 6x108 cells per infusion after preconditioning with the higher eLD dose.

Preliminary data from the IMMUNICY-1 trial showed a favorable tolerability profile with no DLTs, no GvHD and no CAR T-cell-related encephalopathy syndrome.

 

LOGO   

Preliminary cell kinetic data in the first three cohorts of the dose escalation showed all patients had detectable CYAD-211 cells in the peripheral blood, although engraftment was short lasting. This suggested expansion and persistence of cells might be more dependent on the depth and period of the lymphodepletion induced by the preconditioning regimen, which called for further exploration of lymphodepletion. However, following protocol amendment, data with enhanced lymphodepletion with higher doses of preconditioning chemotherapy (cohorts 4 to 6), cell kinetic data continued to show short persistence of engraftment.

 

Initial clinical activity from 12 patients in the initial dose-escalation segment of the IMMUNICY-1 trial was encouraging with three patients achieving partial response (PR), one in each dose-level, while eight patients had stable disease (SD). One patient with SD of 4.5 months duration showed evidence of reduction in size of plasmacytomas on radiographic studies.

 

 

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Seven additional patients received eLD including three who also received the higher dose of cells. Two of these eLD patients have achieved PR.

 

LOGO

As of December 2022, 19 r/r MM patients had been treated with CYAD-211 in the IMMUNICY-1 trial. The observed safety profile, including the lack of observed Graft-versus-Host disease, provides proof-of-concept for the use of shRNA technology for allogeneic CAR T-cells.

In total, out of 17 evaluable patients across all dosing cohorts, a partial response was achieved in five patients. One patient was re-treated with a second dose of CYAD-211 after having reached stable disease post first infusion. The patient tolerated the second dose. Enhanced lymphodepletion did not seem to improve clinical activity nor persistence of the CAR T-cells post-infusion.

On December 21, 2022, the Company announced that, based on a strategic and financial review, the Company had decided to discontinue the development of CYAD-211. There were no safety concerns leading to this decision and all patients previously treated with CYAD-211 will continue to receive their protocol-defined follow-up. As of December 31, 2022, 11 patients remained in follow-up.

CYAD-02

CYAD-02 is an investigational CAR T therapy that uses an All-in-One vector approach to engineer a patient’s T cells to express both the NKG2D chimeric antigen receptor and shRNA technology to knockdown the expression of NKG2D ligands MICA and MICB on the CAR T-cells.

In preclinical models, targeting MICA and MICB with a single shRNA leads to a decrease of ligand expression (Figure A) on T cells and enhanced in vitro expansion (Figure B) compared to a first-generation autologous NKG2D CAR T product candidate.

 

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LOGO

CYCLE-1 Trial

In November 2019, we initiated the Phase 1 dose-escalation CYCLE-1 trial that evaluated the safety and clinical activity of a single infusion of CYAD-02 following preconditioning chemotherapy with cyclophosphamide and fludarabine for the treatment of relapsed or refractory (r/r) acute myeloid leukemia (AML) and myelodysplastic syndromes (MDS).

In December 2021, we reported data from the Phase 1 CYCLE-1 trial at the American Society of Hematology annual meeting, which overall showed a good tolerability profile of CYAD-02 following CyFlu preconditioning.

Data from the trial showed that a single shRNA can target two independent genes (MICA/MICB) to enhance the phenotype of the CAR T-cells. In addition, the dual knockdown showed a positive contribution to the initial clinical activity of CYAD-02 as well as a trend towards increased engraftment and persistence compared to the first-generation, autologous NKG2D receptor CAR T.

In August 2022, we announced that we would seek partnerships to continue the development of CYAD-02. As of December 31, 2022, no partnerships had been announced. No patients are in follow-up.

Long Term Safety Follow-Up

According to the guidelines for gene therapy for vectors which may undergo latency/reactivation, patients who have been treated in clinical trials of gene therapy should continue to be followed after discontinuation of study treatment for 5 years following exposure to the product candidate in the parent study, followed by 10 years of annual visits for patients with a post-treatment test positive for replication-competent retrovirus (RCR) during Year 1 (i.e., the first year after the first product candidate treatment in the parent study).

To ensure compliance with this requirement, all previous Celyad-sponsored studies included such long-term follow-up in the respective protocol. However, since they are no longer recruiting, no more study treatments are planned, and the treatment follow-up period will end soon or has been completed, Celyad has decided to amend the protocols of the parent studies so that long-term safety follow-up (LTSFU) of patients will be done under this common LTSFU protocol instead of under the respective parent protocols. Surviving patients from all previous Celyad-sponsored clinical trials who have received CAR T product candidates will be followed in this new LTSFU study.

The LTSFU study aims to identify and mitigate the long-term risks in terms of serious adverse events (SAEs) related to the product candidates or study participation, and fatal SAEs. Additionally, it will allow Celyad to further understand the persistence of its product candidates. The LTSFU study includes annual visits/telephone contacts for all patients.

 

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OUR MANUFACTURING CAPABILITIES

We have focused our efforts on an allogeneic approach for the past few years and our manufacturing facility and staff have been a key element to enable many of our past trials but have been underutilized in recent years as we mainly used the facility for our autologous candidates. Our current allogeneic programs are better suited for outsourced manufacturing.

In September 2022, the Company entered into a €6.0 million asset purchase agreement with Cellistic, the cell therapy development and manufacturing business of Ncardia Belgium BV, whereby Cellistic acquired Celyad Oncology’s Good Manufacturing Practice (GMP) grade Cell Therapy Manufacturing Unit composed notably of personnel, equipment, supplier and service contracts and stock.

LICENSING AND COLLABORATION AGREEMENTS

Celdara

Background

In January 2015, we entered into an agreement with Celdara Medical, LLC, or Celdara in which we purchased all outstanding membership interests of OnCyte, LLC, or OnCyte. In connection with this transaction, we entered into an asset purchase agreement to which Celdara sold to OnCyte certain data, protocols, regulatory documents and intellectual property, including the rights and obligations under two license agreements between OnCyte and The Trustees of Dartmouth College, or Dartmouth, related to our CAR T development programs.

In March 2018, we dissolved the affairs of our wholly owned subsidiary OnCyte. As a result of the dissolution of OnCyte, all the assets and liabilities of OnCyte were fully distributed to us including under our license agreement with Dartmouth.

Amended Asset Purchase Agreement

In August 2017, we entered into an amendment to the asset purchase agreement described above. In connection with the amendment, the following payments were made to Celdara: (i) an amount in cash equal to $10.5 million, (ii) newly issued shares of Celyad valued at $12.5 million, (iii) an amount in cash equal to $6.0 million in full satisfaction of any payments owed to Celdara in connection with a clinical milestone related to our CAR T NKR-2 product candidate, (iv) an amount in cash equal to $0.6 million in full satisfaction of any payments owed to Celdara in connection with our license agreement with Novartis International Pharmaceutical Ltd., and (v) an amount in cash equal to $0.9 million in full satisfaction of any payments owed to Celdara in connection with our former license agreement with Ono Pharmaceutical Co., Ltd.

Under the amended asset purchase agreement, we are obligated to make certain development-based milestone payments to Celdara up to $40.0 million, certain development-based milestone payments up to $36.5 million and certain sales-based milestone payments up to $156.0 million. We are required to make tiered single-digit royalty payments to Celdara in connection with the sales of CAR T products, subject to reduction in countries in which there is no patent coverage for the applicable product or in the event Celyad is required to secure licenses from third parties to commercialize the applicable product. We are also required to pay Celdara a percentage of sublicense income, including royalty payments, for each sublicense ranging from the mid-single digits to the mid-twenties, depending on which of a specified list of clinical and regulatory milestones the applicable product has achieved at the time the sublicense is executed. We are required to pay Celdara a single-digit percentage of any research and development funding received by us, not to exceed $7.5 million for each product group. We can opt out of the development of any product if the data does not meet the scientific criteria of success. We may also opt out of development of any product for any other reason upon payment of a termination fee of $2.0 million to Celdara.

 

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The Trustees of Dartmouth College (“Dartmouth”)

As described above, as a result of our acquisition of all of the outstanding membership interests of OnCyte and the asset purchase agreement among us, Celdara and OnCyte, OnCyte became our wholly-owned subsidiary and acquired certain data, protocols, regulatory documents and intellectual property, including the rights and obligations under two license agreements between OnCyte and Dartmouth. The first of these two license agreements concerned patent rights related, in part, to methods for treating cancer involving chimeric NK and NKP30 receptor targeted therapeutics and T cell receptor-deficient T cell compositions in treating tumor, infection, GVHD, transplant and radiation sickness, or the CAR T License, and the second of these two license agreements concerned patent rights related, in part, to anti-B7-H6 antibody, fusion proteins and methods of using the same, or the B7H6 License.

In August 2017, we and Dartmouth entered into an amendment agreement in order to combine our rights under B7H6 Agreement with our rights under the CAR T License, resulting in the termination of the B7H6 License, and in order to make certain other changes to the agreement. In connection with the amendment, we paid Dartmouth a non-refundable, non-creditable amendment fee in the amount of $2.0 million in 2017. Under the amended license agreement, Dartmouth granted us an exclusive, worldwide, royalty-bearing license to certain know-how and patent rights to make, have made, use, offer for sale, sell, import and commercialize any product or process for human therapeutics, the manufacture, use or sale of which, is covered by such patent rights or any platform product. Dartmouth reserves the right to use the licensed patent rights and licensed know-how, in the same field, for education and research purposes only. The patent rights included in the amended license agreement also include the patents previously covered by the B7H6 License. In consideration for the rights granted to us under the amended license agreement, we are required to pay to Dartmouth an annual license fee as well as a low single-digit royalty based on annual net sales of the licensed products by us, with certain minimum net sales obligations beginning April 30, 2024, and continuing for each year of sales thereafter. Under the amended license agreement, in lieu of royalties previously payable on sales by sublicensees, Celyad is required to pay Dartmouth a percentage of sublicense income, including royalty payments, (i) for each product sublicense ranging from the mid-single digits to low-single digits, depending on which of a specified list of clinical and regulatory milestones the applicable product has achieved at the time the sublicense is executed and (ii) for each platform sublicense in the mid-single digits. Additionally, the agreement requires that we exploit the licensed products, and we have agreed to meet certain developmental and regulatory milestones. Upon successful completion of such milestones, Celyad is obligated to pay to Dartmouth certain clinical and regulatory milestone payments up to an aggregate amount of $1.5 million and a commercial milestone payment in the amount of $4.0 million. We are responsible for all expenses in connection with the preparation, filing, prosecution and maintenance of the patents covered under the agreement.

As further amended in December 2021, this agreement allows Dartmouth to terminate the amended license after April 30, 2026, extended from the prior date of April 30, 2024, in the event that Celyad fails to meet the specified minimum net sales obligations for any year (USD 10 million during first year of sales, USD 40 million during the second year of sales and USD 100 million during the third year of sales and every year of sales thereafter), unless Celyad pays to Dartmouth the royalty Celyad would otherwise be obligated to pay had Celyad met such minimum net sales obligation. Dartmouth may also terminate the license if Celyad fails to meet a milestone within the specified time period, unless Celyad pays the corresponding milestone payment. In connection with the December 2021 amendment, we agreed to certain protective provisions of any sublicenses and paid Dartmouth a non-refundable, non-creditable amendment fee and an additional non-refundable, non-creditable sublicense fee to be paid on an annual basis.

Novartis

On May 1st, 2017, we entered into a non-exclusive license agreement with Novartis International AG, or Novartis, regarding U.S. patents related to allogeneic CAR T-cells. The agreement includes our intellectual property rights under U.S. Patent No. 9,181,527. This agreement is related to two undisclosed targets currently under development by Novartis. Under the terms of the agreement, we received an upfront payment of $4.0 million and are eligible to receive additional milestone payments in aggregate amounts of up to $92.0 million. In addition, we are eligible to receive royalties based on net sales of the licensed target associated products at percentages in the single digits. We retain all rights to grant further licenses to third parties for the use of allogeneic CAR T-cells.

Horizon Discovery Group/PerkinElmer

In April and June 2018, we signed two research and development collaboration and license agreements with Horizon Discovery Group plc, or Horizon, to evaluate the utility of Horizon’s SMART vector shRNA reagents to reduce expression of one or more defined targets in connection with the development of our product candidates. The first agreement was focused on targets related to our autologous CAR T candidate, CYAD-02. The second agreement was focused on targets related to our allogenic CAR T product candidate CYAD-211 and one pre-clinical allogenic product candidate not yet publicly announced, called CYAD-203.

 

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In December 2018, we exercised our option to convert the second agreement into an exclusive license agreement, in connection with which we paid Horizon an up-front payment of $1 million. In September 2019, we exercised our option to convert the first agreement into an exclusive license agreement, in connection with which we have paid Horizon an up-front payment of $0.1 million and an additional milestone of $0.1 million for the first IND filed by us for CYAD-02. In September 2020, we paid an additional milestone of $0.2 million for the first IND filed by us for CYAD-211.

Under these exclusive license agreements combined, Horizon is eligible to receive additional milestone payments in development, regulatory and commercial milestone payments, in addition to low single digit royalties on net sales, subject to customary reductions.

In December 2020, Horizon Discovery was acquired by PerkinElmer, Inc. (Horizon/PKI).

In 2021, Horizon/PKI informed us they believe we are in material breach of these agreements as a result of certain disclosures we have made in connection with our obligations as a publicly traded company in the United States and Belgium, although they have not formally delivered to us a notice of material breach or termination. We believe any such assertion of material breach would be without merit and we would expect to vigorously defend any such notice of material breach. Any dispute under these agreements would be subject to arbitration in The Hague under the International Chamber of Commerce Rules. We are currently in discussions with Horizon about possible amendments to these agreements in connection with which we would retain freedom to operate under the in-licensed patents.

Of note, we have filed patent applications which, if issued, would cover other aspects of the product candidates described above as well as products developed by third parties that deploy similar technology and targets. These patent applications encompass the downregulation of one or more of the targets covered under the Horizon/PKI agreements, the use of shRNA to downregulate such targets in immune cells and the combination of shRNAs with a chimeric antigen receptor in immune cells. We are also developing a second generation shRNA platform that does not incorporate any of the Horizon Discovery/Perkin Elmer, Inc. technology described above.

Our discontinued allogeneic CAR T product candidate, CYAD-101, does not incorporate any of the Horizon Discovery/Perkin Elmer, Inc. technology described above.

Merck

In September 2020, we entered into a clinical trial collaboration agreement and subsequent agreements with MSD International GmbH, or MSD, a subsidiary of Merck & Co., Inc. The agreements relate to the Phase 1b KEYNOTE-B79 clinical trial, which will evaluate our investigational non-gene edited allogeneic CAR T candidate, CYAD-101, following FOLFOX preconditioning chemotherapy, with MSD’s anti-PD-1 therapy, KEYTRUDA® (pembrolizumab). The trial will enroll refractory metastatic colorectal cancer (mCRC) patients with microsatellite stable (MSS) / mismatch-repair proficient (pMMR) disease, with the initial goal of determining the safety and tolerability of the combination therapy. The trial began enrollment in the fourth quarter of 2021.

In February 2022, we announced our decision to voluntarily pause the KEYNOTE-B79 trial to investigate reports of two fatalities that presented with similar pulmonary findings and evaluate any similar events in additional patients treated on study. On March 1, 2022, the Company was informed via-email communication from the FDA that the KEYNOTE-B79 trial has been placed on clinical hold due to insufficient information to assess risk to study subjects. In October 2022, the Company decided to discontinue the development of CYAD-101 based on a strategic, financial and medical review. As per the mutual agreement between both companies in December 2022, the clinical trial collaboration agreement has been terminated without any further liabilities.

Mesoblast

On May 8, 2018, we entered into a license agreement with Mesoblast, an Australian biotechnology company, to develop and commercialize our intellectual property rights relating to C-Cathez, an intra-myocardial injection catheter, related to our former cardiovascular business, for which Mesoblast has paid to Celyad an upfront fee of 1,000,000 USD. In addition to the upfront fee, Celyad may be eligible up to 20,000,000 USD in clinical, regulatory and commercial milestone payments payable in cash or, for certain milestones, in Mesoblast shares.    

 

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On January 17, 2022, we entered into an amendment with Mesoblast to convert the license into non-exclusive, to remove the termination fee of 2,500,000 USD from Mesoblast and to extend certain payments milestones. In consideration for this amendment, Mesoblast has agreed to pay to Celyad 1,500,000 USD in Mesoblast ordinary shares.

Intellectual Property

Patents and Patent Applications

Patents, patent applications and other intellectual property rights are important in the sector in which we operate. We consider on a case-by-case basis filing patent applications with a view to protecting certain innovative products, processes, and methods of treatment. We may also license or acquire rights to patents, patent applications or other intellectual property rights owned by third parties, academic partners or commercial companies which are of interest to us.

Our patent portfolio includes pending patent applications and issued patents in the United States and in foreign countries.

The term of a U.S. patent may be eligible for patent term extension under the Hatch-Waxman Act to account for at least some of the time the drug or device is under development and regulatory review after the patent is granted. With regard to a drug or device for which FDA approval is the first permitted marketing of the active ingredient, the Hatch-Waxman Act allows for extension of the term of one U.S. patent. The extended patent term cannot exceed the shorter of five years beyond the non-extended expiration of the patent or 14 years from the date of the FDA approval of the drug or device. Some foreign jurisdictions have analogous patent term extension provisions that allow for extension of the term of a patent that covers a device approved by the applicable foreign regulatory agency.

NKR-T Cell Platform Patents

As of February 17, 2023, our CAR T-cell portfolio includes four patent families exclusively licensed to us by Dartmouth. This portfolio includes twenty-one issued U.S. patents; nine pending U.S. patent applications; and 26 foreign granted patents and applications pending in jurisdictions including Australia, Brazil, Canada, China, Europe, Hong Kong, India, Japan, Mexico and Russia. These patents and patent applications relate to specific chimeric antigen receptors and to T-cell receptor deficient T-cells and are further detailed below.

A first patent family relates to chimeric NK receptors and methods for treating cancer. There are five granted U.S. patents in this family (US 7,994,298; US 8,252,914; US 10,336,804; US11,208,454; and US11,339,199) and two further pending US applications. The scope of this patent family includes chimeric natural killer cell receptors (NKR CARs), T-cells with such receptors (NKR CAR T-cells) and methods of treating cancer with these NKR CAR T-cells.

A second patent family is entitled “NKp30 receptor targeted therapeutics” and describes a specific NKR CAR based on the NKp30 receptor. Two U.S. patents are granted (US 9,833,476 and US 10,682,378) and there is a further U.S. application pending.

A third family relates to an anti-B7H6 antibody, CARs and BiTE molecules containing the antibody; to CAR T-cells; and methods of treating cancer with the CAR T-cells. Two U.S. patents are granted (US9,790,278 and US11,034,766), patents have also been granted in Europe, China and Japan, and applications are pending in China, Europe and the United States.

A fourth patent family relates to T-cell receptor-deficient compositions. TCR deficient human T-cells could be particularly useful to generate allogeneic CAR T-cells. The family includes members that relate to the concept (irrespective of the way the T-cell is made TCR deficient), as well as members describing specific ways of making the cells TCR deficient. There are twelve granted U.S. patents in this family (US 9,181,527; US 9,273,283; US9,663,763; US9,822,340; US9,821,011; US 9,938,497; US 9,957,480; US 10,689,616; US 10,689,617; US 10,689,618; US 10,689,619, and US 11,136,549), as well as five further pending US applications and ten applications in other jurisdictions.

 

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shRNA Platform Patents

In addition to the in-licensed patents mentioned above, we file patent applications for our in-house developed technologies. Exemplary applications are those related to our proprietary shRNA platform. There are currently three patent families pending in this portfolio. No patents have been granted yet, but applications are pending in Australia, Canada, China, Europe, Japan, South-Korea and the US.

Trade Secrets

In addition to our patents and patent applications, we keep certain of our proprietary information as trade secrets, which we seek to protect by confidentiality agreements with our employees and third parties, and by fragmenting know-how between different individuals, in accordance with standard industry practices.

Competition

The industry in which we operate is subject to rapid technological change. We face competition from pharmaceutical, biopharmaceutical and biotechnology companies, as well as from academic and research institutions. Some of these competitors are pursuing the development of medicinal products and other therapies that target the same diseases and conditions that we are targeting.

Some of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety and convenience.

Many of our competitors have substantially greater financial, technical and other resources.

For a breakdown of our total revenues by activity and geographic market, please see “Note 6—Operating segment information” in our consolidated financial statements appended to this Annual Report.

CAR T-Cell Therapy

Encouraging results from clinical trials have continued to fuel the interest in CAR T-cell therapies and our competitors as of the date of this Annual Report include 2seventy bio, Inc., Adicet Bio, Inc, Adaptimmune Therapeutics plc, Affimed NV, Alaunos Therapeutics Inc., Allogene Therapeutics Inc., AlloVir, Inc, Arcellx, Inc., Atara Biotherapeutics, Inc., Autolus Therapeutics plc, Beam Therapeutics Inc., Bellicum Pharmaceuticals, Inc., Caribou Biosciences, Inc., CARsgen Therapeutics Co. Ltd., Cellectis S.A., Cellular Biomedicine Group, Celularity, Inc., Century Therapeutics, Inc., CRISPR Therapeutics, Inc., Editas Medicines, Inc, Fate Therapeutics, Inc., Gracell Biotechnologies Inc., Immatics Biotechnologies GmbH, ImmunityBio, Inc., Intellia Therapeutics, Inc., Juno

 

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Therapeutics, Inc. (acquired by Celgene Corporation, in turn acquired by Bristol Myers Squibb), Kite Pharma, Inc. (acquired by Gilead Sciences, Inc.), Kuur Therapeutics, Legend Biotech USA, Inc., Lyell Immunopharma, Inc., Medigene AG, Mustang Bio, Inc., NantKwest, Inc., Nkarta Therapeutics, Inc., Novartis AG, Poseida Therapeutics, Inc., Precigen, Inc. Precision Biosciences, Inc., Sana Biotechnology, Inc., Servier Laboratories Limited, Sorrento Therapeutics, Inc., SQZ Biotech, Inc., TC BioPharm Ltd., TCR2 Therapeutics, Inc., Tmunity Therapeutics, Inc. (acquired by Kite/Gilead), and Ziopharm Oncology, Inc., Cytovia and Takeda.

Government Regulation

U.S. Regulation

Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, safety, effectiveness, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products, or biologics, such as our 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 an application for marketing authorization must be approved by the regulatory authority. We, along with third-party contractors, will be required to navigate the various nonclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.

Regulation of Combination Products in the U.S.

Certain products may be comprised of components that are regulated under separate regulatory authorities and by different centers at the FDA. These products are known as combination products. A combination product is comprised of a combination of a drug and a device; a biological product and a device; a drug and a biological product; or a drug, a device, and a biological product. Under regulations issued by the FDA, a combination product includes:

 

   

a product comprised of two or more regulated components that are physically, chemically, or otherwise combined or mixed and produced as a single entity;

 

   

two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products;

 

   

a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device or biological product where both are required to achieve the intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or

 

   

any investigational drug, device, or biological packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.

Under the Federal Food, Drug, and Cosmetic Act (“FDCA”), and its implementing regulations, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. The designation of a lead center generally eliminates the need to receive approvals from more than one FDA center for combination products, although it does not preclude consultations by the lead center with another FDA center. The determination of which center will be the lead center is based on the “primary mode of action” of the combination product, which means the single mode of action that provides the most important therapeutic action of the combination product, i.e., the mode of action expected to make the greatest contribution to the overall intended therapeutic effects of the combination product. Thus, if the primary mode of action of a device-biologic combination product is

 

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attributable to the biologic product, that is, if it acts by means of a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product, the FDA center responsible for premarket review of the biologic product (the Center for Biologics Evaluation and Research, or CBER, would have primary jurisdiction for the combination product. Additionally, the FDA has established an Office of Combination Products to address issues surrounding combination products and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.

Following approval of a combination product, each component of a combination product retains its regulatory status (as a biologic or device, for example) and is subject to the requirements established by the FDA for that type of component. Accordingly, under FDA regulations, biologic-device combination products are subject to cGMP requirements applicable to both biologics and devices, including the cGMP requirements for biologics and the FDA’s Quality System Regulation applicable to medical devices.

U.S. Biological Product Development

In the United States, the FDA regulates biologics under the FDCA and the Public Health Service Act, or PHSA, and their implementing regulations. Biologics are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval or license revocation, a clinical hold, untitled or warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

Our product candidates must be approved by the FDA through the Biologics License Application, or BLA, process before they may be legally marketed in the United States. The process required by the FDA before a biologic may be marketed in the United States generally involves the following:

 

   

Completion of extensive nonclinical, sometimes referred to as preclinical, laboratory tests, animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice, or GLP, regulations;

 

   

Submission to the FDA of an IND, which must become effective before human clinical trials may begin and must be updated annually or when significant changes are made;

 

   

Performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, GCPs, and other clinical trial-related regulations to establish the safety, purity and potency, or efficacy, of the proposed drug product candidate for its proposed indication;

 

   

Preparation and submission to the FDA of a BLA for marketing authorization that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials;

 

   

Determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

 

   

Satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the product is produced to assess compliance with the FDA’s current good manufacturing practices, or cGMPs, requirements to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality, purity and potency;

 

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

 

   

Satisfactory review of the product candidate by an FDA advisory committee, where appropriate and if applicable;

 

   

Payment of user fees for FDA review of the BLA (unless a fee waiver applies); and

 

   

FDA review and approval, or licensure, of the BLA prior to any commercial marketing or sale of the product for particular indications for use in the United States.

Prior to beginning the first clinical trial with a product candidate, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of the nonclinical tests, including animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls, or CMC, information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within the 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. The FDA also may impose clinical holds on a biological product candidate at any time before or during clinical trials due to, among other considerations, significant safety concerns or study design deficiencies. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing a clinical trial to begin, or that, once begun, issues or circumstances will not arise that delay, suspend or terminate such studies.

The clinical stage of development involves the administration of the drug product candidate to healthy volunteers and patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, 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. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the 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 are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of certain clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. However, in some cases data and other information from trials involving biologics that never garner approval may require disclosure. In addition, publication policies of major medical journals mandate certain registration and disclosures as a pre-condition for potential publication, even if not currently mandated as a matter of law. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

 

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Clinical trials are generally conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap or be combined. Phase 1 clinical trials generally involve a small number of healthy volunteers who are initially exposed to a single dose and then multiple doses of the drug product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug product candidate and, if possible, to gain early evidence on effectiveness. Phase 2 clinical trials typically 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, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning Phase 3 trials. Phase 3 clinical trials generally involve large numbers of patients at multiple sites and are designed to provide the data necessary to demonstrate the clinical efficacy 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. Phase 3 clinical 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. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of a BLA.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval to gain additional information about the product and experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may condition approval of a BLA on the sponsor’s agreement to conduct additional clinical trials to further assess the biologic’s safety and effectiveness after BLA approval.

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 within 15 calendar days of receipt by the sponsor or its agents after determining that the information qualifies for such expedited reporting. IND safety reports are required for serious and unexpected suspected adverse events, findings from other studies or 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. Additionally, a sponsor must notify FDA within 7 calendar days after receiving information concerning any unexpected fatal or life-threatening suspected adverse reaction. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA, the IRB, 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 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 or not a trial may move forward at designated intervals based on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the drug product candidate does not undergo unacceptable deterioration over its shelf life.

Expanded access, sometimes called “compassionate use,” is the use of investigational products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. FDA regulations allow access to investigational products under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the investigational product under a treatment protocol or treatment IND application. There is no requirement for a company to provide expanded access to its investigational product. A manufacturer of an investigational drug for a serious disease or condition is required to make publicly available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational drug. This requirement applies on the earlier of the first initiation of a Phase 2 or Phase 3 trial of the investigational drug or, as applicable, 15 days after the drug receives a designation as a breakthrough therapy, fast track product, or regenerative advanced therapy.

 

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BLA and FDA Review Process

Following trial completion, trial data are analyzed to assess safety and efficacy. The results of preclinical studies and clinical trials are then submitted to the FDA as part of a BLA, along with proposed labeling for the product and information about the manufacturing process and facilities that will be used to ensure product quality, results of analytical testing conducted on the chemistry of the drug product candidate, and other relevant information. The BLA is a request for approval to market the biologic for one or more specified indications and must contain proof of safety, purity, and potency, or efficacy, which is demonstrated by extensive preclinical and clinical testing. The application may include both negative or ambiguous results of preclinical and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a use of a product, 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, purity and potency of the investigational product to the satisfaction of the FDA. FDA approval of a BLA must be obtained before a biologic may be marketed in the United States.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee, which is adjusted on an annual basis. PDUFA also imposes an annual prescription drug product program fee. 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.

Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once a BLA has been accepted for filing, the FDA’s goal is to review BLAs within 10 months of the filing date for standard review under the Prescription Drug User Fee Act (“PDUFA”) or six months of the filing date for priority review, if the application is for a product intended for a serious or life-threatening condition and the product, if approved, would provide a significant improvement in safety or effectiveness. In both standard and priority reviews, the FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for additional information or clarification.

After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed drug product candidate is safe, pure and potent for its intended use, and whether the drug product candidate is being manufactured in accordance with cGMP to assure and preserve the drug product candidate’s identity, strength, quality, purity and potency. The FDA may refer applications for novel product candidates or product candidates 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. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA will likely re-analyze the clinical trial data, which could result in extensive discussions between the FDA and us during the review process. The review and evaluation of a BLA by the FDA is extensive and time consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if at all.

Before approving a BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product. 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. In addition, before approving a BLA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the product 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 BLA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 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 BLA, addressing all of the deficiencies identified in the letter, withdraw the application or request a hearing. Even if such data and information is submitted, the FDA may ultimately decide that the 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 we interpret the same data.

 

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There is no assurance that the FDA will ultimately approve a product for marketing in the United States, and we may encounter significant difficulties or costs during the review process. If a product receives marketing approval, the approval may be significantly limited to specific populations, and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling or may condition the approval of the BLA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved products. For example, the FDA may require Phase 4 testing which involves clinical trials designed to further assess the product’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS. The FDA will not approve the BLA without 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 licenses may be revoked or suspended for non-compliance with regulatory standards or if problems occur following initial marketing.

Expedited Development and Review Programs

Fast Track Designation

The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and nonclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product concurrently with, or at any time after, submission of an IND, and the FDA must determine if the product qualifies for Fast Track designation within 60 days of receipt of the sponsor’s request. The FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.

Priority Review

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, or review within a six-month timeframe from the date a complete BLA is accepted for filing, if it has the potential to 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 biological product designated for priority review in an effort to facilitate the review.

Accelerated Approval

Additionally, a product may be eligible for accelerated approval. An investigational drug may obtain accelerated approval if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies and demonstrates 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 generally requires that a sponsor of a drug or biological product receiving accelerated approval perform, in a diligent manner, adequate and well-controlled post-marketing clinical trials to verify the clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit. Under FDORA, the FDA may require, as appropriate, that such trials be underway prior to approval or within a specific time period after the date of approval for a product granted accelerated approval. If the FDA concludes that a drug shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions as it deems necessary to assure safe use of the drug, such as:

 

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Distribution restricted to certain facilities or physicians with special training or experience; or

 

   

Distribution conditioned on the performance of specified medical procedures.

The limitations imposed would be commensurate with the specific safety concerns presented by the product. In addition, the FDA currently requires unless otherwise informed by the agency, pre-approval of promotional materials for products receiving accelerated approval, which could adversely impact the timing of the commercial launch of the product. Under FDORA, the FDA has increased authority for expedited procedures to withdraw approval of a drug, or an indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. Fast Track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process.

Breakthrough Therapy Designation

A product can be designated as a breakthrough therapy if it is intended to treat a serious or life-threatening condition and preliminary clinical evidence indicates that it may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. A sponsor may request that a drug product candidate be designated as a breakthrough therapy concurrently with, or at any time after, the submission of an IND, and the FDA must determine if the drug product candidate qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request. If so designated, the FDA shall act to expedite the development and review of the product’s marketing application, including by meeting with the sponsor throughout the product’s development, providing timely advice to the sponsor to ensure that the development program to gather preclinical and clinical data is as efficient as practicable, involving senior managers and experienced review staff in a cross-disciplinary review, assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor, and reviewing portions of the marketing application on a rolling basis before the sponsor submits the complete application.

Accelerated Approval for Regenerative Advanced Therapies

As part of the 21st Century Cures Act, Congress amended the FDCA to create an accelerated approval program for products designated as regenerative medicine advanced therapies, which include cell therapies, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or products. Regenerative medicine advanced therapies do not include those human cells, tissues, and cellular and tissue-based products regulated solely under section 361 of the PHSA and 21 CFR Part 1271. The new program is intended to facilitate efficient development and expedite review of regenerative medicine advanced therapies, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition. A drug sponsor may request that FDA designate a drug as a regenerative medicine advanced therapy concurrently with or at any time after submission of an IND. FDA has 60 calendar days to determine whether the drug meets the criteria, including whether there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical needs for a serious or life-threatening disease or condition. A new drug application or BLA for a regenerative medicine advanced therapy may be eligible for priority review or accelerated approval through (1) previously agreed-upon surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit or (2) reliance upon data obtained from a meaningful number of sites. Benefits of such designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine advanced therapy that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence, clinical studies, patient registries, or other sources of real-world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval.

 

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Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may grant orphan drug 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 200,000 or more individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting a 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 drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user fee. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if the second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity, or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Platform Technology Designation

Under FDORA, a platform technology incorporated within or utilized by a biological product is eligible for designation as a designated platform technology if (1) the platform technology is incorporated in, or utilized by, a biologic product approved under a BLA; (2) preliminary evidence submitted by the sponsor of the approved or licensed biologic product, or a sponsor that has been granted a right of reference to data submitted in the application for such biologic product, demonstrates that the platform technology has the potential to be incorporated in, or utilized by, more than one biologic product without an adverse effect on quality, manufacturing, or safety; and (3) data or information submitted by the applicable person indicates that incorporation or utilization of the platform technology has a reasonable likelihood to bring significant efficiencies to the drug development or manufacturing process and to the review process. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a biologic product that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original BLA for a biological product that uses or incorporates the platform technology. Designated platform technology status does not ensure that a biological product will be developed more quickly or receive FDA approval. In addition, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation.

Pediatric Trials

Under the Pediatric Research Equity Act, or PREA, as amended, a BLA or supplement to a BLA must contain data to assess the safety and efficacy of the product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDCA requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-Phase II meeting or as may be agreed between the sponsor and FDA. The initial PSP must include an outline of the pediatric study or studies that the sponsor

 

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plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. FDA and the sponsor must reach agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical development programs. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of data or full or partial waivers.

Post-Marketing Requirements

Following approval of a new product, a manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet. Although physicians may prescribe legally available drugs and biologics for off-label uses, manufacturers may not market or promote such off-label uses.

Modifications or enhancements to the product or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in a lengthy review process. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act, or the PDMA, a part of the FDCA.

In the United States, once a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP requirements for constituent parts of cross-labeled combination products that are manufactured separately and not co-packaged are the same as those that would apply if these constituent parts were not part of a combination product. For single-entity and co-packaged combination products, there are two ways to demonstrate compliance with cGMP requirements, either compliance with all cGMP regulations applicable to each of the constituent parts included in the combination product, or a streamlined approach demonstrating compliance with either the drug/biologic cGMPs or the medical device quality system regulation rather than demonstrating full compliance with both, under certain conditions. These conditions include demonstrating compliance with specified provisions from the other of these two sets of cGMP requirements. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance as well as the corresponding 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 products are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Manufacturers and other parties involved in the drug supply chain for prescription drug products must also comply with product tracking and tracing requirements and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for distribution in the United States. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. BLA holders using contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such facilities or the ability to distribute products manufactured, processed or tested by them. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including, among other things, recall or withdrawal of the product from the market.

 

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The FDA also may require post-approval testing, sometimes referred to as Phase 4 testing, risk minimization action plans and post-marketing surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.

Other Regulatory Matters

Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the United States, sales, marketing and scientific/educational programs must also comply with federal and state fraud and abuse laws, data privacy and security laws, transparency laws, and pricing and reimbursement requirements in connection with governmental payor programs, among others. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.

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

The failure to comply with regulatory requirements 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, recall or seizure of products, total or partial suspension of production, denial of product approvals, license suspension or revocation, or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements, new information regarding the safety or efficacy of a product could lead the FDA to modify or suspend or revoke licenses. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.

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

U.S. Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of the FDA approval of our product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application, 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, we may apply for restoration of patent term for our 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 BLA.

 

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An abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed reference biological product was created by the Biologics Price Competition and Innovation Act of 2009, or BPCI Act, which was part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA. This amendment to the PHSA 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, that the product and the reference product may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product. However, 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 twelve years of 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 first licensure. The FDA may approve multiple “first” interchangeable products so long as they are all approved on the same first day of marketing. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. This does not include a supplement for the biological product or 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 that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device, or strength, unless that change is a modification to the structure of the biological product and such modification changes its 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 exclusivity periods and patent terms. This six-month exclusivity, which attaches to the twelve-year exclusivity period 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.

European Union Drug Development

In the EU, our future product candidates will also be subject to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if a marketing authorization, or MA, from the competent regulatory agencies has been obtained.

Clinical Trials Approval

In April 2014, the EU adopted the new Clinical Trials Regulation, (EU) No. 536/2014, or Regulation, which replaced the current Clinical Trials Directive 2001/20/EC, or Directive, on 31 January 2022. The Regulation is directly applicable in all EU Member States meaning no national implementing legislation in each EU Member State is required. The new Regulation aims at harmonizing and streamlining the clinical trials authorization process, simplifying adverse event reporting procedures, improving the supervision of clinical trials, and increasing their transparency. The new Regulation brings about a new Clinical Trials Information System (CTIS), which is a single entry point for sponsors and regulators of clinical trials for the submission and assessment of clinical trial data and enables a sponsor to apply for authorizations in up to 30 EU countries at the same time and with the same documentation, In addition, the transitory provisions of the new Regulation offer the sponsor the possibility to choose between the requirements of the Directive and the Regulation if the request for authorization of a clinical trial is submitted in the 12 months after the new Regulation became applicable. In that case, the clinical trial continues to be governed by the Directive until three years after the new Regulation became applicable.

 

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Drug Review and Approval

In the EU, medicinal products can only be commercialized after obtaining a marketing authorization, or MA.

Following positive completion of clinical trials, pharmaceutical companies can submit an MA application. The MA application shall include all information that is relevant to the evaluation of the medicinal products, whether favorable or unfavorable. The application dossier must include, among other things, the results of pharmaceutical (physicochemical, biological, or microbiological) tests, preclinical (toxicological and pharmacological) tests, and clinical trials, including the therapeutic indications, contra-indications, and adverse reactions, and the recommended dosing regimen or posology.

In addition to demonstrating the safety and efficacy of the medicinal product, pharmaceutical companies are required to guarantee the consistent quality of the product. Therefore, the conditions for obtaining an MA include requirements that the manufacturer of the product complies with applicable legislation including Good Manufacturing Practice, or GMP, related implementing measures and applicable guidelines that involve, amongst others, ongoing inspections of manufacturing and storage facilities. There are two types of marketing authorizations in the EU:

The centralized MA, which 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 which is valid throughout the EU, and in the additional Member States of the European Economic Area (Iceland, Liechtenstein and Norway). The centralized procedure is mandatory for certain types of products, including for medicinal products derived from biotechnological processes, products designated as orphan medicinal products, advanced-therapy medicines (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 EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which is in the interest of public health in the EU.

National MAs, which are issued by the competent authorities of the EU Member States 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 an EU Member State, this national MA can be recognized in other Member State(s) through the mutual recognition procedure, or MRP. 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, or DCP. Under the DCP 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 product characteristics, or SmPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Concerned Member States, or CMSs) for their approval. If the CMSs raise no objections, based on a potential serious risk to public health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the relevant Member States (i.e., in the RMS and the CMSs).

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

Now that the UK (which comprises Great Britain and Northern Ireland) has left the EU, Great Britain will no longer be covered by centralized MAs (under the Northern Ireland Protocol, centralized MAs will continue to be recognized in Northern Ireland). All medicinal products with a current centralized MA were automatically converted to Great Britain MAs on January 1, 2021. For a period of two years from January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or MHRA, the UK medicines regulator, may rely on a decision taken by the European Commission on the approval of a new marketing authorization in the centralized procedure, in order to more quickly grant a new Great Britain MA. A separate application will, however, still be required.

 

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Early Access Mechanisms

Several schemes exist in the EU to support earlier access to new medicines falling within the scope of the centralized procedure, in particular (i) accelerated assessment; (ii) conditional MAs; and (iii) MAs granted under exceptional circumstances.

For a medicine, which is of “major public health interest” (in particular, in terms of therapeutic innovation), accelerated assessment can be requested, taking up to 150 days instead of the usual period of up to 210 days (although in each case “clock stops”, where additional information or written or oral explanation is to be provided by the applicant in response to questions asked by the CHMP, may extend the timeframe of the assessment beyond 150 or 210 days (as applicable)). There is no single definition of what constitutes “major public health interest”. This should be justified by the applicant on a case-by-case basis. The justification should present arguments to support the claim that the medicinal product introduces new methods of therapy or improves on existing methods, thereby addressing to a significant extent the greater unmet needs for maintaining and improving public health.

A conditional marketing authorization is granted prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional marketing authorizations may be granted for product candidates intended for treating, preventing or diagnosing seriously debilitating or life-threatening diseases (including medicines designated as orphan medicinal products), if (i) the risk-benefit balance of the product candidate is positive, (ii) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data post-authorization, (iii) the product fulfills an unmet medical need and (iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization. A conditional marketing authorization can be converted into a standard centralized marketing authorization (no longer subject to specific obligations) once the marketing authorization holder fulfils the obligations imposed and the complete data confirm that the medicine’s benefits continue to outweigh its risks.

Medicines for which the MA applicant can demonstrate that the normally required comprehensive efficacy and safety data cannot be provided (for example because the disease which the medicine treats is extremely rare) may be eligible for an MA under exceptional circumstances. These are medicines for which it is not normally intended that a full MA will be obtained. Where an MA under exceptional circumstances is granted, it will be subject to a requirement for the applicant to introduce specific procedures, in particular in relation to the safety of the medicine, notification to competent regulatory authorities of any incident relating to its use, and the action to be taken in such circumstances. MAs under exceptional circumstances are reviewed annually to reassess the risk-benefit balance.

Supplementary Protection Certificates and Data/market Exclusivity

In the EU, the extension of effective patent term to compensate originator pharmaceutical companies for the period between the filing of an application for a patent for a new medicinal product and the first MA for such product, has been achieved by means of a Supplementary Protection Certificate, or SPC, which can be applied for by the originator pharmaceutical company within six months from the granting of the first MA and comes into effect on expiry of the basic patent. Such SPC attaches only to the active ingredient of the medicinal product for which the MA has been granted. The SPC for an active ingredient has a single last potential expiry date throughout the EU and cannot last for more than five years from the date on which it takes effect (i.e., patent expiry). Furthermore, the overall duration of protection afforded by a patent and a SPC cannot exceed 15 years from the first MA. The duration of a medicinal product SPC can be extended by a single six-month period, or pediatric extension, when all studies in accordance with a pediatric investigation plan, or PIP, have been carried out.

 

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Innovative medicines benefit from specific data and marketing exclusivity regimes. These regimes are intended to provide general regulatory protection to further stimulate innovation. The current rules provide for (i) an 8-year data exclusivity period (from the grant of the MA of an innovative medicine) which prevents the filing of an abridged (generic or biosimilar) application for a follow-on product, which references the data supporting the MA of the innovative medicine (data exclusivity); and (ii) an additional 2-year period of protection against the marketing of a follow-on product (marketing exclusivity), with a possible extension by 1 year if, during the first 8 years, a new therapeutic indication (which is considered to bring a significant clinical benefit in comparison with existing therapies) is approved. This protection is often referred to as the “eight, plus two, plus one” rule. Additional reward mechanisms exist, most notably a 10-year orphan medicines’ marketing exclusivity, and a 1-year data exclusivity for developing a new indication for an old substance and for switch data supporting a change in prescription status.

The current rules also provide for a system of obligations and rewards and incentives intended to facilitate the development and accessibility of pediatric medicinal products, and to ensure that such products are subject to high quality ethical research.

Orphan Designation and Exclusivity

Regulation (EC) No. 141/2000, as implemented by Regulation (EC) No. 847/2000 provides that a product can be designated as an orphan medicinal product by the European Commission if its sponsor can establish: that (1) the product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five (5) in ten thousand (10,000) persons in the EU when the application is made, or (b) it is unlikely that the product, without the benefits derived from orphan status, would generate sufficient return in the EU to justify the necessary investment in its development; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU or, if such method exists, the product will be of significant benefit to those affected by that condition. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

Products receiving orphan designation in the EU can receive ten years of market exclusivity, during which time no “similar medicinal product” may be placed on the market. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication.

However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the ten-year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if the similar product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity.

Post-marketing and Pharmacovigilance Requirements

When granting an MA, competent authorities (i.e., the EMA or the relevant national competent authorities) may impose an obligation to conduct additional clinical testing, sometimes referred to as Phase IV clinical trials, or other post-approval commitments, to monitor the product after commercialization. Additionally, the MA may be subjected to limitations on the indicated uses for the product.

Also, after an MA has been obtained, the marketed product and its manufacturer and MA holder will continue to be subject to a number of regulatory obligations, as well as to monitoring/inspections by the competent authorities.

Under applicable pharmacovigilance rules, pharmaceutical companies must, in relation to all their authorized products, irrespective of the regulatory route of approval, collect, evaluate and collate information concerning all suspected adverse reactions and, when relevant, report it to the competent authorities. This information includes both suspected adverse reactions signaled by healthcare professionals, either spontaneously or through post-authorization studies, regardless of whether or not the medicinal product was used in accordance with the authorized SmPC and/or any other

 

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marketing conditions, and suspected adverse reactions identified in worldwide-published scientific literature. To that end, an MA holder must have (permanently and continuously) at its disposal an appropriately qualified person responsible for pharmacovigilance and establish an adequate pharmacovigilance system. All relevant suspected adverse reactions, including suspected serious adverse reactions, which must also be reported on an expedited basis, should be submitted to the competent authorities in the form of Periodic Safety Update Reports, or PSURs. PSURs are intended to provide an update for the competent authorities on the worldwide safety experience of a medicinal product at defined time points after authorization. PSURs must therefore comprise a succinct summary of information together with a critical evaluation of the risk/benefit balance of the medicinal product, taking into account any new or changing information. The evaluation should ascertain whether any further investigations need to be carried out, and whether the SmPC or other product information needs to be modified.

To ensure that pharmaceutical companies comply with pharmacovigilance regulatory obligations, and to facilitate compliance, competent authorities will conduct pharmacovigilance inspections. These inspections are either routine (i.e., aimed at determining whether the appropriate personnel, systems, and resources are in place) or “for cause” (i.e., targeted to companies suspected of being non-compliant, or in response to specific issues arising where there is a potential for increased risk of non-compliance). Reports of the outcome of such inspections will be used to help improve compliance and may also be used as a basis for enforcement action.

Other Regulatory Matters

Advertising of medicines is subject to tighter controls than general consumer goods and specific requirements are set forth in Directive 2001/83/EC (as implemented in each EU Member State), which apply in addition to the general rules. In general, advertising of unapproved medicinal products or of unapproved uses of otherwise authorized medicinal products (e.g., off-label uses) is prohibited, and advertising for prescription medicinal products must be directed only towards health care professionals (i.e., advertising of these products to the general public is prohibited). Member States have implemented the advertising rules differently and the requirements vary significantly depending on the specific country. Advertising of medicinal products in an online setting, including social media, can be particularly challenging given the strict rules in place. Such prohibitions on advertising have been implemented into UK law through the Human Medicines Regulations 2012, and therefore will continue to apply in the UK despite its departure from the EU.

The manufacturing of authorized medicinal products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with EU cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the EU with the intention to import the active pharmaceutical ingredients into the EU.

The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the EU Member States, plus Norway, Liechtenstein and Iceland.

Brexit and the Regulatory Framework in the United Kingdom

On June 23, 2016, the electorate in the UK voted in favor of leaving the EU (commonly referred to as “Brexit”), and the UK formally left the EU on January 31, 2020. There was a transition period during which EU pharmaceutical laws continued to apply to the UK, which expired on December 31, 2020. However, the EU and the UK have concluded a trade and cooperation agreement, or TCA, which was provisionally applicable since January 1, 2021, and has been formally applicable since May 1, 2021. The TCA includes specific provisions concerning pharmaceuticals, which include the mutual recognition of GMP, inspections of manufacturing facilities for medicinal products and GMP documents issued but does not foresee wholesale mutual recognition of UK and EU pharmaceutical regulations. At present, Great Britain has implemented EU legislation on the marketing, promotion and sale of medicinal products through the Human Medicines Regulations 2012 (as amended) (under the Northern Ireland Protocol, the EU regulatory framework will continue to apply in Northern Ireland). The regulatory regime in Great Britain therefore currently aligns with EU regulations, however it is possible that these regimes will diverge in future now that Great Britain’s regulatory system is independent from the EU and the TCA does not provide for mutual recognition of UK and EU pharmaceutical legislation.

 

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Pricing and Reimbursement

United States

Sales of our products will depend, in part, on the extent to which our products, once approved, will be covered and reimbursed by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for medical products and services. The process for determining whether a third-party payor will provide coverage for a drug product, including a biologic, typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that a payor will pay for the drug product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the approved drugs for a particular indication. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

In the United States and markets in other countries, patients generally rely on third-party payors to reimburse all, or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Our ability to successfully commercialize our product candidates will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.

In order to secure coverage and reimbursement for any drug product candidate that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the drug product candidate, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Whether or not we conduct such studies, our product candidates may not be considered medically necessary or cost-effective. A third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage, and adequate reimbursement, for the product. Third party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment in product development.

The containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs, including biologics, have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs. Decreases in third-party reimbursement for our drug product candidate or a decision by a third-party payor to not cover our drug product candidate could reduce physician usage of the drug product candidate and have a material adverse effect on our sales, results of operations and financial condition.

 

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For example, the ACA, enacted in March 2010, has had a significant impact on the health care industry. The ACA has expanded coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare Part D program.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, started in April 2013 and will stay in effect through 2030 unless additional Congressional action is taken.

Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, as well as subsequent legislation, these reductions were suspended from May 1, 2020, through March 31, 2022, due to the COVID-19 pandemic. Then, a 1% payment reduction was in effect beginning April 1, 2022, through June 30, 2022, and the 2% payment reduction resumed on July 1, 2022.

Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an Executive Order to initiate a special enrollment period from February 15, 2021, through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The Executive Order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administrations or other efforts, if any, to challenge repeal or replace the ACA, will impact our business.

Further, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

In addition, there have been several changes to the 340B drug pricing program, which imposes ceilings on prices that drug manufacturers can charge for medications sold to certain health care facilities. On December 27, 2018, the District Court for the District of Columbia invalidated a reimbursement formula change under the 340B drug pricing program, and CMS subsequently altered the FYs 2019 and 2018 reimbursement formula on specified covered outpatient drugs (“SCODs”). The court ruled this change was not an “adjustment” which was within the Secretary’s discretion to make but was instead a fundamental change in the reimbursement calculation. However, most recently, on July 31, 2020, the U.S. Court of Appeals for the District of Columbia Circuit overturned the district court’s decision and found that the changes were within the Secretary’s authority. On September 14, 2020, the plaintiffs-appellees filed a Petition for Rehearing En Banc (i.e., before the full court), but was denied on October 16, 2020. Plaintiffs-appellees filed a petition for a writ of certiorari at the Supreme Court on February 10, 2021. On Friday July 2, 2021, the Supreme Court granted the petition. It is unclear how these developments could affect covered hospitals who might purchase our future products and affect the rates we may charge such facilities for our approved products in the future, if any.

In August 2022, the IRA was signed into law. The IRA includes several provisions that will impact our business to varying degrees, including provisions that create a $2,000 out-of-pocket cap for Medicare Part D beneficiaries, impose new manufacturer financial liability on all drugs in Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D pricing for certain high-cost drugs and biologics without generic or biosimilar competition, require companies to pay rebates to Medicare for drug prices that increase faster than inflation, and delay the rebate rule that would require pass through of pharmacy benefit manager rebates to beneficiaries.

 

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In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country.

European Union

In the EU, pricing and reimbursement for pharmaceutical products are not harmonized and fall within the exclusive competence of the national authorities, provided that basic transparency requirements (such as maximum timelines) defined at the European level are met as set forth in Directive 89/105/EEC relating to the transparency of measures regulating the prices of medicinal products for human use and their inclusion in the scope of national health insurance systems. A Member State may approve a specific price for a 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. For example, in France, effective access to the market assumes that our future products will be reimbursed by social security. The price of medications is negotiated with the Economic Committee for Health Products, or CEPS.

As a consequence, reimbursement mechanisms by public national healthcare systems, or private health insurers also vary from country to country. In public healthcare systems, reimbursement is determined by guidelines established by the legislator or the national competent authority. In general, inclusion of a product in reimbursement schemes is dependent upon proof of the product efficacy, medical need, and economic benefits of the product to patients and the healthcare system in general. Acceptance for reimbursement comes with cost, use and often volume restrictions, which again vary from country to country.

The pricing and reimbursement level for medicinal products will depend on the strength of the clinical data set and, as for most novel therapies, restrictions may apply. In most countries, national competent authorities ensure that the prices of registered medicinal products sold in their territory are not excessive. In making this judgment, they usually compare the proposed national price either to prices of existing treatments and/or to prices of the product at issue in other countries – so-called “international reference pricing” – also taking into account the type of treatment (preventive, curative or symptomatic), the degree of innovation, the therapeutic breakthrough, volume of sales, sales forecast, size of the target population and/or the improvement (including cost savings) over comparable treatments. Given the growing burden of medical treatments on national healthcare budgets, reimbursement and insurance coverage is an important determinant of the accessibility of medicines.

The various public and private plans, formulary restrictions, reimbursement policies, patient advocacy groups, and cost-sharing requirements may play a role in determining effective access to the market of our product candidates. The national competent authorities may also use a range of policies and other initiatives intended to influence pharmaceutical consumption. 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 our product candidates. Historically, products launched in the EU do not follow price structures of the United States and generally tend to be priced at a significantly lower level.

Other Healthcare Laws and Compliance Requirements

Our business operations in the United States and our arrangements with clinical investigators, healthcare providers, consultants, third-party payors and patients may expose us to broadly applicable federal and state fraud and abuse and other healthcare laws. These laws may impact, among other things, our research, proposed sales, marketing and education programs of our product candidates that obtain marketing approval. The laws that may affect our ability to operate include, among others:

 

   

The federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, an item, good, facility or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil monetary penalties;

 

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Federal civil and criminal false claims laws and civil monetary penalty laws, which impose penalties and provide for civil whistleblower or qui tam actions against individuals and entities for, among other things, knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an obligation to pay money to the federal government, including for example, providing inaccurate billing or coding information to customers or promoting a product off-label. Manufacturers can be held liable under the federal False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The federal False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the federal False Claims Act and to share in any monetary recovery;

 

   

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal statutes that prohibit, among other things, a person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or obtaining money or property of the health care benefit program through false pretenses, representations, or promises any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willingly falsifying, concealing or covering up a material fact, making false statements or using or making any false, fictitious, or fraudulent document in connection with the delivery of or payment for healthcare benefits or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

 

   

The federal Physician Payments Sunshine Act, enacted as part of the ACA, which requires applicable manufacturers of covered drugs, devices, biologics and medical supplies to track and annually report to CMS payments and other transfers of value provided to physicians and teaching hospitals and certain ownership and investment interest held by physicians or their immediate family members in applicable manufacturers and group purchasing organizations. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, there may be additional federal, state and non-U.S. laws which govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;

 

   

HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, including the Final Omnibus Rule published in January 2013, which imposes certain requirements on covered entities and their business associates relating to the privacy, security and transmission of individually identifiable health information;

 

   

The U.S. federal transparency requirements under the ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, and its implementing regulations, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members. Effective January 1, 2022, these reporting obligations extend to include transfers of value made to certain non-physician providers (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, and certified-nurse midwives);

 

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federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs;

 

   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

 

   

State law and foreign law equivalents of each of the above federal laws, such as state anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state marketing and/or transparency laws applicable to manufacturers that may be broader in scope than the federal requirements, state laws that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state and require the registration of pharmaceutical sales representatives. State and foreign laws, including for example the European Union General Data Protection Regulation, which became effective May 2018 also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect as HIPAA, thus complicating compliance efforts.

The ACA broadened the reach of the federal fraud and abuse laws by, among other things, amending the intent requirement of the federal Anti-Kickback Statute and certain applicable federal criminal healthcare fraud statutes. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, 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 civil False Claims Act or the civil monetary penalties statute.

In the U.S., to help patients afford our approved product, we may utilize programs to assist them, including patient assistance programs and co-pay coupon programs for eligible patients. Government enforcement agencies have shown increased interest in pharmaceutical companies’ product and patient assistance programs, including reimbursement support services, and a number of investigations into these programs have resulted in significant civil and criminal settlements. In addition, at least one insurer has directed its network pharmacies to no longer accept co-pay coupons for certain specialty drugs the insurer identified. Our co-pay coupon programs could become the target of similar insurer actions. In addition, in November 2013, the CMS issued guidance to the issuers of qualified health plans sold through the ACA’s marketplaces encouraging such plans to reject patient cost-sharing support from third parties and indicating that the CMS intends to monitor the provision of such support and may take regulatory action to limit it in the future. The CMS subsequently issued a rule requiring individual market qualified health plans to accept third-party premium and cost-sharing payments from certain government-related entities. In September 2014, the OIG of the HHS issued a Special Advisory Bulletin warning manufacturers that they may be subject to sanctions under the federal anti-kickback statute and/or civil monetary penalty laws if they do not take appropriate steps to exclude Part D beneficiaries from using co-pay coupons. Accordingly, companies exclude these Part D beneficiaries from using co-pay coupons. It is possible that changes in insurer policies regarding co-pay coupons and/or the introduction and enactment of new legislation or regulatory action could restrict or otherwise negatively affect these patient support programs, which could result in fewer patients using affected products, and therefore could have a material adverse effect on our sales, business, and financial condition.

Third party patient assistance programs that receive financial support from companies have become the subject of enhanced government and regulatory scrutiny. The OIG has established guidelines that suggest that it is lawful for pharmaceutical manufacturers to make donations to charitable organizations who provide co-pay assistance to Medicare patients, provided that such organizations, among other things, are bona fide charities, are entirely independent of and not controlled by the manufacturer, provide aid to applicants on a first-come basis according to consistent financial criteria and do not link aid to use of a donor’s product. However, donations to patient assistance programs have received some negative publicity and have been the subject of multiple government enforcement

 

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actions, related to allegations regarding their use to promote branded pharmaceutical products over other less costly alternatives. Specifically, in recent years, there have been multiple settlements resulting out of government claims challenging the legality of their patient assistance programs under a variety of federal and state laws. It is possible that we may make grants to independent charitable foundations that help financially needy patients with their premium, co-pay, and co-insurance obligations. If we choose to do so, and if we or our vendors or donation recipients are deemed to fail to comply with relevant laws, regulations or evolving government guidance in the operation of these programs, we could be subject to damages, fines, penalties, or other criminal, civil, or administrative sanctions or enforcement actions. We cannot ensure that our compliance controls, policies, and procedures will be sufficient to protect against acts of our employees, business partners, or vendors that may violate the laws or regulations of the jurisdictions in which we operate. Regardless of whether we have complied with the law, a government investigation could impact our business practices, harm our reputation, divert the attention of management, increase our expenses, and reduce the availability of foundation support for our patients who need assistance.

On December 2, 2020, the HHS published a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers (PBMs), unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between PBMs and manufacturers. Pursuant to court order, the removal and addition of the aforementioned safe harbors were delayed and recent legislation imposed a moratorium on implementation of the rule until January 1, 2026. The IRA delayed implementation of this rule to January 1, 2032.

Further, on December 31, 2020, CMS published a new rule, effective January 1, 2023, requiring manufacturers to ensure the full value of co-pay assistance is passed on to the patient or these dollars will count toward the Average Manufacturer Price and Best Price calculation of the drug. On May 21, 2021, PhRMA sued the HHS in the U.S. District Court for the District of Columbia, to stop the implementation of the rule claiming that the rule contradicts federal law surrounding Medicaid rebates. It is unclear how the outcome of this litigation will affect the rule. The IRA delays implementation of the rule. We cannot predict how the implementation of and any further changes to this rule will affect our business.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant administrative, civil, and/or criminal penalties, damages, fines, disgorgement, individual imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. Further, defending against any such actions can be costly and time consuming, and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they also may be subject to administrative, civil, and/or criminal sanctions, including exclusions from government funded healthcare programs. If any of the above occur, our ability to operate our business and our results of operations could be adversely affected.

Legal Proceedings

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

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In December 2020, Horizon Discovery was acquired by PerkinElmer, Inc. (Horizon/PKI).

In 2021, Horizon/PKI informed us they believe we are in material breach of these agreements as a result of certain disclosures we have made in connection with our obligations as a publicly traded company in the United States and Belgium, although they have not formally delivered to us a notice of material breach or termination. We believe any such assertion of material breach would be without merit and we would expect to vigorously defend any such notice of material breach. Any dispute under these agreements would be subject to arbitration in The Hague under the International Chamber of Commerce Rules. We are currently in discussions with Horizon about possible amendments to these agreements in connection with which we would retain freedom to operate under the in-licensed patents.

Of note, we have filed patent applications which, if issued, would cover other aspects of the product candidates described above as well as products developed by third parties that deploy similar technology and targets. These patent applications encompass the downregulation of one or more of the targets covered under the Horizon/PKI agreements, the use of shRNA to downregulate such targets in immune cells and the combination of shRNAs with a chimeric antigen receptor in immune cells. We are also developing a second generation shRNA platform that does not incorporate any of the Horizon Discovery/Perkin Elmer, Inc. technology described above.

Our discontinued allogeneic CAR T product candidate, CYAD-101, does not incorporate any of the Horizon Discovery/Perkin Elmer, Inc. technology described above.

C. Organizational Structure.

We and our subsidiaries, or the Group, is made of the following entities as of December 31, 2022. The following diagram illustrates our corporate structure.

 

Name

  

Country of
Incorporation and
Place of Business

  

Nature of Business

   Proportion of
ordinary

shares directly
held by parent (%)
    Proportion of
ordinary shares
held by us (%)
    Proportion of
ordinary shares
held by non-

controlling
interests (%)
 

Celyad Oncology SA

   BE    Biopharma      Parent company      

Celyad Inc

   US    Biopharma      100     100     0

CorQuest Medical Inc

   US    Medical Device      100     100     0

Biological Manufacturing Services SA

   BE    Manufacturing      100     100     0

See “Item 4.A.—History and Development of the Company.”

D. Property, Plants and Equipment.

Until December 31, 2022, we rented a 2,284 square meter office space from the Axis Parc developer located at the Axis Parc in Mont-Saint-Guibert pursuant to a lease agreement dated October 15, 2015, as amended from time to time, which expired on June 30, 2025. In December 2022, we took the decision to terminate and transfer our rent agreement to Cellistic and to move our offices within 2023, to a new office space more aligned with our new strategy. As of December 31, 2022, we terminated the rent agreement of the Axis Parc developer located at the Axis Parc in Mont-Saint-Guibert, Belgium. As of January 1, 2023, we contracted a short term lease with Cellistic for 600 square feet of office space in Axis Parc in Mont-Saint-Guibert, Belgium, during the time needed for the set-up of our new offices.

Until September 30, 2022, we also rented a 1,120 square meter office and laboratory space from the Axis Parc developer pursuant to a lease agreement dated June 30, 2020, as amended from time to time, which expires on June 30, 2029. In September 2022, our Manufacturing Business Unit based in this office and laboratory space was sold to Cellistic. Consequent to this transaction, we terminated the rent agreement of the Axis Parc developer.

 

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In September 2016, we entered into a six-year lease agreement for our U.S. corporate offices (555 square meter office space) located in Boston, Massachusetts. Since February 2018, this office space is subleased to a third party through the end of the six-year lease agreement. The six-year lease and sublease agreements have ended in September 2022.

We have committed to maintain our headquarters and registered office in the Walloon Region of Belgium and all of our existing activities will continue to be performed in the Walloon Region.

 

ITEM 4A.

UNRESOLVED STAFF COMMENTS.

Not applicable.

 

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Information pertaining to fiscal year 2020 was included in our Annual Report on Form 20-F for the year-ended December 31, 2021, on pages 88-104, under Item 5, “Operating and Financial Review and Prospects,” which was filed with the SEC on March 24, 2022.

We are a biotechnology company focused on the discovery and development of innovative technologies for chimeric antigen receptor T-cell (CAR T) therapies. Our goal is to discover and develop proprietary technology platforms to support the development of next-generation CAR T-cell therapy candidates. The Company is focusing on opportunities to fully harness the true potential of its proprietary technology platforms and intellectual property.

Over the past decades, immunotherapy has become an important treatment option for cancer indications. Within the field of immuno-oncology, chimeric antigen receptor (CAR) T-cell therapy is emerging as a realistic treatment paradigm for patients with advanced disease.

Our differentiated strategy includes the development of technologies and platforms to tackle the current major limitations of CAR T-cell therapies.

Our non-gene edited technologies target the TCR specifically without extensive genetic manipulation. Through the co-expression of our non-gene edited technologies with a specific CAR of interest, we can design cell therapy candidates intended to inhibit the function of the TCR while allowing the T-cells to target the cancer. We believe this unique strategy offers a streamlined approach in advancing the allogeneic CAR T-cell landscape.

Central to our pipeline is a cutting-edge all-in-one vector approach where we focus on using a single vector to generate CAR T-cells to simplify the design and development of our cell therapy candidates. The all-in-one vector approach encodes multiple components of the CAR construct simultaneously, including the CAR, shRNA targeting genes involved in alloreactivity, persistence, anti-tumor activity or ability to evade complex or immunosuppressive tumor microenvironments, cell selection marker to assist with the enrichment of the manufactured cells and potential therapeutic add-ons such as cytokines. This single transduction, plug and play approach to CAR T-cell development has the potential to streamline process development and manufacturing while broadening the potential applicability of our candidates.

Since our acquisition of OnCyte LLC, or OnCyte, a wholly-owned subsidiary of Celdara Medical, LLC, a privately-held U.S. biotechnology company, we have devoted the majority of our financial resources to research and development of CAR T-cell therapy product candidates. Since October 2022, we have implemented a strategic shift from an organization focused on clinical development to one prioritizing R&D discovery and the monetization of its intellectual property (IP) portfolio through partnerships, collaborations and license agreements. Our current efforts are focused on discovery research, protecting and monetizing our intellectual property and general and administrative support for these operations. We currently do not have any products approved for sale, no firm sublicence contract nor collaboration contract and have not generated any revenues from immunotherapy product sales or from the monetization of our IP.

As of December 31, 2022, we have been funded through the following transactions:

 

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Proceeds of €42.0 million from private financing rounds;

 

   

Proceeds of €26.5 million from an initial public offering of our ordinary shares on Euronext Brussels and Euronext Paris in July 2013, or the Euronext IPO;

 

   

Proceeds of €25.0 million from a private financing by Medisun International Limited, or Medisun, in June 2014;

 

   

Proceeds of €31.7 million from a private placement in March 2015;

 

   

Proceeds of €88.0 million from a global offering of 1,460,000 ordinary shares, consisting of an underwritten public offering of 1,168,000 ADSs and a concurrent European private placement of 292,000 ordinary shares, in June 2015;

 

   

Proceeds of €46.1 million from a global offering of 2,070,000 ordinary shares, consisting of an underwritten public offering of 568,500 ordinary shares in the form of ADSs and 1,501,500 ordinary shares, in May 2018;

 

   

Proceeds of €18.2 million from a global offering of 2,000,000 ordinary shares, consisting of an underwritten public offering of 1,675,000 ordinary shares in the form of ADSs and 325,000 ordinary shares, in September 2019;

 

   

Proceeds of €9.2 million from issuance of 1,962,812 ADS to LPC from January 8, 2021, until the date of this Annual Report. On January 8, 2021, the Company has entered into a committed equity purchase agreement (“Purchase Agreement”) for up to $40.0 million with Lincoln Park Capital Fund, LLC (“LPC”), a Chicago-based institutional investor. Over the 24-month term of the Purchase Agreement, the Company will have the right to direct LPC to purchase up to an aggregate amount of $40.0 million American Depositary Shares (“ADSs”), each of which represents one ordinary share of the Company;

 

   

Proceeds of €0.9 million from issuance of a total of 188,800 new shares by the Company and subscribed by Jefferies under the ATM in May 2021 and June 2021;

 

   

Proceeds of €28.9 million from issuance of 6,500,000 new shares were issued by decision of the board of directors and subscribed for by CFIP CLYD LLC in the framework of a private placement in December 2021; and

 

   

Proceeds of €37.1 million from recoverable cash advances, or RCAs, granted by Walloon Region government, and €6.4 million from other grants granted by Walloon Region, Federal Belgian Institute for Health Insurance Inami and Federal Government through the R&D tax credit. The RCAs are a non-dilutive financing source.

We have incurred net losses in each year since our inception. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administration expenses associated with our operations. For the years ended December 31, 2022, 2021 and 2020, we incurred a loss for the year of €40.9 million, €26.5 million and, €17.2 million, respectively. As of December 31, 2022, we had an accumulated deficit of €349.9 million. We expect to incur losses for the foreseeable future relating to our research and development expenditures to develop our technologies. We anticipate that our expenses will increase substantially in connection with our ongoing activities if and as we:

 

   

Continue our research, preclinical development of our product candidates;

 

   

Initiate additional preclinical studies of existing product candidates or new product candidates;

 

   

Change or add additional manufacturers or suppliers;

 

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Make milestone or other payments under any in-license agreements; and

 

   

Maintain, protect and expand our intellectual property portfolio.

We do not expect to generate material revenue unless and until the Group concludes partnerships with outside parties around the licensing of the patents around allogeneic CAR T-cell therapies and NKG2D-based therapies and other preclinical product candidates and on our technology platforms.

We do not expect to generate material revenue from partnerships with outside parties around the licensing of our patents, which is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital prior to partner with outside parties around the licensing of our patents. Until we can generate a sufficient amount of revenue from our IP assets, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government, including RCAs and subsidies, or other third-party financings and collaborations. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development of one or more of our preclinical activities and IP assets. Failure to receive additional funding could cause us to cease operations, in part or in full.

Our financial statements for 2020, 2021 and 2022 have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

Financial Operations Overview

A. Operating Results

Our operating income consists of revenues and other income.

Revenues

The Company’s license and collaboration agreements have generated no revenue in 2022 and in 2021.

Cost of sales

For the years 2022 and 2021, no costs of sales related to our programs have been recorded.

Research and Development expenses

For the periods presented in this report, research and development expenses included all of our operating expenses, except the general and administrative expenses. It included all the costs related to our operations in the following departments; research and development, clinical, manufacturing, regulatory, quality and intellectual property.

We utilize our research and development staff and infrastructure resources across projects in our programs and many of our costs historically have not been specifically attributable to a single project. In addition, our research and development expense may vary substantially from period to period based on the timing and scope of our research and development activities and the timing of our clinical trials.

 

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Research and development activities are central to our business. We expect that our other research and development expenses will decrease in the future mostly with the update of our strategy moving from clinical programs activities to preclinical and IP monetization activities. The expected decrease in research and development expenditures will mostly relate to lower personnel costs, less outsourcing costs and no more clinical studies related costs.

Salaries represented the biggest cost by nature within our operations over the last three years. Our strategy is to internalize all operations when they become material or critical to our operations. We subcontract all one-time projects and tasks that cannot be taken in-house for quality or regulatory purposes. Other important costs of our operations are our preclinical studies and IP filing and maintenance fees.

The costs associated with preclinical studies are laboratory supplies and the costs of our outsourced research and development studies and services.

The costs associated with clinical studies were comprised of the preparation, the conduct and the supervision of our clinical trials. We expect that these expenses will decrease in the near future given our decision to discontinue our clinical programs. We cannot determine with certainty the duration and completion costs of the closing of our current clinical trials, nor can we determine as well as for IP monetization or if, when, or to what extent we will generate revenue from the sublicensing and sale of any of our current and future IP licenses.

We may never succeed in achieving sublicensing of our IP portfolio or preclinical outcomes. We cannot reasonably estimate the time and costs necessary to complete the development of our sublicensing models and preclinical assets or the period, if any, in which we will generate revenue. The duration, costs and timing of sublicensing our IP will depend on a variety of factors, including:

 

   

The expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

 

   

Third parties’ clinical trials of product candidates that sublicense our IP;

 

   

The terms and timing of regulatory approvals of third parties’ product candidates that license our IP;

 

   

The ability of third parties to market, commercialize and achieve market acceptance of third parties’ product candidates that license our IP; and

 

   

The number, the design and the size of the clinical trials required by the regulatory authorities to seek marketing approval.

A change in the outcome of any of these variables with respect to the development of our sublicence models that we are developing could mean a significant change in the costs and timing associated with the development of such models.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We have not received regulatory approval from the FDA, EMA or any other regulatory authority to market any of our product candidates for which we discontinued the clinical programs.

In September 2022, Celyad Oncology’s Manufacturing Business Unit (including the existing facility and all related personnel), in Mont-Saint-Guibert, Belgium, was sold to Cellistic for a total consideration of €6.0 million. For the periods presented in this Annual Report, the manufacturing expenses included the costs to manufacture our product candidates, combined with the costs associated with the process of developing such product candidates, including the scale-up and the automation of such processes. These costs were mainly comprised of the production of raw material and supplies, maintenance and calibration of equipment and the rental of Good Manufacturing Practices laboratory facilities. Raw materials were the main component of the cost of production of product candidates.

 

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As a result of the sale of our Manufacturing Business Unit, we terminated the lease of our production facility from a real estate company that was contracted through our wholly owned subsidiary, Biological Manufacturing Services SA.

Manufacturing expenses were mostly driven by the number and the size of clinical trials that we were conducting on our drug product candidates. We expect these expenses to decrease significantly in the near future as our clinical trials have been discontinued and our Manufacturing Business Unit has been sold.

General and administrative expenses

Our general and administrative expenses consist primarily of salaries, fees and other share-based compensation costs for personnel in executive, finance and accounting, people, communication and legal functions. It also includes costs related to professional fees for auditors and lawyers, consulting fees and insurances not related to research and development operations, and fees related to functions that are outsourced by us such as information technology, or IT. Our general and administrative expenses are expected to decrease in the near future due to our reorganization aligned with the needs of our new strategy.

Change in fair value of the contingent consideration and other financial liabilities

For the periods presented in this Annual Report, our change in fair value of the contingent consideration and other financial liabilities mainly refer to non-cash expenses relating to liability remeasurement required by IFRS.

Impairment of Oncology intangible assets

For the periods presented in this Annual Report, our impairment of oncology intangible assets mainly refers to the assessment made at each reporting date to estimate whether there is an indication that an asset may be impaired, unless there are indications of impairment at other points throughout the period.

Other income

For the periods presented in this Annual Report, our other income is primarily generated from:

 

  (i)

Recoverable cash advances (“RCAs”);

 

  (ii)

Other governments grants;

 

  (iii)

R&D tax credits; or

 

  (iv)

The gain on sale of our Manufacturing Business Unit activities.

Recoverable Cash Advances

RCAs support specific development programs and are typically granted by regional governmental entities, and in our case, the Walloon Region. All RCA contracts, in essence, consist of three phases, i.e., the “research phase”, the “decision phase” and the “exploitation phase”. During the research phase, we receive funds from the Walloon Region based on statements of expenses. In accordance with IAS 20.10A and IFRS Interpretations Committee’s, or IC’s, conclusion that contingently repayable cash received from a government to finance a research and development project is a financial liability under IAS 32, ‘Financial instruments; Presentation’, the RCAs are initially recognized as a financial liability at fair value, determined as per IFRS 9. The benefit (RCA grant component) consisting in the difference between the cash received (RCA proceeds) and the above-mentioned financial liability’s fair value (RCA liability component) is treated as a government grant in accordance with IAS 20.

 

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The RCA grant component is recognized in profit or loss on a systematic basis over the periods in which the entity recognizes the underlying research and development expenses subsidized by the RCA. Subsequent measurement of the RCAs liability component (RCA financial liability) is performed at amortized cost using the cumulative catch-up approach, under which the carrying amount of the liability is adjusted to the present value of the future estimated cash flows, discounted at the liability’s original effective interest rate. The resulting adjustment is recognized within profit or loss.

At the end of the research phase, we should within a period of six months decide whether or not to exploit the results of the research phase (decision phase). The exploitation phase may have a duration of up to 10 years. In the event we decide to exploit the results under an RCA, the relevant RCA becomes contingently refundable, and the fair value of the RCA liability adjusted accordingly, if required.

When we do not exploit (or cease to exploit) the results under an RCA, we have to notify the Walloon Region of this decision. This decision is our sole responsibility. The related liability is then discharged by the transfer of such results to the Walloon Region. Also, when we decide to renounce to its rights to patents which may result from the research, title to such patents will be transferred to the Walloon Region. In that case, the RCA liability is extinguished.

Since inception through December 31, 2022, we have received subsidy RCAs totaling €37.1 million. In 2023 and beyond, the Group will have to make exploitation decisions on the remaining RCAs (agreements numbered 8212, 8436 and 8516).

Other Government Grants

Since inception, we have also received other types of grants from European Commission, Federal Belgian Institute for Health Insurance Inami and Walloon Region authorities and we expect to continue to apply for such grants (EU framework programs for research and development, investment subsidies, sales-promotion subsidies, etc.). These grants are used to partially finance early stage projects such as fundamental research, applied research and prototype design.

As of the date of this Annual Report, none of the grants we have received are subject to any conditions. As per our agreements with these governmental authorities, grants are paid upon our submission of a statement of expenses. We incur project expenses first and ask for partial reimbursement according to the terms of the agreements.

The government grants are recognized in profit or loss on a systematic basis over the periods in which we recognize as expenses the related costs that the grants are intended to compensate.

Since inception through December 31, 2022, we have received government grants totaling €5.0 million.

R&D tax credit

Since financial year 2013, we have applied for R&D tax credit, a tax incentive measure for European SME’s set-up by the Belgian federal government. When incurring R&D spend, a Company may either i) get a reduction of its taxable income (at current income tax rate applicable); or ii) if no sufficient taxable income is available, apply for the refund of the unutilized tax credits, calculated on the R&D expenses amount for the year. Such settlement occurs at the earliest 5 financial years after the tax credit application filed by a Company.

 

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Collection of the research and development tax credits since 2021 is totaling €1.4 million.

Gain on sale of our Manufacturing Business Unit activities

Gain on sale of CTMU activities results from the terms of the asset purchase agreement signed in September 2022 between Celyad Oncology and Cellistic under which Cellistic agreed to acquire Celyad Oncology’s Manufacturing Business Unit for a total consideration of €6.0 million. The book value of assets sold to Cellistic was €0.6 million and allocated goodwill totaled €0.2 million.

Other expenses

For the periods presented in this Annual Report, our other expenses mainly refer to:

 

  i.

Non-cash expenses relating to liability remeasurement required by IFRS on the amortized cost remeasurement of the recoverable cash advances liability;

 

  ii.

Loss on disposals of Property, plant & equipment and intangible assets; or

 

  iii.

Amendment fees on license agreements.

Finance income

Finance income relates to interest income earned on bank accounts and from currency exchange rate differences. Our cash and cash equivalents have been deposited primarily in savings and deposit accounts with original maturities of three months or less. Savings and deposit accounts generate a modest amount of interest income. Given the level of market interest rates for corporate deposits of short-term maturities, the Group has not invested in short-term deposits over the years 2022 and 2021.

Finance expenses

Finance expenses relate to interest payable on bank or governmental loans (RCAs), finance leases and operating leases under IFRS 16, and overdrafts, as well as currency exchange rate differences.

Recently Issued Accounting Standards

For information regarding recently issued accounting standards, please see “Note 2— General information and statement of compliance” in our consolidated financial statements appended to this Annual Report.

Consolidated Financial Data

The following is a summary of our consolidated financial data.

 

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Comparisons for the Years Ended December 31, 2022 and 2021

Revenues

Our license and collaboration agreements have generated no revenue in 2022 and 2021.

Cost of sales

No operations qualify for such a presentation for the year ended December 31, 2022 and comparative period.

Research and development expenses

 

(€‘000)    For the year ended December 31,  
     2022      2021  

Employee expenses

     9 062        9 475  

Clinical study costs

     4 280        4 000  

Preclinical study costs

     1 233        2 473  

Depreciation

     1 231        1 276  

IP filing and maintenance fees

     831        353  

Rent and utilities

     610        670  

Share-based payments

     425        644  

Process development and scale-up

     396        770  

Consulting fees

     320        568  

Travel & Living

     126        85  

Others

     415        459  
  

 

 

    

 

 

 

Total R&D expenses

     18 928        20 773  
  

 

 

    

 

 

 

The Research and Development expenses include pre-clinical, manufacturing, clinical, quality, intellectual property and regulatory expenses and other research and development expenses, which are aggregated and presented as a single line in the Company’s consolidated financial statements.

Bottom-line, the R&D expenses show a year-over-year decrease of €1.8 million. The decrease in the Company’s R&D expenses is primarily driven by:

 

   

The decrease of employee expenses mainly related to movement of employees through the year ended December 31, 2022 to support the Group’s reorganization around preclinical and clinical programs;

 

   

The increase on clinical study costs mainly due to the new provision for onerous contracts for a total amount of €2.2 million in order to cover the contractual obligations after the Group’s decision to discontinue the development of its remaining clinical programs in December 2022;

 

   

The decrease of preclinical activities after the Group’s decision to adopt and implement over the last few months of the year 2022 the new business strategy to focus on discovery research in areas of expertise where it can leverage the differentiated nature of its platforms;

 

   

The increase on IP filing and maintenance fees in line with the new business strategy which has been adopted and implemented over the last few months of the year 2022 to focus on maximizing the Group’s intellectual property (IP) portfolio;

 

   

The decrease of the expenses associated with the share-based payments (non-cash expenses) related to the warrants plan offered to the employees, managers and directors, mainly related to the decrease in the fair market value of stock options issued in 2022; and

 

   

The decrease of process development costs after the Group’s decision to adopt and implement over the last few months of the year 2022 the new business strategy to focus on discovery research and discontinue the development of clinical programs.

 

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General and administrative expenses

 

(€‘000)    For the year ended December 31,  
     2022      2021  

Employee expenses

     3 801        3 575  

Consulting fees

     2 870        2 254  

Insurances

     1 967        1 642  

Share-based payments

     1 199        1 529  

Communication & Marketing

     239        434  

Depreciation

     209        243  

Travel & Living

     115        31  

Rent

     109        50  

Post-employment benefits

     (55      (7

Other

     92        157  
  

 

 

    

 

 

 

Total General and administration

     10 546        9 908  
  

 

 

    

 

 

 

General and Administrative expenses were €10.5 million in 2022 as compared to €9.9 million in 2021, an increase of €0.6 million. This increase primarily relates to the increase in insurances costs (D&O insurance principally) and consulting fees associated with legal and capital raise opportunities have been partially compensated by the decrease of expenses associated with share-based payments (non-cash expenses) related to the warrants plan offered to the employees, managers and directors, mainly related to the decrease in the fair market value of stock options issued in 2022.

Change in fair value of contingent consideration and impairment of Oncology intangible assets

 

(€‘000)    For the year ended December 31,  
     2022      2021  

Change in fair value of contingent consideration

     14 679        847  
  

 

 

    

 

 

 

Total Change in fair value of contingent consideration

     14 679        847  
  

 

 

    

 

 

 

 

(€’000)    For the year ended December 31,  
     2022      2021  

Impairment of Oncology intangible assets

     (35 084      —    
  

 

 

    

 

 

 

Total Impairment of Oncology intangible assets

     (35 084      —    
  

 

 

    

 

 

 

The fair value adjustment (€14.7 million) relating to the contingent consideration and other financial liabilities for the year ended December 31, 2022, is mainly driven by the full reversal of the liability. This liability is a result of business combination accounting (IFRS3) which requires the liability to be recorded unless the possibility of any outflow is remote. Due to the early stage of the implementation of the Celyad 2.0 strategy and the fact no firm sublicence contract nor collaboration contract was concluded as of December 31, 2022, Management had to recognize that significant uncertainty exists on the timing and amount of the new strategy outcomes and therefore concluded that, as of December 31, 2022, the possibility of any cash flow is remote regarding accounting standards definition. Management, to comply with the accounting standards, had to conclude on the full reversal of the contingent consideration and other financial liabilities associated to the potential future payments due to Celdara Medical, LLC and Dartmouth College associated to the Group’s immuno-oncology platform at December 31, 2022, along with impairment of €35.1 million of related intangible assets

 

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This accounting conclusion, which reflects a picture of the situation at December 31, 2022, doesn’t affect the Management’s commitment to continue the exploitation of these IPs in its new Celyad 2.0 strategy. As soon as a future event (such as a firm sublicense or collaboration contract) will increase the probability of revenue, Management will estimate the reversal of the impairment which will be limited so that the carrying amount of the asset does not exceed its recoverable amount along with the remeasurement of the related contingent liability.

Other income and expenses

Other income

 

(€‘000)    For the year ended December 31,  
     2022      2021  

Grant income (RCAs)

     1 137        2 731  

Grant income (Other)

     910        1 448  

Remeasurement of RCAs

     1 447        —    

R&D tax credit

     462        687  

Gain on sale of CTMU activities

     5 187        —    

Remeasurement of Leases

     169        —    

Other

     48        43  
  

 

 

    

 

 

 

Total Other Income

     9 360        4 909  
  

 

 

    

 

 

 

Our other income is mainly associated with grants received from the Walloon Region mainly in the form of recoverable cash advances (RCAs) and R&D tax credit income:

 

   

Grant income (RCAs): additional grant income has been recognized in 2022 on grants in the form of recoverable cash advances (RCAs) for contracts numbered 8212, 8436 and 1910028. In accordance with IFRS standards, the Company has earned grants for the period amounting to €1.6 million, out of which €0.5 million is accounted for as a financial liability and the remaining €1.1 million as a grant income. The decrease compared to December 31, 2021, is mainly associated with the decrease on additional grant income recognized on these conventions due to advancement of the subsidized programs;

 

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The remeasurement income on the recoverable cash advances (RCAs) of €1.4 million for the year 2022 is mainly related to the Group decision to discontinue its remaining clinical programs, while the remeasurement on the recoverable cash advances (RCAs) was an expense for the year ended December 31, 2021;

 

   

Grant income (Others): additional grant income has been recognized in 2022 on grants received from the regional government (contract numbered 8516), not referring to RCAs and not subject to reimbursement. The decrease compared to December 31, 2021 is mainly due to grant income recognized on grants received from the Federal Belgian Institute for Health Insurance Inami (€0.3 million) for which no revenue has been recognized in 2022 and from the regional government (contracts numbered 8066 and 8516 for €1.1 million) as the convention 8066 has been closed in 2021.

 

   

R&D tax credit: the current year income decreased compared to December 31, 2021 due to lower eligible expenses on clinical activities and prioritization of discovery research in areas of expertise where it can leverage the differentiated nature of the Group’s platforms;

 

   

Gain on sale of CTMU activities results from the terms of the asset purchase agreement between Celyad Oncology and Cellistic under which Cellistic agreed to acquire Celyad Oncology’s Manufacturing Business Unit for a total consideration of €6.0 million. The book value of assets sold to Cellistic was €0.6 million and allocated goodwill totaled €0.2 million; and

 

   

Remeasurement of leases: results from the difference between the decrease in the lease liability and the decrease in the right-of-use asset both primarily driven by the termination of leases associated to CTMU facilities and the termination of the current lease associated to the corporate offices before their relocation in 2023.

Other expenses

 

(€‘000)    For the year ended December 31,  
     2022      2021  

Clinical Development milestone payment

     —          —    

Remeasurement of RCAs

     —          328  

Loss on disposals of Property, plant & equipment

     132        1  

Loss on disposals of Intangible assets

     58        —    

Amendment fees on license agreement

     —          1 104  

Other

     149        33  
  

 

 

    

 

 

 

Total Other Expenses

     339        1 466  
  

 

 

    

 

 

 

The decrease of the Company’s other expenses is mainly related to the amendment fees on license agreement with Dartmouth for €1.1 million in 2021, while there has been no such amendment in 2022.

 

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Operating loss

For the year ended December 31, 2022, the loss from operations amounted to €40.9 million versus €26.4 million in 2021 for the reasons stated above.

Financial income and financial expenses

 

(€’000)    For the year ended December 31,  
     2022      2021  

Interest finance leases

     150        217  

Interest on overdrafts and other finance costs

     33        21  

Interest on RCAs

     14        17  
  

 

 

    

 

 

 

Finance expenses

     198        255  
  

 

 

    

 

 

 

Finance income on the net investment in lease

     11        26  

Interest income bank account

     1        1  

Foreign Exchange differences

     173        5  

Other financial income

     —          112  
  

 

 

    

 

 

 

Finance income

     185        144  
  

 

 

    

 

 

 

Net Financial Result

     (13      (111
  

 

 

    

 

 

 

Financial results refer mainly to interest on finance leases compensated by net gain on foreign exchange rate difference due to USD revaluation.

Income taxes

As we incurred losses in all the relevant periods, we had no taxable income and therefore incurred no significant corporate taxes.

Loss for the year

As a result of the foregoing, the net loss for the financial year 2022 amounts to €40.9 million, compared to a net loss of €26.5 million for the prior year for the reasons stated above.

B. Liquidity and Capital Resources

We have financed our operations since inception through several private placements of equity securities, several contributions in kind, an initial public offering on Euronext Brussels and Paris, an initial U.S. public offering on Nasdaq, follow-on offerings on Euronext and Nasdaq, and non-dilutive governmental support.

Through December 31, 2022, the total gross proceeds of the placement of our securities amounted to €338.3 million and total non-dilutive funding amounted to €43.5 million. For information on our use of and policies regarding financial instruments, please see Note 3 and Note 23 included in our consolidated financial statements appended to this Annual Report.

 

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The table hereunder summarizes our sources and uses of cash for the years ended December 31, 2022, 2021, and 2020.

 

     For the years ended December 31,  

(€’000)

   2022      2021      2020  

Cash used in operating activities

     (28 010      (26 643      (27 665

Cash from/(used in) investing activities

     7 202        (126      157  

Cash flows from financing activities

     3 241        39 521        5 396  
  

 

 

    

 

 

    

 

 

 

Net increase/(decrease) in cash and cash equivalents

     (17 567      12 752        (22 112
  

 

 

    

 

 

    

 

 

 

Comparison between 2022 and 2021

The cash outflow resulting from operating activities amounted to €28.0 million for the year ended December 31, 2022, which is in line with the €26.6 million for the year ended December 31, 2021.

The increase in cash inflow from investing activities is primarily due to:

 

   

Proceeds from the sale of Manufacturing Business Unit to Cellistic for a gross amount of €6.0 million; and

 

   

Proceeds from the sales of short-term investments associated to the sales of Mesoblast shares obtained on January 17, 2022, after the Group entered into an amendment with Mesoblast to convert the license into non-exclusive whereby consideration of $1,5 million was agreed to be paid by Mesoblast in Mesoblast ordinary shares.

The decrease in cash inflow from financing activities is primarily due to the decrease in the proceeds from capital raise as no capital increase occurred in 2022 while the proceeds from capital raise reached an amount of €36.6 million in 2021.

Cash and Funding Sources1

Over the last three years, we obtained new financing mostly through the issuance of our shares. A summary of our funding activities is as follows:

 

(€’000)

   Total      Equity capital      Finance leases      Loans  

2020

     —          —          —          —    

2021

     36 568        36 568               —    

2022

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financing

     36 568        36 568        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

The uncertainly raised by the COVID-19 pandemic and war in Ukraine not impacting our corporate cash flow, capital resources and liquidity. For additional information on COVID-19 pandemic and war in Ukraine updates, refer to note 2.

 

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