ITEM 1. BUSINESS
Overview
We are a clinical stage product discovery company
developing products using both natural and engineered phage technologies designed to target and kill specific harmful bacteria associated
with chronic diseases, such as cystic fibrosis, or CF. Bacteriophage or phage are bacterial, species-specific, strain-limited viruses
that infect, amplify and kill the target bacteria and are considered inert to mammalian cells. By utilizing proprietary combinations of
naturally occurring phage and by creating novel phage using synthetic biology, we develop phage-based therapies intended to address both
large-market and orphan diseases.
In our therapeutic programs, we focus on using phage
therapy to target specific strains of pathogenic bacteria that are associated with diseases. Our phage-based product candidates are developed
utilizing our proprietary research and development platform named BOLT. The BOLT platform is unique, employing cutting edge methodologies
and capabilities across disciplines including computational biology, microbiology, synthetic engineering of phage and their production
bacterial hosts, bioanalytical assay development, manufacturing and formulation, to allow agile and efficient development of natural or
engineered phage combinations, or cocktails. The cocktail contains phage with complementary features and is optimized for multiple characteristics
such as broad target host range, ability to prevent resistance, biofilm penetration, stability and ease of manufacturing.
Our goal is to develop multiple products based on the
ability of phage to precisely target harmful bacteria and on our ability to screen, identify and combine different phage, both naturally
occurring and created using synthetic engineering, to develop these treatments.
Our Product Pipeline
The chart
below identifies our product candidates’ pipeline, their current status and expected timing for the upcoming milestones. We do
not have any products approved or available for sale, our product candidates are still in the preclinical and clinical development stages,
and we have not generated any revenue from product sales.
Ongoing Programs
BX004 – Treatment of Cystic Fibrosis
BX004 is our therapeutic phage product candidate
under development for chronic pulmonary infections caused by Pseudomonas aeruginosa, or P. aeruginosa, a main contributor
to morbidity and mortality in patients with CF. Enhanced resistance to antibiotics develops, particularly in CF patients, due to extensive
drug use consisting of prolonged and repeated broad-spectrum antibiotic courses often beginning in childhood, and leading to the appearance
of multidrug-resistant strains. In preclinical in vitro studies, BX004 was shown to be active against antibiotic resistant strains
of P. aeruginosa and demonstrated the ability to penetrate biofilm, an assemblage of surface-associated microbial cells enclosed
in an extracellular polymeric substance and one of the leading causes for antibiotic resistance.
The Phase 1b/2a trial in CF patients with chronic
respiratory infections caused by P. aeruginosa. is comprised of two parts. The study design is based on recommendations from the
Cystic Fibrosis Therapeutic Development Network.
In February 2023, we announced positive results
from Part 1 of the Phase 1b/2a trial evaluating BX004. Part 1 evaluated the safety, tolerability, pharmacokinetics, or PK, and microbiologic
activity of BX004 over a 7-day treatment period in nine CF patients (7 on BX004, 2 on placebo) with chronic P. aeruginosa pulmonary infection
in a single ascending dose and multiple dose design.
Results from Part 1 of the Phase 1b/2a trial included
the following findings: No safety events related to treatment with BX004 occurred; Mean P. aeruginosa colony forming units (CFU) at Day
15 (compared to baseline): -1.42 log (BX004) vs. -0.28 log (placebo). This reduction was seen on top of standard of care inhaled antibiotics;
Phage were detected in all patients treated with BX004 during the dosing period, including in several patients up to Day 15 (one week
after end of therapy); no phage were detected in patients receiving placebo; there was no emerging resistance to BX004 during or after
treatment with BX004; and there was no detectable effect on % predicted FEV1.
Part 2 of the Phase 1b/2a trial will evaluate the safety
and efficacy of BX004 in 24 CF patients randomized to a treatment or placebo cohort in a 2:1 ratio. Results from Part 2 are expected in
the third quarter of 2023.
In January 2022, we announced that we received an award
of up to $5 million from the Cystic Fibrosis Foundation, or CF Foundation, in two tranches. The first tranche of $3 million, was received
on December 21, 2021, as an equity investment. Upon completion of patient dosing in Part 1 of our Phase 1b/2a study of BX004 we had the
right to receive the second tranche of $2 million, also as an equity investment. Following the results from Part 1 of the ongoing
Phase 1b/2a trial, the CF Foundation agreed to make its second tranche investment of $2 million through its participation in the Company’s
$7.5 million private placement. The funding provided by the CF Foundation will be used to support the development of BX004.
BX005 – Treatment of Atopic Dermatitis
BX005 is our topical phage product candidate targeting
Staphylococcus aureus, or S. aureus, a bacterium associated with the development and exacerbation of inflammation in atopic
dermatitis. S. aureus is more abundant on the skin of atopic dermatitis patients than on the skin of healthy individuals and
on lesional skin than non-lesional skin. It also increases in abundance, becoming the dominant bacteria, when patients experience flares.
By reducing the load of S. aureus, BX005 is designed to shift the skin microbiome composition to its ‘pre-flare’
state and potentially provide a clinical benefit. In preclinical in vitro studies, BX005 was shown to eradicate over 90% of strains,
including antibiotic resistant strains, from a panel of S. aureus strains (120 strains isolated from skin of subjects from the
U.S. and Europe).
We are currently supporting a range of pre-clinical
activities to move this program forward and working on evaluating timelines for a clinical trial.
On April 8, 2022, the FDA approved the Company’s
IND application for BX005.
In October 2021, we entered into a stock purchase
agreement with a subsidiary of Maruho Co. Ltd., or Maruho, a leading dermatology-focused pharmaceutical company in Japan, pursuant to
which we issued to Maruho 375,000 shares of our common stock, par value $0.0001 per share, or Common Stock, at a price of $8.00 per share
for gross proceeds of $3 million. We also granted Maruho a right of first offer to license BX005, in Japan. The right of first offer will
commence following the availability of results from the Phase 1/2 study.
Programs on hold
BX003 – Treatment of IBD and PSC
In November 2020, we combined our inflammatory bowel
disease, or IBD and primary sclerosing cholangitis, or PSC programs to create a single product candidate called BX003, which targets K.
pneumoniae to treat both diseases. Previously, we had separate candidates named BX002 and BX003. In February 2021, a Phase 1a pharmacokinetic
study of BX002 demonstrated that it was safe and well-tolerated with no serious adverse events, and with high concentrations of viable
phage delivered to the gastrointestinal tract.
On November 15, 2021, we announced that we have paused
development efforts for BX003 due to prioritizing resources towards our CF and AD programs, and we cannot provide guidance on resuming
its development.
CRC
We are developing synthetically engineered phage to
target bacteria found in colorectal tumors. We observed in vitro and in vivo that phage can be used to target Fusobacterium nucleatum,
which is commonly found in colorectal tumors. Our goal is to use phage to deliver payload genes, such as those encoding immunostimulatory
proteins, to tumors and eradicate the bacteria. We have successfully engineered an IL-15 gene into F. nucleatum phage.
On November 15, 2021, we announced that we have paused
development efforts for this program due to prioritizing resources towards our CF and AD programs, and we cannot provide guidance on resuming
its development.
Discontinued programs
BX001 – Treatment of Acne
BX001 is a topical gel developed to modify skin appearance
in a range of skin types, including acne-prone skin, using naturally occurring phage that target Cutibacterium acnes, or C.
acnes. A 4-week Phase 1 clinical study demonstrated that BX001 was safe, well-tolerated, and significantly reduced C. acnes levels for
the high dose compared to the placebo. A 12-week Phase 2 clinical study on 140 women with mild-to-moderate acne vulgaris found that BX001
was well-tolerated, and a statistically significant improvement in the appearance of acne-prone skin was observed. However, there was
no meaningful difference demonstrated compared to the placebo arm of the study. As a result, we decided to discontinue the program.
Our Strategy
Our goal is to develop multiple products based on the
ability of phage to precisely target harmful bacteria and on our ability to screen, identify and optimally combine different phage, both
naturally occurring and generated using synthetic engineering, to develop these treatments. We intend to continue to:
| ● | Investigate clinical safety
and efficacy of our lead phage-based product candidates in CF; |
|
● |
Identify new pathogenic bacteria to be targeted by phage therapy for our existing indications and possible new indications; and |
|
● |
Develop and partner microbiome-based biomarker tests, based on our proprietary XMarker platform, that can be used for disease diagnosis or as companion diagnostics. |
Our phage discovery platform
Our approach is driven by the convergence of several
factors: a rapidly increasing understanding of phage, including the links between phage behaviors and their genomes; growing evidence
that the presence of specific harmful bacteria may impact chronic diseases, such as CF, making them in principle, amenable to treatment
with phage; and by a growing number of anecdotal reports from different academic centers of successful compassionate use of phage to treat
seriously ill patients who were unresponsive to other therapies. We believe our phage therapeutic product candidates have the potential
to treat conditions and diseases by precisely targeting pathogenic bacteria without disrupting elements of the healthy microbiota.
Our phage-based product candidates are developed
utilizing our proprietary research and development platform named BOLT. The BOLT platform is unique, employing cutting edge methodologies
and capabilities across disciplines including computational biology, microbiology, synthetic engineering of phage and their production
bacterial hosts, bioanalytical assay development, manufacturing and formulation, to allow agile and efficient development of natural or
engineered phage combinations, or cocktails.
BOLT is designed to allow the rapid development of
optimized phage cocktails. These cocktails may be comprised of naturally-occurring or synthetically engineered phage. The cocktail contains
phage with complementary features and is optimized for multiple characteristics such as broad target host range, ability to prevent resistance,
biofilm penetration, stability and ease of manufacturing. Pre-clinical development of the optimized phage cocktail is anticipated to require
1-2 years.
We
combine multiple technologies that originate from the laboratories of our scientific founders and that were developed internally. Technologies
that were developed by its scientific founders are described in leading scientific journals. One of our scientific founders, Professor
Rotem Sorek, a Professor in the Department of Molecular Genetics at the Weizmann Institute of Science, or WIS, is a world leader in phage
genomics and bacterial defense mechanisms. Another scientific founder, Professor Eran Elinav, a Professor in the Department of Immunology
at the WIS, is an expert in investigating the link between the microbiome and human health and disease. Our third scientific founder,
Professor Timothy K. Lu, is a world leader in synthetic biology approaches to engineering gene circuits and phage, leading the Synthetic
Biology Group in the Department of Electrical Engineering and Computer Science and the Department of Biological Engineering at the Massachusetts
Institute of Technology. In
addition, through the acquisition of the privately held Israel-based company, RondinX Ltd. in 2017, we gained access to high throughput
genomic analyses techniques developed by Professor Eran Segal, a leading computational biologist from the Department of Computer Science
and Applied Mathematics at the WIS. The combination of the technologies and expertise from these leaders in each of their respective fields
is critical in enabling us to focus on treating complex human diseases and conditions by precise manipulation of the microbiome.
Manufacturing
We have developed a manufacturing process that
utilizes state of the art industrial methods for the manufacturing of our product candidates. This process is designed to comply with
current Good Manufacturing Practice, or cGMP, with the appropriate scale to meet our clinical study needs, and to fulfill the requirements
of regulators for human studies. We currently operate a manufacturing model that combines an in-house process development and manufacturing
suite with the flexibility to outsource to third-party manufacturing organizations when needed. As such, for BX004 we have engaged an
additional third-party provider to supplement our in-house process development activities. We have selected this organization based on
its experience, capability, capacity and regulatory status. Projects are managed by a specialist team of our internal staff, who assure
compliance with the technical aspects and regulatory requirements of the manufacturing process.
We maintain service agreements with multiple manufacturers.
These service agreements generally are short-term in nature and can be extended or renewed. The production amounts identified in our current
service agreements are sufficient to support our current clinical study needs.
In March 2021, we moved into a new 6,500 square
foot manufacturing facility in our headquarters, in Ness Ziona, Israel. Our facility is designed with the capacity to produce clinical
quantities of our product candidates required for future early-stage clinical development. Our facility consists of two suites for drug
substance phage production/development as well as formulation and final drug product production rooms to support topical, oral, inhaled
and injectable phage-based products in a liquid, cream, semi-solid or dry form.
While we do not have a current need for a commercial
scale manufacturing capacity, at the appropriate time we intend to evaluate building large scale cGMP internal manufacturing capabilities,
which may include expansion of our operations.
Intellectual Property
We strive to protect the proprietary technology
that we believe is important to our business, including seeking and maintaining patent protection in the United States and internationally
for our product candidates and discovery platform. We also rely on trademarks, trade secrets, know-how, copyrights, continuing technological
innovation and in-licensing opportunities to develop and maintain our proprietary position. For more information regarding the risks related
to our intellectual property, see “Risk Factors — Risks Related to our Licensed and Co-Owned Intellectual Property.”
We plan to continue to expand our intellectual
property estate by filing patent applications directed to formulations, related methods of treatment, methods of manufacture or identification
from our ongoing development of our product candidates, as well as discovery based on our proprietary product platform. Our success will
depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions
and know-how related to our business, defend, and enforce any patents that we may obtain, preserve the confidentiality of our trade secrets
and know-how and operate without infringing the valid and enforceable patents and proprietary rights of third parties.
Because patent applications in the United States
and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer, and because publication of discoveries
in the scientific or patent literature often lags behind actual discoveries and patent application filings, we cannot be certain of the
priority of inventions covered by pending patent applications. Accordingly, we may not have been the first to invent the subject matter
disclosed in some of its patent applications or the first to file patent applications covering such subject matter, and we may have to
participate in interference proceedings or derivation proceedings declared by the United States Patent and Trademark Office, or USPTO,
to determine priority of invention.
Patent portfolio
Our patent portfolio consists of owned patent applications,
as well as both licensed and co-owned patent applications (that are also licensed). See “Risk Factors — Risks Related to
our Licensed and Co-Owned Intellectual Property.” For some of these applications, prosecution has not started, and others are
in the early stages of prosecution in the United States and in selected jurisdictions outside of the United States. We solely own four
patent families. We co-own one US patent family with Keio University in Tokyo, Japan, or Keio, one international patent family (United
States, Australia, Brazil, Canada, European Patent Office national filings) with Yeda Research and Development Company Limited, or Yeda,
and one international patent family (United States, Europe) with both Keio and Yeda. We have an exclusive license from Yeda and Keio for
these co-owned patent applications. We have exclusive licenses from Yeda or Keio for the rest of the patents and patent applications in
its portfolio.
A significant portion of our portfolio is directed
to our product candidates, specifically: CF, AD, IBD, PSC and CRC, as well as to our bacterial target discovery and bacteriophage discovery
technology platforms. Prosecution has yet to commence for most of the pending patent applications covering our product candidates. Prosecution
is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO are often significantly narrowed
by the time they issue, if they issue at all. We expect this to be the case with respect to our licensed and co-owned patent applications,
described briefly below.
CF
We solely own one patent family (PCT stage) containing
claims directed to pharmaceutical compositions comprising combinations of bacteriophage to treat chronic Pseudomonas lung infections,
especially common in CF patients, methods of use for these bacteriophage combinations, and methods of identifying patients who will respond
to these bacteriophage combinations. Any United States patents issuing from the pending application covering our lead bacteriophage combination
in this program, if issued, are expected to expire in 2042. Patent term adjustments or patent term extensions could result in later expiration
dates.
AD
We solely own one patent family (PCT stage) containing
claims directed to pharmaceutical compositions comprising combinations of bacteriophage to treat skin infections, especially common in
AD patients, methods of use for these bacteriophage combinations, and methods of identifying patients who will respond to these bacteriophage
combinations. Any United States patents issuing from the pending application covering our lead bacteriophage combination in this program,
if issued, are expected to expire in 2042. Patent term adjustments or patent term extensions could result in later expiration dates.
IBD
We solely own one patent family (PCT stage), co-own
with Keio one US patent family and co-own with Keio and Yeda one international patent family (United States, Europe), containing claims
directed to pharmaceutical compositions comprising combinations of bacteriophage useful to treat IBD and other diseases of the gastrointestinal
tract, methods of use for these bacteriophage combinations, methods of identifying patients who will respond to these bacteriophage combinations,
and methods of treating IBD by targeting bacterial strains discovered to cause or contribute to that disease.
We also have an exclusive license from Keio for
an international patent family including patent applications in the United States, Australia, Canada, China, Europe and Japan. These applications
are directed to methods of use for these bacteriophage combinations, methods of identifying patients who will respond to these bacteriophage
combinations, and methods of treating IBD by targeting a bacterial strain discovered to cause or contribute to that disease. Any United
States patents issuing from the pending applications covering our lead bacteriophage combination in this program, if issued, are expected
to expire in 2037, 2038 or 2042. Patent term adjustments or patent term extensions could result in later expiration dates.
PSC
We have an exclusive license to one United States
national patent application and two Japanese patent applications with claims directed to pharmaceutical compositions comprising bacterial
strains discovered to be beneficial in the treatment of PSC and methods of using the same, and to methods of treating PSC by reducing
the level of certain bacterial strains discovered to contribute to PSC. Any United States patents issuing from the pending applications
in this program, if issued, are expected to expire in 2038 or 2039. Patent term adjustments or patent term extensions could result in
later expiration dates.
CRC
We solely own one patent family (PCT stage), containing
claims directed to pharmaceutical compositions and formulations comprising combinations of bacteriophage (both synthetic and naturally
occurring) useful to treat cancer. Any U.S. patent issuing from the pending application covering our lead bacteriophage combination in
this program, if issued, are expected to expire in 2041. Patent term adjustments or patent term extensions could result in later expiration
dates.
Patent term
The term of individual patents depends upon the
legal term of the patents in the countries in which they are obtained. In most countries in which we file patent applications, including
the United States, the base term is 20 years from the filing date of the earliest-filed non-provisional patent application from which
the patent claims priority. The term of a United States patent can be lengthened by patent term adjustment, which compensates the owner
of the patent for administrative delays at the USPTO. In some cases, the term of a United States patent is shortened by a terminal disclaimer
that reduces its term to that of an earlier-expiring patent. The term of a United States patent may be eligible for patent term extension
under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act, to account for at least
some of the time the drug is under development and regulatory review after the patent is granted. With regard to a drug 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 United
States patent that includes at least one claim covering the composition of matter of such an FDA-approved drug, an FDA-approved method
of treatment using the drug and/or a method of manufacturing the FDA-approved drug. The extended patent term cannot exceed the shorter
of five years beyond the non-extended expiration of the patent or fourteen years from the date of the FDA approval of the drug, and a
patent cannot be extended more than once or for more than a single product. During the period of extension, if granted, the scope of exclusivity
is limited to the approved product for approved uses. Some foreign jurisdictions, including Europe and Japan, have analogous patent term
extension provisions, which allow for extension of the term of a patent that covers a drug approved by the applicable foreign regulatory
agency.
In the future, if and when our product candidates
receive FDA approval, we expect to apply, if appropriate, for patent term extension on patents directed to those product candidates, their
methods of use and/or methods of manufacture. However, there is no guarantee that the applicable authorities, including the FDA in the
United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions.
Trade Secrets and Know-How
In addition to patents, we rely on trade secrets
and know-how to develop and maintain our competitive position. We typically rely on trade secrets to protect aspects of our business that
are not amenable to, or that we do not consider appropriate for, patent protection. We protect trade secrets and know-how by establishing
confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators.
These agreements provide that all confidential information developed or made known during the course of an individual’s or entities’
relationship with us must be kept confidential during and after the relationship. These agreements also provide that all inventions resulting
from work performed for us or relating to our business and conceived or completed during the period of employment or assignment, as applicable,
shall be our exclusive property. In addition, we take other appropriate precautions, such as physical and technological security measures,
to guard against misappropriation of its proprietary information by third parties.
Although we take steps to protect our proprietary
information and trade secrets, including through contractual means with our employees and consultants, third parties may independently
develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our
technology. Thus, we may not be able to meaningfully protect our trade secrets and benefit from the exclusive use thereof. For more information
regarding the risks related to our intellectual property, see “Risk Factors — Risks Related to Our Licensed and Co-Owned
Intellectual Property.”
Competition
The biotechnology and pharmaceutical industries
are characterized by rapidly advancing technologies, strong competition and an emphasis on proprietary products. While we believe that
our technology, knowledge and experience provide us with competitive advantages, we face substantial competition from many different sources,
including larger pharmaceutical companies with more resources. Specialty biotechnology companies, academic research institutions, governmental
agencies, as well as public and private institutions are also potential sources of competitive products and technologies. We believe that
the key competitive factors affecting the success of any of our product candidates will include efficacy, safety profile, time to market,
cost, level of promotional activity and intellectual property protection.
We are aware of a number of biotechnology companies
developing bacteriophage products to treat diseases. To our knowledge, several biotechnology companies, such as Adaptive Phage Therapeutics,
Locus Biosciences, Inc., Armata Pharmaceuticals, Inc. and SNIPR Biome, as well as academic institutions, have discovery stage or clinical
programs utilizing naturally occurring phage or synthetic biology approaches. In addition, we are aware of several investigational and
marketed products to treat the indications that we are targeting with our product candidates, including, but not limited to:
| ● | CF: Trikafta, Symdeco,
Pulmozyme, Tobramycin, Aztreonam |
| ● | AD: Elidel, Eucrisa,
Ruxolitinib, Dupixent |
Many of our competitors, either alone or with their
strategic partners, have substantially greater financial, technical and human resources than ours and significantly greater experience
in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization
of those products. Accordingly, our competitors may be more successful than us in discovering product candidates, obtaining approval for
such product candidates and achieving widespread market acceptance. Our competitors’ products may be more effective, or more effectively
marketed and sold, than any product we may commercialize and may render our product candidates obsolete or non-competitive before we can
recover the expenses of developing and commercializing any of our product candidates. We anticipate that we will face intense and increasing
competition as new drugs enter the market and advanced technologies become available.
These third parties compete with us in recruiting
and retaining qualified scientific, clinical, manufacturing, sales and marketing and management personnel, establishing clinical trial
sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our program.
Sales and Marketing
We intend
to pursue the commercialization of our drug product candidates either by building internal sales and marketing capabilities or through
collaborations with others.
In October
2021, we entered into a stock purchase agreement with a subsidiary of Maruho, a leading dermatology-focused pharmaceutical company in
Japan, pursuant to which we issued to Maruho 375,000 shares of our Common Stock, at a price of $8.00 per share for gross proceeds of $3
million. We also granted Maruho a right of first offer to license BX005 in Japan. The right of first offer will commence following the
availability of results from the Phase 1/2 study.
Government Regulation
Government authorities in the United States and
other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging,
storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import
of drug and biological products. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality,
safety, efficacy, purity, and/or potency must be obtained, organized into a format specific for each regulatory authority, submitted for
review and approved by the regulatory authority where the product is intended to be marketed.
U.S. Biological Product Development Process
In the United States, the FDA regulates drugs under
the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations under the FDCA, the Public Health Service Act,
or the PHSA, and their implementing regulations. Both drugs and 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 and local
statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with applicable U.S.
requirements at any time during the product development, approval, or post-marketing process 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 market withdrawals, product seizures,
total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement
and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Certain of our current product candidates and future
product candidates must be approved by the FDA through a Biologics License Application, or BLA, process before they may be legally marketed
in the United States. The process generally involves the following:
| ● | Completion of extensive preclinical
studies in accordance with applicable regulations, including studies conducted in accordance with GLP requirements, if needed; |
| ● | Submission to the FDA of an
IND, which must become effective before human clinical trials may begin; |
| ● | Approval by an institutional
review board, or IRB, at each clinical trial site before each trial may be initiated; |
| ● | Performance of adequate and
well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice, or GCP, requirements and
other clinical trial-related regulations to establish the safety, purity, potency and efficacy of the investigational product for each
proposed indication; |
| ● | Submission to the FDA of a BLA; |
| ● | A determination by the FDA within
60 days of its receipt of a BLA to accept the application for review; |
| ● | Satisfactory completion of an
FDA pre-approval inspection of the manufacturing facility or facilities where the biologic will be produced to assess compliance with
cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biologic’s identity, strength,
quality and purity; |
| ● | Potential FDA audit of the clinical
trial sites that generated the data in support of the BLA; |
| ● | Payment of user fees for FDA
review of the BLA (unless a fee waiver applies); and |
| ● | FDA review and approval of the
BLA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the biologic in
the United States. |
Preclinical Studies and IND
Preclinical studies include laboratory evaluation
of product chemistry and formulation, as well as in vitro and animal studies to establish a rationale for therapeutic use and in
some cases to assess the potential for adverse events. The conduct of preclinical studies is subject to federal regulations and requirements,
including in some cases GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the preclinical tests,
together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among
other things, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational product
to humans, and, must become effective before human clinical trials may begin. Some long-term preclinical testing may continue after the
IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises
concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor
and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result
in the FDA allowing clinical trials to commence.
Clinical Trials
Clinical trials involve the administration of the
biological product candidate to healthy volunteers or disease-affected patients under the supervision of qualified investigators, generally
physicians not employed by, or under, the trial sponsor’s control. 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 efficacy, including stopping rules that assure a clinical trial will be stopped if certain adverse
events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. Clinical trials
must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements, including the requirement
that all research subjects provide informed consent. Further, each clinical trial must be reviewed and approved by an 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 study 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 form and content of the informed consent that must be signed by 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. Information about certain clinical
trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website.
Clinical trials generally are conducted in three
sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.
| ● | Phase 1 clinical trials generally
involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple
doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side
effect tolerability and safety of the product candidate. |
| ● | Phase 2 clinical trials generally
involve studies in disease-affected patients to evaluate proof of concept and/or determine the dosing regimen(s) for subsequent investigations.
At the same time, safety and sometimes further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects
and safety risks are identified and a preliminary evaluation of efficacy is conducted. |
| ● | Phase 3 clinical trials generally
involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness
of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide
an adequate basis for labeling for new drugs. |
Post-approval trials, sometimes referred to as
Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are conducted to gain additional experience from
the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4
clinical trials as a condition of approval of a BLA.
Progress reports detailing the results of the clinical
trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the
FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies 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.
It is possible for Phase 1, Phase 2, Phase 3 and
other types of clinical trials not to be completed successfully within a specified period, if at all. The FDA or the sponsor may suspend
or terminate a clinical trial at any time on various grounds, including a finding that the 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 biologic has been associated with unexpected serious harm to patients.
Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor,
known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated
check points based on access to certain data from the trial.
Concurrent with clinical trials, companies may
complete additional animal studies and also must develop additional information about the chemistry and physical characteristics of the
biologic 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 product and, among other things, companies 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 product candidates do not undergo unacceptable
deterioration over their shelf life.
FDA Review Process
Following completion of the clinical trials, data
are analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses, and also meets
the regulatory requirements for potency and purity. The results of preclinical studies and clinical trials are then submitted to the FDA
as part of a BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data.
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. The application may include both negative and ambiguous results of preclinical studies 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 product’s use or from
a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must
be sufficient in quality and quantity to establish the safety and efficacy in the intended indication, 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 user fee. The FDA adjusts the PDUFA
user fees on an annual basis. Fee waivers or reductions are available in certain circumstances, including a waiver of the application
fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan
drugs, unless the product also includes a non-orphan indication.
The FDA reviews all submitted BLAs before it accepts
them for filing and may request additional information rather than accept the BLA for filing. The FDA must make a decision on accepting
a BLA for filing within 60 days of receipt, and such a decision could include a refusal to file by the FDA. Once the submission is accepted
for filing, the FDA begins an in-depth review of the BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10
months, from the filing date, in which to complete its initial review of an original BLA and respond to the applicant, and six months
from the filing date of an original BLA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard
and priority BLAs, and the review process is often extended by FDA requests for additional information or clarification.
Before approving a BLA, the FDA will conduct a
pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The
FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements
and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical
trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel products or products which present
difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for
review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is
not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA
likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the
review process.
After the FDA evaluates a BLA, it will issue an
approval letter, or a Complete Response Letter. An approval letter authorizes commercial marketing of the biologic 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 the specific deficiencies in the
BLA identified by the FDA. The Complete Response Letter may require additional clinical data 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 the deficiencies identified in the letter, or withdraw the application. Even if such data
and information are submitted, the FDA may 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 the sponsor’s interpretation of the same data.
Orphan Drug Designation
Under the Orphan Drug Act of 1983, or the Orphan
Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in
the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the
United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation for a biologic
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.
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. If a product that
has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the
product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug
for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety or providing a major contribution
to patient care, or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the
same indication or the same product for a different indication but that could be used off-label in the orphan indication. Orphan drug
exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do for the
same product, as defined by the FDA, for the same indication we are seeking approval, or if our product is determined to be contained
within the scope of the competitor’s product for the same indication or disease. If one of our products designated as an orphan
drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity.
Expedited Development and Review Programs
The FDA has a fast-track program that is intended
to expedite or facilitate the process for reviewing new drugs and biologics that meet certain criteria. Specifically, new drugs and biologics
are eligible for fast-track designation if they are intended to treat a serious or life-threatening condition and preclinical or clinical
data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of
the product and the specific indication for which it is being studied. 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. A product is eligible for priority review if it treats a serious or life-threatening condition and, if approved,
would provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional
resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the
review.
A product may also be eligible for accelerated
approval if it treats a serious or life-threatening condition and 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 biologic receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. Products
receiving accelerated approval may be subject to expedited withdrawal procedures if such clinical trials fail to verify the predicted
clinical benefit or if the sponsor fails to conduct such trials in a timely manner.
Additionally, a drug or biologic may be eligible
for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics,
to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial
improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation
include the same benefits as fast-track designation, plus intensive guidance from the FDA to ensure an efficient drug development program.
Even if a product qualifies for one or more of
these programs, the FDA may later decide that the product no longer meets the conditions for qualification or the time period for FDA
review or approval may not be shortened. Furthermore, fast track designation, priority review, accelerated approval and breakthrough therapy
designation do not change the standards for approval, but may expedite the development or approval process.
Pediatric Information
Under the Pediatric Research Equity Act of 2003,
or PREA, a BLA or supplement to a BLA must contain data to assess the safety and efficacy of the biologic for the claimed indications
in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product
is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers. A sponsor who is planning
to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen
or new route of administration must submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or,
if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include
an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant
endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of
pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information.
The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time
if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or
other clinical development programs.
Post-marketing Requirements
Following approval of a new product, the manufacturer
and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping
activities, reporting of adverse experiences, complying with promotion and advertising requirements, which include restrictions on promoting
products for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific
and educational activities. Although physicians may prescribe legally available products for off-label uses, manufacturers may not market
or promote such uses. Prescription drug and biologic promotional materials must be submitted to the FDA in conjunction with their first
use. Further, if there are any modifications to the biologic, including changes in indications, labeling or manufacturing processes or
facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or BLA supplement, which may require the development
of additional data or preclinical studies and clinical trials.
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. 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, including a REMS or the conduct of post-marketing studies to assess a newly discovered
safety issue. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.
FDA regulations require that products be manufactured
in specific approved facilities and in accordance with cGMP regulations, which require, among other things, quality control and quality
assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers
and other entities involved in the manufacture and distribution of approved drugs or biologics are required to register their establishments
with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for
compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area
of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including failure to conform to
cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions
on a product, manufacturer or holder of an approved BLA, including recall.
Biosimilars and Exclusivity
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. This amendment to the PHSA, in part, attempts to minimize duplicative testing. Biosimilarity,
which requires that the biological product be highly similar to the reference product notwithstanding minor differences in clinically
inactive components and that there be no clinically meaningful differences between the product and the reference product in terms of safety,
purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials.
Interchangeability requires that a biological product
be biosimilar to the reference product and that the product can be expected to produce the same clinical results as the reference product
in any given patient and, for products administered multiple times to an individual, that the product and the reference product may be
alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative
to exclusive use of the reference biological product without such alternation or switch.
A reference biological product is granted 12 years
of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable
product based on the reference biological product until four years after the date of first licensure of the reference product. “First
licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure
does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure
is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product
(or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological
product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or
strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency.
Pediatric exclusivity is another type of regulatory
market exclusivity in the United States, available under the Best Pharmaceuticals for Children Act by way of its application to biologics
through the Biologics Price Competition and Innovation Act. Pediatric exclusivity, if granted, adds six months to existing regulatory
exclusivity periods, which must be in place in order for pediatric exclusivity to apply. This six-month exclusivity may be granted based
on the voluntary completion of a pediatric trial in accordance with an FDA issued “Written Request” for such a trial, although
FDA may issue such a Written Request at the request of the sponsor.
Companion Diagnostics
We may employ companion diagnostics to help it
to more accurately identify patients within a particular bacterial strain, both during our clinical trials and in connection with the
commercialization of our product candidates that we are developing or may in the future develop. Companion diagnostics can identify patients
who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased risk for serious side
effects as a result of treatment with a particular therapeutic product; or monitor response to treatment with a particular therapeutic
product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion diagnostics are regulated as medical
devices by the FDA and, as such, require either clearance or approval prior to commercialization. The level of risk combined with available
controls to mitigate risk determines whether a companion diagnostic device requires Premarket Approval Application approval or is cleared
through the 510(k) premarket notification process. For a novel therapeutic product for which a companion diagnostic device is essential
for the safe and effective use of the product, the companion diagnostic device should be developed and approved or 510(k)-cleared contemporaneously
with the therapeutic. The use of the companion diagnostic device will be stipulated in the labeling of the therapeutic product.
Government Regulation Outside of the United States
In addition to regulations in the United States,
we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials of drug products
as well as the approval, manufacture and distribution of our product candidates. Because biologically sourced raw materials are subject
to unique contamination risks, their use may be restricted in some countries. Whether or not we obtain FDA approval for a product candidate,
we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or
marketing of the product in those countries. If we fail to comply with applicable foreign regulatory requirements, we may be subject to,
among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions
and criminal prosecution.
Clinical Trials
Certain countries outside of the United States
have a regulatory process similar to the U.S process that requires the submission of a clinical trial application much like the IND prior
to the commencement of human clinical trials. In the European Union, for example, a clinical trial application, or CTA, must be submitted
for each clinical trial to the national health authority and an independent ethics committee in each country in which the trial is to
be conducted, much like the FDA and an IRB, respectively. CTAs must be accompanied by an investigational medicinal product dossier with
supporting information prescribed by the Clinical Trials Directive (and corresponding national laws of the member states) and further
detailed in applicable guidance documents. Once the CTA is approved in accordance with a country’s requirements, the clinical trial
may proceed. A similar process to the one described for the European Union is required in Israel for initiation of clinical trials. The
requirements and process governing the conduct of clinical trials vary from country to country. In all cases, the clinical trials must
be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the
Declaration of Helsinki.
Approval Process
In order to market our products, we must obtain
a marketing approval for each product and comply with numerous and varying regulatory requirements. The approval procedure varies among
countries and can involve additional testing in comparison to the testing carried out for the U.S. approval. The time required to obtain
approval in foreign countries may differ substantially from that required to obtain FDA approval. Clinical trials conducted in one country
may not be accepted by regulatory authorities in other countries. The regulatory approval process outside the United States generally
is subject to all of the same risks associated with obtaining FDA approval. In addition, in many countries outside the United States,
it is required that the product be approved for reimbursement before the product can be approved for sale in that country.
To obtain marketing approval of a medicinal product
under the European Union regulatory system, an applicant must submit a marketing authorization application, or MAA, under either a centralized
or a decentralized procedure. The decentralized procedure is based on a collaboration among the member states selected by the applicant.
In essence, the applicant chooses a ‘lead’ member state that will carry out the scientific assessment of the MAA and review
the product information. The other member states must recognize the outcome of such assessment and review except in case of a “serious
potential risk to public health.” The decentralized procedure results in the grant of a national marketing authorization in each
selected country. That procedure is available for all medicinal products unless they fall into the mandatory scope of the centralized
procedure. In practice, it is used for OTC, not highly innovative products, generic products and, increasingly, for biosimilars.
The centralized procedure provides for the grant
of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized procedure
is compulsory for certain medicinal products, including for medicinal products produced by certain biotechnological processes, products
designated as orphan medicinal products, advanced therapy medicinal products, or ATMPs, and products with a new active substance and indicated
for the treatment of certain diseases. For products with a new active substance and indicated for the treatment of other diseases, products
that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure is optional.
Under the centralized procedure, the Committee
for Medicinal Products for Human Use, or CHMP, the main scientific committee established at the European Medicines Agency, or EMA, is
responsible for conducting the scientific assessment of the future medicinal product. The CHMP is also responsible for several post-authorization
and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. The maximum
timeframe for the evaluation of an MAA is 210 days, excluding clock stops. The European Commission grants or refuses the marketing authorization,
following a procedure that involves representatives of the member states. The European Commission’s decision is in accordance with
the CHMP scientific assessment except in very rare cases.
Pursuant to Regulation (EC) 1394/2007, specific
rules apply to ATMPs, a category that is comprised of gene therapy medical products, somatic cell therapy medicinal products, and tissue-engineered
medicinal products. Those rules have triggered the adoption of guidelines on manufacturing, clinical trials and pharmacovigilance that
adapt the general regulatory requirements to the specific characteristics of ATMPs. Regulation (EC) 1394/2007 introduced a “hospital
exemption.” which authorizes hospitals to develop ATMP for their internal use without having obtained a marketing authorization
and to complying with European Union pharmaceutical law. The hospital exemption, which is in essence a compounded ATMP, has been transposed
in all Member States, sometimes in such a way that the ATMPs under the hospital exemption are competitive alternatives to ATMPs with marketing
authorization. The broad use of the hospital exemption by national hospitals led the European Commission to discuss with the Member States
a more reasonable application of the hospital exemption that would not undermine the common legal regime for ATMP.
Marketing authorization is valid for five years
in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance
by the EMA or the competent authority of the authorizing member state. To this end, the marketing authorization holder must provide the
EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations
introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once
renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the national competent authority
decides, on justified grounds relating to pharmacovigilance, to proceed with one additional renewal. Any authorization which is not followed
by the actual placing of the medicinal product on the European Union market (in case of centralized procedure) or on the market of the
authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).
Orphan Designation
Countries other than the United States have adopted
a specific legal regime to support the development and marketing of drugs and biologics for rare diseases.
For example, in the European Union, Regulation
141/2000 organizes the grant of orphan drug designations to promote the development of products that are intended for the diagnosis, prevention
or treatment of life threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European
Economic Area (the European Union, plus Iceland, Liechtenstein and Norway), or EEA, (or where it is unlikely that the development of the
medicine would generate sufficient return to justify the investment) and for which no satisfactory method of diagnosis, prevention or
treatment has been authorized or, if a method exists, the product would be of significant benefit to those affected. The EMA’s Committee
for Orphan Medicinal Products, or COMP, examines if the orphan criteria are met and gives opinions thereon, and the orphan status is granted
by the European Commission. The meeting of the criteria for orphan designation is examined again by the COMP at the time of approval of
the medicinal product, which typically occurs several years after the grant of the orphan designation. If the criteria for orphan designation
are no longer met at that time, the European Commission withdraws the orphan status.
In the European Union, orphan drug designation
entitles the sponsor to financial incentives such as reduction of fees or fee waivers and to ten years of market exclusivity granted following
medicinal product approval. Market exclusivity precludes the EMA or a national regulatory authority from validating another MAA, and the
European Commission or a national regulatory authority from granting another marketing authorization, for a same or similar medicinal
product and a same therapeutic indication, for that time period. This 10-year period may be reduced to six years if the orphan drug designation
criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market
exclusivity. The orphan exclusivity may be lost vis-à-vis another medicinal product in cases the manufacturer is unable to assure
sufficient quantity of the medicinal product to meet patient needs or if that other product is proved to be clinically superior to the
approved orphan product. A drug is clinically superior if it is safer, more effective or makes a major contribution to patient care. Orphan
drug designation must be requested before submitting a MAA. Orphan drug designation does not convey any advantage in, or shorten the duration
of, the regulatory review and approval process, and it does not afford any regulatory exclusivity until a marketing authorization is granted.
Expedited Development and Approval
Mechanisms are in place in many jurisdictions that
allow an earlier approval of the drug so that it reaches patients with unmet medical needs earlier. The European Union, for example, has
instituted several expedited approval mechanisms including two mechanisms that are specific to the centralized procedure:
| ● | the accelerated approval: the
EMA may reduce the maximum timeframe for the evaluation of an MAA from 210 days to 150 days when the future medicinal product is of major
interest from the point of view of public health, in particular from the viewpoint of therapeutic innovation. |
| ● | the conditional marketing authorization:
as part of its marketing authorization process, the European Commission may grant marketing authorizations on the basis of less complete
data than is normally required. |
A conditional marketing authorization may be granted
when the CHMP finds that, although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not
been supplied, all the following requirements are met:
| ● | the risk/benefit balance of
the medicinal product is positive; |
| ● | it is likely that the applicant
will be in a position to provide the comprehensive clinical data; |
| ● | unmet medical needs will be
addressed; and |
| ● | 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 is still required. |
The granting of a conditional marketing authorization
is typically restricted to situations in which only the clinical part of the application is not yet fully complete. Incomplete preclinical
or quality data may however be accepted if duly justified and only in the case of a product intended to be used in emergency situations
in response to public health threats.
Conditional marketing authorizations are valid
for one year, on a renewable basis. The conditions to which approval is subject will typically require the holder to complete ongoing
trials or to conduct new trials with a view to confirming that the benefit-risk balance is positive and to collect pharmacovigilance data.
Once the conditions to which the marketing authorization is subject are fulfilled, the conditional marketing authorization is transformed
into a regular marketing authorization. If, however, the conditions are not fulfilled with the timeframe set by EMA, the conditional marketing
authorization ceases to be renewed.
The EMA has also implemented the so-called “PRIME”
(PRIority MEdicines) status in order support the development and accelerate the approval of complex innovative medicinal products addressing
an unmet medical need. PRIME status enables early dialogue with the relevant EMA scientific committees and, possibly, some payors and
thus reinforces the EMA’s scientific and regulatory support. It also opens accelerated assessment of the MAA as PRIME status, is
normally reserved for medicinal products that may benefit from accelerated assessment, i.e., medicines of major interest from a public
health perspective, in particular from a therapeutic innovation perspective.
Finally, all medicinal products (i.e. decentralized
and centralized procedures) may benefit from an MA “under exceptional circumstances.” This marketing authorization is close
to the conditional marketing authorization as it is reserved to medicinal products to be approved for severe diseases or unmet medical
needs and the applicant does not hold the complete data set legally required for the grant of a marketing authorization. However, unlike
the conditional marketing authorization, the applicant does not have to provide the missing data and will never have to. The risk-benefit
of the medicinal product is reviewed annually. As a result, although the MA “under exceptional circumstances” is granted definitively,
the risk-benefit balance of the medicinal product is reviewed annually and the marketing authorization is withdrawn in case the risk-benefit
ratio is no longer favorable.
Pediatrics
Mandatory testing in the pediatric population is
required in more and more jurisdictions. The European Union has enacted a complex and very stringent system that has inspired other jurisdictions,
including the United States and Switzerland. Any application for approval of (i) a medicinal product containing a new active substance
or (ii) a new therapeutic indication, pharmaceutical form or route of administration of an already authorized medicinal product which
contains an active substance still protected by a supplementary protection certificate, or SPC, or a patent that qualifies for an SPC,
must include pediatric data. Otherwise, the application is not validated by the competent regulatory authority. The submission of pediatric
data is mandatory in those cases, even if the application concerns an adult use. Submission of pediatric data is not required or fully
required if the EMA granted, respectively, a full or partial waiver to pediatric development. Moreover, that submission can be postponed
if the EMA grants a deferral in order not to delay the submission of the MAA for the adult population.
The pediatric data are generated through the implementation
of a pediatric investigation plan, or PIP, that is proposed by the company after completion of the PK studies in adults and agreed upon
by the EMA, typically after some modifications. The PIP lists all the studies to conduct and measures to take in order to prove the safety
and efficacy of the future medicinal product when used in children. The EMA may agree to modify the PIP at the company’s request.
The scope of the PIP is the adult therapeutic indication or the condition of which the adult application is part or even the mechanism
of action of the active substance, at the EMA’s quasi-discretion. This very broad discretion enables the EMA to require companies
to develop children indications that are different from the adult indications.
Completion of a PIP renders the company eligible
for a pediatric reward, which can be six-month extension of the term of the SPC or, in the cases of orphan medicinal products, two additional
years of market exclusivity. The reward is subject, among other conditions, to the PIP being fully completed, to the pediatric medicinal
product being approved in all the member states, and to the results of the pediatric studies being mentioned, in one way or another (for
example, the approval of a pediatric indication), in the summary of product characteristics of the product.
Post-Marketing Requirements
Many countries impose post-marketing requirements
similar to those imposed in the United States, in particular safety monitoring or pharmacovigilance. In the European Union, pharmacovigilance
data are the basis for the competent regulatory authorities imposing the conduct of post-approval safety or efficacy study, including
on off-label use. Non-compliance with those requirements can result in significant financial penalties as well as the suspension or withdrawal
of the marketing authorization.
Supplementary Protection Certificate and Regulatory Exclusivities
In some countries other than the United States,
some of our patents may be eligible for limited patent term extension, depending upon the timing, duration and specifics of the regulatory
approval of our product candidates and any future product candidates. Furthermore, authorized drugs and biologics may benefit from regulatory
exclusivities (in additional to patent protection resulting from patents).
In the European Union, Regulation (EC) 469/2009
institutes SPCs. An SPC is an extension of the term of a patent that compensates for the patent protection lost because of the legal requirements
to conduct safety and efficacy tests and to obtain a marketing authorization before placing a medicinal product on the market. An SPC
may be applied for any active substance that is protected by a “basic patent” (a patent chosen by the patent holder, which
can be a product, process or application patent) and has not been placed on the market as a medicinal product before having obtained a
marketing authorization in accordance with European Union pharmaceutical law. The term of the SPC is maximum five years, and the combined
patent and SPC protection may not exceed fifteen years from the date of the first marketing authorization in the EEA. SPC rights are restricted
by both the basic patent and the marketing authorization, i.e., the SPC grants the same rights as those conferred by the basic patent
but limited to the active substance covered by the marketing authorization (and any use as medicinal product approved afterwards).
While SPC are regulated at the European level,
they are granted by the national patent offices. The grant of an SPC requires a basic patent granted by the national patent office and
a marketing authorization, which is the first marketing authorization for the active substance as a medicinal product in the country.
Furthermore, no SPC must have already been granted to the active substance, and the application for the SPC must be filed with the national
patent office within six months of the first marketing authorization in the EEA or the grant of the basic patent, whichever is the latest.
In the future, we may apply for an SPC for one
or more of our currently owned or licensed European patents to add patent life beyond their current expiration date, depending on the
expected length of the clinical trials and other factors involved in the filing of the relevant MAA.
Furthermore, in the European Union, medicinal products
may benefit from the following regulatory exclusivities: data exclusivity, market protection, market exclusivity, and pediatric reward.
A medicinal product that contains a new active
substance (reference medicinal product) is granted eight years of data exclusivity followed by two years of market protection. Data exclusivity
prevents other companies from referring to the non-clinical and clinical data in marketing authorization dossier of the reference medicinal
product for submission of generic MAA purposes, and market protection prevents other companies from placing generics on the market. Pursuant
to the concept of global marketing authorization, any further development of that medicinal product (e.g., new indication, new form, change
to the active substance) by the marketing authorization holder does not trigger any new or additional protection. The authorization of
any new development is considered as “falling” into the initial marketing authorization with regard to regulatory protection;
hence, the new development only benefits from the regulatory protection that remains when it is authorized. The only exception is a new
therapeutic indication that is considered as bringing a significant clinical benefit in comparison to the existing therapies. Such new
indication will add one-year of market protection to the global marketing authorization, provided that it is authorized within the first
eight years of authorization (i.e., during the data exclusivity period). Moreover, a new therapeutic indication of a “well-established
substance” benefits from one-year data exclusivity but limited to the non-clinical and clinical data supporting the new indication.
Any active substance approved for at least ten years in the EEA qualifies as well-established substance.
Biosimilars may be approved through an abbreviated
approval pathway after the expiration of the eight-year data exclusivity period and may be marketed after the 10 or 11-year market protection
period. The approval of biosimilars requires the applicant to demonstrate similarity between the biosimilar and the biological medicinal
product and to submit the non-clinical and clinical data defined by the EMA. The biosimilar legal regime has been mainly developed through
EMA’s scientific guidelines applicable to categories of biological active substances. Unlike in the United States, interchangeability
is regulated by each member state.
Market exclusivity is a regulatory protection exclusively
afforded to medicinal products with an orphan status. Market exclusivity precludes the EMA or a national regulatory authority from validating
another MAA, and the European Commission or a national regulatory authority from granting another marketing authorization, for a same
or similar medicinal product and a same therapeutic indication, for a period of ten years from approval (see above).
Pediatric reward is another regulatory exclusivity.
Completion of a PIP renders the company eligible for a pediatric reward, which can be six-month extension of the term of the SPC or, in
the cases of orphan medicinal products, two additional years of market exclusivity (see above). In case a PIP is completed on a voluntary
basis, i.e., for an approved medicinal product that is not or no longer protected by an SPC or a basic patent, the pediatric reward takes
the form of a “pediatric use marketing authorization”, or PUMA. That special authorization does not fall into the global marketing
authorization and thus benefits from eight years of data exclusivity followed by two or three years of market protection.
Other U.S. Healthcare Laws and Compliance Requirements
In addition to FDA restrictions on the marketing
of pharmaceutical products, we may be subject to various federal and state laws targeting fraud and abuse in the healthcare industry.
These laws may impact, among other things, our business or financial arrangements and relationships through which we market, sell and
distribute the products, if any, for which we obtain approval. The laws that may affect our ability to operate include:
| ● | the federal Anti-Kickback Statute,
which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the
referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may
be made, in whole or in part, 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.
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 money penalties statute; |
| ● | federal civil and criminal false
claims laws and civil monetary penalties laws, such as the federal False Claims Act, which impose criminal and civil penalties and authorize
civil whistleblower or qui tam actions, against individuals or entities for, among other things: knowingly presenting, or causing to
be presented, to the federal government, claims for payment that are false or fraudulent; making, using or causing to be made or used,
a false statement or record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal
government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government; |
| ● | the civil monetary penalties
law, which prohibits, among other things, the offering or giving of remuneration, which includes, without limitation, any transfer of
items or services for free or for less than fair market value (with limited exceptions), to a Medicare or Medicaid beneficiary that the
person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable
by a federal or state governmental program; |
| ● | HIPAA, which created new federal
criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program or obtain, by means of false or fraudulent pretenses, representations, or promises, any 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
willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection
with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; 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 transparency requirements
under the Affordable Care Act, or ACA, including the provision commonly referred to as the Physician Payments Sunshine Act, which requires
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 the U.S. Department of Health and Human Services information related to payments or other
transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician
practitioners (physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered
nurse anesthetists and certified nurse midwives) and teaching hospitals, as well as ownership and investment interests held by the physicians
described above and their immediate family members; |
| ● | federal government price reporting
laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to government programs; and |
| ● | federal consumer protection
and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers. |
Additionally, we are subject to state and foreign
equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and may apply regardless
of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of
patients for healthcare services reimbursed by any source, not just governmental payors, including private insurers. In addition, some
states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program
Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions
with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing
or price disclosures to the state. 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, many of which differ from each other in significant ways and often are not pre-empted
by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness
of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge
under one or more of such laws.
Violations of fraud and abuse laws may be punishable
by criminal and/or civil sanctions, including penalties, fines, imprisonment and/or exclusion or suspension from federal and state healthcare
programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have
the ability to bring actions on behalf of the U.S. government under the federal False Claims Act as well as under the false claims laws
of several states.
Law enforcement authorities are increasingly focused
on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure
that our current and future business arrangements with third parties, and our business generally, will comply with applicable healthcare
laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices,
including our arrangements with physicians and other healthcare providers, some of whom receive stock options as compensation for services
provided, may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse
or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and
administrative penalties, damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid
and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment
of our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition,
the approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents
of the healthcare laws mentioned above, among other foreign laws.
If any of 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 may be subject to criminal,
civil or administrative sanctions, including exclusions from government funded healthcare programs, which may also adversely affect our
business.
Much like the Anti-Kickback Statute prohibition
in the United States, the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement,
purchase, supply, order or use of medicinal products is also prohibited in the European Union. The provision of benefits or advantages
to physicians is mainly governed by the national anti-bribery laws of the member states, such as the UK Bribery Act 2010, or national
anti-kickback provisions (France, Belgium, etc.). Infringement of these laws could result in substantial fines and imprisonment. In certain
member states, payments made to physicians must be publicly disclosed. Moreover, agreements with physicians often must be the subject
of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory
authorities of the individual member states. These requirements are provided in the national laws, industry codes or professional codes
of conduct, applicable in the member states. Failure to comply with these requirements could result in reputational risk, public reprimands,
administrative penalties, fines or imprisonment.
Additional Regulation
In addition to the foregoing, state and federal
laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy
and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal
of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result
in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines.
We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have
a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, to which
we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence
a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign
government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to
otherwise influence a person working in an official capacity. Similar rules apply to many other countries worldwide such as France (“Loi
Sapin”) or the United Kingdom (UK Bribery Act).
U.S. Healthcare Reform
A primary trend in the U.S. healthcare industry
and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage
and the amount of reimbursement for particular medical products. For example, in March 2010, the ACA was enacted, which, among other things,
increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology
by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled,
implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed
care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs
coverage under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies’ share of sales
to federal healthcare programs; created a new Patient Centered Outcomes Research Institute to oversee, identify priorities in and conduct
comparative clinical effectiveness research, along with funding for such research; and established the Center for Medicare & Medicaid
Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.
Since its enactment, there have been a number of significant
changes to the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA without specifically
ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order initiating
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. More recently, on March 11, 2021, President Biden signed the American Rescue
Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average
manufacturer price, beginning January 1, 2024.
In addition, the Budget Control Act of 2011 and the
Bipartisan Budget Act of 2015 led to aggregate reductions of Medicare payments to providers of 2% per fiscal year that will remain in
effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 and a 1% reduction from April
1, 2022 through June 30, 2022, unless additional Congressional action is taken. Further, on January 2, 2013, the American Taxpayer Relief
Act was signed into law, which, among other things, reduced Medicare payments to several types of providers, including hospitals, imaging
centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers
from three to five years. More recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices
for their marketed products, which have resulted in several recent Congressional inquiries and proposed bills designed to, among other
things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform
government program reimbursement methodologies for pharmaceutical products. In August 2022, the Inflation Reduction Act authorized Medicare
to negotiate drug prices for certain high expenditure, single source Medicare part B or D drugs. Individual states in the United States
have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure
and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that additional foreign, federal and
state healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, which could result in limited coverage and reimbursement and reduced demand for our products,
once approved, or additional pricing pressures.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage
and reimbursement status of any products for which we obtain regulatory approval. In the United States, cosmetics are not generally eligible
for coverage and reimbursement and thus any products that are marketed as cosmetics will not be covered or reimbursed. In the United States
and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part,
on the availability of coverage and reimbursement from third-party payors. Third-party payors include government authorities, managed
care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for
a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-party payors
may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for
a particular indication. A decision by a third-party payor not to cover our products could reduce physician utilization of our products
once approved and have a material adverse effect on our sales, results of operations and financial condition. Moreover, a payor’s
decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement
may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In addition, coverage and reimbursement for products
can differ significantly from payor to payor. One third-party payor’s decision to cover a particular medical product or service
does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate
reimbursement rate.
As a result, the coverage determination process
will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming
process.
Third-party payors are increasingly challenging
the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and
efficacy. In order to obtain and maintain coverage and reimbursement for any product, we may need to conduct expensive clinical trials
in order to demonstrate the medical necessity and cost-effectiveness of such product, in addition to the costs required to obtain regulatory
approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover
the product as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products
at a profit.
Outside of the United States, the pricing of pharmaceutical
products is subject to governmental control in many countries. For example, in the European Union, pricing and reimbursement schemes vary
widely from member state to member state. Some countries provide that products may be marketed only after a reimbursement price has been
agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular therapy to
currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. Other
countries may allow companies to fix their own prices for products, but monitor and control product volumes and issue guidance to physicians
to limit prescriptions. Efforts to control prices and utilization of pharmaceutical products and medical devices will likely continue
as countries attempt to manage healthcare expenditures.
Data Privacy and Security Laws
Numerous state, federal and foreign laws, including
consumer protection laws and regulations, govern the collection, dissemination, use, access to, confidentiality and security of personal
information, including health-related information. In the United States, numerous federal and state laws and regulations, including data
breach notification laws, health information privacy and security laws, including Health Insurance Portability and Accountability Act
of 1996, or HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection,
use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our
partners. In addition, certain state and non-U.S. laws, such as the California Consumer Protection Act, the California Privacy Rights
Act, and the General Data Protection Regulation, or GDPR, govern the privacy and security of personal information, including health-related
information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant
ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can
result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security laws, regulations,
and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations,
proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.
Material Agreements
License Agreements
License Agreement with Yeda
On June 22, 2015, BiomX Ltd. entered into the Research
and License Agreement, with Yeda, or, as amended, the Yeda 2015 License Agreement, the technology transfer office of the WIS, pursuant
to which BiomX Ltd. received an exclusive worldwide license to certain know-how and research information related to the development, testing,
manufacturing, production and sale of microbiome-based therapeutic product candidates, including candidates specified in the agreement,
which are used in our phage discovery platform, as well as patents, research and other rights to phage product candidates resulting from
the work of the consultants identified in the agreement and further research conducted at the WIS which BiomX Ltd. funded.
In connection with this license, we are to pay a non-refundable
license fee of $10,000 per year. In addition, BiomX Ltd. contributed an aggregate of approximately $2.0 million to the research budget
agreed upon in the Yeda 2015 License Agreement. We are also required to pay tiered royalties in the low single digits on net sales of
products and diagnostic kits covered by the Yeda 2015 License Agreement, subject to reductions as described therein. The products and
diagnostic kits covered by the license agreement include those directed to IBD, CRC, and any other indications that may be treated by
phage-based therapies, as well as related technology platforms. If we sublicense our rights under this agreement we will be obligated
to pay Yeda additional sublicense royalties expressed as a percentage of the sublicensing receipts described in the agreement received
ranging from the mid-teens to the mid-twenties. We are obligated to pay filing and maintenance expenses in respect of patents licensed
under the Yeda 2015 License Agreement. In connection with the Yeda 2015 License Agreement, BiomX Ltd. also issued certain ordinary shares
which were subsequently converted to 193,406 shares of our Common Stock as part of the Business Combination (as defined below). In the
event of certain mergers and acquisitions we are party to, we are obligated to pay Yeda an amount equivalent to 1% of the consideration
received under such transaction.
Unless terminated earlier by either party, the
license granted will remain in effect in each country and for each product developed based on the license until the later of the expiration
of the last licensed patent (which is expected to be in 2039) in such country for such product, and eleven years from the date of first
commercial sale of such product in such country for such product. The Yeda 2015 License Agreement terminates upon the later of the expiration
of the last of the patents covered under the agreement, and the expiry of a continuous 15-year period during which there has not been
a first commercial sale of any product in any country. Yeda may also terminate the agreement if we fail to observe certain diligence and
development requirements and milestones as described in the agreement. We or Yeda may terminate the agreement for the material uncured
breach of the other party after a notice period, or the other party’s winding up, bankruptcy, insolvency, dissolution or other similar
discontinuation of business. Upon termination of the agreement, other than due to the passage of time, we are required to grant to Yeda
a non-exclusive, irrevocable, perpetual, fully paid-up, sublicensable, worldwide license in respect of our rights in know-how and research
results as described in the Yeda 2015 License Agreement, provided that if Yeda subsequently grants a license to a third party that utilizes
our rights, we are entitled to share in the net proceeds actually received by Yeda arising out of that license, subject to a cap based
on the development expenses that we incur in connection with the Yeda 2015 License Agreement.
We consult with Yeda with respect to patent prosecution
and maintenance decisions. Yeda is primarily responsible for prosecution and maintenance with respect to Licensed Information (as defined
in the license) and we are responsible for prosecution and maintenance with respect to Subsequent Results (as defined in the license).
We and Yeda are both entitled to consultation rights. We are responsible for costs associated with prosecution and maintenance of all
patents and applications.
We are entitled to enforce the patent rights under
the license upon approval by Yeda. Yeda may elect to join the lawsuit, but we are responsible for all litigation-related expenses. Yeda
reserves the right to bring its own actions if we do not notify Yeda of our intent to enforce a right or bring an action after we initially
notified Yeda of the potential action.
Exclusive Patent License Agreement with Keio
and JSR Corporation, or JSR, for IBD
BiomX Ltd. entered into an Exclusive Patent License
Agreement with Keio, and JSR on December 15, 2017, as amended, pursuant to which BiomX Ltd. was granted an exclusive, royalty-bearing,
worldwide, perpetual sublicense by JSR to certain patent rights related to our IBD program. Specifically, these patent rights relate to
bacterial targets that have been observed to be related to IBD and the phage that were observed to eradicate these bacterial targets.
We paid JSR a license issue fee of $10,000 and
have agreed to pay annual fees ranging from $15,000 to $25,000 in each subsequent year. In addition to the license fees, we have agreed
to make payments upon the satisfaction of certain clinical and regulatory milestones up to an aggregate of $3.2 million, of which $40,000
was paid in February 2021. We are also required to pay tiered royalties expressed as a percentage of annual net sales of products developed
under the agreement in the low single digits. If we sublicense our rights under this agreement, we will be obligated to pay sublicense
royalties expressed as a percentage of sublicense income received, including any license signing fee, license maintenance fee, distribution
or joint marketing fee and milestone payments, ranging in the high single digits to the low teens. Our payments under this agreement are
subject to reductions as set forth therein.
Unless earlier terminated, this agreement will
expire on the later of the date on which all issued patents and filed patent applications have expired (which is expected to be in 2039),
or been abandoned, withdrawn, rejected, revoked or invalidated, and five years from the date of first commercial sale of a product developed
under the agreement in any country or, if later, when the product ceases to be covered by a valid claim in the United States, European
Union or Japan. JSR may terminate this agreement if we fail to pay the amounts due under this agreement, or upon our winding up, bankruptcy,
insolvency, dissolution or other similar discontinuation of business, or if we breach the material terms of this agreement and such breach
is uncured. We may terminate this agreement at any time upon three months’ advance written notice to JSR.
We, Keio and JSR are responsible for maintenance
and prosecution of patents that are to be jointly owned by the parties. JSR is entitled to the opportunity to advise and approve decisions
that would have a material adverse impact on the scope of the claims. JSR is responsible for patents that are listed in such agreement
and we are entitled to advise with respect to patent counsel, scope of claims, and other matters. We are entitled to bring enforcement
actions (in our name alone and at our own expense). We are required to obtain JSR’s prior written consent for each action we bring
with respect to the Patent Rights only.
Exclusive Patent License Agreement with Keio
and JSR for PSC
We entered into an additional Exclusive Patent
License Agreement with Keio and JSR on April 22, 2019, pursuant to which we were granted an exclusive, royalty-bearing, worldwide, perpetual
sublicense by JSR to certain patent rights related to our PSC program. Specifically, these patent rights relate to bacterial targets that
have been observed to be related to PSC and the phage that were observed to eradicate these bacterial targets.
We paid JSR a license issue fee of $20,000 and
have agreed to pay annual fees ranging from $15,000 to $25,000 in each subsequent year. In addition to the license fees, we have agreed
to make payments upon the satisfaction of certain clinical and regulatory milestones up to an aggregate amount of $3.2 million. We are
also required to pay tiered royalties expressed as a percentage of annual net sales of products developed under the agreement in the
low single digits. If we sublicense our rights under this agreement, we will be obligated to pay sublicense royalties expressed as a
percentage of sublicense income received, including any license signing fee, license maintenance fee, distribution or joint marketing
fee and milestone payments, ranging in the high single digits to the low teens. Our payments under this agreement are subject to reductions
as set forth therein.
Unless earlier terminated, this agreement will
expire on the later of the date on which all issued patents and filed patent applications have expired (which is expected to be in 2039),
or been abandoned, withdrawn, rejected, revoked or invalidated, and five years from the date of first commercial sale of a product developed
in connection with this agreement in any country or, if later, when the product ceases to be covered by a valid claim in the United States,
European Union or Japan. JSR may terminate this agreement if we fail to pay the amounts due under this agreement, or upon our winding
up, bankruptcy, insolvency, dissolution or other similar discontinuation of business, or if we breach the material terms of this agreement
and such breach is uncured. We may terminate this agreement at any time upon three months’ advance written notice to JSR.
We, Keio and JSR are responsible for maintenance
and prosecution of patents that are to be jointly owned by the parties. JSR is entitled to the opportunity to advise and approve decisions
that would have a material adverse impact on the scope of the claims. JSR is responsible for patents that fall under Patent Rights and
we are entitled to advise with respect to patent counsel, scope of claims, and other matters. We are entitled to bring enforcement actions
(in our name alone and at our own expense).
Employees
As of December 31, 2022, we had 54 full-time
employees and 11 part time employees. Sixteen of our employees have Ph.D. or M.D. degrees and 50 of our employees are currently engaged
in research and development and clinical activities. None of our employees is represented by labor unions or covered by collective bargaining
agreements. We consider our relationship with our employees to be very strong.
In May 2022, we announced, as part of our corporate restructuring plan,
our intention to reduce our operating costs, including a 50% reduction in personnel, while prioritizing our ongoing CF program.
In response to the COVID-19 pandemic, we implemented
significant changes designed to ensure the safety and well-being of our employees as well as the communities in which we operate. We have
not laid off any employees due to the pandemic. We implemented additional safety measures including masks and social distancing protocols
in our offices and encouraged remote working arrangements for employees. To date, our remote working arrangements have not significantly
affected our ability to maintain critical business operations.
Corporate Information
The mailing address of our principal executive
office is 22 Einstein St., Floor 4, Ness Ziona, Israel 7414003 and the telephone number is (972) 72-394-2377. Our corporate website address
is www.biomx.com. The content of our website is not intended to be incorporated by reference into this report or in any other report or
document we file and any references to these websites are intended to be inactive textual references only.
Information About Our Executive Officers
The following table sets forth information regarding
our executive officers as of the date of this Annual Report:
Name |
|
Age |
|
Position |
Jonathan Solomon |
|
46 |
|
Chief Executive Officer and Director |
Assaf Oron |
|
48 |
|
Chief Business Officer |
Dr. Merav Bassan |
|
57 |
|
Chief Development Officer |
Marina Wolfson |
|
39 |
|
Chief Financial Officer |
Jonathan Solomon has served as the
Chief Executive Officer and as a director of the Company since October 2019. Mr. Solomon served as Board member of BiomX Ltd. from February
2016 and also as Chief Executive Officer from February 2017 to October 2019. From July 2007 to December 2015, Mr. Solomon was a co-founder,
President, and Chief Executive Officer of ProClara Biosciences Inc. (formerly NeuroPhage Pharmaceuticals Inc.), a biotechnology company
pioneering an approach to treating neurodegenerative diseases. Prior to joining ProClara, he served for ten years in a classified military
unit of the Israeli Defense Forces. Mr. Solomon holds B.Sc. magna cum laude in Physics and Mathematics from the Hebrew University, an
M.Sc. summa cum laude in Electrical Engineering from Tel Aviv University, and an MBA with honors from the Harvard Business School.
Assaf Oron has served as the Chief
Business Officer of the Company since October 2019. Mr. Oron served as Chief Business Officer of BiomX Ltd. from January 2017 to October
2019. Prior to this position, he served in various roles at Evogene Ltd. (Nasdaq:EVGN), an agriculture biotechnology company, which utilizes
a proprietary integrated technology infrastructure to enhance seed traits underlying crop productivity, from March 2006 to December 2016,
including Executive Vice President of Strategy and Business Development and Executive Vice President of Corporate Development. Prior to
joining Evogene, Mr. Oron served as Chief Executive Officer of ChondroSite Ltd., a biotechnology company that develops engineered tissue
products in the field of orthopedics and as a senior project manager and strategic consultant at Israeli management consulting company
POC Ltd. Mr. Oron holds an M.Sc. in Biology (bioinformatics) and a B.Sc. in Chemistry and Economics, both from Tel Aviv University.
Dr. Merav Bassan has served as the
Chief Development Officer of the Company since October 2019. Prior to this position, she served in various development roles at Teva Pharmaceutical
Industries Limited between 2005 and 2019, including Vice President, Head of Translational Sciences, Specialty Clinical Development R&D
from 2017 to 2019, Vice President, Pain and Global Internal Medicine, Project Leadership, Innovative Product Development, Global IR&D
from 2015 to 2017, and Project Champion, Senior Director, Innovative Product Development, Global IR&D from 2009 to 2015. Dr. Bassan
holds a B.Sc. in Biology, a M.Sc. in Human Genetics and a Ph.D. in Neurobiology from Tel Aviv University, and she completed a Post-Doctoral
Fellowship in Neuroscience at Harvard Medical School at Harvard University.
Marina Wolfson has served as the Chief
Financial Officer of the Company since April 2022. Ms. Wolfson served in several finance and operations roles in the Company from December
2019 to March 2022. Ms. Wolfson’s experience includes working with large pharmaceutical and hi-tech companies, as well as venture
capital funds. Prior to joining the Company, Ms. Wolfson worked as Vice President of Finance at BioView Ltd. (TASE:BIOV) from 2010 to
2019 and a senior auditor at Ernst & Young, from 2007 to 2010. Ms. Wolfson is a certified public accountant in Israel and holds
a B.A in Economics and Accounting (with honors) and an MBA (with honors, specializing in finance) from Ben-Gurion University.
ITEM 1A. RISK FACTORS
You should carefully consider the risks and
uncertainties described below and the other information in this Annual Report before making an investment in our securities. Our business,
financial condition, results of operations, or prospects could be materially and adversely affected if any of these risks occurs, and
as a result, the market price of our securities could decline and you could lose all or part of your investment. This Annual Report also
contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.”
Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain
factors, including those set forth below.
Risks Related to Our Business, Technology and Industry
We are a clinical-stage company with limited operating history
and have incurred losses since our inception. We anticipate that we will continue to incur significant expenses, and we will continue
to incur significant losses for the foreseeable future.
We are a clinical-stage biopharmaceutical company
with limited operating history. We have incurred losses in each year since BiomX Ltd.’s inception in 2015. As of December 31, 2022,
our accumulated deficit was $136.8 million, and we expect to incur increasingly significant losses for the foreseeable future. Preclinical
development and clinical trials and activities are costly. We have devoted, and will continue to devote for the foreseeable future, substantially
all of our resources to research and development and clinical trials for our product candidates. We do not expect to generate any revenue
from the commercial sales of our product candidates in the near term. For the years ended December 31, 2022 and 2021, we had losses from
operations of $27.2 million and $35.5 million, respectively. We anticipate that the level of our expenses will continue to be significant
if and as we:
| ● | initiate and continue research,
preclinical and clinical development efforts for any future product candidates; |
| ● | seek to discover and develop
additional product candidates and further expand our clinical product pipeline; |
| ● | seek marketing and regulatory
approvals for any product candidates that successfully complete clinical trials; |
| ● | require the manufacture of larger
quantities of product candidates for clinical development and, potentially, commercialization; |
| ● | maintain, expand and protect
our intellectual property portfolio; |
| ● | expand our research and development
infrastructure, including hiring and retaining additional personnel, such as clinical, quality control and scientific personnel; |
| ● | establish sales, marketing,
distribution and other commercial infrastructure in the future to commercialize products for which we obtain marketing approval, if any;
and |
| ● | add operational, financial and
management information systems and personnel, including personnel to support our product development and commercialization and help us
comply with our obligations as a public company. |
We will need to raise additional capital in the future to support
our operations which may not be available at terms that are favorable to us and might cause significant dilution to our stockholders or
increase our debt towards third parties.
As of December 31, 2022, we had cash, cash equivalents
and restricted cash of $32.3 million, and we have had recurring losses from operations and negative operating cash flows since inception.
We will need to raise additional capital in the future to support our operations and product development activities. In the near term,
we expect to continue to fund our operations and other development activities relating to additional product candidates from the cash
held by us, governmental and other grants and through future equity and debt financing. In February 2023, we closed the first part of
a private investment in public equity, or PIPE, financing, raising approximately $1.5 million in gross proceeds. The second closing for
the PIPE is contingent upon approval of the issuance of the securities to be issued therein by the Company’s stockholders in accordance
with NYSE American rules, which is expected to take place in the second quarter of 2023. If such second closing occurs, we expect to raise
an additional $6 million in gross proceeds. In connection with our efforts to raise additional capital, we filed a shelf registration
statement on Form S-3, which was declared effective by the SEC on December 11, 2020. In addition, on December 4, 2020, we entered into
an Open Market Sale AgreementSM, or the Sale Agreement, with Jefferies LLC, or Jefferies, pursuant to which we may issue and
sell shares of our Common Stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies. Through March
24, 2023, we sold an aggregate of 983,184 shares of Common Stock pursuant to the Sale Agreement for aggregate gross proceeds of $5,693,968.
We may continue to sell shares under the Sale Agreement and otherwise to use our shelf registration statement to raise additional funds
from time to time, as we did in July 2021. We may also raise funds privately, as we did in the PIPE investment in February 2023, which
is still pending completion, as well as in other cases in 2021. We may also seek funds through arrangements with collaborators or others
that may require us to relinquish rights to the product candidates that we might otherwise seek to develop or commercialize independently.
If we enter into a collaboration for one or more of our current or future product candidates at an earlier development stage, the terms
of such a collaboration will likely be less favorable than if we were to enter the collaboration in later stages or if we commercialized
the product independently. If we raise additional funds through equity offerings, the terms of these securities may include liquidation
or other preferences that adversely affect our stockholders’ rights or cause significant dilution to our stockholders. If we raise
additional capital through debt financing, it would be subject to fixed payment obligations and may be subject to covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends
or acquiring or licensing intellectual property rights.
If the second closing of the PIPE does not occur for
any reason and/or additional capital is not available to us when needed or on acceptable terms, we may not be able to continue to operate
our business pursuant to our business plan and may be required to delay our clinical development. While we believe that our existing cash
and cash equivalents, together with our existing resources, will be sufficient to fund our planned operations until at least the middle
of 2024, we cannot provide assurances that our estimates are accurate, that our plans will not change or that changed circumstances will
not result in the depletion of our capital resources more rapidly than we currently anticipate.
Developing drugs and conducting clinical trials
is expensive. Our future funding requirements will depend on many factors, including:
| ● | the costs, timing and progress
of our research and development and clinical activities; |
| ● | manufacturing costs associated
with our targeted bacteriophage, or phage, therapies strategy and other research and development activities; |
| ● | the terms and timing of any
collaborative, licensing, acquisition or other arrangements that we may establish; |
| ● | employee-related expenses, as
well as external costs such as fees paid to outside consultants; |
| ● | the costs and timing of seeking
regulatory approvals and related to compliance with regulatory requirements; and |
| ● | the costs of filing, prosecuting,
defending and enforcing any patent applications, claims, patents and other intellectual property rights. |
Domestic and international equity and debt markets
have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions
and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, or a
bear market, or recession, ensues in the U.S. stock market, the Russian invasion of Ukraine and world sanctions on Russia, Belarus, and
related parties and the impact associated with the COVID-19 pandemic, as well as geopolitical uncertainty and instability, such as the
Russia-Ukraine conflict, our operating results and liquidity could be affected adversely by those factors in many ways, including making
it more difficult for us to raise funds if necessary and our stock price may decline.
There can be no assurance that sufficient funds
will be available to us when required or on acceptable terms, if at all. Our inability to obtain additional funds could have a material
adverse effect on our business, financial condition and results of operations. Moreover, if we are unable to obtain additional funds on
a timely basis, there will be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and
up to a total loss of investment by our stockholders.
The terms of our term loan agreement
with Hercules place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the
terms of any additional debt could further restrict our ability to operate our business.
In August 2021, we entered
into a term loan agreement, or the Hercules Loan Agreement, providing for a term loan in an aggregate principal amount of up to $30.0
million, subject to funding in three tranches and subject to certain terms and conditions. We received the first tranche of $15.0 million
promptly after signing the agreement in August 2021. The second tranche of $10.0 million did not become available to us since certain
milestones were not met. A third additional tranche in the amount of $5 million could become available to us to borrow upon the occurrence
of certain milestone events until September 2023; however, we do not expect such milestones to occur. Our obligations under the Hercules
Loan Agreement are secured by a lien on substantially all of our assets, other than intellectual property. We also agreed not to pledge
or secure our intellectual property to others.
The Hercules Loan Agreement
includes affirmative and negative covenants and events of default applicable to us. The affirmative covenants include, among others, covenants
requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports and maintain insurance coverage.
The negative covenants include, among others, restrictions on our transferring collateral, making changes to the nature of our business,
incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments,
engaging in transactions with affiliates. Events of default include, among other things and subject to customary exceptions: (i) insolvency,
liquidation, bankruptcy or similar events; (ii) failure to pay any debts due under the Hercules Loan Agreement or other loan documents
on a timely basis; (iii) failure to observe certain covenants under the loan and security agreement with Hercules; (v) occurrence of a
material adverse effect; (vi) material misrepresentation by us; (vii) occurrence of any default under any other agreement involving material
indebtedness; and (viii) certain material money judgments. If we default under the Hercules Loan Agreement, Hercules may accelerate all
of our repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less
favorable to us or to immediately cease operations. Further, if we are liquidated, the lenders’ right to repayment would be senior
to the rights of the holders of our Common Stock to receive any proceeds from the liquidation. Any declaration by Hercules of an event
of default could significantly harm our business and prospects and could cause the price of our Common Stock to decline. If we raise any
additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
We are seeking to develop product candidates using phage technology,
an approach for which it is difficult to predict the time and cost of development. To our knowledge, no bacteriophage has thus far been
approved as a drug in the United States or in the European Union.
We are developing our product candidates with phage
technology. We have not, nor to our knowledge has any other company, received regulatory approval from the FDA, or equivalent foreign
regulatory agencies for a product based on this approach. While in vitro and in vivo studies have characterized the behavior
of phage in cell cultures and animal models and there exists a body of literature regarding the use of phage therapy in humans, the safety
and efficacy of phage therapy in humans has not been extensively studied in well-controlled modern clinical trials. Most of the prior
research on phage-based therapy was conducted in the former Soviet Union prior to and immediately after World War II and lacked appropriate
control group design or lacked control groups at all. Furthermore, the standard of care has changed substantially during the ensuing decades
since those studies were performed, diminishing the relevance of prior claims of improved cure rates. Any product candidates that we develop
may not demonstrate in patients the therapeutic properties ascribed to them in laboratory and other preclinical studies, and they may
interact with human biological systems in unforeseen, ineffective or even harmful ways. We cannot be certain that our approach will lead
to the development of approvable or marketable products. Furthermore, the bacterial targets of phage may develop resistance to our product
candidates over time, which we may or may not be able to overcome with the development of new phage cocktails or we may not be able to
construct a cocktail with sufficient coverage of our target pathogen universe.
If our product candidates receive regulatory approval
but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate product revenue
sufficient to attain profitability. Our success will depend upon physicians who specialize in the treatment of diseases targeted by our
product candidates that we pursue as drugs, prescribing potential treatments that involve the use of our product candidates in lieu of,
or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. Our success
will also depend on consumer acceptance and adoption of our products that we commercialize. Adverse events in preclinical studies and
clinical trials of our product candidates or in clinical trials of others developing similar products and the resulting publicity, as
well as any other adverse events in the field of phage therapeutics, could result in a decrease in demand for any product that we may
develop. The degree of market acceptance of any approved products will depend on a number of factors, including:
|
● |
the effectiveness of the product; |
|
● |
the prevalence and severity of any side effects; |
|
● |
potential advantages or disadvantages over alternative treatments; |
|
● |
relative convenience and ease of administration; |
|
● |
the strength of marketing and distribution support; |
|
● |
the price of the product, both in absolute terms and relative to alternative treatments; and |
|
● |
sufficient third-party coverage or reimbursement. |
Developing our product candidates on a commercial
scale will require substantial technical, financial and human resources. We and our third-party collaborators may experience delays in
developing manufacturing capabilities for our product candidates, and may not be able to do so at the scale required to efficiently conduct
the clinical trials required to obtain regulatory approval of those of our product candidates that require it, or to manufacture commercial
quantities of our products, if approved or otherwise permitted to be marketed.
Our product candidates must undergo clinical testing which may
fail to demonstrate the requisite safety and efficacy for drug products, or safety, purity, and potency for biologics, and any of our
product candidates could cause adverse effects, which would substantially delay or prevent regulatory approval and/or commercialization.
Before we can obtain regulatory approval for a
product candidate or otherwise obtain evidence allowing us to market the product as a drug or biologic, we must undertake extensive preclinical
and clinical testing in humans to demonstrate safety and efficacy or in the case of biologics, safety, purity, and potency, to the satisfaction
of the FDA or other regulatory agencies. Clinical trials of product candidates sufficient to obtain regulatory marketing approval or otherwise
demonstrate safety prior to marketing, are expensive and take years to complete, especially for our product candidate designed to treat
CRC as the phage will be genetically modified, which could make the conduct of clinical trials more complex and subject such trials to
additional regulatory oversight. Furthermore, results from these clinical trials may not show safety or efficacy of our product candidates
sufficient to lead to approval, or to warrant further development. For example, in October 2021, we announced the results of a Phase 2
cosmetic clinical study of our BX001 product candidate that showed no meaningful difference for efficacy relative to the placebo arm of
the study, and therefore decided not to continue pursuing this program despite the time and expenses that had been incurred to date in
its development. Our approach is intended to design phage combinations, or cocktails, to target specific strains of pathogenic bacteria
in order to alter microbiome composition and confer potential therapeutic or cosmetic benefit to patients. However, there can be no assurance
that the eradication of the selected targets will result in a clinically meaningful effect on the underlying disease, such as in cases
where the pathology of the disease is not well-defined. In addition, the bacteria that we target may be associated with the disease, but
may not be causative or contributive to the pathology of the disease, or there may be other bacteria that our product candidates do not
target that are more meaningful drivers of the underlying disease. In addition, our product candidates require the use of effective delivery
vehicles to reach the target organ or tissue, and there can be no assurance that our intended delivery systems will allow our product
candidates to reach the desired locations in a patient. Safety must first be established through preclinical testing and early clinical
trials, before efficacy can be evaluated and established and thereby lead to FDA or other regulatory agencies marketing approval. Our
clinical trials may produce undesirable side effects or negative or inconclusive results, and we may decide, or regulators may require
us, to conduct additional clinical and/or preclinical testing or to abandon programs.
The ongoing COVID-19 pandemic
and other geopolitical instability have and may continue to adversely affect our business, including our clinical trials.
The COVID-19 pandemic has had and continues to
have a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have
been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and
supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the spread of COVID-19, we
temporarily had closed our executive offices with our administrative employees continuing their work outside of our offices and may need
to close them again in the future. In addition, general economic, political, demographic and business conditions worldwide, including
geopolitical uncertainty and instability, such as the Russia-Ukraine conflict, might adversely affect our business, through indirect disruption
to our supply chain, harming our ability to raise funds at terms acceptable to us among other affects. Also, due to the COVID-19 pandemic
we have modified our business practices, including restricting employee travel, developing social distancing plans for our employees and
cancelling physical participation in meetings, events and conferences. As a result of the COVID-19 pandemic, we have experienced
and may continue to experience additional disruptions that could severely impact our business, preclinical studies and clinical trials,
including:
| ● | delays or difficulties in enrolling
patients in our clinical trials; |
| ● | delays or difficulties in clinical
site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; |
| ● | diversion of healthcare resources
away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff
supporting the conduct of our clinical trials; |
| ● | interruption of key clinical
trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state
governments, in the U.S. and the government in Israel, employers and others or interruption of clinical trial subject visits and study
procedures (such as endoscopies that are deemed non-essential), which may impact the integrity of subject data and clinical study endpoints; |
| ● | interruption or delays in the
operations of the FDA or other regulatory authorities, which may impact review and approval timelines; |
| ● | interruption of, or delays in
receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns
or stoppages and disruptions in delivery systems; |
| ● | limitations on employee resources
that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or
the desire of employees to avoid contact with large groups of people; and |
|
● |
interruptions or delays to our sourced discovery and clinical activities. |
The pandemic and the resulting government actions
have impacted and may continue to adversely impact our planned and ongoing clinical trials. Clinical site initiation, including difficulties
in recruiting clinical site investigators and clinical site staff, and patient enrollment may be delayed due to prioritization of hospital
resources toward the COVID-19 pandemic. Some patients have not been willing and/or able to comply with clinical trial protocols
due to the COVID-19 pandemic, particularly if quarantines or other restrictions impede patient movement or interrupt healthcare
services. Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers,
may have heightened exposure to COVID-19 has been impeded and may continue to remain impeded, which would adversely impact our
clinical trial operations. The diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns,
including the attention of physicians serving as our clinical trial investigators and hospitals serving as our clinical trial sites, may
significantly disrupt our research activities. As a result, the expected timeline for data readouts of our clinical trials and certain
regulatory filings will likely be negatively impacted, which would adversely affect and delay our ability to obtain regulatory approvals
for our product candidates, increase our operating expenses and have a material adverse effect on our financial condition.
Furthermore, the response to the COVID-19 pandemic
may redirect resources with respect to regulatory matters and intellectual property matters in a way that would adversely impact our ability
to progress regulatory approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings and
approvals due to measures intended to limit in-person interactions. Comparable regulatory authorities in other jurisdictions
may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and provide guidance regarding
the conduct of clinical trials. If global health concerns continue to prevent the FDA or other regulatory authorities from conducting
their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA to timely review
and process our regulatory submissions, which could have a material adverse effect on our business.
The COVID-19 pandemic continues to evolve.
The extent to which the outbreak impacts our business, preclinical studies and clinical trials will depend on future developments, which
are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the
pandemic, travel restrictions and social distancing in the United States Canada, Europe, Israel and other countries, business closures
or business disruptions and the effectiveness of actions taken in the United States, Canada, Europe, Israel and other countries to contain
and treat the disease. As a result, the COVID-19 pandemic may have a material adverse effect on our business, results of operations,
financial condition and prospects and heighten many of our known risks described or referenced in this “Risk Factors” section.
If we are not able to obtain, or if there are delays in obtaining,
required regulatory approvals for our product candidates for therapeutic indications, we will not be able to commercialize, or will be
delayed in commercializing, our product candidates, and our future ability to generate revenue will be materially impaired.
Our product candidates and the activities associated
with their development and commercialization for therapeutic indications, including their design, testing, manufacture, safety, efficacy,
recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export are subject to regulation by
the FDA and other regulatory agencies in the United States and by equivalent foreign regulatory authorities. Before we can commercialize
any of our product candidates for therapeutic indications, we must obtain marketing approval. We have not received approval to market
any of our product candidates from regulatory authorities in any jurisdiction, and it is possible that none of our product candidates
or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
The process of obtaining regulatory approvals for
therapeutic indications, both in the United States and in other countries, is expensive, may take many years if additional clinical trials
are required, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates
involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or
regulations, or changes in regulatory review for each submitted IND, or equivalent application types, may cause delays in the approval
or rejection of an application. The FDA and equivalent foreign regulatory authorities have substantial discretion in the approval process
and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical,
clinical or other studies. Our product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons,
including the following:
| ● | the FDA or equivalent foreign
regulatory authorities may disagree with the design, including study population, dose level, dose regimen, and bioanalytical assay methods,
or implementation of our clinical trials; |
| ● | we may be unable to demonstrate
to the satisfaction of the FDA or equivalent foreign regulatory authorities that a drug candidate is safe and effective for its proposed
indication or a related companion diagnostic is suitable to identify appropriate patient populations; |
| ● | the results of clinical trials
may not meet the level of statistical significance required by the FDA or equivalent foreign regulatory authorities for approval, such
as was the case with our acne product candidate; |
| ● | we may be unable to demonstrate
that a product candidate’s clinical and other benefits outweigh its safety risks; |
| ● | the FDA or equivalent foreign
regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; |
| ● | the data collected from clinical
trials of our product candidates may not be sufficient to support the submission of a marketing application or other submission or to
obtain regulatory approval in the United States or elsewhere; |
| ● | the FDA or equivalent foreign
regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract
for clinical and commercial supplies; and |
| ● | the approval policies or regulations
of the FDA or equivalent foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient
for approval. |
Of the large number of drugs in development, only
a small percentage successfully complete the FDA or equivalent foreign regulatory approval processes and are commercialized. The lengthy
approval process as well as the unpredictability of future clinical trial results may result in us failing to obtain regulatory approval
to market its product candidates, which would significantly harm our business, results of operations and prospects.
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 approval for therapeutic indications.
The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain approval of any product
candidates that we develop based on the completed clinical trials. In the European Union, the safety and efficacy data of our product
candidate for the treatment of CRC will be reviewed by the European Medicines Agency’s, or the EMA’s, Committee for Advanced
Therapies, or CAT, a group of experts in advanced therapy medicinal products. Our other product candidates would be reviewed by CAT as
well if the EMA were to consider that they also qualify as advanced therapy medicinal products.
Moreover, under PREA, in the United States, and
the Pediatric Regulation, in the European Union, the FDA or equivalent foreign regulatory authority could require mandatory testing in
the pediatric population. Applications for approval in the United States or in the European Union must contain data to assess the safety
and efficacy of the biologic for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. The FDA or equivalent foreign regulatory authority may,
in its discretion, grant full or partial waivers, or deferrals, for submission of data in pediatric subjects. If the FDA requires data
in pediatric patients, significantly more capital will have to be invested in order to conduct the mandatory pediatric clinical trials
and studies, but the approval of the medicinal products for the adult population should normally not be affected. If the results of such
pediatric studies are not positive, our product candidates will not be approved for children.
In addition, even if we were to obtain approval,
regulatory authorities may approve any of our product candidates for fewer or more limited therapeutic indications than our requests,
may include limitations for use or contraindications that limit the suitable patient population, may not approve the price we intend to
charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials or may approve a product
candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product
candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
If we experience delays in obtaining approval or
if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our future
ability to generate revenues will be materially impaired.
We have never generated any revenue from product sales and may
never be profitable or, if achieved, may not sustain profitability.
Our ability to generate meaningful revenue and
achieve profitability depends on our ability, and the ability of any third party with which we may partner, to successfully complete the
development of, and meet regulatory requirements, including (but not limited to) obtaining any necessary regulatory approvals, to commercialize
our product candidates. We do not currently meet regulatory requirements or have the required approvals to market our product candidates
and may never meet or receive them. We do not anticipate generating revenue from product sales for the foreseeable future, if ever. If
any of our product candidates fail in clinical trials or if any of our product candidates do not meet regulatory requirements, including
gaining regulatory approval when needed, or if any of our product candidates, if marketed, fail to achieve market acceptance, we may never
become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.
Our ability to generate future revenue from product sales depends heavily on our success in:
| ● | completing research and preclinical
and clinical development of our product candidates; |
| ● | seeking and obtaining regulatory
and marketing approvals for product candidates for which we complete clinical trials; |
| ● | meeting regulatory requirements
for marketing the products; |
| ● | developing a sustainable, scalable,
reproducible and transferable manufacturing process for our product candidates; |
| ● | launching and commercializing
product candidates for which we obtain regulatory and marketing approval or are otherwise permitted to market, either by establishing
a sales force, marketing and distribution infrastructure or by collaborating with a partner; |
| ● | obtaining market acceptance
of any approved products; |
| ● | addressing any competing technological
and market developments; |
| ● | implementing additional internal
systems and infrastructure, as needed; |
| ● | identifying and validating new
product candidates; |
| ● | negotiating favorable terms
in any collaboration, licensing or other arrangements into which we may enter; |
| ● | maintaining, protecting and
expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and |
| ● | attracting, hiring and retaining
qualified personnel. |
Even if one or more of the product candidates that
we develop is approved for commercial sale or otherwise permitted for marketing, we anticipate incurring significant costs associated
with commercializing any approved product. Our expenses could increase beyond expectations if we are required by the FDA, or the EMA,
or other equivalent foreign regulatory agencies to perform clinical trials and other studies in addition to those that we currently anticipate.
Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional
funding to continue operations. If we fail to become profitable, or if we are unable to fund our continuing losses, our business, financial
condition and results of operations may be materially adversely impacted.
We are seeking to develop product candidates to treat medical
conditions related to the presence of certain bacteria. Our success is largely dependent on a broad degree of market acceptance, and in
the case of drug products, physician adoption and use, which are necessary for commercial success.
Even if we obtain FDA or foreign regulatory approvals
for our drug product candidates, the commercial success of our product candidates will depend on consumer acceptance and adoption of products
that we commercialize. Adverse events in preclinical studies and clinical trials of our product candidates or in clinical trials of others
developing similar products and the resulting publicity could result in a decrease in demand for any product that we may develop.
In addition, the commercial success of our drug
product candidates will depend significantly on their broad adoption and use by pediatricians and other physicians for approved therapeutic
indications, as well as any other indications for which we may seek approval. We cannot be certain that our approach will lead to the
development of approvable or marketable products.
Obtaining high titers for specific phage cocktails necessary
for our preclinical and clinical testing may be difficult and time-consuming.
Our product candidates are phage cocktails that
we have designed to meet specific characteristics. We and our contract manufacturers produce a cocktail of multiple phage and it may be
difficult or time-consuming to achieve high titers, or levels, of phage sufficient for our preclinical and clinical testing. In some cases,
it may require multiple product runs in order for us to obtain the amounts necessary for its clinical testing. This may result in delays
in our clinical trial timelines, and it may increase production costs and associated expenses. Also, it may be difficult to reproduce
the manufacturing process to the extent that more significant quantities are required as our product candidates advance through the clinical
development process.
Results from preclinical studies of our product candidates may
not be predictive of the results of clinical trials or later stage clinical development.
Preclinical studies of our product candidates,
such as BX004 and BX005, including studies in animal disease models in the case of BX003 and other studies, may not accurately predict
the safety of the product candidate such that further human clinical trials would be allowed to proceed. In particular, promising preclinical
testing suggesting the potential efficacy of prototype phage products may not predict the ability of these products to address conditions
in the human clinical settings. For example, while we have studied phage activity in vitro and in vivo, in the case of BX003,
these results may not be replicated when our phage cocktails are administered to human subjects. Despite promising data in any preclinical
studies, our phage technology may be found not to be efficacious when studied in clinical trials.
To satisfy FDA or equivalent foreign regulatory
approval standards, we must demonstrate in adequate and well controlled clinical trials that our drug product candidates are safe and
effective for their intended use. Success in preclinical testing and early-stage clinical trials does not ensure that later clinical trials
will be successful. Our initial results from preclinical testing also may not be confirmed by later analysis or subsequent larger clinical
trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after
obtaining promising results in earlier clinical trials, and most product candidates that commence clinical trials are never approved for
commercial sale.
Our product candidates are subject to significant regulatory
approval requirements, which could delay, prevent or limit our ability to market our product candidates.
Our research and development activities, preclinical
studies, clinical trials and the anticipated manufacturing and marketing of our drug product candidates are subject to extensive regulation
by the FDA and other regulatory agencies in the United States and by comparable authorities in Europe and elsewhere. To satisfy FDA or
equivalent foreign regulatory approval standards, we must demonstrate in adequate and well controlled clinical trials that our drug product
candidates are safe and effective for their intended use. The regulatory approval process is expensive and time-consuming, and the timing
of receipt of regulatory approval is difficult to predict. Given the uncertainties around phage therapy, our product candidates could
require a significantly longer time to gain regulatory approval than expected or may never gain approval. This is especially so for the
product candidate designed to treat CRC as the phage will be genetically modified, which adds potential complexity to the process, particularly
in the European Union. We cannot be certain that, even after expending substantial time and financial resources, we will obtain regulatory
approval for any of our product candidates. A delay or denial of regulatory approval could delay or prevent our ability to generate product
revenue and to achieve profitability.
Regulatory requirements for development of our
product candidates are uncertain and evolving. Changes in these laws or the current interpretation or application of these laws would
have a significant adverse impact on our ability to develop and commercialize our product candidates. The legal and regulatory status
of phage therapy remains unclear in many countries, including the European Union. Changes in regulatory approval policies during the development
period of any of our product candidates, changes in, or the enactment of, additional regulations or statutes, or changes in regulatory
review practices for a submitted product application may cause a delay in obtaining approval or result in the rejection of an application
for regulatory approval.
Regulatory approval, if obtained, may be made subject
to limitations on the indicated uses for which we may market a product, as well as the approved labeling for the product. These limitations
could adversely affect our potential product revenue. Regulatory approval may also be conditioned on costly post-marketing follow-up studies.
In addition, the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping related to the product
will be subject to extensive ongoing regulatory requirements. Furthermore, for any marketed product, our manufacturer and our manufacturing
facilities will be subject to registration and listing requirements and continual review and periodic inspections by the FDA or other
regulatory authorities. Failure to comply with applicable regulatory requirements may, among other things, result in fines, suspensions
of regulatory approvals, product recalls, product seizures, operating restrictions and criminal prosecution.
If we encounter difficulties enrolling patients in our clinical
trials, our clinical development activities could be delayed or otherwise adversely affected.
Completion of clinical trials depends, among other
things, on our ability to enroll a sufficient number of patients, which is a function of many factors, including:
| ● | the therapeutic endpoints chosen
for evaluation; |
| ● | the eligibility criteria defined
in the protocol; |
| ● | the perceived benefit of the
product candidate under study; |
| ● | the size of the patient population
required for analysis of the clinical trial’s therapeutic endpoints; |
| ● | our ability to recruit clinical
trial investigators and sites with the appropriate competencies and experience; |
| ● | our ability to obtain and maintain
patient consents; and |
| ● | competition for patients from
clinical trials for other treatments. |
We have experienced and may continue to experience
difficulties in enrolling patients in our clinical trials, including due to the impacts of COVID-19, which could increase the costs or
affect the timing or outcome of these clinical trials. This is particularly true with respect to diseases with relatively small patient
populations. In addition, potential patients for our trials may not be adequately diagnosed or identified with the diseases that we are
targeting or may not meet the entry criteria for our studies.
We may not be able to initiate or continue clinical
trials if we are unable to locate a sufficient number of eligible patients to participate in the clinical trials required by the FDA or
equivalent foreign regulatory agencies. In addition, the process of finding and diagnosing patients may prove costly. Our inability to
enroll a sufficient number of patients for any of our clinical trials would result in significant delays or may require us to abandon
one or more clinical trials.
Delays in our clinical trials could result in us not achieving
anticipated developmental milestones when expected, increased costs and delays in our ability to obtain regulatory approval for and commercialization
of our product candidates.
Delays in our clinical trials could result in us
not meeting anticipated clinical milestones and could materially impact our product development costs and delay regulatory approval of
our product candidates. Planned clinical trials may not be commenced or completed on schedule, or at all.
Clinical trials can be delayed for a variety of
reasons, including:
| ● | delays in the development of
manufacturing capabilities for our product candidates to enable their consistent production at clinical trial scale; |
| ● | failures in our internal manufacturing
operations that result in our inability to consistently and timely produce bacteriophage in sufficient quantities to support our clinical
trials; |
| ● | the availability of financial
resources to commence and complete our planned clinical trials; |
| ● | delays in reaching a consensus
with clinical investigators on study design; |
| ● | delays in reaching a consensus
with regulatory agencies on trial design or in obtaining regulatory approval to commence a trial; |
| ● | delays in obtaining clinical
materials; |
| ● | slower than expected patient
recruitment for participation in clinical trials; |
| ● | regulatory constraints or injunctions
(for example, from supervisory authorities in case of noncompliance with cybersecurity and data privacy laws); |
| ● | failure by clinical trial sites,
other third parties or us to adhere to clinical trial agreements and/or the trial protocol; |
| ● | delays in reaching agreement
on acceptable clinical trial agreement terms with prospective sites or obtaining IRB or independent ethics committee approval; and |
| ● | adverse safety events experienced
during our clinical trials. |
If we do not successfully commence or complete
our clinical trials on schedule, the price of our securities may decline. Significant preclinical or clinical trial delays could shorten
any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products
to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business
and results of operations.
Our current or future product candidates may cause adverse effects
that could halt their clinical development, prevent their approval or marketing, limit their commercial potential or result in significant
negative consequences.
Adverse effects could occur and cause us or regulatory
authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of marketing
approval by the FDA or equivalent foreign regulatory agencies. Results of our trials could reveal a high and unacceptable severity and
prevalence of side effects or unexpected characteristics.
If adverse effects arise in the development of
our product candidates, we, the FDA or equivalent foreign regulatory agencies, the IRBs or independent ethics committees at the institutions
in which our studies are conducted, or the Data Safety Monitoring Board could suspend or terminate our clinical trials or the FDA or equivalent
foreign regulatory agencies could deny approval of our product candidates for any or all targeted indications.
We intend to continue to evaluate our product candidates
for safety and tolerability in the form of Phase 1 clinical trials. While our current and future product candidates will undergo safety
testing to the extent possible and, where applicable, under such conditions discussed with regulatory authorities, not all adverse effects
of drugs can be predicted or anticipated. Unforeseen adverse effects could arise either during clinical development or, if such adverse
effects are more rare, after our products have been approved by regulatory authorities and the approved product has been marketed, resulting
in the exposure of additional patients. For example, while we screen our phage in attempts to minimize safety issues, there can be no
assurance that we will eliminate the risk of the appearance of virulence genes, antibiotic resistance genes, lysogenic genes, integrase
genes, or other toxic genes in our phage, or of adverse reactions to our phage in a patient’s immune system. So far, we have not
demonstrated, and we cannot predict, if ongoing or future clinical trials will demonstrate that any of our product candidates are safe
in humans. Moreover, clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to
enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product
candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable adverse effects.
Ultimately, some or all of our product candidates
may prove to be unsafe for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears
to suffer, adverse health effects as a result of participating in our clinical trials. Any of these events could prevent us from achieving
or maintaining market acceptance of our product candidates and could substantially increase commercialization costs.
We have not completed composition development of our product
candidates.
The development of our product candidates requires
that we isolate, select, optimize and combine a number of phage that target the desired bacteria for that product candidate. The selection
of phage for any of our product candidates is based on a variety of factors, including, without limitation, the ability of the selected
phage, in combination, to successfully kill the targeted bacteria, the degree of cross-reactivity of the individual phage with the same
part of the bacterial targets, the ability of the combined phage to satisfy regulatory requirements, our ability to manufacture sufficient
quantities of the phage, intellectual property rights of third parties, and other factors. While we have selected an initial formulation
of BX004, there can be no assurance that this initial formulation will be the final formulations of this product candidate for commercialization
if approved. If we are unable to complete formulation development of our product candidates in the time frame that we have anticipated,
then our product development timelines, and the regulatory approval of our product candidates, could be delayed.
We must continue to develop manufacturing processes for our product
candidates, and any delay in doing so, or our inability to do so, would result in delays in our clinical trials.
The manufacturing processes for our product candidates,
and the scale-up of such processes for clinical trials, may present challenges, and there can be no assurance that we will be able to
complete this work in a timely manner, if at all. Any delay in the development or scale-up of these manufacturing processes could delay
the start of clinical trials and harm our business. In order to scale-up our manufacturing capacity, we need to either build additional
internal manufacturing capacity, contract with one or more partners, or both. Our technology and the production process for our equipment
and tools are complex and we may encounter unexpected difficulties in manufacturing our product candidates. For example, the manufacturing
hosts that we use to produce our phage may contain one or more integrated phage in their genomes that, if we are unable to remove, can
present challenges in manufacturing of the produced phage. There is no assurance that we will be able to continue to build manufacturing
capacity internally or find one or more suitable partners, or both, to meet the necessary volume and quality requirements. Manufacturing
and product quality issues may arise as we increase the scale of our production. Any delay or inability in establishing or expanding our
manufacturing capacity could diminish our ability to develop our product candidates.
In the third quarter of 2019, we established our
own manufacturing facility at our headquarters in Ness Ziona, Israel and we have executed cGMP manufacturing for our first in human clinical
study (IBD project). In March 2021, we moved into a new manufacturing facility at our headquarters in Ness Ziona, Israel. Our new facility
undergoes ongoing internal inspections to verify proper manufacturing for Phase I and II clinical studies in accordance with cGMP requirements.
In the event this facility does not comply with cGMP standards for the manufacture of our product candidates, we may need to fund
additional modifications to our manufacturing process, conduct additional validation studies or find alternative manufacturing facilities,
any of which would result in significant cost to us as well as a delay of up to several years in obtaining approval for such product candidate.
If we submit marketing applications for any of
our product candidates manufactured at this facility, this manufacturing facility will be subjected to ongoing periodic inspection for
compliance with European, FDA and cGMP regulations. Compliance with these regulations and standards is complex and costly, and there can
be no assurance that we will be able to comply. Any failure to comply with applicable regulations could result in sanctions being imposed
(including fines, injunctions and civil penalties), failure of regulatory authorities to grant marketing approval of our product candidates,
delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions
and criminal prosecution.
If our competitors are able to develop and market products that
are more effective, safer or more affordable than ours, or obtain marketing approval before we do, our commercial opportunities may be
limited.
Competition in the biotechnology and pharmaceutical
industries is intense and continues to increase. Some companies that are larger and have significantly more resources than us are aggressively
pursuing development programs for indications that we are pursuing, including traditional therapies and therapies with novel mechanisms
of action. In addition, other companies are developing phage-based products for therapeutic and non-therapeutic uses, and may elect to
use their expertise in phage development and manufacturing to try to develop products that would compete with our products.
We also face potential competition from academic
institutions, government agencies and private and public research institutions engaged in the discovery and development of drugs and therapies.
Many of our competitors have significantly greater financial resources and expertise in research and development, preclinical testing,
conducting clinical trials, obtaining regulatory approvals, manufacturing, sales and marketing than we do. Smaller or early-stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established pharmaceutical
companies.
In the European Union, potential competition also
comes from medicinal preparations made by hospitals or pharmacists and administered without marketing authorizations, generally referred
to as “compounding.” In some member states, national authorities generally promote compounding in order to reduce healthcare
expenses.
Our competitors may succeed in developing products
that are more effective, have fewer side effects and are safer or more affordable than our product candidates, which would render our
product candidates less competitive or noncompetitive and would prevent the granting or maintenance of an orphan designation. These competitors
also compete with us to recruit and retain qualified scientific and management personnel, establish clinical trial sites and patient registration
for clinical trials, as well as to acquire technology and technology licenses complementary to our programs or advantageous to our business.
Moreover, competitors that are able to achieve patent protection, obtain regulatory approvals and commence commercial sales of their products
before we do, and competitors that have already done so may enjoy a significant competitive advantage.
We may not be successful in our efforts to identify or discover
additional product candidates.
Although we intend to utilize our technology to
evaluate other therapeutic opportunities in addition to the product candidates that we are currently developing, we may fail to identify
other product candidates for clinical development for a number of reasons. For example, our research methodology may not be successful
in identifying potential product candidates, or those we identify may be shown to have harmful side effects or other characteristics that
make them unmarketable or unlikely to receive regulatory approval. In addition, we may not be able to identify phage that eradicate the
target bacteria, including due to sourcing difficulties such as lack of diversity, inability to obtain samples in a timely manner or at
all, or contamination in the samples. We may also encounter difficulties in designing phage cocktails that meet the requirements of an
investigational therapy, including due to the build-up of resistances in bacteria to our phage, the range of host bacteria that are affected
by our phage, the variety of activity on different bacteria growth states, issues with toxicity in our phage, and the stability, robustness
and ease of manufacturing of our product candidates. In addition, the designing of synthetically engineered phage may fail to result in
the development of phage with the desired characteristics or behaviors that are suitable for use as viable therapies, or may result in
phage that contain undesired features such as immunogenicity, toxicity and other safety concerns.
A key part of our strategy is to utilize our screening
technology to identify product candidates to pursue in clinical development. If we fail to identify and develop additional potential product
candidates, we may be unable to grow our business and our results of operations could be materially harmed. Such product candidates will
require additional, time-consuming development efforts prior to commercial sale, including preclinical studies, clinical trials and approval
by the FDA and/or applicable foreign regulatory agencies. All product candidates are prone to the risks of failure that are inherent in
pharmaceutical product development.
Legal requirements as well as ethical and social concerns about
synthetic biology and genetic engineering could limit or prevent the use of our technologies and limit our revenues.
Our technology may include the use of synthetic
biology and genetic engineering. In some countries, drugs made using genetically modified organisms may be subject to a more stringent
legal regime, which could prove to be complex and very challenging, especially for a small life sciences company. For example, in the
European Union, the rules on genetically modified organisms would apply in addition to the general rules on medicinal products or cosmetic
products. The rules on advanced therapy medicinal products may also apply.
Additionally, public perception about the safety
and environmental hazards of, and ethical concerns over, synthetic biology and genetic engineering could influence public acceptance of
our technologies, product candidates and processes. If we and our collaborators are not able to overcome the legal challenges as well
as the ethical and social concerns relating to synthetic biology and genetic engineering, our technologies, product candidates and processes
may not be accepted. These challenges and concerns could result in increased expenses, regulatory scrutiny and increased regulation, trade
restrictions on imports of our product candidates, delays or other impediments to our programs or the public acceptance and commercialization
of our products. We design and produce product candidates with characteristics comparable or superior to those found in naturally occurring
organisms or enzymes in a controlled laboratory; however, the release of such organisms into uncontrolled environments could have unintended
consequences. Any adverse effect resulting from such a release could have a material adverse effect on our business, financial condition
or results of operations, and we may have exposure to liability for any resulting harm.
We may expend our limited resources to pursue a particular product
candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is
a greater likelihood of success.
Because we have limited financial and managerial
resources, we intend to focus on developing product candidates for specific indications that we identify as most likely to succeed, in
terms of both their potential for marketing approval and commercialization. As a result, we may forego or delay pursuit of opportunities
with other product candidates or for other indications that may prove to have greater commercial potential. For example, we spent significant
time and resources developing our BX001 product candidate, which we discontinued.
Our resource allocation decisions may cause us
to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and
development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do
not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights
to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous
for us to retain sole development and commercialization rights to the product candidate.
We intend to continue to rely on our BOLT (BacteriOphage Lead
to Treatment) proprietary product platform to develop our phage therapies. Our competitive position could be materially harmed if our
competitors develop similar platforms and develop rival product candidates.
Our BOLT platform enables us to rapidly develop,
manufacture and formulate phage therapy candidates targeting particular pathogenic bacteria and incorporates our experience over the past
six years with process refinement and implementation of technological advancements. For a given indication, the platform will allow for
the completion of a clinical proof of concept study in patients, meaning Phase 2 results, within approximately 12-18 months from project
initiation; however in certain indications the length of clinical proof of concept may be longer depending on the indication, identity
of target bacteria, recruitment rate, cohort size and other factors, and we may not achieve clinical proof of concept on that timeline,
or at all. We are initially aiming to complete a clinical proof of concept study in patients within approximately 12-18 months from project
initiation in our cystic fibrosis and atopic dermatitis programs. We have limited experience with our BOLT platform and may not achieve
the benefits we anticipate. To the extent we utilize our resources to further develop our BOLT platform, we may become more dependent
on its success.
There is a substantial risk of product liability claims in our
business. If we do not obtain sufficient liability insurance, a product liability claim could result in substantial liabilities to us.
Our business exposes us to significant potential
product liability risks that are inherent in the development, manufacturing and marketing of human therapeutic products. Regardless of
merit or eventual outcome, product liability claims may result in:
| ● | delay or failure to complete
our clinical trials; |
| ● | withdrawal of clinical trial
participants; |
| ● | decreased demand for our product
candidates; |
| ● | injury to our reputation; |
| ● | substantial monetary awards
against us; and |
|
● |
diversion of management or other resources from key aspects of our operations. |
If we succeed in marketing products, product liability
claims could result in an FDA or equivalent foreign regulatory agency investigation of the safety or efficacy of our products, our manufacturing
processes and facilities or our marketing programs. Such investigation could also potentially lead to a recall of our products or more
serious enforcement actions, or limitations on the indications, for which they may be used, or suspension or withdrawal of approval.
We currently only have limited clinical trials
insurance policies that cover clinical trials in certain territories. We intend to expand our insurance coverage to include the sale of
commercial products if marketing approval is obtained for our product candidates or any other compound that we may develop. However, insurance
coverage is expensive, and we may not be able to maintain insurance coverage at a reasonable cost or at all, and the insurance coverage
that we have or obtain may not be adequate to cover potential claims or losses.
Our employees, independent contractors, consultants, commercial
partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or
other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties
could include intentional, reckless and/or negligent conduct that fails to comply with the laws of the FDA and other similar foreign regulatory
bodies, provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies, comply with manufacturing
standards we have established, comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct
laws or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any
of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase
significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other
things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and
education programs.
The FDA and other equivalent foreign regulatory agencies may
implement additional regulations or restrictions on the development and commercialization of products which act on the microbiome, which
may be difficult to predict.
The FDA and equivalent foreign regulatory agencies
in other countries have each expressed interest in further regulating biotechnology products and product candidates, such as those that
act on the human microbiome. Agencies at both the federal and state level in the United States, as well as the U.S. congressional committees
and other governments or governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action
may delay or prevent commercialization of some or all of our product candidates. Adverse developments in non-IND human clinical studies
or clinical trials of microbiome products conducted by others may cause the FDA or other oversight bodies to change the requirements for
approval of any of our product candidates. These regulatory review agencies and committees and the new requirements or guidelines they
promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs,
lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates
or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult
with these regulatory agencies and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay
or discontinue development of such product candidates. These additional processes may result in a review and approval process that is
longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions
on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize
our current and future product candidates in a timely manner if at all.
Exchange rate fluctuations between the U.S. Dollar, the New Israeli
Shekel, the Euro and other foreign currencies, may negatively affect our future expenses.
Our proceeds from sales of our securities are generally
received in U.S. Dollars. Our headquarters are located in Israel, where the majority of our general and administrative expenses and research
and development costs are incurred in the New Israeli Shekel, or NIS. Future expenses may be incurred in foreign currencies such as the
Euro or British Pound. As a result, our financial results may be affected by fluctuations in the exchange rates of currencies in the countries.
For example, during 2020, we witnessed a strengthening of the average exchange rate of the NIS against the U.S. Dollar, which increased
the U.S. Dollar value of Israeli expenses. If the NIS strengthens against the U.S. Dollar, as it did in 2020 and 2021, the U.S. Dollar
value of our Israeli expenses, mainly personnel and facility-related, will increase. We use foreign exchange contracts (mainly option
and forward contracts) to hedge balance sheet items from currency exposure. However, these foreign exchange contracts are not designated
as hedging instruments for accounting purposes and they may not be effective. Although exposure to currency fluctuations to date has not
had a material adverse effect on our business, there can be no assurance that fluctuations in the future will not have a material adverse
effect on our operating results and financial condition.
Our limited operating history may make it difficult to evaluate
the success of our business to date and to assess our future viability.
Since inception in 2015, BiomX Ltd. has devoted
substantially all of its resources to developing product candidates with phage technology through its preclinical programs, building its
intellectual property portfolio, developing a supply chain, planning its business, raising capital and providing general and administrative
support for these operations. We have not yet demonstrated our ability to successfully complete any clinical study or other pivotal clinical
trials, obtain regulatory approvals, manufacture a commercial-scale product, or arrange for a third-party to do so on our behalf, or conduct
sales and marketing activities necessary for successful product commercialization. Consequently, any predictions made about our future
success or viability may not be as accurate as they could be if we had a longer operating history.
In addition, as an early-stage company, we may
encounter unforeseen expenses, difficulties, complications, delays and other known and unknown circumstances. As we advance our product
candidates, we will need to transition from a company with a research focus to a company capable of supporting clinical development and,
if successful, commercial activities. We may not be successful in such a transition.
We may need to grow the size of our organization and may experience
difficulties in managing this growth.
As our research, development, manufacturing and
commercialization plans and strategies develop as a public company, we may need additional managerial, operational, sales, marketing,
financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:
| ● | identifying, recruiting, compensating,
integrating, maintaining and motivating additional employees; |
| ● | managing our internal research
and development efforts effectively, including identification of clinical candidates, scaling our manufacturing process and navigating
the clinical and FDA review process for our product candidates; and |
| ● | improving our operational, financial
and management controls, reporting systems and procedures. |
Our future financial performance and our ability
to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management
may also have to divert a disproportionate amount of our attention away from day-to-day activities in order to devote a substantial amount
of time to managing these growth activities.
If we are not able to effectively expand our organization
by hiring additional employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the
tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development
and commercialization goals.
We are an “emerging growth company,” and we cannot
be certain that the reduced disclosure requirements applicable to “emerging growth companies” will not make our Common Stock
less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For so long as we remain an emerging growth company, we
intend to take advantage of certain exemptions from reporting requirements that are applicable to other public companies that are not
emerging growth companies, including, but not limited to, compliance with the auditor attestation requirements of Section 404(b) of the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. Further, under the JOBS Act, emerging growth companies
can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards
and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth
companies.
We will remain an emerging growth company until the
earliest of (a) the last day of our fiscal year during which we have generated total annual gross revenue of at least $1.235 billion;
(b) the last day of our fiscal year following the fifth anniversary of the completion of our IPO; (c) the date on which we have issued
more than $1.0 billion in nonconvertible debt securities during the prior three-year period; or (d) the date on which we are deemed to
be a “large accelerated filer” under the Exchange Act. We shall cease to be an emerging growth company commencing on
January 1, 2024.
Risks Related to Government Regulation
Breakthrough Therapy Designation or Fast Track Designation by the
FDA, even if granted for any of our product candidates developed for therapeutic indications, may not lead to a faster development, regulatory
review or approval process, and it does not increase the likelihood that any of our product candidates will receive marketing approval
in the United States.
In the United States, we may seek a Breakthrough Therapy Designation for
some of our product candidates, including BX004 or another product candidate under development. A breakthrough therapy is defined as a
therapy that is intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or
condition, and preliminary clinical evidence indicates that the therapy 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 therapies
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.
Breakthrough designation also provides sponsors with the potential for rolling review of a BLA. Designation as a breakthrough therapy
is within the discretion of the FDA.
In the European Union, the PRIME (PRIority MEdicines)
status is similar to the Breakthrough Therapy Designation. The EMA has implemented the PRIME status to support the development and accelerate
the approval of complex, innovative medicinal products addressing an unmet medical need. The PRIME status enables early dialogue with
the relevant EMA scientific committees and, possibly, some payors and thus reinforces the EMA’s scientific and regulatory support.
The PRIME status, which is granted at the EMA’s discretion, focuses on medicinal products the marketing authorization of which qualifies
for accelerated assessment (medicinal products of major interest from a public health perspective, in particular from a therapeutic innovation
perspective).
Accordingly, even if we believe one of our product
candidates meets the criteria for designation as a breakthrough therapy or for PRIME status, the FDA or EMA, respectively, may disagree
and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation or PRIME status for
a product candidate may not actually result in a faster development process, review or approval compared to therapies considered for approval
under conventional procedures and does not assure ultimate approval. In addition, even if one or more of our product candidates qualify
as breakthrough therapies or is granted PRIME status, the FDA or EMA, respectively, may later decide that such product candidates no longer
meet the conditions for qualification or decide that the time period for review or approval will not be shortened.
In the United States, we may seek Fast Track Designation
for some of our product candidates for therapeutic indications. If a therapy is intended for the treatment of a serious or life-threatening
condition and the therapy demonstrates the potential to address unmet medical needs for this condition, the therapy 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
product candidate is eligible for this designation; we cannot assure you that the FDA would decide to grant it. Even if we 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 we believe that the designation is no longer supported by data from our clinical development
program. Fast Track Designation alone does not guarantee qualification for the FDA’s priority review procedures.
Other countries may have adopted schemes designed
to ensure an accelerated approval of drugs that are especially important for patients. For example, in the European Union, the EMA may
agree to an accelerated assessment (150 days instead of 210 days) for medicinal products of major interest from a public health perspective,
in particular from a therapeutic innovation perspective). Furthermore, competent regulatory authorities may grant market authorizations
“under exceptional circumstances,” in cases where all the required safety and efficacy data have not been and will not be
collected, to medicinal products designed for unmet needs or orphan medicinal products. Although a marketing authorization under exceptional
circumstances is definitive, the risk-benefit balance of the medicinal product must be reviewed annually and the marketing authorization
is withdrawn if it becomes negative. Moreover, under the centralized procedure, the European Commission may grant “conditional marketing
authorizations” in cases where all the required safety and efficacy data are not yet available. The conditional marketing authorization
is subject to conditions to be fulfilled for generating the missing data or ensuring increased safety measures. It is valid for one year
and has to be renewed annually until fulfillment of all the conditions. If the conditions are not fulfilled within the timeframe set by
the EMA, the marketing authorization ceases to be renewed. As with Fast Track Designation, the competent regulatory authorities in the
European Union have broad discretion whether or not to grant such an accelerated assessment or approval and, even if such assessment or
approval is granted, we may not experience a faster development process, review or approval compared to conventional procedures.
We may fail to obtain and maintain orphan drug designations from
the FDA or equivalent foreign regulatory agencies for our current and future therapeutic product candidates, as applicable.
In the United States, under the Orphan Drug Act,
the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one
occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United
States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United
States. In the United States, the orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding
toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has the orphan drug designation subsequently
receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity,
which means that the FDA may not approve any other applications, including an NDA, to market the same drug or biologic for the same indication
for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity
or where the original manufacturer is unable to assure sufficient product quantity.
In addition, exclusive marketing rights in the
United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the
FDA later determines that the request for designation was materially defective, or if we are unable to assure sufficient quantities of
the product to meet the needs of patients with the orphan-designated disease or condition. Further, even if we obtain orphan drug exclusivity
for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active
moieties may receive and be approved for the same condition, and only the first applicant to receive approval will receive the benefits
of marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the
same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer,
more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory
review time of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may seek the
orphan drug designation for our product candidates, we may never receive such designation.
An orphan drug legal regime also exists in the
European Union. The EMA’s Committee for Orphan Medicinal Products, or COMP, gives opinions, and the European Commission takes decisions,
on the granting of the orphan drug designation to the development of products that are intended for the diagnosis, prevention or treatment
of (i) a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Economic
Area (European Union plus Iceland, Liechtenstein and Norway); or (ii) a life-threatening, seriously debilitating or serious and chronic
condition when, without incentives, it is unlikely that sales of the drug in the European Economic Area would be sufficient to justify
the necessary investment in developing the drug or biological product. The granting of the orphan designation requires that there is no
satisfactory method of diagnosis, prevention or treatment, or, if such a method exists, that the future medicine is to be of significant
benefit to those affected by the condition. The test for that later condition is stringent, because the future product must be compared
with all existing therapies for the rare condition, including surgical operations, already authorized medicinal products and compounded
preparations (subject to certain conditions). At the time of marketing authorization, the orphan designation is reviewed again by the
COMP in view of the maintenance of the orphan status. If the designation criteria are no longer met, the European Commission withdraws
the orphan designation. Maintenance of the orphan designation at the time of marketing authorization means that all the drugs/biologicals
authorized since the granting of the designation become relevant for determining the lack of satisfactory therapy or the significant benefit.
If obtained, the orphan drug designation would
entitle us to financial incentives, such as reductions of fees or fee waivers and 10 years of market exclusivity. Market exclusivity precludes
the EMA or the national competent authorities from validating a marketing authorization application, and the European Commission or a
national competent authority from granting a marketing authorization, for a same or similar drug/biological and the same therapeutic indication.
The 10-year period may be reduced to six years if the orphan designation criteria are no longer met, including where it is shown that
the product is not sufficiently profitable to justify maintenance of market exclusivity. The orphan exclusivity may also be lost vis-à-vis
another drug/biological in cases where the manufacturer is unable to assure sufficient quantity of the drug to meet patient needs or if
that other product is proved to be clinically superior to the approved orphan product. A drug/biological is clinically superior if it
is safer, more effective or makes a major contribution to patient care.
Even if we receive regulatory approval of any product candidates
for therapeutic indications, we will be subject to ongoing regulatory compliance obligations and continued regulatory review, which may
result in significant additional expense. Additionally, any of our product candidates, if approved, could be subject to labeling and other
restrictions and market withdrawal, and we may be subject to penalties if we fail to comply with regulatory requirements or experience
unanticipated problems with our product candidates.
If any of our product candidates is approved for
therapeutic indications, we will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, distribution,
advertising, promotion, sampling, recordkeeping, export, import, 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 equivalent foreign
regulatory agencies. In addition, we will be subject to continued compliance with cGMP and GCP requirements for any clinical trials that
we conduct post-approval.
Manufacturers and manufacturers’ facilities
are required to comply with extensive FDA and equivalent foreign regulatory agency requirements, including ensuring that quality control
and manufacturing procedures conform to cGMP regulations. As such, we and our contract manufacturers will be subject to continual review
and inspections to assess compliance with cGMP and adherence to commitments made in any NDA, other marketing applications 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.
The FDA or equivalent foreign regulatory agencies
have significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety information
and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug. Any regulatory
approvals that we receive for our 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 product candidate. The FDA or equivalent foreign regulatory
agencies 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 an equivalent foreign regulatory agency approves
our product candidates, we will have to comply with requirements, including submissions of safety and other post-marketing information
and reports and registration.
The FDA or equivalent foreign regulatory agencies
may impose 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 our 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, the imposition of post-market
studies or clinical trials to assess new safety risks, or the 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 our products, withdrawal of products from the market, or voluntary or mandatory product recalls; |
| ● | fines, warning or untitled enforcement
letters, or holds on clinical trials; |
| ● | refusal by the FDA or equivalent
foreign regulatory agencies to approve pending applications or supplements to approved applications filed by us or the 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 or equivalent foreign regulatory agencies
strictly regulate the marketing, labeling, advertising and promotion of drug products that are placed on the market. Products may be promoted
only for the approved indications and in accordance with the provisions of the approved label or other regulatory marketing pathway. The
FDA and equivalent foreign regulatory 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 of the FDA
or equivalent foreign regulatory agencies may change, and additional government regulations may be enacted that could prevent, limit or
delay regulatory approval of our product candidates. 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, which would adversely affect our business, prospects and the ability to achieve or sustain profitability.
The policies of the FDA or equivalent foreign regulatory
agencies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our
product candidates. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation
or administrative or executive 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 be subject
to enforcement action, and we may not achieve or sustain profitability.
Noncompliance by us or any future collaborator
with regulatory requirements, including safety monitoring or pharmacovigilance requirements, can also result in significant financial
penalties.
We may conduct clinical trials for our product candidates outside
the United States, and the FDA may not accept data from such trials.
We have and may continue to conduct certain clinical
trials or a portion of our clinical trials for our product candidates outside the U.S. The acceptance of study data from clinical trials
conducted outside the U.S. or another jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions
or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing
approval in the U.S., the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable
to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and
pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the
FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate
means. In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept
the data as support for an application for marketing approval unless the study is well-designed and well-conducted in accordance with
GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. Many foreign
regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws
of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory
authority will accept data from trials conducted outside of the U.S. or the applicable jurisdiction. If the FDA or any comparable foreign
regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming,
and which may result in current or future product candidates that we may develop not receiving approval for commercialization in the applicable
jurisdiction.
Any products that we may develop may become subject to unfavorable
pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could make it difficult for us to sell
any product candidates or therapies profitably.
The regulations that govern pricing for new medical
products vary widely from country to country. As a result, we might obtain regulatory approval for a product in a particular country but
then be subject to pricing regulations in that country that delay the commercial launch of the product and negatively impact the revenue
we are able to generate from the sale of the product in that country. In addition, our ability to commercialize any approved products
successfully will depend in part on the extent to which reimbursement for these products will be available from government health administration
authorities, private health insurers and other organizations. Even if we succeed in bringing one or more therapeutic products to market,
these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell
them on a competitive basis. If the price we are able to charge for therapeutic products is inadequate in light of our development and
other costs, our future profitability could be adversely affected.
Ongoing health care legislative and regulatory reform measures
may have a material adverse effect on our business and results of operations.
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.
In the United States, there have been and continue
to be a number of legislative initiatives to contain health care costs. For example, in March 2010, the ACA was passed, which substantially
changed the way health care is financed by both governmental and private insurers and significantly impacted the United States pharmaceutical
industry. The ACA, among other things, subjected biological products to potential competition by lower-cost biosimilars; addressed a new
methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused,
instilled, implanted or injected; increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program;
and extended the rebate program to individuals enrolled in Medicaid managed care organizations. It also established annual fees and taxes
on manufacturers of certain branded prescription drugs and creates a new Medicare Part D coverage gap discount program in which manufacturers
must now agree to offer 50% point of sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Since its enactment, there have been judicial,
executive and Congressional 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 without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision,
President Biden issued an executive order initiating 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. More recently, on March 11, 2021, President
Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at
100% of a drug’s average manufacturer price, beginning January 1, 2024. It is unclear how other healthcare reform measures of the
Biden administration, if any, will impact our business.
These laws and future state and federal health
care reform measures may be adopted in the future, any of which may result in additional reductions in Medicare and other health care
funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or
the frequency with which any such product candidate is prescribed or used.
A similar movement is observed in the European
Union countries. Criteria for pricing and reimbursement, which vary from country to country, are regularly amended and tightened in order
to reduce the draw on the budget allocated to national health insurance systems. Moreover, the system of reference pricing (the price
in a country calculated on the basis of prices in other countries with typically lower prices) leads to price reductions in countries
that traditionally granted high prices.
Disruptions at the FDA and other government agencies caused by
funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or
otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could
negatively impact our business.
The ability of the FDA to review and or approve
new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy
changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise
affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result.
In addition, government funding of other government agencies that fund research and development activities is subject to the political
process, which is inherently fluid and unpredictable. Disruptions at the FDA and other regulatory authorities may also slow the time necessary
for new drugs and biologics to be reviewed and/or approved by necessary regulatory authorities, which would adversely affect our business.
For example, over the last several years, the U.S. government has shut down several times and certain regulatory authorities, such as
the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the global pandemic
of COVID-19, on March 10, 2020 the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products
through April 2020, and subsequently, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing
facilities. Subsequently, on July 10, 2020 the FDA announced its intention to resume certain on-site inspections of domestic manufacturing
facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories
of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory
activities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the
COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent. Regulatory authorities
outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. On February 7,
2022, the FDA announced that domestic inspections across all commodities will resume due to the decline in COVID-19 cases in the U.S.
Previously planned foreign surveillance inspections that have received country clearance and are within the Centers for Disease Control
and Prevention’s Level 1 or Level 2 COVID-19 travel recommendation will also proceed. Planning for additional foreign surveillance
inspections is ongoing, with an anticipated goal of conducting foreign prioritized inspections starting in April 2022. If a prolonged
government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their
regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory
authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
We are subject to certain U.S. and foreign anticorruption, anti-money
laundering, export control, sanctions and other trade laws and regulations. We can face serious consequences for violations.
Among other matters, U.S. and foreign anticorruption,
anti-money laundering, export control, sanctions and other trade laws and regulations, which are collectively referred to as Trade Laws,
prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors
and other partners from authorizing, promising, offering, providing, soliciting or receiving, directly or indirectly, corrupt or improper
payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial
criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud
litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government
agencies or government-affiliated hospitals, universities and other organizations. We also expect our non-U.S. activities to increase
over time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations and
other regulatory approvals, and we can be held liable for the corrupt or other illegal activities of our personnel, agents or partners,
even if we do not explicitly authorize or have prior knowledge of such activities.
Risks Related to our Licensed and Co-Owned Intellectual Property
The license agreements we maintain, including the Yeda 2015 License
Agreement, with Yeda are important to our business. If we or the other parties to our license agreements fail to adequately perform under
the license agreements, or if we or they terminate the license agreements, the development, testing, manufacture, production and sale
of our phage-based therapeutic product candidates would be delayed or terminated, and our business would be adversely affected.
The Yeda 2015 License Agreement provides for an
exclusive worldwide license to certain know-how and research information related to the development, testing, manufacture, production
and sale of microbiome-based therapeutic product candidates, including candidates specified in the agreement, which are used in our phage
discovery platform, as well as patents, research and other rights to phage product candidates resulting from the work of the consultants
identified in the agreement and further research that we funded. The License Agreement terminates upon the later of the expiration of
the last of the patents covered under the License Agreement and the expiry of a continuous 15-year period during which there has not been
a first commercial sale of any product in any country. Yeda may also terminate the agreement if we fail to observe certain diligence and
development requirements and milestones as described in the License Agreement. we or Yeda may terminate the agreement for the material
uncured breach of the other party after a notice period or the other party’s winding up, bankruptcy, insolvency, dissolution or
other similar discontinuation of business. Upon termination of the agreement, other than due to the passage of time, we are required to
grant to Yeda a nonexclusive, irrevocable, perpetual, fully paid-up, sublicensable, worldwide license in respect of our rights in know-how
and research results as described in the Yeda 2015 License Agreement, provided that, if Yeda subsequently grants a license to a third
party that utilizes our rights, we are entitled to share in the net proceeds actually received by Yeda arising out of that license, subject
to a cap based on the development expenses that we incur in connection with the License Agreement. For more information on the License
Agreement, see “Business—Material Agreements—License Agreements—License Agreement with Yeda.”
We also maintain additional license agreements:
|
● |
with Keio and JSR, pursuant to which we were granted an exclusive, royalty-bearing, worldwide, perpetual sublicense by JSR to certain patent rights related to our IBD program. Specifically, these patent rights relate to bacterial targets that have been observed to be related to IBD and the phage that were observed to eradicate these bacterial targets; and |
|
|
|
|
● |
with Keio and JSR, pursuant to which we were granted an exclusive, royalty-bearing, worldwide, perpetual sublicense by JSR to certain patent rights related to PSC program. Specifically, these patent rights relate to bacterial targets that have been observed to be related to PSC and the phage that were observed to eradicate these bacterial targets. |
Termination of the license agreements could cause
significant delays in our product and commercialization efforts that could prevent us from commercializing our product candidates, including
our microbiome-based therapeutic product candidates, without first expanding our internal capabilities or entering into other agreements
with third parties. Any alternative collaboration or license could also be on less favorable terms to us.
We are highly dependent on intellectual property licensed from
third parties, and termination or limitation of any of these licenses could result in the loss of significant rights and materially harm
our business.
We currently rely on licenses from third-party
collaborators for certain aspects of our technology and for certain of our existing programs. In particular, we received exclusive, royalty-bearing
licenses to certain patents held by third parties, including Yeda, Keio and JSR. Our license agreement with Yeda provide license to certain
know-how and research information related to the development, testing, manufacture, production and sale of microbiome-based therapeutic
product candidates that are used in our phage discovery platform, as well as patents, research and other rights to phage product candidates
resulting from the work of the consultants identified in the agreement and further research that we funded. Our license agreements with
Keio and JSR provide licenses to patents related to, among other things, IBD and PSC programs. Pursuant to these license agreements, we
are required to pay annual license fees, as well as a contingent consideration comprised of milestone and royalty payments, which depend
on the achievement of future milestones and potential revenue from products.
If we fail to comply with our obligations under
our license agreements, including payment terms, our licensors may have the right to terminate our license agreements, in which event
we may not be able to develop, manufacture, market or sell the products covered by those license agreements. We may also face other penalties
under our license agreements if we do not meet our contractual obligations. Such an occurrence could materially adversely affect the value
of our products being developed under any such license agreements. Termination of one or more of our license agreements, or reduction
or elimination of our rights under these license agreements, may result in us having to negotiate new or reinstated license agreements,
which may not be available to us on equally favorable terms, or at all, which may mean we are unable to commercialize the affected product
candidates.
In the future, we may rely upon additional licenses
to certain patent rights and proprietary technology from third parties that are important or necessary to the development of our product
candidates and proprietary product platform. Patent rights that we in-license in the future may be subject to a reservation of rights
by one or more third parties. As a result, any such third party may have certain rights to such intellectual property.
In addition, subject to the terms of any such license
agreements, we may not have the right to control the preparation, filing, prosecution and maintenance, and we may not have the right to
control the enforcement and defense, of patents and patent applications covering the technology that we license from third parties. We
cannot be certain that our in-licensed patent applications (and any patents issuing therefrom) that are controlled by our licensors will
be prepared, filed, prosecuted, maintained, enforced and defended in a manner consistent with the best interests of our business. If our
licensors fail to prosecute, maintain, enforce and defend such patents rights, or lose rights to those patent applications (or any patents
issuing therefrom), the rights we have licensed may be reduced or eliminated, our right to develop and commercialize any of our product
candidates and proprietary product platform technology that are subject of such licensed rights could be adversely affected, and we may
not be able to prevent competitors from making, using and selling competing products. Moreover, we cannot be certain that such activities
by our potential future licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable
patents or other intellectual property rights. In addition, even where we may have the right to control the prosecution of patents and
patent applications that we may license to and from third parties, we may still be adversely affected or prejudiced by actions or inactions
of our potential future licensees, licensors and their counsel that took place prior to the date of assumption of control over patent
prosecution.
The patent position of biopharmaceutical companies,
including ours and our licensors’, is generally uncertain and involves complex legal and factual considerations and, therefore,
validity and enforceability cannot be predicted with certainty. Our licensed and co-owned intellectual property may be challenged, deemed
unenforceable, invalidated or circumvented. We and our licensors will be able to protect our intellectual property rights from unauthorized
use by third parties only to the extent that these rights (and the products and services they cover) are protected by valid and enforceable
patents, copyrights or trademarks, or are effectively maintained as trade secrets.
Any patents obtained by our licensors or us, may
be challenged by re-examination or otherwise invalidated or eventually found unenforceable. Both the patent application process and the
process of managing patent disputes can be time consuming and expensive. If we or one of our licensors were to initiate legal proceedings
against a third party to enforce a patent relating to one of our products, the defendant in such litigation could counterclaim that the
asserted patents are invalid and/or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability
are common, as are validity challenges by the defendant against the subject patent or related patents before the USPTO. Grounds for a
validity challenge could be an alleged failure to meet any of several statutory patentability requirements, including lack of novelty,
obviousness, non-enablement, failure to meet the written description requirement, indefiniteness, and/or failure to claim patentable subject
matter. Grounds for an unenforceability assertion could be an allegation that someone connected to prosecution of the patent/s at issue
intentionally withheld material information from the USPTO or made a misleading statement during prosecution. Additional grounds for an
unenforceability assertion include an allegation of misuse or anticompetitive use of patent rights, and an allegation of incorrect inventorship
with deceptive intent. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The outcome
of any assertion of invalidity and/or unenforceability is unpredictable. If a defendant or third party were to prevail on a legal assertion
of invalidity and/or unenforceability, We and our licensors would lose at least part, and perhaps all, of the claims of the challenged
patent/s. Such a loss of patent protection could have a material adverse impact on our business.
We are dependent on patents and proprietary technology. If we
fail to adequately protect this intellectual property or if we otherwise do not have exclusivity for the marketing of our products, our
ability to commercialize products could suffer.
Our commercial success will depend in part on our
ability to obtain and maintain patent protection sufficient to prevent others from marketing our product candidates, as well as to defend
and enforce these patents against infringement and to operate without infringing the proprietary rights of others. Protection of our product
candidates from unauthorized use by third parties will depend on having valid and enforceable patents that cover our product candidates
or their manufacture or use or on having effective trade secret protection. If our patent applications do not result in issued patents
or if our patents are found to be invalid, we will lose the ability to exclude others from making, using or selling the inventions claimed
therein. We have a limited number of patents and pending patent applications.
The patent positions of biotechnology companies
can be uncertain and involve complex legal and factual questions. This is due to inconsistent application of policies and changes in policy
relating to the examination and enforcement of biotechnology patents to date on a global scale. The laws of some countries may not protect
intellectual property rights to the same extent as the laws of countries having well-established patent systems, and those countries may
lack adequate rules and procedures for defending our intellectual property rights. Also, changes in either patent laws or in the interpretations
of patent laws may diminish the value of our intellectual property. We are not able to guarantee that all of our patent applications will
result in the issuance of patents, and we cannot predict the breadth of claims that may be allowed in our patent applications or in the
patent applications we may license from others.
The Leahy-Smith America Invents Act, or the America
Invents Act, provides for proceedings involving post-issuance patent review procedures, such as inter partes review, or IPR, and post-grant
review, that allow third parties to challenge the validity of an issued patent in front of the USPTO Patent Trial and Appeal Board. Each
proceeding has different eligibility criteria and different patentability challenges that can be raised. IPRs permit any person (except
a party who has been litigating the patent for more than a year) to challenge the validity of the patent on the grounds that it was anticipated
or made obvious by prior art. Patents covering pharmaceutical products have been subject to attack in IPRs from generic drug companies
and from hedge funds. If it is within nine months of the issuance of the challenged patent, a third party can petition the USPTO for post-grant
review, which can be based on any invalidity grounds and is not limited to prior art patents or printed publications.
In post-issuance proceedings, USPTO rules and regulations
generally tend to favor patent challengers over patent owners. For example, unlike in district court litigation, claims challenged in
post-issuance proceedings are given their broadest reasonable meaning, which increases the chance a claim might be invalidated by prior
art or lack support in the patent specification. As another example, unlike in district court litigation, there is no presumption of validity
for an issued patent, and thus a challenger’s burden to prove invalidity is by a preponderance of the evidence, as opposed to the
heightened clear and convincing evidence standard. As a result of these rules and others, statistics released by the USPTO show a high
percentage of claims being invalidated in post-issuance proceedings. Moreover, with few exceptions, there is no standing requirement to
petition the USPTO for inter partes review or post-grant review. In other words, companies that have not been charged with infringement
or that lack commercial interest in the patented subject matter can still petition the USPTO for review of an issued patent. Thus, even
where we have issued patents, our rights under those patents may be challenged and ultimately not provide us with sufficient protection
against competitive products or processes.
The degree of future protection for our proprietary
rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights or permit us to gain
or keep our competitive advantage. For example:
| ● | we might not be the first to
file patent applications for our inventions; |
| ● | others may independently develop
similar or alternative product candidates to any of our product candidates that fall outside the scope of our patents; |
| ● | our pending patent applications
may not result in issued patents; |
| ● | our issued patents may not provide
a basis for commercially viable products or may not provide us with any competitive advantages or may be challenged by third parties; |
| ● | others may design around our
patent claims to produce competitive products that fall outside the scope of our patents; |
| ● | we may not develop additional
patentable proprietary technology related to our product candidates; and |
| ● | we are dependent upon the diligence
of our appointed agents in national jurisdictions, acting for and on our behalf, which control the prosecution of pending domestic and
foreign patent applications and maintain granted domestic and foreign patents. |
An issued patent does not guarantee us the right
to practice the patented technology or commercialize the patented product. Third parties may have blocking patents that could be used
to prevent us from commercializing our patented products and practicing our patented technology. Our issued patents and those that may
be issued in the future may be challenged, invalidated or circumvented, which could limit our ability to prevent competitors from marketing
the same or related product candidates or could limit the length of the term of patent protection of our product candidates. Moreover,
because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before
any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following
commercialization, thereby reducing any advantage of the patent. Patent term extensions may not be available for these patents.
Our rights to develop and commercialize our product candidates
and proprietary product platform may be subject, in part, to the terms and conditions of current and future licenses granted to us by
others.
Some of our licensed rights could provide us with
freedom to operate for aspects of our products and services. We may need to obtain additional licenses from others to advance our research,
development and commercialization activities.
Disputes may arise between us and our licensors
regarding intellectual property subject to a license agreement, including:
| ● | the scope of rights granted
under the license agreement and other interpretation-related issues; |
| ● | whether, and the extent to which,
our products, services, technology and processes infringe on the 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; |
| ● | our diligence obligations under
the license agreement and what activities satisfy those diligence obligations; |
| ● | the inventorship and ownership
of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaborators;
and |
| ● | the priority of invention of
patented technology. |
If we do not prevail in such disputes, we may
lose any or all of our rights under such license agreements.
In addition, the agreements under which we currently
license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible
to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to
be the scope of our rights to the relevant intellectual property or technology or could increase what we believe to be our financial or
other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition,
results of operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability
to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize
any affected products or services, which could have a material adverse effect on our business, financial conditions, results of operations
and prospects.
Absent the license agreements, we may infringe
patents subject to those agreements, and, if the license agreements are terminated, we may be subject to litigation by the licensor. Litigation
could result in substantial costs to us and distract our management. If we do not prevail, we may be required to pay damages, including
treble damages, attorneys’ fees, costs and expenses and royalties. We may also be enjoined from selling our products or services,
which could adversely affect our ability to offer products or services, our ability to continue operations, and our financial condition.
If we infringe the rights of third parties, we could be prevented
from selling products, forced to pay damages and/or royalties, and forced to defend against litigation.
We do not believe that the products we are currently
developing infringe upon the rights of any third parties or are infringed upon by third parties. However, there can be no assurance that
our technology will not be found in the future to infringe upon the rights of others or be infringed upon by others. Moreover, patent
applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent
literature frequently occurs much later than the date on which the underlying discoveries were made and patent applications were filed.
Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result
in issued patents that our products or product candidates infringe. For example, pending patent applications may exist that provide support
or can be amended to provide support for a claim that results in an issued patent that is infringed by one or more of our products. In
such a case, others may assert infringement claims against us, and should we be found to infringe these patents or impermissibly use their
intellectual property, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed
on such third parties’ patent rights.
In addition to any damages we might have to pay,
we may also be required to obtain licenses from the holders of this intellectual property, enter into royalty agreements, or redesign
our products so as not to use this intellectual property. Each of these penalties may prove to be uneconomical or otherwise impossible.
We may fail to obtain any such licenses or intellectual property rights on commercially reasonable terms. Even if we are able to obtain
a license, it may be non-exclusive, thereby giving our competitors access to the same licensed technologies. In that event, we may be
required to spend significant time and resources to develop or license replacement technologies. If we are unable to do so, we may be
unable to develop or commercialize the affected products, which could materially harm our business. Conversely, we may not be able to
pursue claims against third parties that infringe on our licensed or co-owned technology. Thus, our licensed and co-owned technology may
not provide adequate protection against competitors.
The pharmaceutical industry is characterized by
extensive litigation regarding patents and other intellectual property rights. Moreover, the cost to us of any litigation or other proceeding
relating to our licensed and/or co-owned intellectual property rights, even if resolved in our favor, could be substantial. Any such litigation
would divert our management efforts, and we may not have sufficient resources to bring any such action to a successful conclusion. Uncertainties
resulting from the initiation and continuation of any litigation could limit our ability to continue operations.
Additionally, because our pipeline may involve
additional development candidates that could require the use of proprietary rights held by third parties, the growth of our business could
depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, our development candidates may require
specific formulations to work effectively and efficiently and these rights may be held by others. We may be unable to acquire or in-license
any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. The
licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies
are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established
companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization
capabilities.
For example, we sometimes collaborate with U.S.
and foreign academic institutions to accelerate our preclinical research or development under written agreements with these institutions.
Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology
resulting from the collaboration. Regardless of such right of first negotiation for intellectual property, we may be unable to negotiate
a license within the specified time frame or under terms that are acceptable to us. If we are unable to do so, the institution may offer
the intellectual property rights to other parties, potentially blocking our ability to pursue our program.
In addition, companies that perceive us to be a
competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property
rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to
require third-party intellectual property rights, our business, financial condition and prospects for growth could suffer.
We may not be successful in obtaining, through acquisitions,
in-licenses or otherwise, necessary rights to our product candidates, proprietary product platform technologies or other technologies.
We currently have rights to certain intellectual
property, through licenses from third parties, to develop our product candidates and proprietary product platform technologies. Some healthcare
companies and academic institutions are competing with us in the field of microbiome therapies and may have patents and/or have filed
and are likely filing patent applications potentially relevant to our business. In order to avoid infringing these third-party patents,
we may find it necessary or prudent to obtain licenses to such patents from such third-party intellectual property holders. We may also
require licenses from third parties for certain technologies that we may be evaluating for use with our current or future product candidates.
However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes or other
intellectual property rights from third parties that we identify as necessary for our current or future product candidates and our proprietary
product platform at a reasonable cost or on reasonable terms, if at all. The licensing or acquisition of third-party intellectual property
rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual
property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due
to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive
us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual
property rights on terms that would allow us to make an appropriate return on our investment or at all.
In the event that we try to obtain rights to required
third-party intellectual property rights and is ultimately unsuccessful, we may be required to expend significant time and resources to
redesign our technology, product candidates or the methods for manufacturing them or to develop or license replacement technology, all
of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize
the affected product candidates or continue to utilize our existing proprietary product platform technology, which could significantly
harm our business, financial condition, results of operations and prospects.
We rely on our proprietary product platform to identify microbiome
therapies. Our competitive position could be materially harmed if our competitors develop a similar platform and develop rival product
candidates.
We rely on know-how, inventions and other proprietary
information to strengthen our competitive position. We consider know-how to be our primary intellectual property with respect to our proprietary
product platform. Our clinical trials allow us to collect clinical data, which we use as a feedback loop to make improvements to our proprietary
product platform. In particular, we anticipate that, with respect to this proprietary product platform, this data may over time be disseminated
within the industry through independent development, the publication of journal articles describing the method and the movement of skilled
personnel.
We cannot rule out that our competitors may have
or obtain the knowledge necessary to analyze and characterize similar data to our known data for the purpose of identifying and developing
products that could compete with any of our product candidates. Our competitors may also have significantly greater financial, product
development, technical and human resources access to date. Further, our competitors may have significantly greater experience in using
translational science methods to identify and develop product candidates.
We may not be able to prohibit our competitors
from using technology or methods that are the same as or similar to our proprietary product platform to develop their own product candidates.
If our competitors develop associated therapies, our ability to develop and market a promising product or product candidate may diminish
substantially, which could have a material adverse effect on our business, financial condition, prospects and results of operations.
We rely on trade secrets and other forms of non-patent intellectual
property protection. If we are unable to protect our trade secrets, other companies may be able to compete more effectively against us.
We rely on trade secrets to protect certain aspects
of our technology, including our proprietary processes for manufacturing and purifying bacteriophage. Trade secrets are difficult to protect,
especially in the pharmaceutical industry, where much of the information about a product must be made public during the regulatory approval
process. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third
party illegally obtained and is using our trade secret information is expensive and time-consuming, and the outcome is unpredictable.
In addition, courts outside the United States may be less willing to or may not protect trade secrets. Moreover, our competitors may independently
develop equivalent knowledge, methods and know-how.
If we are sued for infringing intellectual property rights of
third parties or if we are forced to engage in an interference proceeding, it will be costly and time-consuming, and an unfavorable outcome
in that litigation or interference would have a material adverse effect on our business.
Our ability to commercialize our product candidates
depends on our ability to develop, manufacture, market and sell our product candidates without infringing the proprietary rights of third
parties. Numerous U.S. and foreign patents and patent applications, which are owned by third parties, exist in the general field of anti-infective
products or in fields that otherwise may relate to our product candidates. If we are shown to infringe, we could be enjoined from the
use or sale of the claimed invention if we are unable to prove that the patent is invalid. In addition, because patent applications can
take many years to issue, there may be currently pending patent applications, unknown to us, that may later result in issued patents that
our product candidates may infringe or that may trigger an interference proceeding regarding one of our owned or licensed patents or applications.
There could also be existing patents of which we are not aware that our product candidates may inadvertently infringe or that may become
involved in an interference proceeding.
The biotechnology and pharmaceutical industries
are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. For
so long as our product candidates are in clinical trials, we believe our clinical activities fall within the scope of the exemptions provided
by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the
development and submission of information to the FDA. As our clinical investigational drug product candidates progress toward commercialization,
the possibility of a patent infringement claim against us increases. While we attempt to ensure that our active clinical investigational
drugs and the methods we employ to manufacture them, as well as the methods for their use we intend to promote, do not infringe other
parties’ patents and other proprietary rights, we cannot be certain they do not, and competitors or other parties may assert that
we infringe their proprietary rights in any event.
We may be exposed to future litigation based on
claims that our product candidates, the methods we employ to manufacture them or the uses for which we intend to promote them infringe
the intellectual property rights of others. Our ability to manufacture and commercialize our product candidates may depend on our ability
to demonstrate that the manufacturing processes we employ and the use of our product candidates do not infringe third-party patents. If
third-party patents were found to cover our product candidates or their use or manufacture, we could be required to pay damages or be
enjoined and therefore unable to commercialize our product candidates, unless we obtained a license. A license may not be available to
us on acceptable terms, if at all.
We may become subject to claims for remuneration or royalties
for assigned service invention rights by our employees, which could result in litigation and adversely affect our business.
A significant portion of our intellectual property
has been developed by our employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law,
inventions conceived by an employee during the term and as part of the scope of his or her employment with a company are regarded as “service
inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service
invention rights. The Patent Law also provides that, if there is no such agreement between an employer and an employee, the Israeli Compensation
and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to
remuneration for his or her inventions. We generally enter into assignment of invention agreements with our employees pursuant to which
such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us. Although our
employees have agreed to assign to our service invention rights, we may face claims demanding remuneration in consideration for assigned
inventions. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current or former
employees or be forced to litigate such claims, which could negatively affect our business.
Risks Related to Our Reliance on Third Parties
We rely, and continue to rely, on third parties to conduct our
clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such
trials.
We continue to rely on third parties, such as contract
research organizations, or CROs, and clinical investigators, to conduct and manage our clinical trials.
Our reliance on these third parties for research
and development activities will reduce our control over these activities but does not relieve us of our responsibilities. For example,
we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and
protocols for the trial. Moreover, the FDA requires us to comply with GCPs for conducting, recording and reporting the results of clinical
trials to assure that data and reported results are credible and accurate and that the rights, safety and welfare of trial participants
are protected. Other countries’ regulatory agencies also have requirements for clinical trials with which we must comply. We are
also required to register ongoing clinical trials and post the results of completed clinical trials in a government-sponsored database,
clinicaltrials.gov, within specified time frames. Failure to do so can result in fines, adverse publicity, and civil and criminal sanctions.
Furthermore, these third parties may also have
relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual
duties, do not meet expected deadlines, experience work stoppages, terminate their agreements with us or need to be replaced, or do not
conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may need to enter into new arrangements
with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed, terminated
or need to be repeated. If any of the foregoing occurs, we may not be able to obtain, or may be delayed in obtaining, marketing approvals
for our product candidates and may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
We also rely on other third parties to store and
distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development
or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of
potential product revenue.
Third-party relationships are important to our business. If we
are unable to maintain our collaborations or enter into new relationships, or if these relationships are not successful, our business
could be adversely affected.
We have limited capabilities for product development
and do not yet have any capability for sales, marketing or distribution. Accordingly, we enter into relationships with other companies
and academic institutions to provide us with important technology, and we may receive additional technology and funding under these and
other collaborations in the future. The relationships we enter into may pose a number of risks, including the following:
| ● | third parties have, and future
third-party collaborators may have, significant discretion in determining the efforts and resources that they will apply; |
| ● | current and future third parties
may not perform their obligations as expected; |
| ● | current and future third parties
may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue
or renew development or commercialization programs based on clinical trial results, changes in the third parties’ strategic focus
or available funding, or external factors, such as a strategic transaction that may divert resources or create competing priorities; |
| ● | third parties may delay clinical
trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct
new clinical trials or require a new formulation of a product candidate for clinical testing; |
| ● | current and future third parties
could independently develop, or develop with third parties, products that compete directly or indirectly with our products and product
candidates if the third parties believe that the competitive products are more likely to be successfully developed or can be commercialized
under terms that are more economically attractive than ours; |
| ● | product candidates discovered
in collaboration with us may be viewed by our current or future third parties as competitive with their own product candidates or products,
which may cause such third parties to cease to devote resources to the commercialization of our product candidates; |
| ● | current and future third parties
may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing of a product
candidate or product; |
| ● | current and future third parties
with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient
resources to the marketing and distribution of such product or products; |
| ● | disagreements with current or
future third parties, including disagreements over proprietary rights, contract interpretation or the preferred course of development,
might cause delays or terminations of the research, development or commercialization of product candidates, might lead to additional
responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming
and expensive; |
| ● | current and future third parties
may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite
litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; |
| ● | current and future third parties
may infringe the intellectual property rights of others, which may expose us to litigation and potential liability; |
| ● | current and future third parties
may infringe regulatory frameworks (such as but not limited to cybersecurity and/or privacy frameworks), which may expose us to litigation
and potential liability or require or lead us to terminate relationships with them; |
| ● | if a current or future third
party is involved in a business combination, the collaborator might deemphasize or terminate the development or commercialization of
any product candidate licensed to it by us; and |
| ● | current and future relationships
may be terminated by the collaborator, and, if terminated, we could be required to raise additional capital to pursue further development
or commercialization of the applicable product candidates. |
If our relationships do not result in the successful
discovery, development and commercialization of products or if one of our third-party collaborators terminates its agreement with us,
we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding
we expect under these agreements, our development of our technology and product candidates could be delayed, and we may need additional
resources to develop product candidates and our technology. Additionally, if any of our current or future third-party collaborators terminates
its agreement with us, we may find it more difficult to attract new collaborators, and our reputation in the business and financial communities
could be adversely affected.
Relationships are complex and time-consuming to
negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies
that have resulted in a reduced number of potential future collaborators. We face significant competition in seeking appropriate collaborators.
Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of a collaborator’s
resources and expertise, the terms and conditions of a proposed collaboration and a proposed collaborator’s evaluation of a number
of factors.
We may not be successful in maintaining or establishing collaborations,
which could adversely affect our ability to develop and, if required regulatory approvals are obtained, commercialize our product candidates.
In the future, in order to advance our clinical
development, or in connection with any potential out-licensing of product candidates or technologies, we may seek to enter into collaboration
agreements. In addition, we may consider entering into collaboration arrangements with medical technology, pharmaceutical or biotechnology
companies and/or seek to establish strategic relationships with marketing partners for the development, sale, marketing and/or distribution
of our product candidates within or outside of the United States. If we are unable to reach agreements with potential collaborators, then
we may fail to meet our business objectives for the affected product candidates or programs. Collaboration arrangements are complex and
time-consuming to negotiate, document and implement, and we may not be successful in our efforts, if any, to establish and implement collaborations
or other alternative arrangements. The terms of any collaboration or other arrangements that we establish may not be favorable to us,
and the success of any such collaboration will depend heavily on the efforts and activities of our collaborators. Moreover, our collaboration
agreement could be terminated or not renewed by a third party at a time that is costly or damaging to us. Any failure to engage successful
collaborators could cause delays in our product development and/or commercialization efforts, which could harm our financial condition
and operational results.
Risks Related to Our Operations in Israel
The Israeli government grants we have received for research and
development expenditures restrict our ability to manufacture products and transfer technology outside of Israel and require us to satisfy
specified conditions. If we fail to satisfy these conditions, we may be required to refund grants previously received, together with interest
and penalties.
Our research and development efforts have been
financed, in part, through the grants that we have received from the Israeli Innovation Authority, or the IIA. We, therefore, must comply
with the requirements of the Israel Encouragement of Research and Development in Industries, or the Research Law. For the years ended
December 31, 2022 and 2021, we recorded grants totaling $1.1 million and $3.7 million, from the IIA, respectively. The grants represented
6.1% and 13.7% of our gross research and development expenditures for the years ended December 31, 2022 and 2021, respectively.
Under the Research Law, we are required to manufacture
the major portion of each of our products developed using these grants in the State of Israel or otherwise ask for special approvals.
We may not receive the required approvals for any proposed transfer of manufacturing activities. Even if we receive approval to manufacture
products developed with government grants outside of Israel, the royalty rate may be increased, and we may be required to pay up to 300%
of the grant amounts, plus interest, depending on the manufacturing volume that is performed outside of Israel. This restriction may impair
our ability to outsource manufacturing or engage in our own manufacturing operations for those products or technology.
Additionally, under the Research Law, we are prohibited
from transferring, including by way of license, the IIA-financed technology and related intellectual property rights and know-how outside
of the State of Israel, except under limited circumstances and only with the approval of the IIA Research Committee. We may not receive
the required approvals for any proposed transfer, and, even if received, we may be required to pay the IIA a portion, to be set by the
IIA, in its discretion and taking into account the circumstances, upon its approval of such transaction, of the consideration or milestone
and royalty payments that we receive upon any sale or out-licensing of such technology to a non-Israeli entity, up to 600% of the grant
amounts plus interest.
These restrictions may impair our ability to sell
our technology assets or to perform or outsource manufacturing outside of Israel or otherwise transfer our know-how outside of Israel
and may require us to obtain the approval of the IIA for certain actions and transactions and pay additional royalties and other amounts
to the IIA. In addition, any change of control and any change of ownership of our Common Stock that would make a non-Israeli citizen or
resident an “interested party,” as defined in the Research Law, requires prior written notice to the IIA, and our failure
to comply with this requirement could, under certain circumstances, result in criminal liability.
These restrictions will continue to apply even
after we have repaid the full amount of royalties on the grants.
We have received, and may continue to receive, Israeli governmental
grants to assist in the funding of our research and development activities. If we lose our funding from these research and development
grants, we may encounter difficulties in the funding of future research and development projects and implementing technological improvements,
which would harm our operating results.
Through December 31, 2022, we had received an aggregate
of $7.0 million in the form of grants from the IIA. BiomX Ltd. was formed as an incubator company as part of the FutuRx incubator, and,
until 2017, the majority of our funding was from IIA grants and funding by the incubator, which is supported by the IIA. We continued
to apply for and receive IIA grants after we left the incubator. The requirements and restrictions for such grants are found in the Research
Law. Under the Research Law, royalties of 3% to 3.5% on the revenue derived from sales of products or services developed in whole or in
part using these IIA grants are payable to the Israeli government. We developed both of our platform technologies, at least in part, with
funds from these grants, and, accordingly, we would be obligated to pay these royalties on sales of any of our product candidates that
achieve regulatory approval. As long as the manufacturing of our product candidates takes place in Israel and no technology funded with
IIA grants is sold or out licensed to a non-Israeli entity, the maximum aggregate royalties paid generally would not exceed 100% of the
grants made to us, plus annual interest equal to the 12-month LIBOR rate applicable to dollar deposits, as published on the first business
day of each calendar year. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced in July 2017 that
it will no longer persuade or require banks to submit rates for LIBOR after 2021. In September 2021, the Bank of Israel, which
determines annual interest rates, published a directive which stated that annual interest at a variable rate linked to the LIBOR rate
for loans in U.S. dollars will be replaced by the Secured Overnight Financing Rate, or the SOFR, in June 2023. While it is not currently
possible to determine precisely whether, or to what extent, the replacement of LIBOR with SOFR would affect us, the implementation of
SOFR may increase our financial liabilities to the IIA. Management continues to monitor the status and discussions regarding SOFR.
We are not yet able to reasonably estimate the expected impact. As of December 31, 2022, the balance of the principal and interest
in respect of our commitments for future payments to the IIA totaled approximately $6.6 million. As part of funding our current and planned
product development activities, we have submitted follow-up grant applications for additional grants.
These grants have funded some of our personnel,
development activities with subcontractors, and other research and development costs and expenses. However, if these awards are not funded
in their entirety or if additional grants are not awarded in the future, due to, for example, IIA budget constraints or governmental policy
decisions, our ability to fund future research and development and implement technological improvements would be impaired, which would
negatively impact our ability to develop our product candidates.
Potential political, economic and military instability in the
State of Israel, where the majority of our senior management and our research and development facilities are located, may adversely affect
our results of operations.
Our headquarters and principal offices and most
of our operations are located in the State of Israel. In addition, all but one of our key employees and officers are residents of Israel.
Accordingly, political, economic and military conditions in Israel directly affect our business.
Any hostilities involving Israel or the interruption
or curtailment of trade between Israel and its present trading partners, or a significant downturn in the economic or financial condition
of Israel, could affect adversely our operations. Ongoing and revived hostilities or other Israeli political or economic factors could
harm our operations, product development and results of operations.
Although Israel has entered into various agreements
with Egypt, Jordan, the Palestinian Authority and with various states in the Persian Gulf, there has been a continuous unrest and terrorist
activity with varying levels of severity, the most recent of which was the armed conflict with Hamas in May 2021. In addition, Israel
faces threats from more distant neighbors, in particular, Iran. Our insurance policies do not cover us for the damages incurred in connection
with these conflicts or for any resulting disruption in our operations. The Israeli government, as a matter of law, provides coverage
for the reinstatement value of direct damages that are caused by terrorist attacks or acts of war; however, the government may cease providing
such coverage or the coverage might not be enough to cover potential damages. In the event that hostilities disrupt the ongoing operation
of our facilities or the airports and seaports on which we depend to import and export our supplies and products, our operations may be
materially adversely affected.
Several countries, principally in the Middle East,
still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with
Israel and Israeli companies, whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts
by activists to cause companies, research institutions and consumers to boycott Israeli goods and cooperation with Israeli-related entities
based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to cooperate
with research institutions and collaborate with other third parties. Any hostilities involving Israel, any interruption or curtailment
of trade or scientific cooperation between Israel and its present partners, or a significant downturn in the economic or financial condition
of Israel could adversely affect our business, financial condition and results of operations. We may also be targeted by cyber terrorists
specifically because we are an Israeli-related company.
Notwithstanding such boycotts and other hostile
actions, in August 2020, an agreement for the normalization of relations between Israel and the United Arab Emirates, or UAE, was reached
and in September 2020 the Abraham Accords Peace Treaty was signed at the White House. The Accords officially established diplomatic relations
between Israel and the UAE. This was shortly followed by an agreement for the normalization of ties between Israel and the Kingdom of
Bahrain, which was signed in a Joint Communique between Israel and Bahrain in Manama, Bahrain in November 2020. In December 2020, Israel
and Morocco established full diplomatic relations. And in January 2021, Sudan acceded to the Abraham Accords during the visit of then-U.S.
Treasury Secretary Steven Mnuchin to Khartoum. These agreements have led to other trade and military alliances between Israel and neighboring
Arab countries.
In addition, the Israeli government is currently
pursuing extensive changes to Israel’s judicial system. This has sparked extensive political debate. In response to the foregoing
developments, many individuals, organizations and institutions, both within and outside of Israel, have voiced concerns that the proposed
changes may negatively impact the business environment in Israel, including due to reluctance of foreign investors to invest or transact
business in Israel, increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in security
markets, and other changes in macroeconomic conditions. To the extent that any of these negative developments do occur, they may have
an adverse effect on our business, our results of operations and our ability to hire and preserve our employees and to raise additional
funds.
Under applicable employment laws, we may not be able to enforce
covenants not to compete.
We generally enter into noncompetition agreements
with our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working
for our competitors or clients for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions
in which our employees work, and it may be difficult for us to restrict our competitors from benefitting from the expertise our former
employees or consultants developed while working for us. For example, Israeli labor courts have required employers seeking to enforce
noncompete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a
limited number of material interests of the employer that have been recognized by the courts, such as the protection of a company’s
trade secrets or other intellectual property.
Our operations may be disrupted by the obligations of personnel
to perform military service.
Some of our employees based in Israel may be called
upon to perform annual military reserve duty and, in emergency circumstances, could be called to immediate and unlimited active duty.
Our operations could be disrupted by the absence of a significant number of our employees related to military service or the absence for
extended periods of one or more of our executive officers or other key employees. Such disruption could materially adversely affect our
business and results of operations.
The tax benefits that are available to us if and when we generate
taxable income require us to meet various conditions and may be prevented or reduced in the future, which could increase our costs and
taxes.
If and when we generate taxable income, we would
be eligible for certain tax benefits provided to “Technologic Preferred Enterprise” and/or “Preferred Enterprise”
as defined under the Encouragement of Capital Investment Law -1959, or the “Law, and its regulations, as amended and, accordingly,
could be subject to a reduced corporate tax rate on its income that will meet the provisions of the Law (ranging between 7.5%-16%). To
the extent that we are not eligible to obtain such statuses, our Israeli taxable income would be subject to regular Israeli corporate
tax rates. The standard corporate tax rate for Israeli companies is 23%. The benefits available to us in accordance to the Law and its
regulations are subject to the fulfillment of conditions stipulated in the Law and the regulations. Further, in the future, these tax
benefits may be reduced or discontinued.
It may be difficult to enforce a U.S. judgment against us or
our officers and directors in Israel or the United States or to assert U.S. securities laws claims in Israel or serve process on our officers
and directors.
Not all of our directors or officers are residents
of the United States, and most of their and our assets are located outside the United States. Service of process upon us or our non-U.S.
resident directors and officers may be difficult to obtain within the United States. Israeli courts may refuse to hear a claim based on
a violation of U.S. securities laws against us or our non-U.S. officers and directors, because Israel may not be the most appropriate
forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law, and not
U.S. law, is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact,
which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding
case law in Israel addressing the matters described above. Additionally, Israeli courts might not enforce judgments obtained in the United
States against us or our non-U.S. directors and executive officers, which may make it difficult to collect on judgments rendered against
us or our non-U.S. officers and directors.
Moreover, an Israeli court will not enforce a non-Israeli
judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional
cases), if its enforcement is likely to prejudice the sovereignty or security of the State of Israel, if it was obtained by fraud or in
the absence of due process, if it is at variance with another valid judgment that was given in the same matter between the same parties,
or if a suit in the same matter between the same parties was pending before a court or tribunal in Israel at the time the foreign action
was brought.
Risks Related to Manufacturing and Supply
We rely on third parties to manufacture our clinical supply of
product candidates and we intend to rely on third parties to produce and process our products, if approved.
We currently rely on outside vendors to supply
raw materials and other important components, such as lab equipment. We have not yet caused any product candidates to be manufactured
or processed on a commercial scale and may not be able to do so for any of our product candidates. We will make changes as it works to
optimize the manufacturing process for our product candidates, and we cannot be sure that even minor changes in the process will result
in therapies that are safe and effective.
The facilities used to manufacture our product
candidates must be approved by the FDA or equivalent foreign regulatory agencies pursuant to inspections that will be conducted after
we submit a marketing application to the FDA or equivalent foreign regulatory agency. Additionally, any facilities used for the manufacture
of product candidates commercialized for non-therapeutic uses will be subject to inspection by the FDA and foreign regulatory agencies.
We do not currently control all aspects of the manufacturing process of, and are currently largely dependent on, our contract manufacturing
partners for compliance with regulatory requirements, known as cGMP requirements, for manufacture of our product candidates. If and when
our manufacturing facility becomes operational, we will be responsible for compliance with cGMP requirements. If we or our contract manufacturers
cannot successfully manufacture in conformance with our specifications and the strict regulatory requirements of the FDA or other regulatory
authorities, we and they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities with respect
to the manufacture of our product candidates. In addition, we have no control over the ability of our contract manufacturers to maintain
adequate quality control, quality assurance and qualified personnel. If the FDA or an equivalent foreign regulatory agency does not approve
these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find
alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market
our product candidates, if approved.
We have limited experience manufacturing our product
candidates for purposes of clinical trials for therapeutic indications or for non-therapeutic clinical studies or trials. We opened our
own manufacturing facility at our headquarters in Ness Ziona, Israel in 2019. We cannot assure you that we can manufacture our product
candidates in compliance with regulations at a cost or in quantities necessary to make them commercially viable.
Our product candidates rely on the availability of specialty
raw materials, which may not be available to us on acceptable terms or at all.
Our product candidates require certain specialty
raw materials, some of which we obtain from small companies with limited resources and experience to support a commercial product. These
third-party 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. We do not currently have contracts in place with all of the suppliers that we may need at any
point in time and, if needed, 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.
Risks Related to Our Common Stock
A significant number of shares of our Common Stock are subject
to issuance upon exercise of outstanding warrants and options, which upon such exercise may result in dilution to our security holders.
As of December 31, 2022, we had an aggregate of 13,652,974
warrants outstanding to purchase an aggregate of up to 9,215,475 shares of Common Stock with a weighted average exercise price of $9.51,
certain of which are included in our outstanding units, certain of which were issued in private placements and certain of which are traded
on the NYSE American under the symbol “PHGE.WS,” or the Outstanding Warrants, in each case subject to adjustment. To the extent
such warrants are exercised, additional shares of our Common Stock will be issued, which will result in dilution to the then existing
holders of Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such
shares in the public market could adversely affect the market price of our Common Stock.
In addition, as of December 31, 2022, we had outstanding
vested and unvested options to purchase 4,769,441 shares of our Common Stock. To the extent any of these options are exercised, additional
shares of Common Stock will be issued that will generally be eligible for resale in the public market (subject to limitations under Rule
144 under the Securities Act with respect to shares held by our affiliates), which will result in dilution to our security holders. We
plan to grant additional options and warrants in the future. The issuance of additional securities could also have an adverse effect on
the market price of our Common Stock.
We have never paid dividends on our Common Stock, and we do not
anticipate paying any cash dividends on our Common Stock in the foreseeable future.
We have never declared or paid cash dividends on
our Common Stock. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We currently intend to
retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation,
if any, of our Common Stock will be our stockholders’ sole source of gain for the foreseeable future.
We may be unable to maintain the listing of our securities in
the future.
Our Common Stock and certain of our warrants currently
trade on the NYSE American. If our Common Stock or warrants are subsequently delisted, we could face significant material adverse consequences,
including:
| ● | a limited availability of market
quotations for our securities; |
| ● | reduced liquidity with respect
to our securities; |
| ● | a determination that our shares
are a “penny stock,” which will require brokers trading in our securities to adhere to more stringent rules, possibly resulting
in a reduced level of trading activity in the secondary trading market for our securities; |
| ● | a limited amount of news and
analyst coverage for the post-transaction company; and |
| ● | a decreased ability to issue
additional securities or obtain additional financing in the future. |
As a “smaller reporting company” we are permitted
to provide less disclosure than larger public companies, which may make our Common Stock less attractive to investors.
We are currently a “smaller reporting company,”
as defined by Rule 12b-2 of the Exchange Act. As a smaller reporting company, we are eligible to take advantage of certain exemptions
from various reporting requirements applicable to other public companies. Consequently, it may be more challenging for investors to analyze
our results of operations and financial prospects which may result in less investor confidence. Investors may find our Common Stock less
attractive as a result of our smaller reporting company status. If some investors find our Common Stock less attractive, there may be
a less active trading market for our Common Stock and our stock price may be more volatile.
General Risk Factors
Our success depends, in part, on our ability to retain key executives
and to attract, retain and motivate qualified personnel.
We are highly dependent on Jonathan Solomon, our
chief executive officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered
into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain
“key person” insurance for any of our executives or other employees. The loss of the services of any of our executive officers,
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.
Our continued ability to attract, retain and motivate
highly qualified management, clinical and scientific personnel and our ability to develop and maintain important relationships with leading
academic institutions, clinicians and scientists is critical to our success. Competition for qualified personnel in the biotechnology
field is intense, particularly in Israel where our headquarters are located. We face competition for personnel from other biotechnology
and pharmaceutical companies, universities, public and private research institutions and other organizations. We also face competition
from other more well-funded and well-established businesses, and we may also be viewed as a riskier choice from a job stability perspective
due to our relatively newer status than longer existing biotech and pharmaceutical companies. We may not be able to attract and retain
qualified personnel on acceptable terms given the competition for such personnel. If we are unsuccessful in our retention, motivation
and recruitment efforts, we may be unable to execute our business strategy.
Expectations relating to environmental, social and governance
(ESG) programs may impose additional costs and expose us to new risks.
There is an increasing focus from certain investors
and other key stakeholders concerning corporate responsibility, specifically related to environmental, social and governance, or ESG,
factors. As a result, there is an increased emphasis on corporate responsibility ratings and a number of third parties provide reports
on companies in order to measure and assess corporate responsibility performance. In addition, the ESG factors by which companies’
corporate responsibility practices are assessed may change, which could result in greater expectations of us and cause us to undertake
costly initiatives to satisfy such new criteria. Alternatively, if we are unable to satisfy such new criteria, investors may conclude
that our policies with respect to corporate responsibility are inadequate. We risk damage to our brand and reputation if our corporate
responsibility procedures or standards do not meet the standards set by various constituencies. We may be required to make investments
in matters related to ESG, which could be significant and adversely impact our results of operations. Furthermore, if our competitors’
corporate responsibility performance is perceived to be greater than ours, potential or current investors may elect to invest with our
competitors instead. In addition, if we communicate certain initiatives and goals regarding ESG matters, we could fail, or be perceived
to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we
fail to satisfy the expectations of investors and other key stakeholders or our initiatives are not executed as planned, our reputation
and financial results could be materially and adversely affected.
Failure to comply with health and data protection laws and regulations
could lead to claims, government enforcement actions (which could include civil or criminal penalties), regulatory actions, private litigation
and/or adverse publicity and could negatively affect our operating results and business.
We may be subject to federal, state and foreign
data protection laws and regulations (i.e., laws and regulations that address privacy and security). In the United States, numerous federal
and state laws and regulations, including federal health information privacy laws, state consumer privacy laws, state data breach notification
laws, state health information privacy laws and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission
Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations
or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions
from which we obtain clinical trial data) that are subject to privacy and security requirements under the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health of 2009, or
HITECH. Depending on the facts and circumstances, we could be subject to criminal penalties if we knowingly obtain, use or disclose individually
identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Additional requirements may also be imposed by
international data protection laws. In this context, Regulation 2016/679 of the GDPR (in addition to many other international data protection
laws) may have an impact on our operations when we collect and/or process personal data of individuals located in the European Union.
The GDPR has applied since May 25, 2018 (replacing previously applicable data protection frameworks) and has an extraterritorial reach.
The GDPR allows members states to introduce specific requirements in relation to certain areas, including processing of special categories
of data, and we may face further restrictions and non-compliance risks under such national frameworks. We have not yet assessed whether
its activities might be caught by the GDPR.
Because of the types of data we collect and process,
which may involve health, biometric and genetic data, we may face high risks for non-compliance with the GDPR rules (or local declinations
of GDPR-rules across the different European Union Member States), as these types of data are considered as special categories of data
and are granted higher protection. The risks are further increased considering the diverging approach in the European Union as to the
rules, requirements and frameworks in relation to the processing of personal data in clinical trials (in matters such as the choice of
the legal basis for the processing of data, the possible uses of the personal data collected, etc.) and the interplay with other relevant
frameworks. The GDPR introduced stringent data protection requirements in the European Union, as well as potential fines for noncompliant
companies of up to the greater of €20 million or 4% of annual worldwide turnover. Supervisory authorities also have the ability to
restrict our processing activities if those are deemed not to be in compliance with the GDPR (or local declinations); this may significantly
impact the way we conduct our activities. The GDPR imposes numerous requirements for the collection, use and disclosure of personal data,
including high standards for consent to be valid, and specific information to be provided to individuals about how their personal data
is used, the obligation to notify regulators and (in some cases) to communicate to affected individuals of personal data breaches, extensive
new internal privacy governance requirements and obligations to allow individuals to exercise their strengthened privacy rights (e.g.,
the right to access, correct and delete their personal data, to withdraw their consent, etc.), and obligations when contracting with third
parties such as service providers, CROs, etc. In addition, the GDPR includes restrictions on data transfers outside the European Economic
Area, or EEA. The actual mechanisms made available under GDPR to transfer such personal data have received heightened regulatory and judicial
scrutiny. If we cannot rely on existing mechanisms for transferring personal data from the EEA, the United Kingdom, or other jurisdictions,
we may be unable to transfer personal data in those regions. Further, the United Kingdom’s vote in favor of exiting the European
Union, often referred to as “Brexit,” has created uncertainty as to whether or not the United Kingdom data protection legislation
will depart from the GDPR and how data transfers to and from the United Kingdom will be regulated.
Compliance with U.S. and international data protection
laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose
data, or in some cases, impact our ability to operate in certain jurisdictions. Such laws and regulations could limit our ability to use
and share personal or other data, thereby increasing our costs and harming our business and financial condition. Failure to comply with
U.S. and international data protection laws and regulations could result in claims, government enforcement actions (which could include
civil or criminal penalties), regulatory actions, private litigation and/or adverse publicity and could negatively affect our operating
results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the
providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we
have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations,
even if we are not found liable, could be expensive and time consuming to defend and could result in adverse publicity that could harm
our business. Finally, we may be required to disclose personal data pursuant to demands from government agencies, from law enforcement
agencies, and from intelligence agencies. This disclosure may result in a failure or perceived failure by us to comply with data privacy
laws, rules, and regulations and could result in proceedings or actions against us in the same or other jurisdictions, and could have
an adverse impact on our reputation and brand.
Our relationships with healthcare providers, physicians and third-party
payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to
criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party
payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements
with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse and other healthcare
laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or FCA, and foreign
equivalent legislation, which may constrain the business or financial arrangements and relationships through which such companies sell,
market and distribute pharmaceutical products. In particular, the promotion, sales and marketing of healthcare items and services, as
well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks,
self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, structuring and commissions, certain customer incentive programs and other business arrangements generally. Activities
subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials.
The applicable federal, state and foreign healthcare laws and regulations laws that may affect our ability to operate include, but are
not limited to:
| ● | the federal Anti-Kickback Statute,
which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any
kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the
referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may
be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity can
be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, 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 FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on
the one hand and prescribers, purchasers and formulary managers on the other hand. There are a number of statutory exceptions and regulatory
safe harbors protecting some common activities from prosecution; |
| ● | federal civil and criminal false
claims laws, including the FCA, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to
be presented, false or fraudulent claims for payment to, or approval by Medicare, Medicaid or other federal healthcare programs, knowingly
making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay
or transmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing
an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA 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 FCA also permits
a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations
of the FCA and to share in any monetary recovery; |
| ● | HIPAA, which created new federal
criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program or obtain, by means of false or fraudulent pretenses, representations, or promises, any 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
willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection
with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback
Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate
it; |
|
● |
the federal Physician Payment Sunshine Act, created under the Patient Protection and Affordable Care Act and its implementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United States Department of Health and Human Services information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; |
|
● |
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; |
|
● |
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including private insurers, and may be broader in scope than their federal equivalents; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; and state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and |
|
● |
European Union and other foreign provisions. |
The distribution of pharmaceutical products is
subject to additional requirements and regulations, including extensive recordkeeping, licensing, storage, security requirements intended
to prevent the unauthorized sale of pharmaceutical products and, in some foreign countries, including the European Union countries, mandatory
anti-counterfeit features.
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. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government
authorities, can be time- and resource-consuming and can divert a company’s attention from the business.
It is not always possible to identify and deter
employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure
to be in compliance with such laws or regulations. Efforts to ensure that our business arrangements will comply with applicable healthcare
laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices
may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws
and regulations. The failure to comply with any of these laws or regulatory requirements could subject us to possible legal or regulatory
action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in civil, criminal and administrative
penalties, damages, fines, disgorgement, individual imprisonment, possible exclusion from participation in federal and state funded healthcare
programs, contractual damages and the curtailment or restricting of our operations, as well as additional reporting obligations and oversight
if we become subject to a corporate integrity agreement or other agreement to resolve allegations of noncompliance with these laws. Any
action for violation of these laws, even if successfully defended, could cause a pharmaceutical manufacturer to incur significant legal
expenses and divert management’s attention from the operation of the business. Prohibitions or restrictions on sales or withdrawal
of future marketed products could materially affect business in an adverse way.
In addition, the approval and commercialization
of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned
above, among other foreign laws.
If we engage in future acquisitions or strategic partnerships,
this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, and subject
us to other risks.
We may evaluate various acquisition opportunities
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; |
| ● | 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
marketing 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. |
Our business and operations might be adversely affected by security
breaches, including any cybersecurity incidents.
We depend on the efficient and uninterrupted operation
of our computer and communications systems, and those of our consultants, contractors and vendors, which we use for, among other things,
sensitive company data, including our intellectual property, financial data and other proprietary business information.
While certain of our operations have business continuity
and disaster recovery plans and other security measures intended to prevent and minimize the impact of IT-related interruptions, our IT
infrastructure and the IT infrastructure of our consultants, contractors and vendors are vulnerable to damage from cyberattacks, computer
viruses, unauthorized access, electrical failures and natural disasters or other catastrophic events. We could experience failures in
our information systems and computer servers, which could result in an interruption of our normal business operations and require substantial
expenditure of financial and administrative resources to remedy. System failures, accidents or security breaches can cause interruptions
in our operations and can result in a material disruption of our targeted phage therapies, product candidates and other business operations.
The loss of data from completed or future studies or clinical trials could result in delays in our research, development or regulatory
approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security
breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary
information, we could incur regulatory investigations and redresses, penalties and liabilities and the development of our product candidates
could be delayed or otherwise adversely affected.
Even though we believe we carry commercially reasonable
business interruption and liability insurance, we might suffer losses as a result of business interruptions that exceed the coverage available
under our insurance policies or for which we do not have coverage. For example, we are not insured against terrorist attacks or cyberattacks.
Any natural disaster or catastrophic event could have a significant negative impact on our operations and financial results. Moreover,
any such event could delay the development of our product candidates.
In the ordinary course of our business, we collect
and store sensitive data, including intellectual property, clinical trial data, proprietary business information, personal data and personally
identifiable information of our clinical trial subjects and employees, in our data centers and on our networks. The secure processing,
maintenance and transmission of this information is critical to our operations. Attacks upon information technology systems are increasing
in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups
and individuals with a wide range of motives and expertise. As a result of the COVID-19 pandemic, we may also face increased cybersecurity
risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional
opportunities for cybercriminals to exploit vulnerabilities. Because the techniques used to obtain unauthorized access to, or to sabotage,
systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques
or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period.
Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or internal bad actors,
or breached due to employee error, a technical vulnerability, malfeasance or other disruptions. We have experienced and expect to continue
to experience actual and attempted cyber-attacks of our IT networks, such as through phishing scams and ransomware. Although none of these
actual or attempted cyber-attacks has had a material adverse impact on our operations or financial condition, we cannot guarantee that
any such incidents will not have such an impact in the future.
We incur significant costs operating as a public company.
As a public company, we incur significant costs
in connection with our directors and officers insurance, paying for service providers such as legal and accounting as well as other expenses.
We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual,
quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules
subsequently adopted by the SEC and the NYSE American to implement provisions of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform
and Consumer Protection Act, or the Dodd-Frank Act, and the Public Company Accounting Oversight Board impose significant requirements
on public companies, including requiring the establishment and maintenance of effective disclosure and financial controls and changes
in corporate governance practices. These expenses will likely increase in the future, particularly after we cease to be an “emerging
growth company” if we are also no longer a “smaller reporting company” as a result of additional corporate governance
and disclosure requirements under the Sarbanes-Oxley Act, the Dodd-Frank Act, and SEC rules and regulations.
The rules and regulations applicable to public
companies result in us continuing to incur substantial legal and financial compliance costs. These costs increase our net loss or decrease
any net income and may require us to reduce costs in other areas of our business.
Sales of a substantial number of shares of our Common Stock in
the public market by our existing stockholders could cause our stock price to decline.
Sales of a substantial number of shares of our
Common Stock in the public market or the perception that these sales might occur, could depress the market price of our Common Stock and
could impair our ability to raise capital through the sale of additional equity securities. For example, if the second part of the PIPE
is completed, we will issue a significant amount of additional new shares of our Common Stock that, once registered for re-sale, will
be freely tradeable. For example, if the second part of the PIPE is completed, we will issue a significant amount of additional new shares
of our Common Stock that, once registered for re-sale, will be freely tradeable. We are unable to predict the effect that sales may have
on the prevailing market price of our Common Stock.
The market price of our Common Stock and other securities may
be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock.
The stock markets in general and the markets for
biotechnology stocks have experienced extreme volatility. The market for the common stock of smaller companies such as ours is characterized
by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities
exchange and have large public floats, and our share price is more volatile than the shares of such larger, more established companies
for the indefinite future.
In addition to the factors discussed in this “Risk
Factors” section, price declines in our Common Stock (and other securities) could also result from general market and economic conditions
and a variety of other factors, including:
| ● | adverse results or delays in
our clinical trials; |
| ● | adverse actions taken by regulatory
agencies with respect to our product candidates, clinical trials or the manufacturing processes of our product candidates; |
| ● | announcements of technological
innovations, patents or new products by our competitors; |
| ● | regulatory developments in the
United States and foreign countries; |
| ● | any lawsuit involving us or
our product candidates; |
| ● | announcements concerning our
competitors, or the biotechnology or pharmaceutical industries in general; |
| ● | developments concerning any
strategic alliances or acquisitions we may enter into; |
| ● | actual or anticipated variations
in our operating results; |
| ● | changes in recommendations by
securities analysts or lack of analyst coverage; |
|
● |
deviations in our operating results from the estimates of analysts; |
| ● | our inability, or the perception
by investors that we will be unable, to continue to meet all applicable requirements for continued listing of our Common Stock on the
NYSE American, and the possible delisting of our Common Stock; |
| ● | sales of our Common Stock by
our executive officers, directors and principal stockholders or sales of substantial amounts of Common Stock; and |
| ● | loss of any of our key scientific
or management personnel. |
Additionally, market prices for securities of biotechnology
companies historically have been very volatile. The market for these securities has from time to time experienced significant price and
volume fluctuations for reasons unrelated to the operating performance of any one company. Furthermore, our business may be adversely
impacted by risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the COVID-19 or as a result
of the Russian invasion of Ukraine and world sanctions on Russia, Belarus, and related parties. A significant outbreak of contagious diseases
could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting
in an economic downturn.
In the past, following periods of volatility in
the market price of a particular company’s securities, litigation has often been brought against that company. Any such lawsuit
could consume resources and management time and attention, which could adversely affect our business.
If securities or industry analysts do not publish research or
publish unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our Common Stock will depend
in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors.
Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence
coverage of our company, our stock price and trading volume could be negatively impacted. If any of the analysts who may cover us change
their recommendation regarding our stock adversely, provide more favorable relative recommendations about our competitors or publishes
inaccurate or unfavorable research about our business, our stock price would likely decline. If any analyst who may cover us ceases coverage
of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading
volume to decline.