UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 3, 2023, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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3 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
28 |
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Item 4. |
28 |
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PART II. |
29 |
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Item 1. |
29 |
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Item 1A. |
29 |
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Item 2. |
75 |
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Item 3. |
75 |
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Item 4. |
75 |
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Item 5. |
75 |
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Item 6. |
76 |
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77 |
i
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:
ii
The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” and the other information set forth in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission, or the SEC. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.
iii
Note Regarding Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be identified by such forward-looking terminology as “aims,” “anticipates,” “believes,” “continue,” “could,” “designed to,” “estimates,” “expects,” “forecasts,” “goal” “intends,” “may,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “strives,” “should,” “will,” and similar expressions or the negative of these terms. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
iv
All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission, or the SEC could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.
Note Regarding Trademarks
All brand names or trademarks appearing in this Quarterly Report are the property of their respective holders. Unless the context requires otherwise, references in this Quarterly Report to the “Company,” “we,” “us,” and “our” refer to AVROBIO, Inc.
v
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share data)
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June 30, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Prepaid expenses and other current assets |
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Total current assets |
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Operating lease assets |
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Property and equipment, net |
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Restricted cash, net of current portion |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liabilities |
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Total current liabilities |
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Note payable, net of discount |
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Operating lease liabilities, net of current portion |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands, except per share data)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Operating expenses: |
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Research and development |
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$ |
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$ |
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$ |
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$ |
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General and administrative |
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Total operating expenses |
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Gain on asset sale |
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Income (loss) from operations |
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( |
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( |
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Other (expense) income: |
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Interest expense, net |
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( |
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( |
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( |
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( |
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Other (expense) income, net |
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( |
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( |
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( |
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Total other expense, net |
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( |
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( |
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( |
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( |
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Net income (loss) and comprehensive income (loss) attributable to common stockholders—basic and diluted |
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$ |
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$ |
( |
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$ |
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$ |
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Earnings per share: |
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Net income (loss) per share applicable to common stockholders—basic |
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$ |
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$ |
( |
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$ |
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$ |
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Net income (loss) per share applicable to common stockholders—diluted |
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$ |
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$ |
( |
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$ |
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$ |
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Shares used in computing earnings per share: |
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Weighted-average common shares outstanding—basic |
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Weighted-average common shares outstanding—diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
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Three Months Ended June 30, 2022 |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Equity |
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Balance as of March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Six Months Ended June 30, 2022 |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Equity |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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Issuance of common stock under the 2018 employee stock purchase plan |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Three Months Ended June 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Equity |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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3
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Six Months Ended June 30, 2023 |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Paid-in Capital |
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Deficit |
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Equity |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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Issuance of common stock under the 2018 employee stock purchase plan |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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Balance as of June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Six Months Ended June 30, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Gain on asset sale |
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( |
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Stock-based compensation expense |
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Depreciation and amortization expense |
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Non-cash interest expense |
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Loss on disposal of property and equipment |
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Deferred rent expense |
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( |
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Non-cash lease expense |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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( |
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Other assets |
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Accounts payable |
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( |
) |
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Current and non-current operating lease liabilities |
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( |
) |
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Accrued expenses and other current liabilities |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities: |
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Proceeds from asset sale, net |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Net cash provided by (used in) investing activities |
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( |
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Cash flows from financing activities: |
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Repayment of note payable, including end of term charge |
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( |
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Proceeds from exercise of stock options |
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Proceeds from issuance of ESPP shares |
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Net cash (used in) provided by financing activities |
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( |
) |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities: |
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Purchases of property and equipment included in accounts payable and |
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$ |
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$ |
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Interest paid |
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Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets: |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Restricted cash |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Nature of the Business
AVROBIO, Inc. (the “Company” or “AVROBIO”) is a clinical-stage gene therapy company which has been focused on developing potentially curative ex vivo lentiviral gene therapies to treat rare diseases following a single dose treatment regimen.
On July 12, 2023, following a comprehensive review of the Company’s business by its Board of Directors (the “Board”), the Company announced its intention to halt development of its programs and explore strategic alternatives focused on maximizing stockholder value, which may include, but are not limited to, an acquisition, a merger, business combination or divestiture. See Note 13 for further discussion.
The Company is subject to risks and uncertainties including, should it resume development of its product candidates, risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Should the Company resume development of its product candidates, significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization, would be required. These efforts would require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, should the Company resume development of its product candidates, it is uncertain when, if ever, the Company would realize revenue from product sales.
In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
The Company has devoted substantially all of its efforts to research and development, business planning, acquiring operating assets, seeking protection for its technology and product candidates, and raising capital. Since inception, the Company has had recurring losses and has funded its operations through sales of preferred stock and common stock, a term loan facility and the sale of the Company’s cystinosis gene therapy program (designated AVR-RD-04) and all other assets of the Company specifically related to this program. As of June 30, 2023, the Company had an accumulated deficit of $
On May 19, 2023, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Novartis Pharma AG and Novartis Pharmaceuticals Corporation (collectively, “Novartis”), providing for the sale of the Company’s cystinosis gene therapy program (designated AVR-RD-04) and all other assets of the Company specifically related to this program. The aggregate consideration to the Company consisted of a cash payment of $
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements (the “unaudited condensed consolidated financial statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2022, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2023, and the results of its operations for the three and six months ended June 30, 2023 and 2022, its statements of stockholders’ equity for the three and six months ended June 30, 2023 and 2022 and its statement of cash flows for the six months ended June 30, 2023 and 2022.
The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 23, 2023.
The unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. As of June 30, 2023, there have been no changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer (“CEO”). The Company and the CEO view the Company’s operations and manage its business as
7
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities and expenses and the related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates. Changes in estimates are reflected in reported results in the period in which they become known.
Significant estimates relied upon in preparing the unaudited condensed consolidated financial statements include the determination of the fair value of share-based awards issued and the estimation of accrued research and development expenses.
Stock-based Compensation
For stock-based awards issued to employees and members of the Company’s Board for their services on the Board, the Company measures the estimated fair value of the stock-based award on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company issues stock-based awards with only service-based vesting conditions and records the expense for these awards using the straight-line method. The Company has not issued any stock-based awards with performance- or market-based vesting conditions. The Company accounts for forfeitures as they occur.
Prior to the adoption of Accounting Standards Update (“ASU”) No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the measurement date for non-employee awards was generally the date the services are completed, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards. After adoption of ASU 2018-07, the measurement date for non-employee awards is the later of the adoption date of ASU 2018-07, or the date of grant, without change in the fair value of the award. For stock-based awards granted to nonemployees subject to graded vesting that only contain service conditions, the Company has elected to recognize stock-based compensation expense using the straight-line recognition method.
The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive income (loss) in the same manner in which the award recipient’s cash compensation costs are classified.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its consolidated financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its IPO or such earlier time that it is no longer an “emerging growth company.”
Subsequent Event Considerations
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.
Recently Adopted Accounting Pronouncements
8
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. On January 1, 2023 the Company adopted this standard, which had no impact on its financial position or results of operations.
In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” or ASU 2019-11. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. On January 1, 2023 the Company adopted this standard, which had no impact on its financial position or results of operations.
3. License and Purchase Agreements
Agreement with The University of Manchester
On September 30, 2020, the Company entered into an agreement (“MPSII License Agreement”) with The University of Manchester, England (“UoM”), whereby UoM granted to the Company an exclusive worldwide license under certain patent and other intellectual property rights, subject to certain retained rights, to develop, commercialize and sell an ex vivo lentiviral gene therapy for use in the treatment of Hunter syndrome, or mucopolysaccharidosis type II (“MPSII”). As consideration for the MPSII License Agreement, the Company agreed to pay UoM an upfront, one-time fee of $
As part of the agreement, the Company is obligated to make milestone payments of up to an aggregate of $
Unless terminated earlier, the agreement expires
Concurrently with the MPSII License Agreement, the Company entered into a collaborative research funding agreement with UoM (“CRFA”). Under the CRFA, the Company has agreed to fund the budgeted costs of an investigator-sponsored Phase 1/2 clinical trial to be sponsored by UoM in connection with the development activities under the MPSII License Agreement, which are currently expected to equal approximately £
For the three months ended June 30, 2023, the Company did
9
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
Agreements with University Health Network (“UHN”)
Fabry License Agreement—
On January 27, 2016, the Company entered into an agreement with UHN, pursuant to which UHN granted the Company an option to enter into an exclusive license under the UHN intellectual property related to Fabry disease in accordance with the pre-negotiated licensing terms. On November 4, 2016, the Company exercised its option and entered into a license agreement with UHN, pursuant to which UHN granted the Company an exclusive worldwide license under certain intellectual property rights and a non-exclusive worldwide license under certain know-how, in each case subject to certain retained rights, to develop, commercialize and sell products for use in the treatment of Fabry disease. In addition, for three years following the execution of the agreement, UHN granted the Company an exclusive option to obtain a license under certain improvements to the licensed intellectual property rights as well as an option to negotiate a license under certain other improvements.
Under this agreement, the Company paid an option fee of CAD $
The agreement requires the Company to meet certain performance milestones within specified timeframes. UHN may terminate the agreement if the Company fails to meet these performance milestones despite using commercially reasonable efforts and the Company is unable to reach agreement with UHN on revised timeframes. The Company’s royalty obligation expires on a licensed product-by-licensed product and country-by-country basis upon the latest to occur of the expiration or termination of the last valid claim under the licensed intellectual property rights in such country, the tenth anniversary of the first commercial sale of such licensed product in such country and the expiration of any applicable regulatory exclusivity in such country.
Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products. UHN can terminate the agreement if the Company fails to make any payments within a specified period after receiving written notice of such failure, or in the event that the Company fails to obtain or maintain insurance. Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time. The Company can voluntarily terminate the agreement with prior notice to UHN.
For the three months ended June 30, 2023 and 2022, the Company did
Interleukin 12 License Agreement—
On January 27, 2016, the Company entered into an exclusive license agreement with UHN, pursuant to which UHN granted the Company a license to certain patent rights for the commercial development, manufacture, distribution and use of any products or processes resulting from development of those patent rights related to Interleukin 12. Upon execution of this agreement, the Company paid an upfront license fee of CAD $
10
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
The agreement requires the Company to meet certain diligence requirements based upon specified milestones. The agreement expires on the later of the date the last patent rights expire in the last country or ten years from the date of first sale. UHN can terminate the agreement if the Company fails to make any payments within a specified period after receiving written notice of such failure, or in the event that the Company fails to obtain or maintain insurance. The Company can voluntarily terminate the agreement with prior notice to UHN. Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.
For the three months ended June 30, 2023 the Company did
Agreement with BioMarin Pharmaceutical Inc. (“BioMarin”)
On August 31, 2017, the Company entered into a license agreement with BioMarin, pursuant to which BioMarin granted the Company an exclusive worldwide license under certain intellectual property rights owned or controlled by BioMarin to develop, commercialize and sell products for use in the treatment of Pompe disease. The license agreement was amended in February 2018 and again in January 2020 to, among things, provide that BioMarin would supply the Company with certain technology materials. As consideration for this agreement, the Company paid an upfront license fee of $
The Company has recognized
Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the world. BioMarin and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time. The Company may terminate the agreement at will upon written notice to BioMarin. BioMarin has the right to terminate the agreement upon the Company’s bankruptcy or insolvency, or in the event of any challenge or opposition to the licensed patent rights or related actions brought by the Company or its affiliates or sublicensees, or if the Company, its affiliates or sublicensees knowingly assist a third-party in challenging or otherwise opposing the licensed patent rights, except as required under a court order or subpoena.
Agreement with Papillon Therapeutics, Inc. (previously GenStem Therapeutics, Inc.)
On October 2, 2017, the Company entered into a license agreement with GenStem, pursuant to which GenStem granted the Company an exclusive worldwide license, subject to certain retained rights, under certain intellectual property rights owned or controlled by GenStem to develop, commercialize and sell products for use in the treatment of cystinosis. Under this agreement, the Company paid an upfront license fee of $
11
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
The Company has recognized
Agreement with Lund University Rights Holders
On November 17, 2016, the Company entered into a license agreement with affiliates of Lund University, along with certain other relevant rights holders that may be added from time to time, pursuant to which such rights holders granted to the Company an exclusive worldwide license, subject to certain retained rights, under certain intellectual property rights to develop, commercialize and sell products in any and all uses relevant to Gaucher disease. As consideration for the license, the Company is required to make payments in connection with the achievement of certain milestones up to an aggregate of $
The Company has recognized
Sale of Cystinosis Program
On May 19, 2023, the Company entered into the Asset Purchase Agreement with Novartis, providing for the sale of the Company’s cystinosis gene therapy program (designated AVR-RD-04) and all other assets of the Company specifically related to this program. In addition, pursuant to the Asset Purchase Agreement, the Company has granted an exclusive license to Novartis to use certain intellectual property of the Company, which consists of certain proprietary elements of the Company’s plato® gene therapy platform technology specifically within the field of cystinosis. The foregoing transactions contemplated by the Asset Purchase Agreement are referred to as the “Asset Sale.” The Company has also agreed not to assert claims against Novartis for violations of certain other Company intellectual property rights in connection with Novartis’s exercise of the exclusive license granted to it under the Asset Purchase Agreement, and for violations of the licensed intellectual property, except in connection with activities by Novartis in the fields of Gaucher disease, Pompe disease, Hunter syndrome and Fabry disease, or indemnification claims under the Asset Purchase Agreement. The aggregate consideration to the Company consisted of a cash payment of $
The Asset Purchase Agreement contains certain customary representations, warranties and covenants. The Asset Purchase Agreement also contains customary indemnification provisions pursuant to which the parties agree to indemnify each other for certain matters, including, among other things, breaches of certain representations, warranties and covenants in connection with the Asset Sale, subject to specified caps and limitations. The Company has also agreed to a covenant that would prohibit the Company from engaging in specified activities that would compete with the cystinosis business, for a period of 5 years, subject to certain limitations and exceptions. The Company completed the Asset Sale on June 9, 2023. For the three and six months ended June 30, 2023 the Company recognized $
4. Fair Value Measurement
The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of June 30, 2023 and December 31, 2022:
|
|
Fair Value Measurements as of June 30, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents — money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
12
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
|
|
Fair Value Measurements as of December 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents — money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
The fair value of cash equivalents was determined through quoted prices by third-party pricing services.
During the six months ended June 30, 2023, there were
5. Supplemental Balance Sheet Information
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
Prepaid research and development expenses |
|
$ |
|
|
$ |
|
||
Tax incentive refund |
|
|
|
|
|
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Prepaid compensation benefits |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
Property and equipment, net
Property and equipment, net consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
Laboratory and office equipment |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense was $
Restricted cash
As of June 30, 2023 and December 31, 2022, the Company had restricted cash as presented in the table below, which consists of cash used to secure letters of credit for the benefit of the landlord in connection with the Company’s lease agreements. The cash will be restricted until the termination or modification of the lease arrangement.
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Restricted cash |
|
$ |
|
|
$ |
|
||
Restricted cash, net of current portion |
|
|
|
|
|
|
||
13
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
June 30, |
|
|
December 31, |
|
||
Research and development expenses |
|
$ |
|
|
$ |
|
||
Compensation and benefit costs |
|
|
|
|
|
|
||
Consulting and professional fees |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
6. Leases
On August 31, 2018, the Company entered into a sublease agreement for lab space located in Cambridge Massachusetts, United States, which was set to expire in
On June 1, 2020, the Company entered into a lease agreement for office space located in Toronto, Ontario, Canada, which is set to expire in
The following table summarizes the effect of lease costs in the Company’s consolidated statement of operations and comprehensive income (loss):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||
|
|
2023 |
|
|
2023 |
|
||
Operating lease costs |
|
$ |
|
|
$ |
|
||
Sublease income |
|
|
( |
) |
|
|
( |
) |
Total lease costs |
|
$ |
|
|
$ |
|
||
During the three months ended June 30, 2023 and 2022, the Company made cash payments for operating leases of $
As of June 30, 2023, future minimum payments of operating lease liabilities are as follows (in thousands):
|
|
June 30, |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
$ |
|
|
Less: interest |
|
|
( |
) |
Plus: FX gain/loss |
|
|
|
|
Present value of lease liabilities |
|
$ |
|
|
14
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
As of June 30, 2023, the weighted average remaining lease term was
7. Commitments and Contingencies
Legal Proceedings
The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the six months ended June 30, 2023 and 2022 and to the best of the Company’s knowledge, no material legal proceedings are currently pending or threatened.
Other
The Company is also party to various agreements, principally relating to licensed technology, that require future payments relating to milestones not met at June 30, 2023 and December 31, 2022, or royalties on future sales. No milestone or royalty payments under these agreements are expected to be payable in the immediate future, except as disclosed in Note 3 “License Agreements.”
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown as of June 30, 2023. The Company does not anticipate recognizing any significant losses relating to these arrangements. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
8. Note Payable
On November 2, 2021 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”) pursuant to which a term loan in an aggregate principal amount of up to $
Advances under the Term Loan Facility bore interest at a rate equal to the greater of either (i) the Prime Rate (as reported in The Wall Street Journal) plus
The Company could prepay advances under the Loan Agreement, in whole or in part, at any time subject to a prepayment charge (the “Prepayment Premium”) equal to: (a)
Upon prepayment or repayment of all or any of the term loans under the Term Loan Facility, the Company was required to pay (in addition to any Prepayment Premium) an end of term charge of
15
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
The Term Loan Facility was secured by substantially all of the Company’s assets, other than the Company’s intellectual property. The Company agreed to not pledge or secure its intellectual property to others.
The End of Term Charge is recorded as a debt discount with an initial carrying balance of $
On June 9, 2023, upon the closing of the Asset Sale, all outstanding amounts due and owed, including principal, interest, and other charges, under the Term Loan Facility, dated as of November 2, 2021, by and among the Company, Silicon Valley Bank, a division of First-Citizens Bank & Trust and the other parties thereto, were repaid in full and the Term Loan Facility was terminated. Upon repayment, the obligations of the Company under the Term Loan Facility were satisfied in full, the Term Loan Facility and all related loan documents were terminated and all liens and security interests granted thereunder were released and terminated (excluding certain indemnification obligations that expressly survive termination of the Term Loan Facility).
During the three months ended June 30, 2023 and 2022, the Company recognized $
9. Stockholders’ Equity
Common Stock
As of June 30, 2023 and December 31, 2022, the authorized capital stock of the Company included
As of June 30, 2023,
Common Stock Reserved for Future Issuance
As of June 30, 2023 and December 31, 2022, the Company has reserved the following shares of common stock for future issuance:
|
|
June 30, |
|
|
December 31, |
|
||
Shares reserved for exercise of outstanding stock options |
|
|
|
|
|
|
||
Shares reserved for vesting of restricted stock units |
|
|
|
|
|
|
||
Shares reserved for issuance under the 2018 Stock Option and Grant Plan |
|
|
|
|
|
|
||
Shares reserved for issuance under the 2018 Employee Stock Purchase Plan |
|
|
|
|
|
|
||
Shares reserved for issuance under the 2019 Inducement Plan |
|
|
|
|
|
|
||
Shares reserved for issuance under the 2020 Inducement Plan |
|
|
|
|
|
|
||
Total shares of authorized common stock reserved for future issuance |
|
|
|
|
|
|
||
16
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
10. Stock-based Compensation
Stock Option Valuation
The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and members of the Board were as follows, presented on a weighted-average basis:
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Expected option life (years) |
|
|
|
|
|
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Expected dividend yield |
|
|
% |
|
|
% |
||
The following table summarizes the Company’s stock option activity for the six months ended June 30, 2023:
|
|
Number of |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Outstanding as of December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Cancelled or forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Outstanding as of June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock.
The aggregate intrinsic value of options exercised during the six months ended June 30, 2023 was $
The weighted-average grant-date fair value of the Company’s stock options granted during the six months ended June 30, 2023 and 2022 was $
Restricted Stock Units
The following table summarizes the Company’s restricted common stock units for the six months ended June 30, 2023:
|
|
Number |
|
|
Weighted- |
|
||
Issued and unvested as of December 31, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited, cancelled or expired |
|
|
( |
) |
|
$ |
|
|
Issued and unvested as of June 30, 2023 |
|
|
|
|
$ |
|
||
The total fair value of restricted stock units vested during the six months ended June 30, 2023 and 2022 was $
17
AVROBIO, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share and per share data)
Stock-Based Compensation
Stock-based compensation expense was allocated as follows:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Research and development |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As of June 30, 2023, total unrecognized compensation cost related to the unvested stock-based awards was $
11. Net Income (Loss) Per Share
The following table sets forth the computation of the Company’s basic and diluted net income (loss) per share for the three and six months ended June 30, 2023 and 2022 (in thousands, except share and per share amounts):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to common stockholders—basic and diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding—basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average common shares outstanding—diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share applicable to common stockholders—basic |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Net income (loss) per share applicable to common stockholders—diluted |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
The Company excluded the following potential common shares from the computation of diluted net income (loss) per share attributable to common stockholders for the three and six months ended June 30, 2023 and 2022 because including them would have had an anti-dilutive effect:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
12. Related Party Transactions
UHN
For the three months ended June 30, 2023, the Company did not recognize expenses for research and development expense related to the license agreements with UHN. For the three months ended June 30, 2022, the Company recognized $
Others
For the three months ended June 30, 2023 and 2022, the Company recorded expenses of $
18
13. Subsequent Events
On July 12, 2023, the Company announced its intention to explore strategic alternatives. In connection therewith, following a comprehensive review of the Company’s business, on
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, as supplemented by our subsequent filings with the SEC.
Overview
We are a clinical-stage gene therapy company with a purpose to free people from a lifetime of genetic disease. Our company has been focused on developing potentially curative HSC gene therapies to treat patients with rare diseases following a single dose treatment regimen. Our gene therapies employ HSCs that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a functional copy of the gene that is mutated in the target disease. We believe that our approach, which is designed to transform stem cells from patients into therapeutic products, has the potential to provide curative benefit for a range of diseases. Our initial focus has been on a group of rare genetic diseases referred to as lysosomal disorders, some of which today are primarily managed with enzyme replacement therapies, or ERTs.
Our pipeline is comprised of three HSC gene therapy programs: AVR-RD-02 for the treatment of Gaucher disease type 1 and type 3; AVR-RD-05 for the treatment of neuronopathic mucopolysaccharidosis type II, or MPS-II or Hunter syndrome; and AVR-RD-03 for the treatment of Pompe disease.
On July 12, 2023, following a comprehensive review of the Company’s business by its board of directors, the Company announced its intention to halt development of its programs and explore strategic alternatives focused on maximizing stockholder value, which may include, but is not limited to, an acquisition, a merger, business combination or divestiture.
AVR-RD-02 has been studied for the treatment of Gaucher disease type 1 in a Company-sponsored Phase 1/2 clinical trial, which we refer to as the Guard1 clinical trial. As of August 1, 2023, five patients have been dosed in the Guard1 clinical trial.
AVR-RD-05 is being studied for the treatment of Hunter syndrome by our collaborators at The University of Manchester, and in April 2023 the Phase 1/2 collaborator-sponsored clinical trial was initiated.
AVR-RD-03 is our preclinical program for Pompe disease.
Since our inception in 2015, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for our programs and planning for potential commercialization. To date, we have not generated any product revenue and have financed our operations primarily through the private placement of our securities and through public offerings of our common stock. Through June 30, 2023, we had received gross cash proceeds of $87.5 million from sales of our preferred stock; gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $428.1 million from sales of our common stock through our initial public offering and follow-on offerings; gross cash proceeds, before deducting commissions and expenses, of $23.5 million from sales of our common stock through our “at-the-market,” or ATM, facility; and gross proceeds, before deducting transaction costs, of $87.5 million from the sale of the Company’s cystinosis gene therapy program.
Additionally, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. Our net income (losses) were $42.5 million and $(57.9) million for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, we had an accumulated deficit of $446.9 million. Should we resume development of our product candidates, we would expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from preclinical development and clinical trials and seek regulatory approval of our product candidates. Should we resume development of our product candidates, we would expect to expend significant resources to advance these candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
Should we resume development of our product candidates, we would need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations with proceeds from outside sources, with a majority of such proceeds to be derived from
20
sales of equity, including the net proceeds from our follow-on offerings and sales of common stock under our ATM facility. We may also pursue additional funding from outside sources, including our expansion of, or our entry into, new borrowing arrangements; research and development incentive payments from the Australian government; and our entry into potential future collaboration agreements for one or more of our programs. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of June 30, 2023, we had cash and cash equivalents of $124.7 million. We believe that our existing cash and cash equivalents as of June 30, 2023, will enable us to fund our operating expenses and capital expenditure requirements at least into the fourth quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.” To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.
Components of Our Consolidated Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses consist of costs incurred in connection with the development of our product candidates, including:
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.
21
The table below summarizes our research and development expenses related to our product candidates (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Fabry |
$ |
149 |
|
|
$ |
1,779 |
|
|
$ |
1,405 |
|
|
$ |
3,895 |
|
Gaucher |
|
2,295 |
|
|
|
1,623 |
|
|
|
7,414 |
|
|
|
2,913 |
|
Cystinosis |
|
16 |
|
|
|
2,417 |
|
|
|
472 |
|
|
|
3,709 |
|
Hunter |
|
64 |
|
|
|
444 |
|
|
|
1,718 |
|
|
|
1,943 |
|
Pompe |
|
(27 |
) |
|
|
997 |
|
|
|
(3 |
) |
|
|
598 |
|
Other research activities |
|
132 |
|
|
|
32 |
|
|
|
177 |
|
|
|
25 |
|
Unallocated research and development expenses |
|
8,519 |
|
|
|
11,585 |
|
|
|
17,298 |
|
|
|
25,047 |
|
Total research and development expenses |
$ |
11,148 |
|
|
$ |
18,877 |
|
|
$ |
28,481 |
|
|
$ |
38,130 |
|
Research and development activities will be central to our business model, should we resume development of our product candidates. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, should we resume development of our product candidates, we expect that our research and development expenses will increase substantially over the next several years, particularly as we increase personnel costs, including stock-based compensation, contractor costs and facilities costs, as we continue to advance the development of our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates. See “Risk Factors—Risks related to our business, financial position and need for additional capital—We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain profitability.”
The successful development and commercialization of our product candidates is highly uncertain. At this time, should we resume development of our product candidates, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
Should we resume development of our product candidates, we may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the U.S. Food and Drug Administration, or FDA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials for any reason, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. Identifying potential product candidates and conducting preclinical testing and clinical trials is a
22
time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits, travel and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and audit services.
We anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company and our exploration of potential strategic alternatives. We anticipate the additional costs for these services will substantially increase our general and administrative expenses. Additionally, should we resume development of our product candidates, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.
Other (Expense) Income, Net
Other (expense) income, net primarily consists of interest income earned on our cash and cash equivalents and changes in foreign currency, and interest expense related to our Term Loan Agreement.
Consolidated Results of Operations
Comparison of the three months ended June 30, 2023 and 2022
The following table summarizes our consolidated results of operations (in thousands):
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
$ |
11,148 |
|
|
$ |
18,877 |
|
|
$ |
(7,729 |
) |
General and administrative |
|
|
4,581 |
|
|
|
8,897 |
|
|
|
(4,316 |
) |
Total operating expenses |
|
|
15,729 |
|
|
|
27,774 |
|
|
|
(12,045 |
) |
Gain on asset sale |
|
|
83,736 |
|
|
|
— |
|
|
|
83,736 |
|
Income (loss) from operations |
|
|
68,007 |
|
|
|
(27,774 |
) |
|
|
95,781 |
|
Other (expense) income : |
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
|
(495 |
) |
|
|
(285 |
) |
|
|
(210 |
) |
Other (expense) income |
|
|
(36 |
) |
|
|
5 |
|
|
|
(41 |
) |
Total other expense, net |
|
|
(531 |
) |
|
|
(280 |
) |
|
|
(251 |
) |
Net income (loss) |
|
$ |
67,476 |
|
|
$ |
(28,054 |
) |
|
$ |
95,530 |
|
Research and Development Expenses
Research and development expenses decreased by approximately $7.7 million to $11.1 million for the three months ended June 30, 2023, from $18.9 million for the three months ended June 30, 2022. This decrease was driven by a $2.9 million decrease in development costs, a $2.5 million decrease in manufacturing cost, and a $2.3 million decrease in personnel-related and consulting costs, including non-cash stock-based compensation.
General and Administrative Expenses
General and administrative expenses were $4.6 million for the three months ended June 30, 2023, compared to $8.9 million for the three months ended June 30, 2022. This decrease of $4.3 million was driven by to a $3.4 million decrease in personnel-related and consulting costs, including non-cash stock-based compensation, a $0.7 million decrease in professional fees, and by a $0.2 million decrease in legal expenses.
23
Gain on Asset Sale
For the three months ended June 30, 2023 we recognized $83.7 million as a gain on asset sale, net of $3.8 million transaction costs, related to legal, accounting, and financial advisory services and transferred prepaid assets. We completed the Asset Sale on June 9, 2023.
Other (Expense) Income, Net
Other (expense) income, net, was $(0.5) million for the three months ended June 30, 2023, compared to $(0.3) million for the three months ended June 30, 2022. This change is primarily related to an increase in expense related to the payoff of the Term Loan Agreement, which was paid off in the second quarter of 2023, which was partially offset by interest income.
Comparison of the six months ended June 30, 2023 and 2022
The following table summarizes our consolidated results of operations (in thousands):
|
|
Six Months Ended June 30, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
$ |
28,481 |
|
|
$ |
38,130 |
|
|
$ |
(9,649 |
) |
General and administrative |
|
|
12,468 |
|
|
|
19,062 |
|
|
|
(6,594 |
) |
Total operating expenses |
|
|
40,949 |
|
|
|
57,192 |
|
|
|
(16,243 |
) |
Gain on asset sale |
|
|
83,736 |
|
|
|
— |
|
|
|
83,736 |
|
Income (loss) from operations |
|
|
42,787 |
|
|
|
(57,192 |
) |
|
|
99,979 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
|
(247 |
) |
|
|
(655 |
) |
|
|
408 |
|
Other expense |
|
|
(21 |
) |
|
|
(40 |
) |
|
|
19 |
|
Total other expense, net |
|
|
(268 |
) |
|
|
(695 |
) |
|
|
427 |
|
Net income (loss) |
|
$ |
42,519 |
|
|
$ |
(57,887 |
) |
|
$ |
100,406 |
|
Research and Development Expenses
Research and development expenses decreased by approximately $9.6 million to $28.5 million for the six months ended June 30, 2023, from $38.1 million for the six months ended June 30, 2022. This decrease was driven by a $5.5 million decrease in personnel-related and consulting costs, including non-cash stock-based compensation, a $2.0 million decrease in manufacturing costs, a $1.4 million decrease in preclinical costs, and a $0.7 million decrease in development costs.
General and Administrative Expenses
General and administrative expenses were $12.5 million for the six months ended June 30, 2023, compared to $19.1 million for the six months ended June 30, 2022. This decrease of $6.6 million was attributable to a $5.9 million decrease in personnel-related and consulting costs, including non-cash stock-based compensation, a $1.1 million decrease in professional fees, and a $0.5 million decrease in information technology related costs, which was partially offset by a $0.9 million increase in legal expenses.
Gain on Asset Sale
For the six months ended June 30, 2023 we recognized $83.7 million as a gain on asset sale, net of $3.8 million transaction costs, related to legal, accounting, and financial advisory services and transferred prepaid assets. We completed the asset sale on June 9, 2023.
Other Expense, Net
Other expense, net, was $(0.3) million for the six months ended June 30, 2023, compared to $(0.7) million for the six months ended June 30, 2022. The change is primarily due to an increase in interest income which was partially offset by expense related to the Term Loan Agreement, which was paid off in the second quarter of 2023.
24
Liquidity and Capital Resources
Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations. We have funded our operations to date primarily with proceeds from the sale of preferred stock and our common stock through our IPO, and we have raised additional capital through subsequent follow-on offerings and our ATM facility. Through June 30, 2023, we had received gross cash proceeds of $87.5 million from sales of our preferred stock; gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $428.1 million from sales of our common stock through our initial public offering and follow-on offerings; gross cash proceeds, before deducting commissions and expenses, of $23.5 million from sales of our common stock under our ATM facility; $15.0 million drawn in term loans under our Term Loan Agreement; and gross proceeds, before deducting transaction costs, of $87.5 million from the sale of the Company’s cystinosis gene therapy program.
On July 1, 2019, we filed a shelf registration statement on Form S-3 with the SEC, or the July 2019 Shelf, which covers the offering, issuance and sale by us of up to an aggregate of $200.0 million of our common stock, preferred stock, debt securities, warrants and/or units. We simultaneously entered into a Sales Agreement with Cowen and Company, LLC, as sales agent, to provide for the offering, issuance and sale by us of up to $50.0 million of our common stock from time to time in ATM offerings under the July 2019 Shelf. The July 2019 Shelf was declared effective by the SEC on July 10, 2019.
On December 20, 2019, we filed a shelf registration statement on Form S-3 with the SEC, or the December 2019 Shelf, which covers the offering, issuance and sale by us of up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities, warrants and/or units. The December 2019 Shelf was declared effective by the SEC on January 14, 2020.
In July 2019, we closed an underwritten public offering, or the July 2019 Follow-On Offering, under the July 2019 Shelf of 7,475,000 shares of our common stock at a public offering price of $18.50 per share, which included 975,000 shares of our common stock resulting from the full exercise of the underwriters’ option to purchase additional shares at the public offering price. The net proceeds to us from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $129.5 million.
In February 2020, we closed an underwritten public offering, or the February 2020 Follow-On Offering, under the December 2019 Shelf of 4,350,000 shares of our common stock at a public offering price of $23.00 per share. The net proceeds to us from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $93.6 million.
In June 2020, we sold an aggregate of 384,140 shares of common stock under the ATM facility for net proceeds, after deducting commissions and other offering expenses payable by us, of $8.1 million.
In November 2020, we closed an underwritten public offering, or the November 2020 Follow-On Offering, of 5,000,000 shares of our common stock at a public offering price of $15.00 per share. The net proceeds to us from the November 2020 Follow-On Offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $70.2 million.
In May 2021, we sold an aggregate of 1,829,268 shares of common stock under the ATM facility for net proceeds, after deducting commissions and other offering expenses payable by us, of $14.5 million. As of June 30, 2023, approximately $26.5 million of common stock remained available for future issuance under the ATM facility.
On November 2, 2021, or the Closing Date, we entered into the Term Loan Agreement. The Term Loan Agreement provided for (i) on the Closing Date, $30.0 million aggregate principal amount of term loans available through October 31, 2023; (ii) an additional $20.0 million in term loan facilities available through October 31, 2023 upon the achievement of certain regulatory or clinical milestones prior to the time of draw, or the Milestone Funding; and (iii) an additional discretionary $15.0 million term loan facility available upon our request and approval by the Agent and the Lenders, or, collectively, the Term Loans. We drew $15.0 million in term loans on the Closing Date. On June 9, 2023, upon the closing of the Asset Sale, all outstanding amounts due and owed, including principal, interest, and other charges, under the Term Loan Agreement, dated as of November 2, 2021, by and among the Company, Silicon Valley Bank, a division of First-Citizens Bank & Trust and the other parties thereto, were repaid in full and the Term Loan Facility was terminated. Upon repayment, the obligations of the Company under the Term Loan Facility were satisfied in full, the Term Loan Facility and all related loan documents were terminated and all liens and security interests granted thereunder were released and terminated (excluding certain indemnification obligations that expressly survive termination of the Term Loan Facility).
As of June 30, 2023, we had cash and cash equivalents of $124.7 million. Cash in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation. We believe that our existing cash and cash equivalents as of June 30, 2023 will enable us to fund our operating expenses and capital expenditure requirements at least into the fourth quarter of 2024.
25
Cash Flows
The following table summarizes our cash flows for each of the periods presented (in thousands):
|
|
Six Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net cash used in operating activities |
|
$ |
(34,936 |
) |
|
$ |
(57,120 |
) |
Net cash provided by (used in) investing activities |
|
|
83,728 |
|
|
|
(181 |
) |
Net cash (used in) provided by financing activities |
|
|
(16,266 |
) |
|
|
143 |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
32,526 |
|
|
$ |
(57,158 |
) |
Operating Activities
During the six months ended June 30, 2023, operating activities used $34.9 million of cash, cash equivalents and restricted cash, resulting from our net income of $42.5 million offset by cash used by changes in our operating assets and liabilities of $0.7 million and non-cash charges of $76.8 million. The net change in our operating assets and liabilities was primarily due to a $3.4 million decrease in accrued expenses and other current liabilities and a $1.2 million decrease in current and non-current operating lease liabilities, partially offset by a $3.2 million decrease in prepaids and other current assets. The non-cash charges included $83.7 million of gain on asset sale, offset by $4.1 million of stock-based compensation expense, $1.1 million in non-cash interest expense, $1.2 million in non-cash lease expense, and $0.6 million in depreciation and amortization expense.
During the six months ended June 30, 2022, operating activities used $57.1 million of cash, cash equivalents and restricted cash, resulting from our net loss of $57.9 million and cash used by changes in our operating assets and liabilities of $6.7 million which was partially offset by non-cash charges of $7.4 million. The net changes in our operating assets and liabilities was primarily due to a decrease in accounts payable of $3.5 million, a decrease in accrued expenses and other liabilities of $3.1 million, and an increase in prepaids and other current assets of $0.1 million. The non-cash charges primarily included $6.6 million of stock-based compensation expense and $0.8 million of depreciation and amortization expense.
Investing Activities
Net cash provided by investing activities was $83.7 million for the six months ended June 30, 2023 compared to cash used by investing activities of $0.2 million for the six months ended June 30, 2022. The increase in cash provided by investing activities is related to the net proceeds received for the sale of the cystinosis program in the second quarter of 2023 for $83.7 million.
Financing Activities
Net cash used by financing activities was $16.3 million for the six months ended June 30, 2023 compared to cash provided by financing activities of $0.1 million for the six months ended June 30, 2022. The change is related to the repayment of the Term Loan Agreement in the second quarter of 2023.
Funding Requirements
Should we resume development of our product candidates, we expect our expenses would increase substantially, particularly as we advance the preclinical activities and clinical trials of our product candidates. Our expenses would also increase, should we resume development of our product candidates, as we:
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We believe that our $124.7 million of existing cash and cash equivalents as of June 30, 2023, will enable us to fund our operating expenses and capital expenditure requirements at least into the fourth quarter of 2024. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, government and other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government and other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
The disclosure of our contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 23, 2023.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. During the six months ended June 30, 2023, there were no material changes to our critical accounting policies. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on March 23, 2023, and the notes to the consolidated financial statements included in Item 1, “Condensed Consolidated Unaudited Financial Statements,” of this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and, as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.
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Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, “Summary of Significant Accounting Policies” to our consolidated financial statements appearing at the beginning of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
As of June 30, 2023, we had cash and cash equivalents of $124.7 million, which consisted of primarily money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our cash equivalents are in held in short-term money market funds. Due to short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.
Foreign Currency Exchange Risk
We are exposed to foreign exchange rate risk. Our headquarters are located in the United States, where the majority of our general and administrative expenses and research and development costs are incurred in U.S. dollars. A portion of our research and development costs are incurred by our subsidiaries in Australia and Canada, whose functional currencies are the U.S. dollar but engage in transactions in Australian dollars and Canadian dollars, respectively. During each of the six months ended June 30, 2023 and 2022, we recognized foreign currency transaction losses of $65 thousand and $40 thousand, respectively. These losses primarily related to unrealized and realized foreign currency gains and losses as a result of transactions entered into by our Australian and Canadian subsidiaries in currencies other than the U.S. dollar. These foreign currency transaction gains and losses were recorded in other expense, net in our consolidated statements of operations. We believe that a 10% change in the exchange rate between the U.S. dollar, Australian dollar, Great British Pound, and Canadian dollar would not have a material impact on our financial position or results of operations.
As we continue to grow our business, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could adversely impact our results of operations. To date, we have not entered into any foreign currency hedging contracts to mitigate our exposure to foreign currency exchange risk.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our interim Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. While we continue to evaluate our disclosure controls and procedures, including new procedures and processes relating to our internal control over financial reporting, based on the evaluation of our disclosure controls and procedures as of June 30, 2023, our interim Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of June 30, 2023, we are not presently subject to any pending or threatened litigation that we believe, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our other filings with the Securities and Exchange Commission, or the SEC, before investing in our common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of operations. The market price of our common stock could decline if one or more of these risks or uncertainties were to occur, which may cause you to lose all or part of the money you paid to buy our common stock. Additional risks that are currently unknown to us or that we currently believe to be immaterial may also impair our business. Certain statements below are forward-looking statements. See “Forward-Looking Information” in this Quarterly Report on Form 10-Q.
Risks related to our strategic review process
We may not be successful in identifying and implementing any potential strategic opportunities, and any strategic transactions that we may consummate in the future could have negative consequences.
In July 2023, we announced that we are undertaking a comprehensive exploration of strategic alternatives focused on maximizing stockholder value, which may include, but are not limited to, an acquisition, a merger, business combination or divestiture. We expect to devote substantial time and resources to exploring strategic alternatives that our board of directors believes will maximize stockholder value. Despite management devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that we will be able to successfully consummate any particular strategic transaction on attractive terms or at all. For example, certain types of strategic transactions may require third party consents, such as stockholder approval, which could be difficult or costly to obtain. We have not set a timetable for completion of this strategic review process, and our board of directors has not approved a definitive course of action. Additionally, there can be no assurance that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any cash distributions to our stockholders.
The process of continuing to evaluate our strategic alternatives may be costly, time-consuming and complex, and we may incur significant legal, accounting and advisory fees and other expenses, some of which may be incurred regardless of whether we successfully enter into a transaction. We may also incur additional unanticipated expenses in connection with this process. Any such expenses will decrease the remaining cash available for use in our business. Our ability to pursue or consummate strategic transactions also depends upon our ability to retain certain of our employees, the loss of whose services may adversely impact the ability to identify, negotiate and consummate such transaction. If we are unable to successfully retain certain of our key remaining personnel, we are at risk of a disruption to our exploration and consummation of one or more strategic transactions.
In addition, potential counterparties in a strategic transaction involving the Company may place minimal or no value on our assets and our public listing. Further, should we resume the development of our product candidates, the development and any potential commercialization of our product candidates will require substantial additional cash to fund the costs associated with conducting the necessary preclinical and clinical testing and obtaining regulatory approval. Consequently, any potential counterparty in a strategic transaction involving the Company may choose not to spend additional resources to resume or continue development of our product candidates and may attribute little or no value, in such a transaction, to our product candidates.
In addition, any strategic transactions that we may pursue could have a variety of negative consequences, and we may enter into a transaction that yields unexpected results that adversely affects our business and decreases the remaining cash available for use in our business. Any potential transaction would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, the interest of third parties in a potential transaction with us, obtaining stockholder approval and the availability of financing to third parties in a potential transaction with us on reasonable terms. There can be no assurance that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the anticipated results.
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If we are not successful in setting forth a new strategic path for the Company, or if our plans are not executed in a timely fashion, this may cause reputational harm with our stockholders and the value of our securities may be adversely impacted. In addition, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.
Even if we successfully consummate any strategic transaction, or series of transactions, from our strategic assessment, including, but not limited to, an acquisition, merger, a business combination or divestiture, we may fail to realize all or any of the anticipated benefits of any such transaction, such benefits may take longer to realize than expected, we may encounter integration difficulties or we may be exposed to other operational and financial risks.
The market capitalization of our company is below the value of our cash and cash equivalents. Potential counterparties in a strategic transaction involving our company may place minimal or no value on our assets, including the programs in our pipeline for which we halted further development in July 2023. Further, the development and any potential commercialization of our product candidates, should we determine to resume development, will require substantial additional cash to fund the costs associated with conducting the necessary preclinical and clinical testing and obtaining regulatory approval, as the case may be. Consequently, any potential counterparty in a strategic transaction involving our company may choose not to spend additional resources to resume and continue development of our product candidates and may attribute little or no value, in such a transaction, to those product candidates. To the extent that the development of any of our product candidates is resumed following a strategic transaction, including by a potential counterparty, third-party licensee or other collaborator, such development will be subject to the risks related to product development discussed elsewhere in these Risk Factors.
Our ability to realize the anticipated benefits of any potential strategic transaction will depend on a number of factors, including our ability to integrate with any future business partner, our ability to obtain value for portions of our business, if divested, and our ability to generate future stockholder value. The process may be disruptive to our business and the expected benefits may not be achieved within the anticipated time frame, or at all. The failure to meet the challenges involved and to realize the anticipated benefits of any potential transaction could adversely affect our business and financial condition. The negotiation and consummation of any potential strategic transaction will require significant time on the part of our management, and the diversion of management’s attention may disrupt our business.
The negotiation and consummation of any such transaction may also require more time or greater cash resources than we anticipate and expose us to other operational and financial risks, including, but not limited to, increased near-term and long-term expenditures, exposure to unknown liabilities, higher than expected acquisition or integration costs, incurrence of substantial debt or dilutive issuances of equity securities to fund future operations, including financings in connection with a strategic transaction, write-downs of assets or goodwill or incurrence of non-recurring, impairment or other charges, increased amortization expenses, difficulty and cost in combining the operations and personnel of any acquired or acquiring business with our operations and personnel, impairment of relationships with key suppliers or customers of any acquired or acquiring business due to changes in management and ownership, inability to retain key employees of the Company or any acquired or acquiring business and possibility of future litigation. Any of the foregoing risks could have a material adverse effect on our business, financial condition and prospects.
If a strategic transaction is not consummated, our board of directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend significantly on the timing of such liquidation as well as the amount of cash that may need to be reserved for commitments and contingent liabilities.
There can be no assurance that a strategic transaction will be completed. If a strategic transaction is not completed, our board of directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision and, with the passage of time, the amount of cash available for distribution will be reduced as we continue to fund our operations. In addition, if our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our board of directors, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up.
The value to stockholders in the event of a strategic transaction or dissolution may depend on the extent to which we will be able to successfully satisfy its existing contractual obligations to third parties and regulatory commitments on favorable terms, which may include the outcome of our negotiations to reduce or terminate such commitments.
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We are currently subject to certain contractual and regulatory obligations and commitments. In connection with our comprehensive exploration of strategic alternatives, we may seek to negotiate with third parties in order to reduce or eliminate such obligations and commitments. Our ability to successfully negotiate such obligations or commitments on favorable terms, or at all, or our ability to satisfy any such obligations may impact our ability to pursue a strategic transaction on terms favorable to us, the resulting value to stockholders in a strategic transaction or the cash available for distribution to our stockholders in the event of our dissolution. We may also incur substantial costs in connection with or as a result of such negotiations or termination of any of our commitments. There can be no assurance that we will be successful in negotiating to reduce or eliminate any of our existing contractual or regulatory obligations and commitments, or that we will be able to satisfy any such obligations on a timetable that will allow us to maximize potential value to our stockholders.
We may become involved in litigation, including securities class action litigation, that could divert our management’s attention and harm the company’s business, and insurance coverage may not be sufficient to cover all costs and damages.
In the past, litigation, including securities class action litigation, has often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative events. These events may also result in investigations by the SEC. We may be exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources, which could adversely affect our business and cash resources and our ability to consummate a potential strategic transaction or the ultimate value our stockholders receive in any such transaction.
Risks related to our business, financial position and need for additional capital
We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain profitability.
Since inception, we have incurred annual net losses. We incurred net losses of $105.9 million and $119.1 million for the years ended December 31, 2022 and 2021, respectively, and net income of $42.5 million for the six months ended June 30, 2023. We historically financed our operations primarily through private placements of our preferred stock and, more recently, our initial public offering and follow-on public offerings of our common stock, as well as sales of our common stock under our “at-the-market” facility. In addition, on November 2, 2021 we entered into the Loan and Security Agreement, or the Term Loan Agreement, by and among the Company, the lenders party thereto from time to time and Silicon Valley Bank or its successor, Silicon Valley Bank, a division of First-Citizens Bank & Trust company, which we refer to as SVB. In May 2023, we announced that we had entered into an Asset Purchase Agreement with Novartis Pharma AG and Novartis Pharmaceuticals Corporation, or collectively Novartis, providing for the sale of the Company’s cystinosis gene therapy program (designated AVR-RD-04) and all other assets of the Company specifically related to this program for an aggregate cash payment of $87.5 million upon closing of the transaction. In June 2023, we announced the closing of this transaction, as well as the pay-off of all outstanding amounts due and owed, including principal, interest and other charges, under the Term Loan Agreement and the termination thereof.
We have devoted substantially all of our efforts to research and development, including clinical and preclinical development of our product candidates, as well as assembling our team. In July 2023, we announced the decision to halt further development of the Company’s programs and to conduct a comprehensive exploration of strategic alternatives, and as such, we expect our research and development expenses to decrease in the near future. Should we resume development of our product candidates, we expect research and development costs to increase significantly for the foreseeable future. Should we resume development of our product candidates, we expect that it will be several years, if ever, before we have commercialized any product candidates. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially should we resume development of our product candidates and if, and as, we:
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We expect to continue to incur costs and expenditures in connection with the process of evaluating our strategic alternatives. Should we resume development of our product candidates, to become and remain profitable, we must develop and eventually commercialize product candidates with significant market potential and acceptance. This will require us to be successful in a range of challenging activities, and our expenses will increase substantially as we seek to resume, initiate, conduct and complete preclinical and clinical trials of our product candidates, and manufacture, market and sell these or any future product candidates for which we may obtain marketing approval, if any, and satisfy any post-marketing requirements. Should we resume development of our product candidates, we may never succeed in any or all of these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our Company also could cause you to lose all or part of your investment.
Our audited financial statements for the year ended December 31, 2022 and the accompanying report of our independent registered public accounting firm included a discussion of the circumstances giving rise to substantial doubt about our ability to continue as a going concern. Substantial doubt about our ability to continue as a going concern, the Company’s inability to raise adequate capital as and when needed and the Company’s ability to identify and successfully consummate any strategic alternative may create negative reactions to the price of our common stock and could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurance that our current operating plan will be achieved or that additional funding will be available at levels sufficient to fund our operations or on terms acceptable to us, or at all. In July 2023, we announced that we are undertaking a comprehensive exploration of strategic alternatives focused on maximizing stockholder value, which may include, but is not limited to, an acquisition, a merger, business combination or divestiture. Certain types of strategic alternatives, such as a reverse merger, may require the continuing business to raise capital in connection with such transaction, which financing may not be completed in a timely manner, on favorable terms or at all. There can be no assurance that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value. Further, if we do not obtain additional funding and/or if a strategic transaction is not completed and are unable to continue as a going concern, we may have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our consolidated financial statements.
We have never generated revenue from product sales and do not expect to do so for the next several years, if ever.
Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our product candidates. We do not anticipate generating revenues from product sales for the next several years, if ever. Should we resume development of our product candidates, our ability to generate future revenues from product sales depends heavily on our, or our collaborators’, success in:
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Should we resume development of our product candidates, and one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA or other foreign regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate would be required. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
If we decide to resume development of our product candidates, we will need additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
As of June 30, 2023, we had cash and cash equivalents of $124.7 million. We believe that our existing cash and cash equivalents as of June 30, 2023 will enable us to fund our operating expenses and capital expenditure requirements into at least the fourth quarter of 2024. This forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate.
Should we resume development of our product candidates, particularly if we continue the research and development of, initiate further clinical trials of and seek marketing approval for, our product candidates and continue to enhance and optimize our vector technology and manufacturing processes, we expect our expenses to increase in connection with such activities. Following our sale of our cystinosis gene therapy program to Novartis in June 2023, we have a total of three gene therapy programs in our pipeline, only one of which has been in clinical development. In July 2023, we announced we are halting further development of our programs. Resumption of the development of these programs, if that were to occur, would require us to expend significant resources to advance these candidates. In addition, should we resume development of our product candidates, if we obtain marketing approval for any of our product candidates, we expect to incur significant expenses related to product sales, medical affairs, marketing, manufacturing and distribution. Though we have halted further development of the Company’s programs to conduct a comprehensive exploration of strategic alternatives and have conducted reductions in force, we may incur significant costs in connection with a comprehensive review of strategic alternatives, and we have incurred, and may in the future incur, significant costs related to this continued evaluation. We may also incur additional unanticipated expenses in connection with this process. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on reasonable terms and/or if a strategic transaction is not completed, we may have to liquidate our assets. Our future capital requirements will depend on many factors, including:
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Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and should we resume development of our product candidates, we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our product revenues, if any, will be derived from or based on sales of products that may not be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Entry into an acquisition, merger, business combination, or other strategic transaction, or raising additional capital may cause dilution to our existing stockholders, restrict our operations or cause us to relinquish valuable rights.
In July 2023, we announced our intention to explore strategic alternatives, including a potential acquisition, merger, business combination, or other strategic transaction. The terms of any strategic transaction that we might enter into could result in the issuance of securities in the company, such as our common stock, which could result in significant dilution to our stockholders. Additionally, in connection with such strategic alternatives, we may seek to raise additional capital through a combination of public and private equity offerings or other financing arrangements. To the extent that we enter into a strategic transaction and/or raise additional capital through the sale of equity, convertible debt securities or other equity-based derivative securities, your ownership interest will be diluted and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Any additional indebtedness we incur would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline and existing stockholders may not agree with our strategic or financing plans or the terms of such strategic transaction or financings. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, or our product candidates, or grant licenses on terms unfavorable to us. Adequate additional financing may not be available to us on acceptable terms, or at all.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We were founded in November 2015. Our operations to date have been limited to corporate organization, recruiting key personnel, business planning, raising capital, acquiring rights to our technology, identifying potential product candidates, undertaking preclinical studies and planning and supporting clinical trials of certain of our product candidates and establishing research and development and manufacturing capabilities. We have not yet demonstrated the ability to complete clinical trials of our product candidates, obtain marketing approvals, manufacture products on a commercial scale or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability, should we resume development of our programs, 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 factors.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect the Company’s current and projected business operations and its financial condition and results of operations.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or the FDIC, as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership, followed by First Republic Bank on May 1, 2023. Uncertainty remains over liquidity concerns in the broader financial services industry, and if any of our contract organizations, vendors, suppliers or other parties with whom we conduct business are unable to access funds pursuant to their own arrangements with such a financial institution, such party’s ability to perform their obligations could be adversely affected. Similar impacts have occurred in the past, such as during the 2008-2010 financial crisis.
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Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. Additionally, there is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.
Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect our company, the financial institutions with which we have credit agreements or arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.
The results of events or concerns that involve one or more of these factors could include a variety of material and adverse impacts on our current and projected business operations and our financial condition and results of operations. These could include, but may not be limited to, the following:
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.
In addition, any further deterioration in the macroeconomic economy or financial services industry could lead to losses or defaults by our contract organizations, vendors, suppliers or other parties with whom we conduct business, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition. For example, contract organizations, vendors, suppliers or other parties with whom we conduct business could be adversely affected by any of the liquidity or other risks that are described above as factors that could result in material adverse impacts on our company, including but not limited to delayed access or loss of access to uninsured deposits or loss of the ability to draw on existing credit facilities involving a troubled or failed financial institution. Any bankruptcy or insolvency involving our contract organizations, vendors, suppliers or other parties with whom we conduct business, or any breach or default by such parties, or the loss of any significant relationships with such parties, could result in a material adverse impact on our business.
Risks related to the discovery and development of our product candidates
Business interruptions resulting from the coronavirus disease, or COVID-19, pandemic or similar public health crises have caused and may in the future cause a disruption of the development of our product candidates and adversely impact our business.
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Public health crises such as pandemics or similar outbreaks could adversely impact our business. The COVID-19 pandemic has continued to disrupt normal business operations both in and outside of affected areas and has had significant negative impacts on businesses and financial markets worldwide. We continue to monitor our operations and follow applicable government recommendations, and the majority of our employees have adopted a “hybrid” work schedule which generally limits the number of people in our office at any particular time. Notwithstanding these measures, the COVID-19 pandemic, including potential outbreaks of new variants, or any other public health crisis could affect the health and availability of our workforce as well as those of the third parties on which we rely. If members of our management and other key personnel are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and/or our operations may be negatively impacted.
In addition, clinical trial activities, including patient enrollment and data collection, are dependent upon global clinical trial sites which were adversely affected by the COVID-19 pandemic. For example, as the global healthcare community responded to the fluctuations in COVID-19 cases and hospitalizations, many hospitals, including our clinical sites, temporarily paused elective procedures, which included dosing of new patients with our investigational gene therapies. While we substantially resumed data collection and dosing of new patients until halting our development programs in July 2023, our ability to continue clinical activities without further delay or interruption, should we resume development of our programs, will depend on future developments that are highly uncertain and cannot be accurately predicted.
Additional factors from any public health crisis that may delay or otherwise adversely affect enrollment in or the progress of the clinical trials of our product candidates, as well as our business generally, include:
These and other factors arising from the COVID-19 pandemic could reemerge or worsen and adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results. The extent to which any public health crisis impacts our operations or those of our third party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the public health crisis, the efficacy and safety of vaccines, including against emerging variants, the ability of third parties to manufacture and distribute vaccines, among others.
Our HSC lentiviral-based gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and of subsequently obtaining regulatory approval, should we resume development of our product candidates.
We have concentrated our research and development efforts on our HSC gene therapy approach, and should we resume development of our product candidates our future success would depend on our successful development of viable gene therapy product candidates. There can be no assurance that we will not experience problems or delays in developing new product candidates,
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should we resume development of our product candidates, and that such problems or delays will not cause unanticipated costs, or that any such development problems can be solved. For example, timely enrollment in our clinical trials is dependent upon global clinical trial sites which were adversely affected by the COVID-19 pandemic. In addition, we may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial, additional or alternative partners, which should we resume development of our product candidates may prevent us from completing clinical studies or commercializing our products on a timely or profitable basis, if at all. For example, as of July 12, 2023, the date on which we announced that we were halting all further development activities in our programs, we had only dosed 11 patients using our plato platform, including six patients in our FAB-GT clinical trial (for which we previously halted enrollment) and five patients in our Guard1 clinical trial. Our implementation of the LV2 lentiviral vector or of our cell processing to an industrialized, automated closed system using disposable supplies may not be successful or may experience unforeseen delays, should we resume development of our product candidates, which may cause shortages or delays in the supply of our products available for clinical trials and future commercial sales, if any, or impair our research and development efforts, including those in any future clinical trials. In addition, there is no assurance that products using our proprietary LV2 lentiviral vector or manufactured using this automated system will ultimately achieve the same favorable preliminary results observed to date. Furthermore, the FDA generally prefers that clinical trials be double-blinded and potentially include sham controls. Such a trial design could be challenging to implement due to the nature of the treatment regimen of HSC gene therapy.
In addition, the clinical trial requirements of the FDA and other foreign regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of such product candidates. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or more extensively studied product candidates. To date, only a limited number of HSC gene therapies have received marketing authorization from the FDA or foreign regulatory authorities. Should we resume development of our product candidates, it is difficult to determine how long it would take or how much it would cost to obtain regulatory approvals for those product candidates in the United States, Canada, Europe, Japan or other major markets or how long it would take to commercialize those product candidates, if any were to be approved. Approvals by foreign regulatory authorities may not be indicative of what the FDA may require for approval, and vice versa.
Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the United States National Institutes of Health, or NIH, also are subject to the NIH Guidelines, under which supervision of human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. Before a clinical trial can begin at any institution, that institution’s review board, or IRB, and its IBC assesses the safety of the research and identifies any potential risk to public health or the environment. While the NIH guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Although the FDA decides whether individual gene therapy protocols may proceed, the review process and determinations of other reviewing bodies can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product candidates should we resume their development. Similarly, foreign regulatory authorities may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines.
The FDA, NIH and the European Medicines Agency, or EMA, have each expressed interest in further regulating biotechnology, including gene therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. 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. For example, in 2016, the FDA established the Office of Tissues and Advanced Therapies, or OTAT, within the CBER, to consolidate the review of gene therapy and related products, and to advise the CBER on its review. In September 2022, the FDA announced retitling of OTAT to the Office of Therapeutic Products, or OTP, and elevation of OTP to a “Super Office” to meet its growing cell and gene therapy workload. Although FDA has indicated that this change of name and responsibilities is intended to, among other things, increase review capabilities and enhance expertise on new cell and gene therapies, we cannot be certain that this approach will improve the time and cost associated with navigating gene therapy regulatory requirements, our regulatory strategy or the potential success of our product candidates. Such regulatory action and developments could, instead, delay, impede or even prevent commercialization of some or all of our product candidates.
These regulatory review committees and advisory groups and any new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these product candidates or lead to significant post-approval limitations or restrictions. Should we resume development of our product candidates, we will be required to consult with these regulatory and advisory groups, and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of certain of those product candidates. These additional processes may result in a review and approval process that is
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longer than we otherwise would have expected. Should we resume development of our product candidates, the delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of operations and prospects would be materially and adversely affected.
The FDA continues to develop its approach to assessing gene and cell therapy products. For example, the agency has released a series of draft and final guidance documents relating to, among other topics, various aspects of gene therapy product development, review, and approval, including aspects relating to clinical and manufacturing issues related to gene therapy products. In January 2020, the FDA released a final guidance with recommendations for long-term follow-up studies of patients following human gene therapy administration due to the increased risk of undesirable and unpredictable outcomes with gene therapies that may present as delayed adverse events. Foreign regulatory agencies also may have requirements for long term follow-up studies of patients following human gene therapy administration. We cannot be certain whether such guidance, or other guidance that the FDA or foreign regulatory agencies may issue, will be relevant to or have an adverse impact on our gene therapy candidates or the duration or expense of any applicable regulatory development and review processes. The Company is evaluating the regulatory requirements, including for long term follow-up, with respect to its clinical programs in connection with its exploration of potential strategic alternatives.
Our product candidates and the process for administering our product candidates may cause undesirable side effects or have other properties that, should we resume development of our product candidates, could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.
During the conduct of clinical trials, patients may experience changes in their health, including illnesses, injuries, discomforts or a fatal outcome. It is possible that as we test our product candidates in larger, longer and more extensive clinical programs, or as use of our product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier clinical trials, as well as conditions that did not occur or went undetected in previous clinical trials, will be reported by patients. Additionally, any early access to the Company’s investigational therapies, such as through expanded or Right to Try access or compassionate use, may lead to discovery of undesirable side effects, or other negative consequences that could have adverse impacts on our development programs for our product candidates. Gene therapies are also subject to the potential risk that occurrence of adverse events will be delayed following administration of the gene therapy due to persistent biological activity of the genetic material or other components of the vectors used to carry the genetic material. Many times, side effects are only detectable after investigational products are tested in larger scale, pivotal clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. FDA guidance advises that patients treated with gene therapies undergo long-term follow-up observation for potential adverse events for as long as 15 years. If additional clinical or long-term follow-up experience indicates that any of our product candidates have side effects or cause serious or life-threatening side effects, any further development of the product candidate may fail or be delayed.
Gene therapy is still a relatively new approach to disease treatment and adverse side effects could develop. A safety concern for gene therapies using lentiviral vectors has been the possibility of insertional oncogenesis, leading to malignant transformation of transduced cells and cellular outgrowth. As more patients are dosed with HSC gene therapies, it is expected that very rare cases of insertional oncogenesis may occur. For example, several patients with cerebral adrenoleukodystrophy treated in a third-party lentiviral gene therapy clinical trial have been diagnosed with treatment-related myelodysplastic syndrome to date. In addition, persistent clonal dominance due to vector integration has been observed in third-party HSC gene therapy clinical trials. While our HSC gene therapy approach has been designed to avoid insertional oncogenesis, there can be no assurance that patients will not experience such adverse effects, including death. Should we resume development of our gene therapy product candidates and any of those product candidates demonstrates adverse side effects at unacceptable rates or degrees of severity, we may decide or be required to halt or delay clinical development of such product candidates.
In addition to side effects caused by our product candidates, the conditioning, administration process or related procedures, also can cause adverse side effects. A gene therapy patient is generally administered one or more myeloablative drugs to remove stem cells from the bone marrow to create sufficient space in the bone marrow for the modified gene-corrected stem cells to engraft and produce their progeny. This procedure causes side effects and, among other potential risks, can transiently compromise the patient’s immune system, known as neutropenia, and reduce blood clotting, known as thrombocytopenia.
In 2019, we began transitioning, in connection with our Company-sponsored clinical trials, towards a new conditioning regimen for our product candidates utilizing busulfan as the myeloablative conditioning agent instead of the melphalan that we previously used. The use of this conditioning regimen we designed to utilize a precision dosing program, called TCI, to achieve a balance between the removal of a sufficient amount of bone marrow cells from a patient to aid engraftment of our genetically modified cells against potential risks, such as toxicity or graft failure. Our conditioning regimens may not be successful or may nevertheless result in adverse side effects. For example, busulfan, the myeloablative agent most recently used in our conditioning regimen, has been known to carry certain safety risks, including the risk of impairment to fertility in both men and women, and such impairment has been reported in some patients in our clinical trials. Moreover, in each of our previous clinical trials several adverse events, including suppression of neutrophils and platelet counts following the conditioning process, have been observed. While such adverse events in connection with conditioning are expected, if in the future any such adverse events caused by the conditioning process or related
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procedures continue at unexpected rates or degrees of severity, the FDA or other foreign regulatory authorities could order the cessation of development of, or deny approval of, product candidates for any or all targeted indications. There have been cases of therapy-related myelodysplastic syndrome, a type of blood disorder that is a potential precursor to acute myeloid leukemia, in patients with preexisting cancer where busulfan treatment was posited to be a contributing factor to this secondary malignancy. Even if we are able to demonstrate that adverse events are not product-related, such occurrences could adversely affect patient recruitment (should we resume development of our product candidates) or the ability of enrolled patients to complete the clinical trial, and lead to a decline in our stock price.
Additionally, if we resume development of our programs and any of our product candidates receives marketing approval, the FDA could require us to adopt a Risk Evaluation and Mitigation Strategy, or REMS, to ensure that the benefits outweigh its risks, which may include, among other things, a medication guide outlining the risks of the product for distribution to patients, a communication plan to health care practitioners, and restrictions on how or where the product can be distributed, dispensed or used. Furthermore, if we or others later identify undesirable side effects caused by our product candidates, several potentially significant negative consequences could result, including:
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates, lead to a decline in our stock price, and significantly harm our business, prospects, financial condition and results of operations.
We have never completed a pivotal or registrational clinical trial, and may be unable to do so for any product candidates we may develop, should we resume development of our product candidates.
We are at an early stage of development for all of our product candidates, and have currently halted further development of the Company’s programs. As of the date of this Quarterly Report, only 25 patients have been dosed in our clinical trials, which includes 14 patients from our Fabry program that we deprioritized in January 2022, six patients in our cystinosis program that we sold to Novartis in June 2023, and five patients in our Gaucher disease type 1 program. Should we resume development of our product candidates, further clinical trials must be completed in order to obtain FDA or other regulatory approval to market these product candidates. We have limited experience in preparing, submitting and prosecuting regulatory filings, and have not previously submitted a biologics license application, or BLA, for any product candidate. Carrying out later-stage clinical trials is a complicated and lengthy process, and we do not expect that all data from patients participating in the clinical trials will be relevant or meaningful.
In addition, across our Company-sponsored clinical trials we have dosed only four patients in the United States, and our interactions with the FDA have generally been limited. We cannot be certain how many additional clinical trials of AVR-RD-02 or any other product candidates would be required or how such trials should be designed, should we resume development of our programs. In order to commence a clinical trial in the United States, we are required to seek FDA acceptance of an IND for each of our product candidates. We cannot be sure any IND we submit to the FDA, or any similar CTA we submit in other countries, will be accepted. While we received clearance from the FDA to commence clinical testing in the United States for our Company-sponsored Phase 1/2 clinical trial of AVR-RD-02 for Gaucher disease type 1, should we resume development of our product candidates, there can be no assurance that we would be able to submit and secure similar clearances for any of our other product candidates. We may also be required to conduct additional preclinical testing prior to filing an IND for any of our product candidates, and the results of any such testing may not be positive. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to a BLA submission and approval of any of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, the necessary clinical trials, could prevent us from or delay us in commercializing any of our product candidates.
The planned Phase 1/2 clinical trial of AVR-RD-05 was to be a collaborator-sponsored trial conducted by our collaborators at The University of Manchester; and the MHRA recently accepted its CTA application for this Phase 1/2 clinical trial. We do not control the design or administration of collaborator-sponsored trials, nor the submission or clearance of any IND or foreign equivalent required to conduct these trials, and, should we resume development of our product candidates, this collaborator-sponsored trial could, depending on the actions of such third parties, jeopardize the validity of the clinical data generated, identify significant concerns with respect to our product candidates that could impact our findings or clinical trials, and adversely affect our ability to obtain marketing approval from the FDA or other applicable regulatory authorities. To the extent the results of this or other non-Company-sponsored trials are inconsistent with, or different from, the results of any Company-sponsored trials or raise concerns regarding our product
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candidates, the FDA or a foreign regulatory authority may question the results of the Company-sponsored trial, or subject such results to greater scrutiny than it otherwise would. In these circumstances, the FDA or such foreign regulatory authorities may require us to obtain and submit additional clinical data, which could delay clinical development or marketing approval of our product candidates. In addition, while collaborator-sponsored trials could be useful to inform our own clinical development efforts, there is no guarantee that we would be able to use the data from these trials to form the basis for regulatory authorization to conduct further clinical studies, or for regulatory approval of our product candidates. For example, regulators may require us to submit comparability or bridging studies to allow data generated in non-Company-sponsored studies to support the regulatory applications for or approvals of our product candidates, and we cannot be certain that such comparability or bridging studies, if any, would be successful or feasible.
Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials, should we resume development of our product candidates.
Results from preclinical studies or early clinical trials are not necessarily predictive of future clinical trial results and are not necessarily indicative of final results. There can be no assurance that prior results, such as signals of safety, activity or durability of effect, observed from preclinical studies or clinical trials will be replicated or will continue in ongoing or future studies or trials. Furthermore, preliminary results may not be indicative of the final results of a trial after all data have been collected and analyzed. For example, in January 2022 we announced the deprioritization of our Fabry program due to several factors, including new clinical data showing variable engraftment patterns from the five most recently dosed Phase 2 FAB-GT patients. Although previously reported data from 13 patients treated across our clinical-stage programs had shown durable engraftment out 9 to 54 months, the new data from the five most recently dosed Phase 2 FAB-GT patients were discordant with these other data and showed variable engraftment. Data from three of the five patients showed both a reduction to near baseline levels in alpha-galactosidase A enzyme activity in leukocytes and plasma, and a reduction in vector copy number in whole blood, potentially suggesting resistance to persistent engraftment of the genetically modified cells observed at three to nine months post infusion of AVR-RD-01. Based on our internal assessment, we believe, due to the large degree of heterogeneity in Fabry disease, that in some cases there may be intrinsic resistance to engraftment related to the unique underlying pathophysiology of untreated Fabry disease, potentially caused by the persistently stressed vascular endothelium. However, while this belief is based on a thorough review and analysis conducted by the Company, it remains a hypothesis and, should we resume development of our product candidates, there can be no assurance that similar engraftment or other issues will not occur in clinical trials of our other product candidates, which are all based on our technology and the same HSC approach utilized for AVR-RD-01. For example, although we believe the variable engraftment data were caused by factors intrinsic to certain Fabry disease patients and we do not anticipate readthrough to other clinical trials should we resume development of our product candidates, if the variable engraftment data were actually caused, directly or indirectly, by any other factors, including any aspect of our plato platform or the conditioning process, we could see similar issues in other clinical trials.
There is a high failure rate for gene therapy and biologic product candidates proceeding through clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, the design of a pivotal clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Our Company has limited experience in designing and conducting clinical trials and we may be unable to design and execute a clinical trial to support regulatory approval, should we resume development of our product candidates.
We also may experience regulatory delays or rejections as a result of many factors, including due to changes in regulatory policy or the approval of competitive therapies during the period of our product candidate development. Should we resume development of any of our product candidates, those product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies. Any such failure would cause us to abandon the product candidate.
Additionally, the clinical trials performed to date have been open-label studies and have been conducted at a limited number of clinical sites on a limited number of patients. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. Moreover, patients selected for early clinical studies often include the most severe sufferers and their symptoms may have been bound to improve notwithstanding the new treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware that patients have received treatment and may interpret the information more favorably given this knowledge. Although in July 2023 we announced that we were halting further enrollment in our clinical trials, we anticipate that data will continue to be obtained for patients who have been dosed with our investigational gene therapies, and any data that we may report are preliminary and subject to change. As is typical in open-label studies in which interim reports are provided, the safety and efficacy data are regularly reviewed and validated. As a result, certain data may change over time, including reductions or
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increases in the number of reported safety events, as well as the characterization of the severity or relatedness of safety events, until the database is locked at the end of the study.
Should we resume development of our product candidates, we may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.
The timing and success of our patient enrollment and clinical trial activities depend on our ability to recruit patients to participate as well as the completion of required follow-up periods. Patients may be unwilling to participate in our gene therapy clinical trials because of negative publicity from adverse events related to the biotechnology or gene therapy fields, competitive clinical trials for similar patient populations, clinical trials in product candidates employing our vectors, the existence of current treatments or for other reasons. In addition, the indications that we have targeted and may in the future target are rare diseases, which may limit the pool of patients that may be enrolled in our clinical trials. Should we resume development of our product candidates, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our product candidates may be delayed, which could result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether.
Should we resume development of our product candidates, we may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete our clinical trials in a timely manner or at all. There can be no assurance we will achieve that goal or any of our other patient enrollment goals should we resume development of our product candidates.
Patient enrollment and trial completion is affected by factors including the:
We expanded our patient enrollment activities to include patients who reside in a country other than the country where the applicable clinical site is located, and who are required to travel for some or all of the clinical testing and procedures required for patients in the applicable clinical trial. We have encountered and, should we resume development of our product candidates, in the future may continue to encounter logistical and regulatory challenges that could delay or prevent any such international patients from successfully enrolling and completing clinical trial procedures, including delays in processing or obtaining patient travel visas or denials of entry at borders, potential travel disruptions, or de-prioritization or unavailability of resources at clinical sites for non-resident international clinical trial participants, any of which could delay our progress and completion of planned clinical trials and which would have an adverse effect on our business. In addition, once these international patients return to their home country, they may need to travel back to the country where the applicable clinical site is located. If these patients are unwilling or unable to return to the clinical site for testing and procedures, progress and completion of the clinical trial could be delayed or prevented.
Our product candidates were being developed to treat rare conditions. Should we resume development of our product candidates, we would expect to seek initial marketing approvals in the United States, Europe and certain other major markets, including Japan. However, we may not be able to resume, initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by FDA or other foreign regulatory authorities. Our ability to successfully
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resume, initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:
Should we resume development of our product candidates and if we have difficulty enrolling a sufficient number of patients to conduct our clinical trials, we may need to delay, limit or terminate the resumption or continuation of clinical trials, any of which would have an adverse effect on our business, financial condition, results of operations and prospects.
Should we resume development of our product candidates, we may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. Should we resume development of our product candidates, we cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
Should we resume development of our product candidates, any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues. In addition, if we make changes to our product candidates, or if collaborator-sponsored trials utilize different materials or manufacturing processes from ours to generate data, we may need to conduct additional studies to compare or bridge our modified product candidates to earlier versions, which could delay our clinical development plan or marketing approval for our product candidates. For example, we have transitioned our lentiviral vectors to an LV2 version in connection with our plato platform implementation. In addition, the transition from LV1 to LV2 has required (and is anticipated to continue to require) submission of relevant data to the applicable regulatory authorities in connection with certain of our regulatory filings, including our INDs and CTAs, to demonstrate analytic comparability between LV1 and LV2. Our CTA (including amendments) and IND for our Guard1 clinical study of AVR-RD-02 for Gaucher disease type 1 in Canada and the United States, for which Health Canada has issued no objection letters and the FDA has cleared, respectively, included data utilizing LV2 and our automated manufacturing platform. While these applications included data relating to our LV2 lentiviral vector and our automated manufacturing process, which are elements of our plato platform, should we resume development of our product candidates, we expect that the FDA, Health Canada or other regulatory authorities will require us to undertake additional actions in
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connection with our transition to our plato platform, including submission of additional comparability studies in connection with future regulatory filings, which may result in delays, suspension or termination of ongoing or future clinical trials, or our inability to conduct our trials according to the plans or the timelines that we have envisioned. Additionally, the study drug for the collaborator-sponsored clinical study of AVR-RD-05 for Hunter syndrome was not manufactured using our plato platform, and neither the automated, closed manufacturing system nor LV2 was used in connection with this clinical trial. Any such filings may result in delay, suspension or termination of ongoing or future clinical trials pending our submission, and the applicable regulatory agency’s review, of such updates. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates, if approved, or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Should we resume development of our product candidates and, following such resumption, if the results of our clinical studies are inconclusive or if there are safety concerns or adverse events associated with our product candidates, we may:
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair our ability to commercialize our products.
Should we resume development of our product candidates, even if we complete the necessary preclinical and clinical studies, we cannot predict whether or when we would be able to obtain regulatory approval to commercialize a product candidate, and any approval could be for a narrower indication than anticipated.
We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if we resume development of our product candidates and they are able to demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. Regulatory agencies also may approve a treatment candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. If we are unable to obtain necessary regulatory approvals or labeling claims, our business, prospects, financial condition and results of operations would be materially and adversely affected.
Our commercially-scalable plato platform has been used in only two of our clinical trials.
While we have submitted and, should we resume development of our product candidates, intend to continue to submit comparability studies to the FDA and other regulatory agencies, as needed, with respect to our implementation of our scalable plato platform, there can be no assurance that the FDA or other regulatory agencies will not in the future require us to conduct additional preclinical studies or clinical trials that could result in delays and additional costs in our development or commercialization programs for our product candidates, which could adversely affect our business. Should we resume development of our product candidates, we intend to continue implementing our scalable plato platform, including heightened vector efficiency, our closed, automated manufacturing system and utilization of a customized conditioning regimen, in connection with each of our investigational product candidates. We have developed the plato platform to form the backbone of our commercial programs, with the intent of replacing our original academic platforms with improved solutions for delivering our gene therapy candidates to patients in multiple disease indications. In order to implement this transition, we were and would continue to be required to conduct additional studies to bridge our modified product candidates to earlier versions, including any earlier version that may have been utilized in a
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collaborator-sponsored clinical study, which could delay clinical development or marketing approvals. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates, if approved, or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
We face significant competition in our industry and, should we resume development of our product candidates, there can be no assurance that our product candidates, if approved, will achieve acceptance in the market over existing established therapies. In addition, our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our ability to successfully market or commercialize any of our product candidates, should we resume development of our product candidates.
We operate in a highly competitive segment of the biopharmaceutical market. We face competition from many different sources, including larger pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions. Should we resume development of our product candidates, our product candidates, if successfully developed and approved, will compete with established therapies, some of which are being marketed by large and international companies. In addition, should we resume development of our product candidates, we expect to compete with new treatments that are under development or may be advanced into the clinic by our competitors. There are a variety of product candidates, including gene therapies, in development for the indications that we are targeting.
Should we resume development of our product candidates, we anticipate competing with biotechnology and pharmaceutical companies, many of which may have significantly greater resources than we do. For example, for Gaucher disease, Sanofi, Pfizer, and Takeda market existing enzyme replacement therapies, or ERTs, that represent the standard of care for Gaucher patients. For Gaucher disease we also expect to compete with oral therapies marketed by Johnson & Johnson and Sanofi. Sanofi also markets an enzyme replacement therapy for Pompe disease, and Takeda markets an enzyme replacement therapy for Hunter syndrome. Denali Therapeutics has an ERT in late-stage clinical development for Hunter syndrome. In addition, we may compete with other gene therapy companies in our industry such as Freeline Therapeutics, Generation Bio, or Eli Lilly and Company. Freeline Therapeutics, for example, is developing an adeno-associated virus, or AAV based gene therapy for Gaucher disease type 1. Moreover, a number of gene therapy companies have announced preclinical or clinical non-viral and adeno-associated viral based gene therapy programs that, if successful in obtaining regulatory approval, could compete with our gene therapies. For example, several companies including AskBio (a subsidiary of Bayer AG) and Astellas Pharma have clinical programs for late onset Pompe disease and GeneCradle Therapeutics has announced a clinical program for infantile onset Pompe disease.
Many of our competitors have significantly greater financial, product candidate development, manufacturing and marketing resources than we do. Large pharmaceutical and biotechnology companies have extensive experience in clinical testing and obtaining regulatory approval for their products, and mergers and acquisitions within these industries may result in even more resources being concentrated among a smaller number of larger competitors. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could make the product candidates that we develop obsolete. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our business would be materially and adversely affected if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, have broader market acceptance, are more convenient or are less expensive than any product candidate that we may develop.
Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.
Should we resume development of our product candidates, we would expect to seek designations for our product candidates with the FDA and comparable foreign regulatory authorities that are intended to confer benefits such as a faster development process or an accelerated regulatory pathway. However, there can be no assurance that we could successfully obtain such designations. In addition, even if one or more of our product candidates are granted such designations, we may not be able to realize the intended benefits of such designations.
The FDA and comparable foreign regulatory authorities offer certain designations for product candidates that are designed to encourage the research and development of product candidates that are intended to address conditions with significant unmet medical need. These designations may confer benefits such as additional interaction with regulatory authorities, a potentially accelerated regulatory pathway and priority review. However, there can be no assurance that we will successfully obtain such designations for any of our product candidates. In addition, while such designations could expedite the development or approval process, they generally do not change the standards for approval. Even if we obtain such designations for one or more of our product candidates, there can be no assurance that we will realize their intended benefits.
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We may seek a Breakthrough Therapy Designation for some of our product candidates should we resume development of our product candidates. 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. Therapies designated as breakthrough therapies by the FDA are also eligible for accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification.
Should we resume development of our product candidates, we may seek an accelerated approval pathway for one or more of our product candidates from the FDA or comparable foreign regulatory authorities. The FDA may grant accelerated approval to a therapeutic candidate designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit, and the FDA is permitted to require, as appropriate, that such studies be underway prior to approval or within a specified period after the date of approval. Sponsors must also update FDA on the status of these studies, and under FDORA, the FDA has increased authority to withdraw approval of a drug granted accelerated approval on an expedited basis if the sponsor fails to conduct such studies in a timely manner, send the necessary updates to the FDA, or if such post-approval studies fail to verify the drug’s predicted clinical benefit.
Should we resume development of our product candidates, prior to seeking accelerated approval, we would expect to seek feedback from the FDA or comparable foreign regulatory authorities and would otherwise evaluate our ability to seek and receive such accelerated approval. There can be no assurance that after our evaluation of the feedback and other factors we would decide to pursue or submit a BLA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that after subsequent feedback from the FDA or comparable foreign regulatory authorities, we would continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if we initially decide to do so. Furthermore, if we decide to submit an application for accelerated approval, there can be no assurance that such application will be accepted or that any approval will be granted on a timely basis, or at all. The FDA, EMA or other comparable foreign regulatory authorities could also require us to conduct further studies prior to considering our application or granting approval of any type, including, for example, if other products are approved via the accelerated pathway and subsequently converted by FDA to full approval. A failure to obtain accelerated approval or any other form of expedited development, review or approval for our product candidate would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product candidate and could harm our competitive position in the marketplace. Moreover, even if we are able to obtain accelerated approval for any of our product candidates, there is no guarantee that post-approval studies will be able to confirm the clinical benefit, which could cause FDA to withdraw our approval.
Should we resume development of our product candidates, we may also pursue programs or designations from foreign regulatory authorities, such as the UK’s Innovative Licensing and Access Pathway, or ILAP, which aims to accelerate the time to market and facilitate patient access to certain types of medicinal products in development which target a life-threatening or seriously debilitating condition, or where there is a significant patient or public health need. In October 2022, we announced that the MHRA had granted an Innovation Passport to AVR-RD-02, our investigational gene therapy candidate for the treatment of Gaucher disease. To access the ILAP, an applicant applies for an Innovation Passport designation. Once an Innovation Passport designation is granted, the MHRA and its partner agencies (including The All Wales Therapeutics and Toxicology Centre, National Institute for Health and Care Excellence, or NICE, and the Scottish Medicines Consortium, or SMC) will work with the Innovation Passport designee to define a Target Development Profile, or TDP. The TDP sets out a unique product-specific roadmap towards patient access in the UK, and provides access to a toolkit to support all stages of the design, development and approvals process, including continuous benefit-risk assessment, increased support for novel development approaches and enhanced patient engagement. However, although the goal of the ILAP is to reduce the time to market and enable earlier patient access, access does not accelerate conduct of clinical trials or mean that the regulatory requirements are less stringent, nor does it ensure that a marketing authorization application will be approved or that any approval will be granted within a particular timeframe or at all.
In addition, should we resume development of our product candidates, we may seek Fast Track Designation for some of our product candidates. 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. In December
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2021, we received Fast Track Designation from the FDA for AVR-RD-02 for the treatment of Gaucher disease. However, the FDA has broad discretion whether or not to grant Fast Track designation, so even if we believe another product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a Fast Track Designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program.
In addition, should we resume development of our product candidates, we may seek a regenerative medicine advanced therapy, or RMAT, designation for some of our product candidates. An RMAT is defined as cell therapies, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or products. Gene therapies, including genetically modified cells that lead to a durable modification of cells or tissues may meet the definition of a regenerative medicine therapy. The RMAT program is intended to facilitate efficient development and expedite review of RMATs, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition. A new drug application or a BLA for an RMAT may be eligible for priority review or accelerated approval through (1) surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit or (2) reliance upon data obtained from a meaningful number of sites. Benefits of such designation also include early interactions with FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence, clinical studies, patient registries, or other sources of real-world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval. RMAT designation is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a regenerative medicine advanced therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of RMAT designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify for RMAT designation, the FDA may later decide that the biological products no longer meet the conditions for qualification.
Should we resume development of our product candidates, we may be unable to obtain orphan drug designation for our product candidates and, even if we obtain such designation, we may not be able to realize the benefits of such designation, including potential marketing exclusivity of our product candidates, if approved.
Regulatory authorities in some jurisdictions, including the United States and other major markets, may designate drugs intended to treat conditions or diseases affecting relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals 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 will be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products may designate a medicinal product as an orphan medicinal product if it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union. Additionally, orphan designation may be granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the product in the European Union would be sufficient to justify the necessary investment in developing the product. In either case, the applicant must be able to establish that there is no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the European Union, or if such a method exists, the product would be of a significant benefit to those affected by the condition.
In October 2019, the FDA granted our request for orphan drug designation for AVR-RD-02 for the treatment of Gaucher disease. Additionally, in July 2022, we announced that the FDA granted our request for orphan drug designation for AVR-RD-05 for the treatment of Hunter syndrome. In September 2020, we announced that the European Commission granted our request for orphan designation for AVR-RD-02 for the treatment of Gaucher disease. However, if we request orphan drug designation (or the foreign equivalent) for any other product candidates, there can be no assurances that the FDA or applicable foreign regulatory authorities will grant any of our product candidates such designation. Additionally, the designation of any of our product candidates as an orphan product does not mean that any regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency to grant orphan drug designation to product candidates of other companies that treat the same indications as our product candidates prior to our product candidates receiving exclusive marketing approval.
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or foreign regulatory authorities from approving another marketing application for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be precluded from receiving marketing approval for our product for the applicable exclusivity period. The applicable period is seven years in the United States and 10 years in the European Union. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan designation
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or if the product is sufficiently profitable so that market exclusivity is no longer justified. The European Commission introduced a legislative proposal in April 2023 that, if implemented, could reduce the current ten-year marketing exclusivity period in the European Union for certain orphan medicines to nine years (or five years for well-established use orphan medicines). Orphan drug exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition in the United States. Even after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the European Union, a marketing authorization may be granted to a similar medicinal product for the same orphan indication at any time if:
We have received rare pediatric disease designation, or RPDD, for certain of our product candidates. However, a marketing application for a product candidate with RPDD, if approved, may not meet the eligibility criteria for a Priority Review Voucher, or PRV, or the RPDD program may sunset before the FDA is able to consider us for a voucher.
We have received rare pediatric disease designation, or RPDD, for AVR-RD-02 for the treatment of Gaucher disease and AVR-RD-05 for the treatment of Hunter syndrome. Designation of a drug or biologic as a product for a rare pediatric disease does not guarantee that a BLA for such drug or biologic will meet the eligibility criteria for a rare pediatric disease PRV at the time the application is approved. Under the Federal Food, Drug, and Cosmetic Act, should we resume development of our product candidates, we would need to request a rare pediatric disease PRV in our original BLA for AVR-RD-02 and AVR-RD-05. The FDA may determine that any such BLA, if approved, does not meet the eligibility criteria for a PRV, including for the following reasons:
Should we resume development of our product candidates, even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory oversight.
Should we resume development of our product candidates, even if we obtain any regulatory approval for our product candidates, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information. Any regulatory approvals that we receive for our product candidates also may be subject to a REMS, 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 quality, safety and efficacy of the product. For example, the holder of an approved BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. FDA guidance advises that patients treated with gene therapies undergo long-term follow-up observation for potential adverse events for as long as 15 years. The holder of an approved BLA also must submit new or supplemental applications and obtain FDA approval for certain
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changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or cGMP, requirements and adherence to commitments made in the BLA or foreign marketing application. Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements including ensuring that quality control and manufacturing procedures conform to cGMP regulations and applicable product tracking and tracing requirements. If we, or a regulatory authority, discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling of that product, a regulatory authority may impose restrictions relative to that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory authority may:
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and adversely affect our business, financial condition, results of operations and prospects.
In addition, the FDA’s policies, and those of 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 cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would materially and adversely affect our business, financial condition, results of operations and prospects.
Should we resume development of our product candidates, our focus on developing such product candidates may not yield any commercially viable products, and our failure to successfully identify and develop additional product candidates could impair our ability to grow.
While we initially pursued a growth strategy to identify, develop and market additional product candidates, we have halted further development of the Company’s programs and, should we resume development of our product candidates, we do not anticipate actively seeking additional product candidates beyond our existing product candidates. Should we resume development of our product candidates, we may spend several years completing our development of any particular product candidates, and failure can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential than our product candidates. Our spending on any future research and development programs may not yield any commercially viable product candidates. Should we resume development of our product candidates, if we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaborations, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. If any of these events occur, we may be forced to abandon our development efforts with respect to a particular product candidate or fail to develop a potentially successful product candidate.
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In addition, should we resume development of our product candidates, certain of our product candidates may not demonstrate in patients any or all of the pharmacological benefits we believe they may possess or compare favorably to existing, approved therapies, such as ERT. We have not yet succeeded and may never succeed in demonstrating efficacy and safety of our product candidates in clinical trials or in obtaining marketing approval thereafter. Accordingly, our focus on treating these diseases may not result in the development of commercially viable products.
Should we resume development of our product candidates, if we are unsuccessful in our development efforts, we may not be able to advance the development of our product candidates, commercialize products, raise capital, expand our business or continue our operations.
Risks related to manufacturing
Gene therapies are novel, complex and difficult to manufacture. We could experience production problems that result in delays in our development or commercialization programs or otherwise adversely affect our business.
The manufacturing process we use to produce our product candidates is complex, novel and has not been validated for commercial use. Several factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of our suppliers.
Our product candidates require processing steps that are more complex than those required for most chemical pharmaceuticals. Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic such as ours generally cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the product will perform in the intended manner. Accordingly, we and our manufacturing suppliers employ multiple steps to control the manufacturing process with the goal of ensuring that the product candidate is made strictly and consistently in compliance with the applicable process and specifications. Problems with the manufacturing process, including even minor deviations from the intended process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory. We may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet FDA or other applicable regulatory standards or specifications with consistent and acceptable production yields and costs.
In addition, the FDA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA or other foreign regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Even slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. Should we resume development of our product candidates, there is no assurance we will not experience lot failures in the future. Lot failures or product recalls could cause us to delay clinical trials, or, if approved, commercial product launches, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Our manufacturing process relies on a platform structure, which we refer to as our plato platform, and, if we experience delays, deviations or failures that impact that platform, such delays, deviations or failures could have an adverse impact on our development products or future commercialization programs.
Risks related to our reliance on third parties
Should we resume development of our product candidates, we expect to rely on third parties to conduct some or all aspects of our vector production, product manufacturing, protocol development, research and preclinical and clinical testing, and these third parties may not perform satisfactorily.
Should we resume development of our product candidates, we do not expect to independently conduct our vector production, product manufacturing, protocol development, research and preclinical and clinical testing. We have historically relied, and, should we resume development of our product candidates, expect to continue to rely, on third parties with respect to these items. Any of these third parties may terminate their engagements with us or renegotiate the terms of our agreements at any time. If we need to enter into alternative arrangements, it could delay our product development activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations and study protocols. For example, for product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that each of our preclinical and clinical studies are conducted in accordance with the study plan, protocols and regulatory requirements.
Even with relevant experience and expertise, our third-party manufacturers may encounter difficulties in production, such as initial production, managing the transition from early to late-stage clinical and commercial manufacturing, and ensuring that the product meets required specifications. These difficulties may include delays, failure or inability achieving production yields, establishing and maintaining stage-appropriate cGMP quality procedures, operator error, shortages of qualified personnel, and
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compliance with federal, state and foreign regulations. We cannot make any assurances that these difficulties will not occur in the future, or that we will be able to resolve or address them in a timely manner or at all as problems arise.
Should we resume development of our product candidates, if our contract counterparties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed in completing, the preclinical and clinical studies required to support approval of our product candidates or the FDA or other regulatory agencies may refuse to accept our clinical or preclinical data. For example, in 2019 we encountered delays in the enrollment of patients in the Company-sponsored Guard1 clinical trial of AVR-RD-02 for Gaucher disease. While a number of interested patients had been identified for the Guard1 clinical trial, we encountered patient pre-screening failures that impacted the commencement of enrollment in these studies. Additionally, as a result of the COVID-19 pandemic, in 2020 we encountered protracted timelines with our investigational site startup activities for our Guard1 clinical trial, which also impacted patient enrollment. In 2020, a kidney biopsy was conducted on the third patient in the FAB-GT clinical trial of AVR-RD-01, but due to human error in processing the biopsy sample at the external laboratory vendor, the kidney Gb3 inclusions could not be evaluated and anticipated data was not available.
Should we resume development of our product candidates, reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:
Any of these events could lead to delays of our preclinical and clinical studies or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.
We have historically relied, and, should we resume development of our product candidates, expect to continue to rely, on sole source suppliers for our automated, closed cell processing system; vector supply; plasmid supply; cell culture media supply; and drug product manufacturing. In addition, we are dependent on a limited number of suppliers for some of our other components and materials used in our product candidates.
We have moved our cell processing to an automated, closed system with a sole source supplier. In addition, we have historically relied, and, should we resume development of our product candidates, expect to continue to rely, on sole source suppliers for vector supply, plasmid supply and cell culture media, as well as drug product manufacturing for our Company-sponsored clinical trials. Should we resume development of our product candidates, our sole source suppliers may be unwilling or unable to supply product to us reliably, continuously or at the levels we anticipate or are required by our clinical trial activities. Such suppliers could still delay, suspend, or terminate supply of product to us for a number of reasons, including manufacturing or quality issues, payment disputes with us, intellectual property disputes with third parties, bankruptcy or insolvency, earthquakes or other natural disasters or other occurrences.
In addition, we depend on a limited number of suppliers for some of the other components necessary for our product candidates. Should we resume development of our product candidates, we cannot be sure that any of our suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose. Our use of a sole source or limited number of suppliers of raw materials, components and finished goods exposes us to several risks, including disruptions in supply, price increases, late deliveries and an inability to meet customer demand. There are, in general, relatively few alternative sources of supply for these components and equipment. Any of our vendors may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Establishing additional or replacement suppliers for these components and materials could take a substantial amount of time and it may be difficult or impossible to establish replacement suppliers who meet regulatory requirements. Any disruption in supply from any supplier or manufacturing location could lead to supply delays or interruptions which would damage our business, financial condition, results of operations and prospects.
Should we resume development of our product candidates and we are required to switch to a replacement supplier or manufacture materials ourselves, the manufacture and delivery of our product candidates could be interrupted for an extended period, adversely affecting our business. Establishing additional or replacement suppliers may not be accomplished quickly, and we may not be able to enter agreements with replacement suppliers on reasonable terms, if at all. In either scenario, our clinical trials supply could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original CMO and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer
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such skills at all. If we are able to find a replacement supplier, the replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. For example, the FDA could require additional supplemental bridging data if we rely upon a new supplier. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials. While we seek to maintain adequate inventory of the components and materials used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to conduct our clinical trials and, if our product candidates are approved, to meet the demand of our customers and cause them to cancel orders.
In addition, as part of the FDA’s approval of our product candidates, the FDA must review and approve the individual components of our production process, which includes the manufacturing processes and facilities of our suppliers. Our current suppliers have not undergone this process, nor have they had any components included in any product approved by the FDA.
Our reliance on suppliers subjects us to a number of risks that, should we resume development of our product candidates, could materially harm our reputation, business, and financial condition, including, among other things:
If any of these risks materialize, our costs could significantly increase and our ability to conduct our clinical trials and, if our product candidates are approved, to meet demand for our products could be impacted.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we have relied may not continue to meet regulatory requirements and have limited capacity.
In our development activities to date, we have relied on sole source suppliers of our automated, closed cell processing system; vector supply; plasmid supply; cell culture media; as well as drug product manufacturing for our Company-sponsored clinical trials. In addition, we have depended on a limited number of suppliers for some of the other components necessary for our product candidates. Each of our suppliers may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain, and we may be unable to transfer or sublicense the intellectual property rights we may have with respect to such activities.
All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in clinical studies must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s good laboratory practices, or GLP, and cGMP regulations enforced by the FDA through its facilities inspection program. Some of our contract manufacturers have not produced a commercially-approved product and have never been inspected by the FDA before. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In
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addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, or if the FDA is unable to conduct such an inspection due to the COVID-19 pandemic, the FDA may issue a complete response letter or defer action on our applications, and approval of the products may be delayed or may not be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.
Should we resume development of our product candidates, these factors could cause the delay of clinical studies, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our preclinical and clinical studies may be delayed.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we have relied and, should we resume development of our product candidates, would expect to continue to rely on third parties to manufacture our vectors and our product candidates, and because we collaborate with various organizations and academic institutions on the advancement of our gene therapy approach, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets.
Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks related to commercialization of our product candidates
Should we resume development of our product candidates and obtain approval of any of our product candidates, and we are unable to establish sales, distribution and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we will be unable to generate any product revenue.
To successfully commercialize any of our product candidates, if approved, we will need to develop our commercial capabilities, either on our own or with others, should we resume development of our product candidates. The establishment and development of our own commercial team or the establishment of a contract sales force to market any product candidate we may develop will be expensive and time-consuming and could delay any product launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We may enter into collaborations regarding any approved product candidates with other entities to utilize their established marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable
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terms, if at all. If any future collaborators do not commit sufficient resources to commercialize our product candidates, or we are unable to develop the necessary capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We compete with many companies that currently have extensive, experienced and well-funded sales, distribution and marketing operations to recruit, hire, train and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates, if approved. Without an internal team or the support of a third-party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
Should we resume development of our product candidates and the market opportunities for our product candidates are smaller than we believe they are, our product revenues may be adversely affected and our business may suffer.
We have historically focused our research and product development on treatments for serious lysosomal disorders. Our understanding of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these diseases. The number of patients in the United States and elsewhere may turn out to be lower than expected or may not be otherwise amenable to treatment with our products, patients may become increasingly difficult to identify and access, and any approval we receive from regulatory agencies may be for a narrower indication and smaller patient population than anticipated, all of which, should we resume development of our product candidates, would adversely affect our business, financial condition, results of operations and prospects.
Should we resume development of our product candidates, the commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.
Should we resume development of our product candidates, and thereafter if we obtain any regulatory approval for our product candidates, the commercial success of our product candidates will depend in part on the medical community, patients, and third-party payors accepting gene therapy products in general, and our product candidates in particular, as effective, safe and cost-effective. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors, including:
Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that our product is safe, therapeutically effective and cost effective as compared with competing treatments.
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Even if a product candidate displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product, if approved for commercial sale, will not be known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable.
Should we resume development of our product candidates, if we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.
We had been conducting clinical trials for our product candidates in the United States, Canada and Australia, and should we resume development of our product candidates, we would expect to expand our clinical trials to other geographies. If any of our product candidates are approved for commercialization, we may enter into agreements with third parties to market them on a worldwide basis or in more limited geographical regions. We expect that we will be subject to additional risks related to entering into international business relationships, including:
The insurance coverage and reimbursement status of newly-approved products are uncertain. Should we resume development of our product candidates, failure to obtain or maintain adequate coverage and reimbursement for any of our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.
The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. In the United States, recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our or their commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval. See section entitled “Business – Government Regulation – Coverage and Reimbursement” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Should we resume development of our product candidates, and obtain regulatory approval for such candidates, our ability to successfully commercialize our product candidates or any other products that we may develop also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement is not available, or is available only at limited levels, we may not be able to successfully commercialize our product candidates, if approved.
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Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal decisions about reimbursement for new medicines are typically made by Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products. Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs and commercial payors are critical to new product acceptance. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement.
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 medications. Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and certain other major markets where we plan to commercialize may put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems, and pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates to other available therapies. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.
Moreover, efforts by governmental and other third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. Should we resume development of our product candidates, we expect to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Due to the novel nature of our technology and the potential for our product candidates to offer therapeutic benefit in a single administration, we face uncertainty related to pricing and reimbursement for these product candidates should we resume their development.
Should we resume development of our product candidates, our target patient populations are relatively small, as a result of which the pricing and reimbursement of our product candidates, if approved, must be adequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adversely affect our ability to market or sell our product candidates, if approved. Moreover, if approved for marketing, because our product candidates are designed to provide their intended therapeutic benefit from a single administration, treatment with our product candidates may result in a decrease in the available pool of target patients.
Healthcare legislative reform measures and constraints on national budget social security systems may have a material adverse effect on our business and results of operations.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates or any future product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product for which we obtain marketing approval. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. See Section entitled “Business – Government Regulation – Healthcare Reform” in our Annual Report on Form 10-K for the year ended December 31, 2022.
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Should we resume development of our product candidates, the continuing efforts of the government, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of healthcare may adversely affect:
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical and biologic products. We cannot be sure whether additional legislative changes will be enacted, or whether existing regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. The Inflation Reduction Act of 2022, or IRA, includes several provisions that may impact our business to varying degrees, including provisions that reduce the out-of-pocket spending cap for Medicare Part D beneficiaries from $7,050 to $2,000 starting in 2025, thereby effectively eliminating the coverage gap; impose new manufacturer financial liability on certain drugs under Medicare Part D, allow the U.S. government to negotiate Medicare Part B and Part D price caps for certain high-cost drugs and biologics without generic or biosimilar competition; require companies to pay rebates to Medicare for certain drug prices that increase faster than inflation; and delay until January 1, 2032 the implementation of the HHS rebate rule that would have limited the fees that pharmacy benefit managers can charge. Further, under the IRA, orphan drugs are exempted from the Medicare drug price negotiation program, but only if they have one orphan designation and for which the only approved indication is for that disease or condition. If a product receives multiple orphan designations or has multiple approved indications, it may not qualify for the orphan drug exemption. The implementation of the IRA is currently subject to ongoing litigation challenging the constitutionality of the IRA’s Medicare drug price negotiation program. The effects of the IRA on our business and the healthcare industry in general is not yet known.
In addition, President Biden has issued multiple executive orders that have sought to reduce prescription drug costs. In February 2023, HHS also issued a proposal in response to an October 2022 executive order from President Biden that includes a proposed prescription drug pricing model that will test whether targeted Medicare payment adjustments will sufficiently incentivize manufacturers to complete confirmatory trials for drugs approved through FDA’s accelerated approval pathway. Although a number of these and other proposed measures may require authorization through additional legislation to become effective, and the Biden administration may reverse or otherwise change these measures, both the Biden administration and Congress have indicated that they will continue to seek new legislative measures to control drug costs.
We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Should we resume development of our product candidates, the implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product candidates.
Inadequate funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
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Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, 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 agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities. Since March 2020, when foreign and domestic inspections of facilities were largely placed on hold, the FDA has been working to resume pre-pandemic levels of inspection activities, including routine surveillance, bioresearch monitoring and pre-approval inspections. Should the FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, and the FDA does not determine a remote interactive evaluation to be adequate, the FDA has stated that it generally intends to issue, depending on the circumstances, a complete response letter or defer action on the application until an inspection can be completed. During the COVID-19 public health emergency, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic or any other public health crisis and may experience delays in their regulatory activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, should we resume development of our product candidates, which could have a material adverse effect on our business. Further, future shutdowns of other government agencies, such as the SEC, may also impact our business through review of our public filings and our ability to access the public markets.
Should we resume development of our product candidates, any contamination in our manufacturing process, shortages of materials or failure of any of our key suppliers to deliver necessary components could result in interruption in the supply of our product candidates and delays in our clinical development or commercialization schedules.
Given the nature of biologics manufacturing, there is a risk of contamination in our manufacturing processes. Should we resume development of our product candidates, any contamination could materially adversely affect our ability to produce product candidates on schedule and could, therefore, harm our results of operations and cause reputational damage.
Some of the materials required in our manufacturing process are derived from biologic sources. Such materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could materially and adversely affect our development timelines and our business, financial condition, results of operations and prospects.
Risks related to our business operations
Our gene therapy approach utilizes lentiviral vectors derived from viruses, which may be perceived as unsafe or may result in unforeseen adverse events. Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.
Gene therapy remains a novel technology, with only a limited number of gene therapy products approved to date. Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments they are already familiar with and for which greater clinical data may be available. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products should we resume development of our product candidates. For example, earlier gene therapy trials led to several well-publicized adverse events, including cases of leukemia, myelodysplastic syndromes and deaths seen in other trials using other vectors. Adverse events in our clinical studies or discovered in long-term follow-up, even if not ultimately attributable to our product candidates (such as the many adverse events that typically arise from the conditioning process), or adverse events in other gene therapy trials, and the resulting publicity could result in a decline in our stock price, increased governmental regulation, unfavorable public perception and, should we resume development of our product candidates, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.
Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.
We are highly dependent on principal members of our executive team and key employees, the loss of whose services may adversely impact the achievement of our objectives. While we have entered into employment agreements with each of our executive officers, any of them could leave our employment at any time, as all of our employees are “at will” employees. Our former President and Chief Executive Officer, Geoff MacKay, resigned on May 1, 2023, and we have appointed our current Chief Financial Officer, Erik Ostrowski, as our interim President and Chief Executive Officer. In July 2023, in connection with the determination to halt
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further development of the Company’s programs and to conduct a comprehensive exploration of strategic alternatives, we paused our search for a permanent Chief Executive Officer. Accordingly, no assurance can be made as to when we will hire a permanent Chief Executive Officer. We do not maintain “key person” insurance policies on the lives of these individuals or the lives of any of our other employees. The loss of the services of one or more of our current executive or key employees might impede the achievement of our ongoing business commitments and strategic objectives.
Retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, remains critical to our success. We implemented a reduction in force in January 2022 in connection with the deprioritization of our Fabry disease program, and through the first half of 2022 we continued to streamline employee headcount including senior management. In July 2023, in connection with the determination to halt further development of the Company’s programs and to conduct a comprehensive exploration of strategic alternatives, we implemented a reduction in force by approximately 50% across different areas. Reductions in force, management changes and program reprioritizations can have an adverse impact on employee morale. While we believe our relations with our continuing employees to be good, there can be no assurance that we can avoid retention challenges for skilled personnel as the Company explores potential strategic alternatives. There is currently a shortage of skilled executives and other personnel in our industry, which is likely to continue. As a result, competition for skilled personnel, including in gene therapy research and vector manufacturing, is intense and the turnover rate can be high. We may not be able to retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, our ability to retain qualified personnel could be impacted by other factors, such as remote or hybrid working arrangements, which could impact employees’ productivity and morale. In addition, in recent months, the market price of our common stock has experienced significant downward pressure, resulting in “underwater” or “out-of-the-money” stock options for many of our employees, thereby limiting the desired retentive effect that our equity incentive program was intended to achieve. The inability to recruit, if necessary, or the loss of the services of any executive, key employee, skilled personnel, consultant or advisor may impede our business objectives. Furthermore, we may not realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from our workforce reductions and restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If we are unable to realize the expected operational efficiencies and cost savings from the restructuring, our operating results and financial condition would be adversely affected. Our restructuring plan may also be disruptive to our operations, for example, our reductions in force could yield unanticipated consequences, such as increased difficulties in implementing our business strategy, including retention of our remaining employees, attrition beyond our reduction in force and employee litigation related to the reductions in force could be costly and prevent management from fully concentrating on the business.
Should we resume development of our product candidates, we may need to expand or streamline our operations and we may experience difficulties in managing any such changes, which could disrupt our operations.
Should we resume development of our product candidates, we may need to rapidly expand our full-time employee base and to hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.
Conversely, headwinds in the overall economy and limited availability of suitable financing to meet our needs could constrain our ability to achieve our growth objectives, and could in turn lead to further reductions in force or scaling back of business operations, that could impact employee morale and adversely impact our ability to manage ongoing operations.
Should we resume development of our product candidates and we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.
Should we resume development of our product candidates, we will need to expand our managerial, operational, financial and other systems and resources to manage our operations, resume our research and development activities and, in the longer term, build a commercial infrastructure to support commercialization of any of our product candidates that are approved for sale. Future growth would impose significant added responsibilities on members of management. It is likely that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and product candidates requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals.
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Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA or of other foreign regulatory authorities, provide accurate information to the FDA and other foreign regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business conduct in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of healthcare professional interactions, drug pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
We are subject to certain U.S. and foreign anti-corruption, 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 anti-corruption, 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 in 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. The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the United States Foreign Corrupt Practices Act’s accounting provisions.
We are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws health information privacy and security laws, and other health care laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
We are subject, and may be increasingly subject if we obtain FDA approval for any of our product candidates, to various federal and state fraud and abuse laws and regulations, including, without limitation, the federal Health Care Program Anti-Kickback Statute, the federal civil and criminal False Claims Act and Physician Payments Sunshine Act and regulations. See Section entitled “Business - Government Regulation - Other Healthcare Laws and Compliance Requirements” in our Annual Report on Form 10-K for the year ended December 31, 2022.
These laws will impact, among other things, our clinical trial programs, healthcare professional interactions, grant making activities, and our anticipated sales, marketing and medical educational programs. In addition, we may be subject to patient privacy laws by both the federal government and the states in which we conduct our business.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. 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.
The failure to comply with any of these laws or regulatory requirements subjects entities to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in federal and state funded healthcare programs (such as Medicare and Medicaid), contractual damages and the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other
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agreement to resolve allegations of non-compliance 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. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, that person or entity may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Prohibitions or restrictions on personnel, sales or withdrawal of future marketed products could materially affect business in an adverse way.
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. 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, 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 candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
We and any potential collaborators may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information 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 HIPAA, as amended by HITECH. Depending on the facts and circumstances, we could be subject to civil, criminal, and administrative 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.
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. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial patients, employees and other individuals about whom we or our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to collect, 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.
European data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.
Should we resume development of our product candidates, we would expect to conduct clinical trials in the European Economic Area, or EEA, and the United Kingdom, or UK, and as a result would be subject to additional privacy restrictions. The collection, use, disclosure, transfer or other processing of personal health data in the EU and the UK is governed by the provisions of the GDPR (references to the GDPR include both the “EU GDPR” and “UK GDPR” unless specified otherwise). The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, providing information to individuals regarding data processing activities, obtaining consent from individuals to whom the data processing relates, responding to additional data subject requests, imposing notification of personal data breaches to the competent national data protection authorities, implementing safeguards in connection with the security and confidentiality of the personal data, accountability requirements and taking certain measures when engaging third-party processors. The GDPR informs our obligations with respect to any clinical trials conducted in the EEA or the UK. Its definition of personal data includes coded data, requires changes to informed consent practices and detailed notices for clinical trial subjects and investigators. In addition, the GDPR imposes strict rules on the transfer of personal data out of the EEA or the UK, including to the United States (see below). The GDPR also permits data protection authorities to require destruction of improperly gathered or used personal data and/or impose substantial fines for violations of the GDPR, which can be up to four percent of global revenues or 20 million Euros (£ 17.5 million for the UK), whichever is greater, and confers a private right of action on data subjects and consumer associations to lodge
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complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR provides that EEA member states or the UK may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric, or health data.
The GDPR prohibits cross-border data transfers of personal data to countries outside the EEA or the UK that are not considered by the European Commission and UK government as providing “adequate” protection to personal data, or third countries, including the United States in certain circumstances, unless a valid GDPR transfer mechanism (for example, the European Commission approved Standard Contractual Clauses, or the SCCs, and the UK International Data Transfer Agreement/Addendum, or the UK IDTA) has been put in place. Where relying on the SCCs/UK IDTA for data transfers, we may also be required to carry out transfer impact assessments to assess whether the recipient is subject to local laws which allow public authority access to personal data. The international transfer obligations under the EEA and UK data protection regimes will require significant effort and cost, and may result in us needing to make strategic considerations around where EEA and UK personal data is located and which service providers we can utilize for the processing of EEA and UK personal data.
We have yet to adopt and implement comprehensive processes, systems and other relevant measures within our organization, and/or with our relevant collaborators, service providers, contractors or consultants, which are appropriate to address relevant requirements relating to international transfers of personal data from Europe, and to minimize the potential impacts and risks resulting from those requirements, across our organization. Failure to implement valid mechanisms for personal data transfers from Europe may result in our facing increased exposure to regulatory actions, substantial fines and injunctions against processing personal data from Europe. Inability to export personal data may also: restrict our activities outside Europe; limit our ability to collaborate with partners as well as other service providers, contractors and other companies outside of Europe; and/or require us to increase our processing capabilities within Europe at significant expense or otherwise cause us to change the geographical location or segregation of our relevant systems and operations – any or all of which could adversely affect our operations or financial results. Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our services and operating our business. The type of challenges we face in Europe will likely also arise in other jurisdictions that adopt laws similar in construction to the GDPR or regulatory frameworks of equivalent complexity.
Although the UK is regarded as a third country under the EU GDPR, the EC has issued an adequacy decision recognizing the UK as providing adequate protection under the EU GDPR and, therefore, transfers of personal data originating in the EU to the UK remain unrestricted. Like the EU GDPR, the UK GDPR restricts personal data transfers outside the UK to countries not regarded by the UK as providing adequate protection. The UK government has confirmed that personal data transfers from the UK to the EU remain free flowing. The UK Government has also now introduced a Data Protection and Digital Information Bill, or the UK Bill, into the UK legislative process. The aim of the UK Bill is to reform the UK’s data protection regime following Brexit. If passed, the final version of the UK Bill may have the effect of further altering the similarities between the UK and EEA data protection regime and threaten the UK adequacy decision from the European Commission. The respective provisions and enforcement of the EU GDPR and UK GDPR may further diverge in the future and create additional regulatory challenges and uncertainties. This lack of clarity on future UK laws and regulations and their interaction with EU laws and regulations could add legal risk, complexity and cost to our handling of personal data and our privacy and data security compliance programs and could require us to implement different compliance measures for the UK and the EEA.
Given the breadth and depth of its obligations, complying with the GDPR’s requirements is rigorous and time intensive and requires significant resources and assessment of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors, or consultants that process or transfer personal data collected in the EEA or the UK. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business and require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with European activities.
We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.
The use of our product candidates including in clinical studies and, should we resume the development of our product candidates, the future sale of any products for which we may obtain marketing approval, exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:
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We carry master product liability insurance of $5.0 million per occurrence and $5.0 million in the aggregate in the United States. For studies conducted in certain countries outside the United States, we maintain local admitted policies with varying limits. We believe our product liability insurance coverage is sufficient in light of our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we resume development of our product candidates and thereafter obtain marketing approval for product candidates, we expect that we would expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.
Patients with the diseases targeted by certain of our product candidates are often already in severe and advanced stages of disease and have both known and unknown significant pre-existing and potentially life- threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an adverse event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions or liabilities, which could materially adversely affect our business, financial condition, results of operations and prospects.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit carryforwards.
As of December 31, 2022 and 2021, we had federal and state net operating loss carryforwards of $340.4 million and $313.0 million, respectively, and federal research and development tax credit carryforwards of approximately $6.8 million and $6.2 million, respectively. If not utilized, the net operating loss carryforwards and research and development credits will generally expire at various
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dates through 2038 (other than federal net operating loss carryforwards generated in taxable years beginning after December 31, 2017, which are not subject to expiration and generally may not be carried back to prior taxable years except that net operating losses generated in 2018, 2019 and 2020 may be carried back five taxable years). These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We may have experienced ownership changes in the past. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurred or occurs and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, or if our research and development carryforwards are adjusted, it would harm our future operating results by effectively increasing our future tax obligations. For taxable years beginning after December 31, 2020, deductions for federal net operating losses arising in taxable years beginning after December 31, 2017 may only offset 80% of taxable income.
Risks related to our intellectual property
Should we resume development of our product candidates, third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter parties reexamination proceedings before the U.S. Patent and Trademark Office, or USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.
Third parties may assert that we or our licensors are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. In particular, we are aware of issued patents in the United States that cover the lentiviral vectors used in the manufacture of our product candidates. While we believe that we have reasonable defenses against a claim of infringement, potentially including that certain of these patents are expected to expire prior to commercializing our product candidates, if approved, in the United States, there can be no assurance that we will prevail in any such action by the holder of these patents. In the event that the holder of these patents seeks to enforce its patent rights and our defenses against a claim of infringement are unsuccessful, we may not be able to commercialize our product candidates in the United States, if approved, without first obtaining a license to some or all of these patents, which may not be available on commercially reasonable terms or at all. In addition, the defense of any claim of infringement, even if successful, is time-consuming, expensive and diverts the attention of our management from our ongoing business operations.
Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe or be alleged to infringe. In addition, third parties may obtain patents in the future and claim that use of our or our licensors’ technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Even in the absence of a finding of infringement, we may choose to obtain a license, if such a license is available. A successful claim of patent or other intellectual property infringement against us could materially adversely affect our business, results of operations and financial condition.
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Our rights to develop and commercialize our product candidates, should we resume development of our product candidates, are subject, in part, to the terms and conditions of licenses granted to us by others.
We depend upon the intellectual property rights granted to us under licenses from third parties that are important or necessary to the development of our technology and products, including technology related to our manufacturing process and our gene therapy product candidates. In particular, we have in-licensed certain intellectual property rights and know-how from the University Health Network (relevant to AVR-RD-01 and our Fabry program, which we deprioritized in January 2022) and affiliates of Lund University (relevant to AVR-RD-02 and our Gaucher type 1 and type 3 programs). In addition, we have in-licensed patents and patent applications from BioMarin Pharmaceutical Inc., or BioMarin (relevant to AVR-RD-03 and our Pompe program) and The University of Manchester (relevant to AVR-RD-05 and our Hunter program), directed to compositions and methods related to the manufacture and use of AVR-RD-03 and AVR-RD-05, respectively. Any termination of these licenses could result in the loss of significant rights and could harm or prevent our ability to commercialize our product candidates.
Each of our existing licenses are exclusive but are limited to particular fields, such as Fabry disease, Gaucher disease type 1, Hunter syndrome, or Pompe disease, and are subject to certain retained rights. Absent an amendment or additional agreement, we may not have the right to use intellectual property in-licensed for one of our programs for another program. In addition, licenses that we may enter into in the future may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and products in the future. As a result, we may not be able to prevent competitors from developing and commercializing competitive products in territories included in all of our licenses. Licenses to additional third-party technology that may be required for our development programs may not be available in the future or may not be available on commercially reasonable terms, or at all, which could have a material adverse effect on our business and financial condition.
In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. For example, pursuant to each of our intellectual property licenses with BioMarin, the rights holders associated with Lund University, and The University of Manchester, our licensors retain control of such activities. Therefore, we cannot be certain that these patents and applications will be prosecuted, maintained and enforced in a manner consistent with the best interests of our business. If our licensors fail to maintain such patents, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated and our right to develop and commercialize any of our products that are the subject of such licensed rights could be adversely affected.
Our current license agreements impose, and we expect that future license agreements that we may enter into will impose, various obligations, including diligence and certain payment obligations. If we fail to satisfy our obligations, the licensor may have the right to terminate the agreement. Disputes may arise between us and any of our licensors regarding intellectual property subject to such agreements and other issues. Such disputes over intellectual property that we have licensed or the terms of our license agreements may prevent or impair our ability to maintain our current arrangements on acceptable terms, or at all, or may impair the value of the arrangement to us. Any such dispute could have a material adverse effect on our business. If we cannot maintain a necessary license agreement or if the agreement is terminated, we may be unable to successfully develop and commercialize the affected product candidates.
If we are unable to obtain and maintain patent protection for our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our product candidates may be adversely affected.
Should we resume development of our product candidates, our ability to compete effectively will depend, in part, on our ability to maintain the proprietary nature of our technology and manufacturing processes. We rely on manufacturing and other know-how, patents, trade secrets, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect our products. These legal means, however, afford only limited protection and may not adequately protect our rights. The failure to obtain, maintain, enforce or defend such intellectual property rights, for any reason, could allow third parties to make competing products or impact our ability to develop, manufacture and market our products, if approved, on a commercially viable basis, or at all, which could have a material adverse effect on our financial condition and results of operations.
In particular, we rely primarily on trade secrets, know-how and other unpatented technology, which are difficult to protect. Although we seek such protection in part by entering into confidentiality agreements with our vendors, employees, consultants and others who may have access to proprietary information, we cannot be certain that these agreements will not be breached, adequate remedies for any breach would be available or our trade secrets, know-how and other unpatented proprietary technology will not otherwise become known to or be independently developed by our competitors. Should we resume development of our product candidates and we are unsuccessful in protecting our intellectual property rights, sales of our products may suffer and our ability to generate revenue could be severely impacted.
Our licensors and we have sought, and we intend to continue to seek to protect our proprietary position by filing patent applications in the United States and, in at least some cases, one or more countries outside the United States related to product
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candidates that are important to our business. However, we cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents, whether the claims of any issued patents will provide us with a competitive advantage, or whether we will be able to successfully pursue patent applications in the future related to our product candidates, should we resume development of our product candidates. While we have in-licensed patents and patent applications relevant to AVR-RD-03 and AVR-RD-05, we currently have no owned or in-licensed patents or patent applications covering AVR-RD-01 or AVR-RD-02. Many of our product candidates are in-licensed from third parties. Accordingly, in some cases, the availability and scope of potential patent protection is limited based on prior decisions by our licensors or the inventors, such as decisions on when to file patent applications or whether to file patent applications at all.
Should we resume development of our product candidates, we may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States. Although our license agreements grant us worldwide rights, and our currently in-licensed U.S. patent rights have certain corresponding foreign patents or patent applications, there can be no assurance that we will obtain or maintain such corresponding patents or patent applications with respect to any future license agreements. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States even in jurisdictions where we and our licensors pursue patent protection. Consequently, we and our licensors may not be able to prevent third parties from practicing our inventions in all countries outside the United States, even in jurisdictions where we and our licensors pursue patent protection, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we and our licensors have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights, even if obtained, in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court. We may not be able to protect our trade secrets in court.
If one of our licensing partners or we initiate legal proceedings against a third-party to enforce a patent covering one of our product candidates, should such a patent issue, the defendant could counterclaim that the patent covering our product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made a misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, inter parties review and equivalent proceedings in foreign jurisdictions. Such proceedings could result in the revocation or cancellation of or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which the patent examiner and we or our licensing partners were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we could lose at least part, and perhaps all, of the patent protection on one or more of our product candidates. Such a loss of patent protection could have a material adverse impact on our business.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect and some courts inside and outside the United States are less willing or unwilling to protect trade secrets. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We cannot
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guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Certain of our employees, consultants or advisors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. Our licensors may face similar risks, which could have an adverse impact on intellectual property that is licensed to us.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property.
We may be subject to claims challenging the inventorship or ownership of the patents and other intellectual property that we own or license.
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an ownership interest in the patents and intellectual property that we own or license or that we may own or license in the future. While it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own; our licensors may face similar obstacles. We could be subject to ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against any claims challenging inventorship or ownership. If we or our licensors fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property, which could adversely impact our business, results of operations and financial condition.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
Changes in either the patent laws or the interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes several significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and also may affect patent litigation. These also include provisions that switched the United States from a “first-to-invent” system to a “first-to-file” system, allow third-party submission of prior art to the USPTO during patent prosecution and set forth additional procedures to attack the validity of a patent by the USPTO administered post grant proceedings. Under a first-to-file system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The USPTO developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
The patent positions of companies engaged in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Two cases involving diagnostic method claims and “gene patents” were decided this year by the Supreme Court of the United States, or Supreme Court. On March 20, 2012, the Supreme Court issued a decision in Mayo Collaborative Services v.
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Prometheus Laboratories, Inc., or Prometheus, a case involving patent claims directed to a process of measuring a metabolic product in a patient to optimize a drug dosage for the patient. According to the Supreme Court, the addition of well-understood, routine or conventional activity such as “administering” or “determining” steps was not enough to transform an otherwise patent-ineligible natural phenomenon into patent-eligible subject matter. On July 3, 2012, the USPTO issued a guidance memo to patent examiners indicating that process claims directed to a law of nature, a natural phenomenon or a naturally occurring relation or correlation that do not include additional elements or steps that integrate the natural principle into the claimed invention such that the natural principle is practically applied and the claim amounts to significantly more than the natural principle itself should be rejected as directed to not patent-eligible subject matter. On June 13, 2013, the Supreme Court issued its decision in Association for Molecular Pathology v. Myriad Genetics, Inc., or Myriad, a case involving patent claims held by Myriad Genetics, Inc. relating to the breast cancer susceptibility genes BRCA1 and BRCA2. Myriad held that an isolated segment of naturally occurring DNA, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patent-eligible subject matter, but that complementary DNA, which is an artificial construct that may be created from RNA transcripts of genes, may be patent-eligible. On March 4, 2014, the USPTO issued a guidance memorandum to patent examiners entitled 2014 Procedure For Subject Matter Eligibility Analysis Of Claims Reciting Or Involving Laws Of Nature/Natural Principles, Natural Phenomena, And/Or Natural Products. These guidelines instruct USPTO examiners on the ramifications of the Prometheus and Myriad rulings and apply the Myriad ruling to natural products and principles including all naturally occurring nucleic acids.
Certain claims of our licensed patents and patent applications contain, and any future patents we may obtain may contain, claims that relate to specific recombinant DNA sequences that are naturally occurring at least in part and, therefore, could be the subject of future challenges made by third parties. In addition, the 2014 USPTO guidance could impact our ability to pursue similar patent claims in patent applications we may prosecute in the future.
We cannot assure you that our efforts to seek patent protection for our product candidates will not be negatively impacted by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the USPTO. We cannot fully predict what impact the Supreme Court’s decisions in Prometheus and Myriad may have on the ability of life science companies to obtain or enforce patents relating to their products in the future. These decisions, the guidance issued by the USPTO and rulings in other cases or changes in USPTO guidance or procedures could have a material adverse effect on our existing patent rights and our ability to protect and enforce our intellectual property in the future.
Moreover, although the Supreme Court has held in Myriad that isolated segments of naturally occurring DNA are not patent-eligible subject matter, certain third parties could allege that activities that we may undertake infringe other gene-related patent claims, and we may deem it necessary to defend ourselves against these claims by asserting non-infringement and/or invalidity positions, or paying to obtain a license to these claims. In any of the foregoing or in other situations involving third-party intellectual property rights, if we are unsuccessful in defending against claims of patent infringement, we could be forced to pay damages or be subjected to an injunction that would prevent us from utilizing the patented subject matter. Such outcomes could harm our business, financial condition, results of operations or prospects.
Should we resume development of our product candidates and we do not obtain patent term extension and data exclusivity for our product candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of our product candidates, one or more U.S. patents that we license or may own or license in the future, if any, may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. A patent may only be extended once and only based on a single approved product. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially. In addition, we do not control the efforts of our licensors to obtain a patent term extension, and there can be no assurance that they will pursue or obtain such extensions to the patents that we license from them.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We have registered the marks “AVROBIO” and “plato” with the USPTO and in certain other countries, but we do not have trademarks or trademark applications with the USPTO for the marks “AVRO” or the AVROBIO logo. In the future, even if we apply for registration of these marks, there can be no assurance that such registration will be approved. Once registered, our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may
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not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
Intellectual property rights and regulatory exclusivity rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage, should we resume development of our product candidates. For example:
Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects.
Risks related to ownership of our common stock
The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the price at which you purchased our shares.
Our stock price is likely to be volatile. Since our initial public offering, or IPO, in June 2018, through August 2, 2023, the trading price of our common stock has ranged from $53.70 to $0.56. The stock market in general, and the market for biopharmaceutical companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the price at which you purchased shares. The market price for our common stock may be influenced by many factors, including:
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In addition, companies trading in the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
An active trading market for our common stock may not be sustained.
Prior to our IPO in June 2018, there had been no public market for our common stock. Although our common stock is listed on Nasdaq, an active trading market for our shares may never be sustained. If an active market for our common stock is not sustained, it may be difficult for you to sell shares you purchased without depressing the market price for the shares, or at all.
An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling additional shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will likely depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. Although we have obtained research coverage from certain analysts, there can be no assurance, including during such time period that we pursue potential strategic alternatives, that analysts will continue to cover us or provide favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more analysts cease coverage of our
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company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.
Based on shares outstanding as of August 3, 2023, our executive officers, directors, five percent stockholders and their affiliates beneficially owned approximately 42% of our voting stock. As a result, if these stockholders were to act together, they would be able to significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these stockholders, acting together, may be able to influence elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best interest as one of our stockholders. Some of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the current trading price of our stock and have held their shares for a longer period, they may be more interested in selling our Company to an acquirer than other investors or they may want us to pursue strategies that deviate from the interests of other stockholders. Additionally, from time to time, any of our non-affiliated stockholders may accumulate or acquire significant positions in our common stock and may similarly be able to influence our business or matters submitted to our stockholders for approval.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” or EGC, as defined in the JOBS Act. We will remain an EGC until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the first day of the year following the first year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 in any given year. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this Quarterly Report, or our Annual Report or 2023 Proxy Statement. In particular, we have not included in this Quarterly Report, and do not intend to include in our 2023 Proxy Statement, all of the executive compensation information that would be required if we were not an EGC. We cannot predict whether investors will find our common stock less attractive if we rely on certain or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” if the market value of our common stock held by non-affiliates is below $250 million (or $700 million if our annual revenue is less than $100 million) as of June 30 in any given year, which would allow us to take advantage of many of the same exemptions from disclosure requirements.
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We expect to continue to incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.
As a public company, and particularly after we are no longer an EGC, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will continue to make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and increasingly more expensive for us to obtain and maintain director and officer liability insurance.
Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting, and, once we are no longer an EGC or a “smaller reporting company,” we will be required to furnish an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404, we continue to be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially continue to engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements, or may identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess the effectiveness of these controls annually. However, for as long as we are an EGC or a “smaller reporting company,” our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. We could be an EGC for up to five years following the completion of our IPO and will qualify as a “smaller reporting company” if the market value of our common stock held by non-affiliates is below $250 million (or $700 million if our annual revenue is less than $100 million) as of June 30 in any given year. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.
If we experience material weaknesses or deficiencies in the future, or otherwise fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.
We expect to continue our efforts to improve our control processes, though there can be no assurance that our efforts will ultimately be successful or avoid potential material weaknesses, and we expect to continue incurring additional costs as a result of these efforts. If we are unable to successfully remediate any material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and our stock price may decline as a result. We also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
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Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly.
Sales of a substantial number of shares of our common stock in the public market could occur at any time, subject to certain restrictions described below. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of August 3, 2023, holders of an aggregate of approximately 4.5 million shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. In addition, shares reserved for issuance upon the exercise of stock options outstanding under our equity incentive plans will become eligible for sale in the public market in the future. We have registered all shares of common stock that we may issue under our equity compensation plans, which can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates.
We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.
Provisions in our amended and restated certificate of incorporation and by-laws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.
Our amended and restated certificate of incorporation, amended and restated by-laws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and by-laws, include provisions that:
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
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In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Any provision of our amended and restated certificate of incorporation or amended and restated by-laws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Our bylaws contain exclusive forum provisions, which may limit a stockholder’s ability to bring a claim in a judicial forum it finds favorable and may discourage lawsuits with respect to such claims.
Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any state law claim for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of or based on a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; (3) any action asserting a claim against us or any of our current or former directors, officers, employees or stockholders arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or (4) any action asserting a claim governed by the internal affairs doctrine, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our amended and restated bylaws further provide that, unless we consent in writing to an alternative forum, the United States District Court for the District of Massachusetts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision, as our principal executive offices are located in Cambridge, Massachusetts. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
We recognize that the Delaware Forum Provision and the Federal Forum Provision may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware or the Commonwealth of Massachusetts. Additionally, these forum selection clauses in our amended and restated bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. Section 22 of the Securities Act creates a concurrent jurisdiction for state and federal courts over all suits brought concerning a duty or liability created by the securities laws, rules and regulations thereunder. While the Delaware Supreme Court and other state courts have upheld the validity of federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert the provision is unenforceable, and if the Federal Forum Provision is found to be unenforceable, we may incur additional costs with resolving such matters. The Court of Chancery of the State of Delaware and the United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
Our failure to meet Nasdaq’s continued listing requirements could result in a delisting of our common stock.
If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the requirement to maintain a minimum bid price of $1.00 per share pursuant to Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Price Requirement, Nasdaq may take steps to delist our common stock.
On October 4, 2022, we received a written notice from the staff, or the Staff, of Nasdaq’s Listing Qualifications Department, notifying us that, for the 30 consecutive business day period between August 22, 2022 through October 3, 2022, our common stock had not complied with the Minimum Bid Price Requirement. On February 23, 2023, we received a written notice from the Staff notifying us that for 10 consecutive business days, from February 8, 2023 to February 22, 2023, the closing bid price of our common stock was at $1.00 per share or greater, and accordingly, the Staff advised us that we had regained compliance with the Minimum Bid Price Requirement.
On May 11, 2023, we received a written notice from the Staff notifying us that, for the 30 consecutive business day period between March 29, 2023 through May 10, 2023, our common stock had not complied with the Minimum Bid Price Requirement. On June 12, 2023, we received a written notice from the Staff notifying us that for 14 consecutive business days, from May 22, 2023 to June 9, 2023, the closing bid price of our common stock was at $1.00 per share or greater, and accordingly, the Staff advised us that we had regained compliance with the Minimum Bid Price Requirement.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days, or until November 7, 2023, or the Compliance Date, to regain compliance with the Minimum Bid Price Requirement. According to the written notice, if, at any time
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during this 180-day period, the closing bid price for the common stock is at least $1.00 per share for a minimum of ten consecutive business days, the Staff will provide written confirmation of compliance and the common stock will remain listed on Nasdaq.
While we have regained compliance with the Minimum Bid Price Requirement as of the date of this Quarterly Report, we can provide no assurance that we will continue to remain in compliance with the Minimum Bid Price Requirement. If we are unable to maintain compliance with any of Nasdaq’s continued listing requirements in the future, we may be subject to delisting. At that time, we may appeal the Staff’s delisting determination to a Nasdaq Hearing Panel. There can be no assurance that, if we receive a delisting notice and appeal the delisting determination by the Staff to the Nasdaq Hearing Panel, such appeal would be successful.
Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. Any such delisting could also adversely impact our ability to raise additional capital or enter into strategic transactions. Additionally, if our common stock is not listed on, or becomes delisted from, Nasdaq for any reason, trading our common stock could be conducted only in the over-the-counter, or OTC, market or on an electronic bulletin board established for unlisted securities such as the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, and the liquidity and price of our common stock may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. In such circumstances, you may be unable to sell your common stock unless a market can be established or sustained.
General Risk Factors
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, the COVID-19 pandemic has caused extreme volatility and disruptions in the capital and credit markets. In addition, Russia’s invasion of Ukraine may lead to a prolonged, adverse impact on global economic, social and market conditions. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause delays in payments for our services by third-party payors or our collaborators. For example, while we do not have any current operations in Ukraine or Russia, we do not know the extent to which Russia’s invasion of Ukraine could impact any of our current suppliers and their ability to provide us with supplies and services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business, financial condition, results of operations and prospects.
We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
Despite our security measures, our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. For example, in 2017 we were subjected to a cyberattack by a third party, which led to the theft of a portion of our funds. We implemented remedial measures promptly following this breach and do not believe that this breach had a material adverse effect on our business. In addition, in February 2019, one of our vendors was subject to a cyberattack by a third party, which resulted in the payment by us of a fraudulent invoice. We have implemented remedial measures following this breach and do not believe that this breach had a material effect on our business. However, if any cyberattack or data breach were to occur in the future and cause interruptions in our or our collaborators’, contractors’ or consultants’ operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our business data, trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials
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could result in delays in our 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 liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.
Changes in tax law could adversely affect our business and financial condition.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to consult with their legal and tax advisers regarding the implications of potential changes in tax laws on an investment in our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
75
Item 6. Exhibits.
Exhibit Number |
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Description |
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2.1 |
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3.1 |
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3.2 |
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3.3 |
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10.1# |
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10.2# |
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10.3# |
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10.4# |
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31.1 |
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32.1* |
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101.INS |
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Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”). |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). |
# Indicates a management contract or any compensatory plan, contract or arrangement.
* Indicates the exhibit is being furnished, not filed, with this report.
(1) Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(2)(ii). Such excluded information is not material and is the type that the Registrant customarily and actually treats as private or confidential.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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AVROBIO, INC. |
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Date: August 10, 2023 |
By: |
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/s/ Erik Ostrowski |
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Erik Ostrowski |
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President, Interim Chief Executive Officer, Chief Financial Officer and Treasurer (Principal Executive, Financial, and Accounting Officer) |
77
EXHIBIT 2.1
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH NOT MATERIAL AND IS OF THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THIS REDACTED INFORMATION HAS BEEN MARKED IN THIS EXHIBIT WITH THREE ASTERISKS [***].
ASSET PURCHASE AGREEMENT
by and among
NOVARTIS PHARMA AG,
NOVARTIS PHARMACEUTICALS CORPORATION
and,
AVROBIO, INC.
Dated as of May 19, 2023
ACTIVE/123404471.12
TABLE OF CONTENTS
Page
Article 1 Definitions |
1 |
|
Section 1.1 |
Definitions |
1 |
Article 2 Purchase and sale of transferred assets |
16 |
|
Section 2.1 |
Purchase and Sale of the Transferred Assets |
16 |
Section 2.2 |
Excluded Assets |
18 |
Section 2.3 |
Assumption of Assumed Liabilities |
18 |
Section 2.4 |
Excluded Liabilities |
19 |
Section 2.5 |
Consideration for the Transferred Assets |
20 |
Section 2.6 |
Restricted Assets |
20 |
Section 2.7 |
Wrong Pockets |
21 |
Section 2.8 |
Withholding |
21 |
Section 2.9 |
Allocation of the Purchase Price |
22 |
Article 3 REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLER AND THE Cystinosis BUSINESS |
23 |
|
Section 3.1 |
Organizational Matters; Authority |
23 |
Section 3.2 |
Non-Contravention and Consents |
23 |
Section 3.3 |
Financial Statements |
24 |
Section 3.4 |
Solvency |
25 |
Section 3.5 |
Absence of Certain Changes |
25 |
Section 3.6 |
Litigation |
26 |
Section 3.7 |
Taxes |
26 |
Section 3.8 |
Property and Assets |
28 |
Section 3.9 |
Intellectual Property and Related Matters |
29 |
Section 3.10 |
Privacy and Data Security. |
32 |
Section 3.11 |
Compliance; Permits; Sanctions |
33 |
Section 3.12 |
Brokers’ and Finders’ Fees |
36 |
Section 3.13 |
Restrictions on Business Activities |
36 |
Section 3.14 |
Employment Matters |
36 |
Section 3.15 |
Seller Benefit Plans |
38 |
Section 3.16 |
Material Contracts. |
39 |
Section 3.17 |
Insurance |
41 |
Section 3.18 |
Transactions with Related Parties |
42 |
Section 3.19 |
Accounts and Notes Receivable and Payable |
42 |
Section 3.20 |
CFIUS |
42 |
Section 3.21 |
Full Disclosure |
42 |
Article 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER |
43 |
|
Section 4.1 |
Standing; Authority and Due Execution |
43 |
Section 4.2 |
Non-Contravention |
43 |
Section 4.3 |
Sufficiency of Funds |
43 |
Section 4.4 |
Legal Proceedings |
44 |
Section 4.5 |
Brokers’ and Finders’ Fees |
44 |
Section 4.6 |
Independent Investigation |
44 |
Article 5 CERTAIN COVENANTS OF THE SELLER |
44 |
|
Section 5.1 |
Access and Investigation |
44 |
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Section 5.2 |
Operation of the Cystinosis Business |
45 |
Section 5.3 |
Notification |
46 |
Section 5.4 |
No Negotiation |
47 |
Section 5.5 |
Restrictive Covenants |
47 |
Section 5.6 |
Ancillary Agreements |
50 |
Section 5.7 |
Seller Business After the Closing |
50 |
Section 5.8 |
Payoff Letter |
50 |
Article 6 CERTAIN COVENANTS OF THE PARTIES |
51 |
|
Section 6.1 |
Filings and Consents |
51 |
Section 6.2 |
Announcements |
51 |
Section 6.3 |
Tax Matters |
52 |
Section 6.4 |
Clinical Study Authorizations |
53 |
Section 6.5 |
Commercially Reasonable Efforts |
53 |
Section 6.6 |
Employee Matters |
53 |
Section 6.7 |
License |
53 |
Section 6.8 |
Covenant Not to Sue |
55 |
Section 6.9 |
Shared Contracts |
55 |
Section 6.10 |
Data Transition Plan |
56 |
Section 6.11 |
Continuity and Maintenance of Seller Product CSAs |
56 |
Section 6.12 |
CSA Cross-References |
56 |
Section 6.13 |
Safety Monitoring |
56 |
Article 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER |
57 |
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Section 7.1 |
Accuracy of Representations |
57 |
Section 7.2 |
Performance of Covenants |
57 |
Section 7.3 |
Governmental and Other Consents |
57 |
Section 7.4 |
No Material Adverse Effect |
57 |
Section 7.5 |
Agreements and Documents |
57 |
Section 7.6 |
Lien Releases |
58 |
Section 7.7 |
No Restraints |
58 |
Section 7.8 |
No Legal Proceedings |
58 |
Section 7.9 |
Delivery of Copy of Data Room |
59 |
Article 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER |
59 |
|
Section 8.1 |
Accuracy of Representations |
59 |
Section 8.2 |
Performance of Covenants |
59 |
Section 8.3 |
Agreements and Documents |
59 |
Section 8.4 |
No Restraints |
59 |
Section 8.5 |
Governmental and Other Consents |
59 |
Section 8.6 |
No Legal Proceedings |
60 |
Article 9 TERMINATION |
60 |
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Section 9.1 |
Termination Events |
60 |
Section 9.2 |
Termination Procedures |
61 |
Section 9.3 |
Effects of Termination |
61 |
Article 10 INDEMNIFICATION |
61 |
|
Section 10.1 |
Indemnification by the Seller |
61 |
Section 10.2 |
Indemnification by Purchaser |
62 |
Section 10.3 |
Certain Limitations |
62 |
Section 10.4 |
Survival of Representations, Warranties, and Covenants |
63 |
Section 10.5 |
Termination of Indemnification |
64 |
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Section 10.6 |
Nature of Remedies |
64 |
Section 10.7 |
Procedures |
64 |
Section 10.8 |
Payment; Sources of Recovery |
66 |
Article 11 MISCELLANEOUS |
67 |
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Section 11.1 |
Further Assurances |
67 |
Section 11.2 |
Fees and Expenses |
67 |
Section 11.3 |
Notices |
67 |
Section 11.4 |
Headings |
69 |
Section 11.5 |
Counterparts and Exchanges by Electronic Transmission |
69 |
Section 11.6 |
Governing Law |
69 |
Section 11.7 |
Successors and Assigns |
70 |
Section 11.8 |
Specific Performance |
70 |
Section 11.9 |
Waiver |
70 |
Section 11.10 |
Waiver of Jury Trial |
70 |
Section 11.11 |
Amendments |
70 |
Section 11.12 |
Severability |
71 |
Section 11.13 |
Parties in Interest |
71 |
Section 11.14 |
Entire Agreement |
71 |
Section 11.15 |
Disclosure Schedule |
71 |
Section 11.16 |
Construction |
71 |
3
ACTIVE/123404471.12
Exhibits and Schedules
Exhibit A Form of Bill of Sale and Assignment and Assumption Agreement
Exhibit B Form of Separation Services Agreement
Exhibit C Licensed IP
Exhibit D Form of Data Transition Plan
Schedule 1 Allocation of Purchase Price
Schedule 2 Consents
Schedule 3 Liens
Schedule 4 Special Indemnities
Schedule 5 Certain Excluded Assets
Schedule 6 Certain Transferred Assets
Schedule 7 Transferred Contracts
Schedule 8 Accounting Firms
4
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of May 19, 2023, by and among Novartis Pharma AG, a company organized under the laws of Switzerland, Novartis Pharmaceuticals Corporation, a Delaware corporation (collectively, “Purchaser”) and AVROBIO, Inc., a Delaware corporation (the “Seller”). Each of Purchaser and the Seller, as the case may be, is referred to herein as a “Party”, and collectively as the “Parties”. Certain capitalized terms used in this Agreement are defined in Article 1.
RECITALS
WHEREAS, the Seller, directly and indirectly, is engaged in the Cystinosis Business;
WHEREAS, upon the terms and subject to the conditions set forth herein, Purchaser desires to purchase from the Seller, and the Seller desires to sell to Purchaser, certain assets and rights relating to the Cystinosis Business owned by the Seller; and
WHEREAS, upon the terms and subject to the conditions set forth herein, the Seller desires to license to Purchaser, and Purchaser desires to license from Seller, certain Intellectual Property related to the Cystinosis Business;
NOW, THEREFORE, in consideration of the mutual benefits to be derived and the representations and warranties, conditions and mutual agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:
Article 1
Definitions
Section 1.1 Definitions. For purposes of the Agreement:
“Acquisition Transaction” means any transaction or series of transactions involving:
(a) the sale, license, sublicense, or disposition of all or a material portion of the Seller’s business or assets, the Cystinosis Business or any of the Transferred Assets or Licensed IP;
(b) the grant, issuance, disposition, acquisition, tender offer or exchange of: (i) any shares of capital stock, or other voting or equity security of the Seller; (ii) any option, call, warrant, or right (whether or not immediately exercisable) to acquire any capital stock, unit, or other equity security of, or Equity Interest in, the Seller; or (iii) any security, instrument, or obligation that is or may become convertible into or exchangeable for any capital stock, unit, or other equity security of the Seller (other than the grant of options to employees of the Seller in the ordinary course of business consistent with past practice);
(c) any merger, amalgamation, share exchange, partnership, joint venture, liquidation, dissolution, plan, or scheme of arrangement, consolidation, business combination, reorganization, or similar transaction involving the Seller; or
(d) any combination of the foregoing.
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“Adverse Event” means any untoward medical occurrence in a patient or clinical investigation subject administered a pharmaceutical product and that does not necessarily have a causal relationship with this treatment. An Adverse Event can therefore be any unfavorable and unintended sign (including an abnormal laboratory finding), symptom, or disease temporally associated with the use of a medicinal (investigational) product, whether or not related to the medicinal (investigational) product.
“Affiliate” means, with respect to any Person, any other Person controlling, controlled by, or under common control with such Person. For purposes of this definition and the Agreement, the term “control” (and correlative terms) means the possession, directly or indirectly, of the power, whether by contract, equity ownership, as trustee, personal representative or executor, credit arrangement or otherwise, to direct or cause the direction of the policies and/or management of a Person. The term “Affiliate” shall be deemed to include current and future “Affiliates”.
“Agreement” has the meaning assigned to such term in the Preamble.
“Allocation Schedule” has the meaning assigned to such term in Section 2.9.
“Anti-Corruption Laws” means (i) the Foreign Corrupt Practices Act of 1977, the Anti-Kickback Act of 1986, the Canadian Corruption of Foreign Public Officials Act, the United Kingdom Bribery Act, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the United Nations Convention Against Corruption and all other applicable laws of similar effect, and the related rules, regulations and published interpretations thereunder, (ii) all applicable anti-money laundering laws, and the related rules, regulations and published interpretations thereunder, and (iii) all applicable anti-terrorism financing laws, and the related rules, regulations and published interpretations thereunder.
“Acquisition” has the meaning assigned to such term in Section 2.1.
“Assumed Liabilities” has the meaning assigned to such term in Section 2.3.
“Beneficiaries” means: (a) Purchaser; (b) each Affiliate of Purchaser; and (c) the successors and assigns of each Person referred to in clauses (a) and (b) above.
“Bill of Sale” means one or more Bills of Sale and Assignment and Assumption Agreements, in the form set forth on Exhibit A hereto.
“Books and Records” means books, documents, records, files, agreements, manuals and other information in the possession or control of the Seller, whether in hard copy, electronic or computer format, in each case, that are exclusively related to the Cystinosis Business (whether or not required to be severed from any books, documents, records, files, agreements, manuals or other information not related to the Cystinosis Business).
“Business Closing Certificate” has the meaning assigned to such term in Section 7.5(a).
“Business Day” means any day other than (a) a Saturday, Sunday, or a federal holiday or (b) a day on which commercial banks in Basel, Switzerland or New York, New York are authorized or required to be closed, but excluding each day in the period between December 24 and January 1 (inclusive) in any year.
“Business Intellectual Property” means (a) the Transferred IP and (b) the Licensed IP.
2
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“Business Licensed Intellectual Property” means the Business Intellectual Property that is owned by any other Person and licensed or purported to be licensed to the Seller or to which the Seller has or purports to have any other right or immunity (including any sublicense, option, right of first refusal, or other preferential right or covenant not to be sued).
“Business Owned Intellectual Property” means the Business Intellectual Property that is owned or purported to be owned, solely or jointly, by the Seller.
“Charter Document” means the certificate of incorporation, bylaws, memorandum of association, certificate of association, limited partnership agreement, limited liability company agreement, limited-liability limited partnership agreement, or equivalent governing document(s) of an Entity.
“Clinical Study” means a clinical investigation, as that term is defined in 21 CFR 312.3(b), primarily related to the Cystinosis Business. For clarity, this includes any clinical investigation conducted by a Collaboration Partner.
“Clinical Study Authorizations” or “CSAs” mean clinical study authorizations including investigational new drug applications (or such equivalent governmental or regulatory approval as may be granted) primarily relating to the conduct of clinical studies with respect to the Development Programs.
“Closing” has the meaning assigned to such term in Section 2.5(b).
“Closing Date” has the meaning assigned to such term in Section 2.5(b).
“Closing Payment” has the meaning assigned to such term in Section 2.5(a).
“Code” means the Internal Revenue Code of 1986, as amended.
“Collaboration Partner” means any research, development, manufacturing, collaboration or similar commercialization partner of the Seller with respect to the Cystinosis Business.
“Collaborator Development Program” means any discovery or Clinical Study programs or platforms and the therapies and compounds made and tested in such programs conducted by any Collaboration Partner.
“Company Registered IP” has the meaning assigned to such term in Section 3.9.
A Person shall be deemed to be engaged in “Competition” if such Person or any of such Person’s controlled Affiliates is engaged in the research, development, marketing or sale of any products that directly compete with the Cystinosis Business (or would compete therewith if any Seller Products were marketed or sold by the Cystinosis Business).
“Confidential Information” means: (a) all non-public information that is (i) owned, used, or possessed by the Seller or any of the Seller’s Affiliates as of the Closing and (ii) included in the Transferred Assets or otherwise primarily related to the Cystinosis Business, held in any form; (b) all non-public information that is (i) owned, used, or possessed by Purchaser or any of Purchaser’s Affiliates as of the Closing, including in connection with the Cystinosis Business and the Transferred Assets, held in any form, and (ii) in the possession of the Seller as of the Closing; and (c) the terms of this Agreement and the other
3
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Transaction Documents, and all information relating to the discussions and negotiations among the Seller, Purchaser and their respective Affiliates or otherwise concerning the Contemplated Transactions.
“Confidentiality Agreement” means the Confidentiality Agreement, between the Seller and Novartis Pharma AG, dated as of [***].
“Consent” means any approval, consent, ratification, permission, waiver, Order, or authorization (including any Permit).
“Contemplated Transactions” means all transactions and actions contemplated by the Transaction Documents, together with the plans and other documents entered into or delivered in connection therewith, or referred to therein, including the Acquisition.
“Contract” means any written, oral, or other agreement, contract, license, sublicense, subcontract, settlement agreement, lease, power of attorney, understanding, arrangement, instrument, note, purchase order, warranty, insurance policy, benefit plan, or legally binding commitment or undertaking of any nature.
“Control” and “Controlled” means, with respect to any Know-How, the possession by Seller of the ability (whether by ownership, license, sublicense or otherwise) to grant to Purchaser the licenses, sublicenses, or other rights to such Know-How as provided for in this Agreement, without violating the terms of any agreement or other arrangement with any Third Party in existence as of the time such Party would be required hereunder to grant such license, sublicense, or rights.
“Copyrights” has the meaning set forth in the definition of Intellectual Property.
“CSA Transfer” has the meaning assigned to such term in Section 6.4.
“Cystinosis Business” means Seller’s AVR-RD-04 research and development program and related research, development, manufacturing and commercialization of products for the treatment, diagnosis or prevention of cystinosis, as such research and development program may be applied to diseases primarily associated with a deficiency in cystinosin or abnormal cystinosin function in which the addition of the CTNS transgene encoding the cystinosin protein may prove beneficial with respect to the treatment, diagnosis or prevention of such diseases.
“Damages” includes any loss, damage, injury, Liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee, charge, cost (including costs of investigation, defense or enforcement of this Agreement), amounts paid in settlement, or Expense of any nature (in each case including reasonable attorneys’ and expert fees).
“Data Room” has the meaning assigned to such term in the definition of Made Available to Purchaser.
“Data Transition Plan” means a plan in respect of the transfer of the data and the records from the Seller or its Affiliates to Purchaser and its Affiliates, as set forth on Exhibit D hereto.
“Debt Payoff Letter” has the meaning assigned to such term in Section 5.8.
“Development Programs” means the Product Development Program and the Collaborator Development Program.
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“Direct Claim” has the meaning assigned to such term in Section 10.7(b).
“Disclosure Schedule” means the Schedule delivered to Purchaser on behalf of the Seller and prepared in accordance with Section 11.15.
“Drug Governmental Entity” means the FDA, the European Medicines Agency, the United Kingdom Medicines and Healthcare Products Regulatory Agency, or any other Governmental Entity having jurisdiction over the safety, efficacy, approval, development, testing, labeling, manufacture, storage, sale, marketing, promotion, commercialization, shipment, import, export or distribution of pharmaceutical products.
“Effect” has the meaning assigned to such term in the definition of Material Adverse Effect.
“End Time” means 5:00 PM ET on August 19, 2023, provided that such date may be extended by up to thirty (30) additional days by mutual written consent of Purchaser and Seller.
“Enforceability Exceptions” means the effect, if any, of (a) applicable bankruptcy, insolvency, moratorium, or other similar Legal Requirements affecting the rights of creditors generally and (b) rules of law governing specific performance, injunctive relief and other equitable remedies.
“Entity” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust (including incomplete-gift nongrantor gift trusts established in any jurisdiction), company (including any limited liability company, or joint stock company), firm or other enterprise, association, organization, or entity.
“Equity Interests” means shares of capital stock, membership interests in a limited liability company, partnership interests, beneficial interests in a trust, or other equity ownership interests in a Person, and any warrants, options, or other rights entitling the holder thereof to purchase or acquire any such Equity Interest or any stock appreciation, phantom stock, profit participation, or similar rights with respect to the capital stock of, or other equity or voting interest in any Person.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” means any Entity, trade, or business (whether or not incorporated) that is or would have ever been considered a single employer with the Seller, within the meaning of Sections 414(b), (c), (m) or (o) of the Code.
“Exchange Act” means the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder.
“Excluded Assets” has the meaning assigned to such term in Section 2.2.
“Excluded Liabilities” has the meaning assigned to such term in Section 2.4.
“Exclusively Licensed Intellectual Property” means any and all Business Licensed Intellectual Property that is, or is purported to be, exclusively licensed to the Seller, or to which the Seller has or purports to have any other exclusive right.
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“Existing Loan Agreement” has the meaning assigned to such term in Section 5.8.
“Expense” means any fee, cost, expense, payment, expenditure, or Liability.
“Field” means the treatment, diagnosis or prevention of (a) cystinosis or (b) other diseases primarily associated with a deficiency in cystinosin or abnormal cystinosin function in which the addition of the CTNS transgene encoding the cystinosin protein may prove beneficial with respect to the treatment, diagnosis or prevention of such other diseases.
“FDA” means the United States Food and Drug Administration and any successor agency thereto.
“Final Allocation Schedule” has the meaning assigned to such term in Section 2.9.
“Foreign Government Official” means (i) any officer or employee of a foreign Governmental Entity or any department, agency or instrumentality thereof (including a state-owned or state-controlled entity); (ii) any officer or employee of a public international organization; (iii) any Person acting in an official capacity for or on behalf of any such foreign Governmental Entity or department, agency or instrumentality thereof, or for or on behalf of any public international organization or any political party; or (iv) any party official or candidate of any party, excluding, in each case, any official of the government of the United States.
“Fundamental Representations” means: (a) the representations and warranties set forth in Section 3.1 (Organizational Matters; Authority), Section 3.2 (Non-Contravention), Section 3.7 (Taxes), Section 3.8(a) (Sufficiency of Assets), Section 3.9 (Intellectual Property), Section 3.11(f) (Sanctions) and Section 3.12 (Brokers’ and Finders’ Fees), and (b) the representations and warranties set forth in the Business Closing Certificate, solely to the extent such representations and warranties relate to any matter addressed in any representation or warranty specified in clause (a) of this sentence.
“GAAP” means generally accepted accounting principles in the United States in effect as of the applicable date of determination or in effect for the applicable period under consideration, as appropriate.
“Good Clinical Practices” means the FDA’s standards for the design, conduct, performance, monitoring, auditing, recording, analysis, and reporting of clinical trials, including those standards contained in 21 C.F.R. Parts 11, 50, 54, 56 and 312 and all comparable standards of any other applicable Drug Governmental Entity.
“Good Laboratory Practices” means the FDA’s standards for conducting non-clinical laboratory studies, including those standards contained in 21 C.F.R. Parts 11 and 58, and all comparable standards of any other applicable Drug Governmental Entity.
“Good Manufacturing Practices” means the requirements set forth at 21 U.S.C. § 351(a)(2)(B) and in the regulations for drugs contained in 21 C.F.R. Parts 11, 210, 211 and 600-680, and all comparable standards of any other applicable Drug Governmental Entity.
“Government-Funded IP” has the meaning set forth in Section 3.9(i).
“Governmental Entity” means any applicable: (a) multinational or supranational governmental body exercising legislative, judicial, or regulatory powers; (b) nation, state, commonwealth, province, territory, county, municipality, district, or other jurisdiction of any nature; (c) federal, state, provincial,
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local, municipal, foreign, or other government; (d) instrumentality, subdivision, department, ministry, board, court, administrative agency, regulatory authority, or commission, or other governmental Entity, authority, or instrumentality or political subdivision thereof; or (e) any quasi-governmental or private body exercising any executive, legislative, judicial, regulatory, taxing, importing, or other governmental functions, in each case, including, for the avoidance of doubt, any Taxing Authority.
“Healthcare Laws” means all applicable health care laws, including (i) any and all federal, state and local fraud and abuse laws, including the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the civil False Claims Act (31 U.S.C. §§ 3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)) and the regulations promulgated pursuant to such statutes and equivalent non-U.S. statutory and regulatory provisions; (ii) the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §§ 301 et seq.) and the regulations promulgated thereunder and equivalent non-U.S. statutory and regulatory provisions; (iii) the health care fraud and false statement provisions of HIPAA; (iv) applicable laws which are cause for exclusion from any federal health care program and the regulations promulgated pursuant to such statutes and equivalent non-U.S. statutory and regulatory provisions; (v) the federal health care program civil monetary penalty (42 U.S.C. § 1320a-7a) and exclusion authorities (42 U.S.C. § 1320a-7) and the regulations promulgated pursuant to such statutes; (vi) the Public Health Service Act (42 U.S.C. §§ 201 et seq.) and the regulations promulgated thereunder and equivalent non-U.S. statutory and regulatory provisions; and (vii) all applicable laws, rules, regulations, orders, judgments, decrees and injunctions administered by the FDA and other applicable regulatory authorities, including those governing or relating to clinical trials, laboratory studies, recordkeeping, manufacturing, testing, development, approval, processing and use of any Seller Product, including but not limited to FDA’s regulations at 21 C.F.R. Parts 11, 50, 54, 56, 58, 210, 211, 312, 600 and 610, each as may be amended from time to time and equivalent non-U.S. statutory and regulatory provisions.
“Healthcare Submissions” means all required material filings, declarations, listings, registrations, reports or submissions to a Drug Governmental Entity, including adverse event reports.
“HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information and Technology for Economic and Clinical Health Act, and the regulations promulgated pursuant thereto.
“Indebtedness” of any Person means, without duplication: (a) all obligations of such Person for borrowed money or with respect to any deposit or advance of any kind (whether long-term or short-term, whether or not represented by a bond, debenture, note, or other security or instrument, whether or not convertible into any other security or instrument); (b) all obligations of such Person under any conditional sale or other title retention agreement relating to property acquired by such Person (other than trade accounts payable that were incurred in the ordinary course of business); (c) all obligations of such Person in respect of the deferred purchase price of any property or service (other than current accounts payable that were incurred in the ordinary course of business); (d) all obligations of such Person to pay rent or other amounts under a lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which is required to be classified and accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP; (e) all outstanding reimbursement obligations of such Person with respect to any letter of credit, bankers’ acceptance, or similar facility issued for the account of such Person; (f) all obligations of such Person under any agreement with respect to any swap, forward, future, or derivative transaction or any option or similar agreement involving, or settled by reference to, any rate, currency, commodity, price of any equity, or debt security or instrument or any economic, financial, or pricing index or measure of economic, financial, or pricing risk or value, or any similar transaction or
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combination of the foregoing transactions; (g) all Indebtedness of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on any property or other asset owned by such Person, whether or not the Indebtedness secured thereby has been assumed by such Person; (h) all guaranties, endorsements, assumptions, and other contingent obligations of such Person in respect of, or to purchase or to otherwise acquire, any Indebtedness of another Person; and (i) all accrued interest, premiums, penalties, fees, Expenses, breakage costs, and change of control payments required to be paid or offered in respect of any of the foregoing on prepayment (regardless of whether any of the foregoing has been paid as of any time of determination), as a result of the consummation of any Contemplated Transaction or any transaction in connection with any lender or securityholder Consent.
“Indebtedness Pay-off Amount” means the Indebtedness under the Existing Loan Agreement as set forth Debt Payoff Letter.
“Indemnified Party” has the meaning assigned to such term in Section 10.7(a)(i).
“Indemnifying Party” has the meaning assigned to such term in Section 10.7(a)(i).
“Information Privacy and Security Laws” means all applicable Legal Requirements relating to the processing, use, disclosure, collection, privacy, processing, transfer or security of Protected Information, surveillance, espionage or national security and all regulations promulgated and guidance issued by Governmental Entities thereunder.
“Intellectual Property” means any and all intellectual property or proprietary rights of any kind or nature throughout the world, including all (i) patents and patent applications, including all provisionals, nonprovisionals, continuations, continuations-in-part, divisionals, reissues, extensions, re-examinations, and substitutions thereof and the equivalents of any of the foregoing in any jurisdiction, and all inventions disclosed in each such patent or patent application (collectively, “Patents”); (ii) trade names, trade dress, logos, slogans, Internet domain names, registered and unregistered trademarks and service marks, and related registrations and applications for registration of any of the foregoing, and all goodwill associated with any of the foregoing (collectively, “Marks”); (iii) copyrights in both published and unpublished works, including all compilations, databases and computer programs, manuals and other documentation and all copyright registrations and applications (collectively, “Copyrights”); (iv) trade secrets, know-how, inventions (including as disclosed in invention disclosures and discoveries) and confidential information, including manufacturing information, methods and processes, assays, materials, engineering and other manuals and drawings, operating procedures, regulatory, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, safety, quality assurance, quality control and clinical data and similar data and information (collectively, “Trade Secrets”); (v) rights of privacy or publicity; (vi) rights in software, data and databases, and industrial property rights; (vii) embodiments of any of the foregoing, including Technology, and (viii) rights to assert, claim, enforce or sue and collect damages or seek other remedies for any past, present or future infringement, misappropriation or other violation of any of the foregoing.
“IRS” means the U.S. Internal Revenue Service.
“Key Employee” means each of [***].
“Knowledge of the Seller” means the actual knowledge, following reasonable inquiry, of any Key Employee.
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“Know-How” means all confidential and/or proprietary information and knowledge, whether or not patentable, including, without limitation, data, reports, and other information, inventions, tangible materials, know-how and knowledge regarding inventions, discoveries, techniques, research, trade secrets, systems, methods, processes, algorithms, technical data, formulae, drawings, designs, schematics, specifications, blueprints, flow charts, models, prototypes, techniques, practices, manufacturing and design information, and information regarding biological reagents.
“Leased Real Property” has the meaning assigned to such term in Section 3.8(d).
“Legal Proceeding” means any action, suit, litigation, arbitration, claim, assessment or other legal proceeding (including any civil, criminal, administrative, investigative or appellate proceeding, hearing, inquiry, audit, examination or investigation), commenced, brought or conducted by or before any Governmental Entity or any arbitrator or arbitration panel or other tribunal.
“Legal Requirement” means any federal, state, local, municipal, foreign, supranational or other law, statute, constitution, treaty, principle of common law, directive, resolution, ordinance, code, edict, Order, rule, regulation, sanction, or requirement issued, enacted, adopted, promulgated, entered, implemented, or otherwise put into effect by or under the authority of any Governmental Entity. For the avoidance of doubt, the term “Legal Requirement” includes any and all Healthcare Laws, Privacy Laws, Anti-Corruption Laws and Sanctions Laws.
“Liability” means any debt, obligation, duty, or liability of any nature (including any unknown, undisclosed, unmatured, unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious, derivative, joint, several, or secondary liability), regardless of whether such debt, obligation, duty, or liability would be required to be disclosed on a balance sheet prepared in accordance with GAAP and regardless of whether such debt, obligation, duty, or liability is immediately due and payable.
“Licensed IP” means the Know-How and Materials set forth on Exhibit C.
“Lien” means any lien, pledge, hypothecation, charge, mortgage, deed of trust, easement, encroachment, security interest, encumbrance, license, covenant, possessory interest, conditional sale, or other title retention arrangement, intangible property right, claim, infringement, option, right of first refusal, preemptive right, community property interest, or restriction of any nature (including any restriction on the voting of any security or restriction on the transfer, use, or ownership of any security or other asset).
A document or other item of information shall be deemed to have been “Made Available to Purchaser” if such document or other item of information was (i) publicly available on the SEC EDGAR database prior to the date of this Agreement or (ii) made available for review by Purchaser or Purchaser’s Representatives at least five (5) Business Days prior to the date of this Agreement in (and not removed from) the “virtual data room” available on Venue (the “Data Room”), maintained by Seller.
“Marks” has the meaning set forth in the definition of Intellectual Property.
“Material Adverse Effect” means any change, event, effect, claim, circumstance, or matter (each, an “Effect”) that (considered alone or in combination with any other Effect(s)) is, or would be expected to be or to become, materially adverse to: (a) any of (i) the Cystinosis Business, (ii) the Transferred Assets or (iii) the Business Intellectual Property, in each case, taken as a whole; (b) Purchaser’s right to own, transfer or exercise any rights with respect to any Transferred Asset or Licensed IP; or (c) the ability of the Seller to perform any of its material covenants or obligations under the Agreement or under any other Transaction
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Document; provided, however, that solely for the purposes of clauses (a) and (b), none of the following changes, effects, events, occurrences, or developments shall be deemed either alone or in combination to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: (i) any Effect attributable to changes in conditions generally affecting (x) the industry in which the Seller operates with respect to the Cystinosis Business or (y) the economy, financial, or securities markets or political, legislative, or regulatory conditions, taken as a whole, (ii) any Effect caused by the entry into this Agreement, announcement of this Agreement, and the pendency of the transactions contemplated hereby, including losses or threatened losses of employees, customers, suppliers, distributors or others having relationships with the Seller and the Cystinosis Business (provided that the exception in this clause (ii) shall not apply when “Material Adverse Effect” is used in any representation or warranty that is expressly intended to address the consequences of the execution, delivery or announcement of this Agreement or the pendency, performance or consummation of the Contemplated Transactions or for purposes of the conditions in Section 7.1 or Section 7.5(a) as applied to any such representation or warranty so intended to address such consequences), (iii) any Effect due to acts of war (whether or not declared), armed hostility, or terrorism, or the escalation or worsening thereof, (iv) any action required or expressly permitted to be taken by this Agreement or any action taken (or omitted to be taken) with the written consent of or at the written request of Purchaser, (v) any changes in applicable laws or accounting rules (including GAAP), (vi) any natural or man-made disaster or acts of God, or (vii) any failure, in and of itself, by the Cystinosis Business to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the exception in this clause (vii) shall not prevent or otherwise affect a determination that any Effect underlying such failure has resulted in, or contributed to, a Material Adverse Effect (subject to the other provisions of this definition)); provided that, in each of the foregoing clauses (i), (iii), (v) and (vi), such Effects referred to therein may be taken into account in determining whether a Material Adverse Effect has occurred to the extent that the Cystinosis Business or any of the Seller Products is disproportionally affected as compared to other similar businesses or products.
“Material Contract” has the meaning assigned to such term in Section 3.16(b).
“Materials” means any tangible chemical or biological material, including any compounds, DNA, RNA, clones, vectors, cells, and any expression product, progeny, derivative or other improvement thereto, along with any tangible chemical or biological material embodying any Know-How.
“Misconduct Allegation” has the meaning assigned to such term in Section 3.14(g).
“Most Recent Balance Sheet” means the audited balance sheet of the Seller as of December 31, 2022 and the footnotes thereto set forth in the Seller SEC Documents.
“OFAC” means the Office of Foreign Assets Control.
“Order” means any order, writ, injunction, judgment, edict, decree, ruling, or award of any arbitrator or any court or other Governmental Entity.
“Other Seller IP” has the meaning assigned to such term in Section 6.8.
“OTS Software Agreement” means an agreement with a Third Party commercial software provider, solely to the extent such agreement provides the Seller a license to such Third Party’s non-customized, commercially available, object code software, on generally available, standard commercial pricing and other terms for less than [***] Dollars ($[***]).
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“Party” has the meaning assigned to such term in the Preamble. “Parties” has the correlative meaning.
“Patents” has the meaning set forth in the definition of Intellectual Property.
“Permit” means (a) any permit, license, approval, certificate, franchise, permission, clearance, Consent, registration, variance, sanction, exemption, Order, qualification, or authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Entity or pursuant to any applicable Legal Requirement or (b) any right under any Contract with any Governmental Entity.
“Permitted Lien” means (a) any statutory Lien to secure non-delinquent obligations to landlords, lessors, or renters under leases or rental agreements; (b) any deposit or pledge made in connection with, or to secure payment of, workers’ compensation, unemployment insurance, or similar programs mandated by any Legal Requirement; (c) any statutory Lien in favor of carriers, warehousemen, mechanics, and materialmen, to secure claims for labor, materials, or supplies and any other like Lien; (d) any easement, right of way, or other matter on record, zoning ordinance, utility company right, franchise, or other similar encumbrance affecting real property, which does not individually or in the aggregate with all other easements, rights of way, or other matters on record, zoning ordinances, utility company rights, franchises, or other similar encumbrances (i) interfere with the use of such real property for its intended purposes in the ordinary course of the business at such location or (ii) materially impair the value of such real property; (e) limited, non-exclusive rights or licenses of Intellectual Property granted by the Seller to a service provider, vendor or consultant solely for the purpose of providing applicable services to, or on behalf of, the Seller, in each case, in the ordinary course of business consistent with past practice; and (f) Liens for Taxes not yet due and payable.
“Person” means any individual, Entity or Governmental Entity.
“Personal Information” means data and information concerning an identifiable natural person that including any data defined as “personal data,” “nonpublic personal information” or similar under applicable Privacy Laws.
“Pre-Closing Period” has the meaning assigned to such term in Section 5.1.
“Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date.
“Privacy Laws” means all applicable laws relating to privacy and/or data security of Personal Information that apply to the Seller, including, as applicable, (A) HIPAA, (B) the EU Data Protection Directive 95/46/EC of 24 October 1995, the EU General Data Protection Regulation 2016/679/EU of April 27, 2016, the EU ePrivacy Directive 2002/58/EC of 12 July 2002 and the related implementing legislation of the EU Member States, (C) the Swiss Federal Act on Data Protection (FADP) of June 19, 1992, (D) the Personal Information Protection and Electronic Documents Act (Canada), (E) Section 5 of the Federal Trade Commission Act as it applies to the receipt, access, use, disclosure, and security of consumer Personal Information, (F) all U.S. state laws pertaining to the privacy and security of Personal Information, and (G) UK General Data Protection Regulation and UK Data Protection Act.
“Privacy Policies” has the meaning assigned to such term in Section 3.10(b).
“Product Development Program” means any discovery or Clinical Study programs or platforms and the therapies and compounds made and tested in such programs, including through collaboration with
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others, or through compassionate use/expanded access/named patient activities with respect to the Seller Product.
“Protected Information” means any information that (a) is Confidential Information; (b) is Personal Information; (c) governed, regulated or protected by one or more applicable Information Privacy and Security Laws; (d) is not publicly available and which the Seller receives from or on behalf of individual customers of the Seller; (e) is subject to a confidentiality obligation or in which the Seller has Intellectual Property rights; or (f) is derived from Protected Information to the extent such derived information meets one or more of the definitions under paragraphs (a) through (e).
“Purchase Price” has the meaning assigned to such term in Section 2.5(a).
“Purchaser” has the meaning assigned to such term in the Preamble.
“Purchaser Cure Period” has the meaning assigned to such term in Section 9.1(f).
“Purchaser Indemnitees” has the meaning assigned to such term in Section 10.1.
“Real Property Lease” has the meaning assigned to such term in Section 3.8(d).
“Related Party” means: (a) any Seller Associate; (b) any Affiliate of any Seller Associate; or (c) any trust or other Entity in which any Seller Associate holds (or in which more than one (1) of such Persons collectively hold), beneficially or otherwise, a material voting, proprietary, financial, or Equity Interest.
“Representatives” means officers, directors, employees, agents, attorneys, accountants, advisors, and representatives. The term “Representatives” shall be deemed to include current and future “Representatives”.
“Restricted Assets” has the meaning assigned to such term in Section 2.6.
“Restricted Party” means each of the Seller, its Affiliates and Representatives.
“Restricted Period” means the period commencing on the Closing Date and ending on the five (5)-year anniversary of the Closing Date; provided, however, that in the event of any breach on the part of a Restricted Party of any provision of Section 5.5, the Restricted Period shall be automatically extended by a number of days equal to the total number of days in the period from the date on which such breach shall have first occurred through the date as of which such breach shall have been fully cured by such Restricted Party.
“Restricted Territory” means the World.
“Safety Signal” means information that arises from one or multiple sources (including observations and experiments), which suggests a new, potentially causal association, or a new aspect of a known causal association, between an intervention and an event or set of related events, either adverse or beneficial, which is judged of sufficient likelihood to justify verificatory actions.
“Sanctioned Country” means any country or region subject to economic sanctions or trade restrictions of the United States that broadly prohibit or restrict dealings with such country or region
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(currently including Cuba, Iran, North Korea, Syria, the Crimea region of Ukraine, and the so-called Donetsk People’s Republic and Luhansk People’s Republic in Ukraine).
“Sanctioned Person” means any Person that is the subject or target of economic sanctions or trade restrictions or similar restrictions under Sanctions Laws, including: (a) any Person identified in any sanctions list maintained by the U.S. government, including (i) U.S. Department of the Treasury, Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals and Blocked Persons List, Sectoral Sanctions Identifications List, Foreign Sanctions Evaders List, or the Non-SDN Menu-Based Sanctions List, (ii) the U.S. Department of Commerce, Bureau of Industry and Security’s Entity List, Unverified List, or Denied Persons List, and (iii) the U.S. Department of State’s Debarred Persons List; (b) any Person located, organized or resident in, or a government instrumentality of, any Sanctioned Country; and (c) any Person directly or indirectly owned or fifty percent (50%) or more, directly or indirectly, individually or in the aggregate, or controlled by or acting for the benefit or on behalf of a Person described in the foregoing clauses (a) and (b).
“Sanctions Laws” means all applicable U.S. and non-U.S. laws concerning embargoes, economic sanctions, export or import controls or restrictions, the ability to make or receive international payments, the ability to export hardware, software, technology and/or services, the ability to engage in international transactions, or the ability to take an ownership interest in assets located in a foreign country, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the Bureau of Industry and Security of the U.S. Department of Commerce, the U.S. Department of State, and any other similar applicable Legal Requirements of any other jurisdiction.
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder.
“Seller” has the meaning assigned to such term in the Preamble.
“Seller Associate” means (a) any current or former officer, retiree, or other employee of the Seller or any of its Subsidiaries or (b) any current or former independent contractor, consultant, agent, or director or manager of the Seller or any of its Subsidiaries, in each case involved in the Cystinosis Business.
“Seller Benefit Plan” means (i) each “employee benefit plan,” as defined in Section 3(3) of ERISA (whether or not subject to ERISA), (ii) each compensation, employment, consulting, severance, change in control, transaction bonus, retention or similar contract, plan, program, arrangement, policy or guidelines, and (iii) each other plan, program, arrangement or policy providing for compensation (including variable cash compensation and commissions), deferred compensation, bonuses, profit-sharing, stock option or other stock-related rights or other forms of incentive or deferred compensation, tax gross-up, vacation benefits, paid personal days, insurance (including any self-insured arrangement), health, medical, dental, vision, prescription or fringe benefits, life insurance, relocation or expatriate benefits, perquisites, employee assistance program, disability or sick leave benefits, workers’ compensation, supplemental unemployment benefits, notice or severance benefits or post-employment or retirement benefits (including compensation, pension, health, medical or life insurance benefits), in each case whether or not written, which, in each case of clauses (i) through (iii), is sponsored, maintained, administered or contributed to or entered into by the Seller or any of its Subsidiaries or with respect to which the Seller or any of its Subsidiaries has or may have any direct or indirect Liability.
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“Seller Cure Period” has the meaning assigned to such term in Section 9.1(e).
“Seller Exclusive Inbound Licenses” means any Seller Inbound License pursuant to which the Seller is granted any license or obtains any other right or immunity (including any sublicense, option, right of first refusal or other preferential right or covenant not to be sued) under any Exclusively Licensed Intellectual Property.
“Seller Gene Therapy Platform” means the Seller’s proprietary lentiviral-based gene therapy platform as of the Closing Date.
“Seller Group” means the Seller and its Affiliates.
“Seller Inbound License” means any Contract pursuant to which the Seller is granted any license or obtains any other right or immunity (including any sublicense, option, right of first refusal or other preferential right or covenant not to be sued) under any Business Intellectual Property of any other Person.
“Seller Indemnitees” has the meaning assigned to such term in Section 10.2.
“Seller Organizational Documents” has the meaning assigned to such term in Section 3.1(c).
“Seller Outbound License” means any Contract pursuant to which the Seller grants any license or any other right or immunity (including any sublicense, option, right of first refusal or other preferential right or covenant not to sue) under any Business Intellectual Property to any other Person.
“Seller Product” means any pharmaceutical, biological or medicinal therapy, compound or drug (including any gene therapy), product candidate or other product that has been or is being developed, researched, manufactured, tested, licensed, offered, marketed, sold, or distributed by or on behalf of the Cystinosis Business, including any discovery or clinical programs or platforms and the therapies and compounds made and tested in such programs, including through collaboration with others, or through compassionate use/named patient activities.
“Seller Product CSA” means (a) any investigational new drug application filed with the FDA related to the Cystinosis Business held by the Seller, including but not limited to [***]; or (b) any foreign equivalents as filed with the applicable Drug Governmental Entity related to the Cystinosis Business held by the Seller.
“Seller SEC Documents” means all documentation, filings and other information publicly filed by the Seller with the U.S. Securities and Exchange Commission and made publicly available on the SEC EDGAR database.
“Seller System” means any information technology or computer system (including software, hardware, equipment, databases, and telecommunications infrastructure) for the transmission, storage, maintenance, organization, presentation, generation, processing, or analysis of electronic or other data or information, in each case that is owned or developed by and used in or necessary for the conduct of the Cystinosis Business of the Seller.
“Separation Services Agreement” means a Separation Services Agreement, as set forth on Exhibit B hereto.
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“Shared Contract” means each Contract (other than the Transferred Contracts) of the Seller that relates to the Cystinosis Business or any Transferred Asset, and one or more other businesses or products of the Seller or any of its Affiliates.
“Specified Business Contact” means any Person who had or is expected, to the Knowledge of the Seller, to have a business relationship with Purchaser or any Affiliate of Purchaser relating to the Cystinosis Business, in each case, at any time during the Restricted Period.
“Straddle Period” means any taxable period beginning on or before the Closing Date and ending after the Closing Date.
An Entity shall be deemed to be a “Subsidiary” of another Person if such Person directly or indirectly owns or purports to own, beneficially, or of record (a) an amount of voting securities of or other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity’s board of directors or other governing body or (b) at least fifty percent (50%) of the outstanding equity, voting, beneficial, or ownership interests in such Entity.
“Tax” (and, with correlative meaning, “Taxes”) means any federal, state, local or foreign income, gross receipts, property, escheat, unclaimed property, sales, use, license, franchise, employment, payroll, premium, withholding, alternative or added minimum, estimated, ad valorem, severance, value-added, goods and services, harmonized sales, stamp, occupation, windfall profits, transfer or excise tax, or any other tax, fee, levy, impost, custom, duty or other charge or assessment of any kind whatsoever in the nature of a tax, including all employment insurance, health insurance and government pension plan premiums or contributions, together with any interest or penalty or addition thereto, whether disputed or not, imposed by any Governmental Entity.
“Tax Return” means any return, report or similar written statement required to be filed with or supplied to, or required to be filed with or supplied to, a Governmental Entity with respect to any Tax (including any attached schedules), including any information return, claim for refund, amended return or declaration of estimated Tax.
“Taxing Authority” means, with respect to any Tax, the Governmental Entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such Governmental Entity or subdivision, including any governmental or quasi-Governmental Entity or agency that imposes, or is charged with collecting, social security, or similar charges or premiums.
“Technology” means all products, tools, devices, mask works, computer programs, software, source code, object code, development tools, techniques, concepts, know-how, algorithms, application programming interfaces, apparatus, methods, processes, procedures, formulae, designs, drawings, customer lists, supplier lists, databases, data collections, information, specifications, brands, logos, marketing materials, user interfaces, websites, programmer notes, packaging, trade dress, content, graphics, artwork, audiovisual works, images, photographs, literary works, performances, music, sounds, “look and feel,” inventions (whether or not patentable), invention disclosures, discoveries, works of authorship (whether or not copyrightable), and other technology.
“Third Party” means any Person or group (as defined in Section 13(d)(3) of the Exchange Act) other than the Seller, its wholly owned Subsidiaries, Purchaser or any Affiliate of Purchaser.
“Third Party Claim” has the meaning assigned to such term in Section 10.7(a)(i).
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“Tipping Basket Amount” means [***] Dollars ($[***]).
“Trade Secrets” has the meaning set forth in the definition of Intellectual Property.
“Transaction Documents” means, collectively, this Agreement, the Separation Services Agreement, the Data Transition Plan, the certificates described in Section 7.5 and Section 8.3, and each other agreement, certificate or document referred to in this Agreement or to be executed in connection with any Contemplated Transaction.
“Transaction Expenses” means all fees, costs, Expenses and other amounts incurred by or on behalf of the Seller or its Affiliates in connection with this Agreement, the other Transaction Documents and the Contemplated Transactions, including (a) those of investment bankers or other financial advisors, financial sponsors, legal counsel, accounting, consulting and other advisors, (b) those of third parties incurred by the Seller in connection with the negotiation and effectuation of the terms and conditions of this Agreement, the other Transaction Documents and the Contemplated Transactions, (c) any Expense incurred by or on behalf of any stockholder of the Seller or Representative of the Seller in connection with or relating to the Agreement, the other Transaction Documents or any of the Contemplated Transactions or the process resulting in such transactions that the Seller is or will be obligated to pay or reimburse before, at or after the Closing, and (d) any Expense incurred to obtain any third party Consent under any Contract or from any Governmental Entity as a result of or in connection with any of the Contemplated Transactions.
“Transfer Taxes” has the meaning assigned to such term in Section 6.3(b).
“Transferred Assets” has the meaning assigned to such term in Section 2.1.
“Transferred Contracts” means all Contracts set forth on Schedule 7.
“Transferred IP” means (a) all Intellectual Property exclusively related to (including exclusively used in or exclusively held for use in, or otherwise exclusively useful to) the Cystinosis Business that is (i) owned or purported to be owned, solely or jointly, by the Seller or (ii) owned by any other Person and licensed or purported to be licensed to the Seller or to which the Seller has or purports to have any other right or immunity (including any sublicense, option, right of first refusal, or other preferential right or covenant not to be sued), and (b) without limiting the foregoing, all Intellectual Property which is (i) licensed or purported to be licensed to the Seller or to which the Seller has or purports to have any other right or immunity (including any sublicense, option, right of first refusal, or other preferential right or covenant not to be sued) pursuant to any Transferred Contract, or (ii) described on Schedule 6.
“Treasury Regulations” means the United States Treasury Regulations promulgated under the Code.
“WARN Act” has the meaning assigned to such term in Section 3.14(f).
Article 2
Purchase and sale of transferred assets
Section 2.1 Purchase and Sale of the Transferred Assets. At the Closing, upon the terms and subject to the conditions set forth in this Agreement, in consideration for the payments set forth in Section 2.5, the Seller shall, and shall cause its Affiliates as applicable, to, irrevocably sell, convey, assign, transfer, and deliver to Purchaser, and Purchaser shall purchase and accept from the Seller or its Affiliates, free and
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clear from all Liens, all of the Seller’s right, title and interest in, to and under all assets, properties and rights of the Seller that are exclusively used in or exclusively held for use in, or otherwise exclusively useful to, the Cystinosis Business, in each case, whether tangible or intangible, real, personal, or mixed, and whether or not specifically referred to herein or in any instrument of conveyance delivered pursuant hereto, including the following assets of the Seller and its Affiliates (such sale, conveyance, assignment, transfer, delivery and purchase, the “Acquisition”) (such assets, properties and rights of the Seller and its Affiliates are collectively referred to as the “Transferred Assets”):
(a) each Seller Product CSA and all correspondence relating to any actual or contemplated Clinical Study Authorizations by or on behalf of the Seller, including any supplements or amendments thereto, primarily relating to the Cystinosis Business. For clarity, the foregoing assets include all documentation, data, materials, information, files, programs, correspondence, and all other records held by the Seller that were created by, or otherwise developed by any Collaboration Partner primarily relating to the Cystinosis Business but excludes data, materials, information, files, programs, correspondence, and all other records held for use in other products, programs or therapies of the Seller or the Seller Gene Therapy Platform;
(b) to the extent transferable based on disclosed Contracts and Consents, all preclinical study and clinical trial data, results, reports, or other study documentation primarily relating to the Cystinosis Business;
(c) all correspondence to or from any Drug Governmental Entity, including meeting minutes and records of contacts primarily relating to any Seller Product;
(d) all documents in the possession of the Seller related to inspections by any Drug Governmental Entity, in each case primarily relating to the Cystinosis Business;
(e) all information relating to adverse drug experiences, events or reactions or other safety information obtained or otherwise received by the Seller relating exclusively to any Seller Product;
(f) to the extent transferable based on disclosed contracts and Consents, all manufacturing and analytical data, results, reports, records, logbooks, or other documentation exclusively relating to the Cystinosis Business;
(g) all trial master files, trial databases, and statistical programs related to any ongoing or completed preclinical and clinical studies primarily relating to the Cystinosis Business;
(h) subject to Section 2.6, all of the rights of the Seller under all the Transferred Contracts, including any right to receive goods and services, pursuant to such Transferred Contracts and to assert claims and take other rightful actions in respect of breaches, defaults and other violations of such Transferred Contracts and otherwise;
(i) the Books and Records; provided, however, that the Seller shall be permitted to retain copies of the foregoing to the extent required pursuant to any Legal Requirement or Seller’s bona fide document retention policy or stored electronically in a back-up archive computer system in accordance with Seller’s bona fide document retention policy;
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(j) copies or originals of any and all past and current inventory cost records and quality control records and procedures, in each case, in any form or medium, that are primarily used in the operation or conduct of the Cystinosis Business;
(k) all of the Seller’s vendor and manufacturer lists, pricing and cost information, to the extent exclusively related to the Cystinosis Business, or the portions thereof that are primarily related to the Cystinosis Business;
(l) all credits, prepaid expenses, deferred charges, advance payments, security deposits and prepaid items (other than any credits or prepaid expenses in either case related to Taxes) under any Transferred Contract, or which are otherwise primarily related to the Cystinosis Business;
(m) all Transferred IP;
(n) all biological materials and samples, plasmid constructs, vector constructs, cell lines, reagents, cultures, chemical compounds, substances, and mixtures, manufacturing and engineering components and materials, and other materials exclusively related to the Cystinosis Business;
(o) all causes of action, lawsuits, judgments, claims, rights of recovery and set-off and demands of any nature available to or being pursued by the Seller with respect to any Transferred Asset, whether arising by way of counterclaim or otherwise;
(p) all guarantees, warranties, indemnities and similar rights in favor of the Seller with respect to any Transferred Asset, including the benefit of and all rights to enforce the covenants, warranties, and representations under the Transferred Contracts;
(q) insurance benefits, including rights and proceeds, arising from or relating to the Transferred Assets prior to the Closing Date, solely to the extent necessary or used in connection with any Assumed Liabilities but not Excluded Liabilities;
(r) the other assets, if any, expressly set forth on Schedule 7; and
(s) all goodwill and going concern value associated with the assets described in the foregoing clauses;
provided, that notwithstanding the foregoing or anything else to the contrary, the term “Transferred Asset” shall not include any of the foregoing to the extent terminated, transferred or otherwise disposed of as permitted by this Agreement on or after the date hereof and prior to the Closing.
Section 2.2 Excluded Assets. Notwithstanding the provisions of Section 2.1, but subject to the license granted in Section 6.7, in no event shall the Seller be deemed to sell, transfer, assign, convey, or deliver, and the Seller shall retain all right, title, and interest to, in and under all assets, properties, interests, and rights of the Seller, that are not Transferred Assets (the “Excluded Assets,”) including, without limitation:
(a) all cash and cash equivalents, bank accounts and securities of the Seller;
(b) all Contracts that are not Transferred Contracts, including the Shared Contracts;
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(c) all Real Property Leases;
(d) all consideration to be delivered to the Seller pursuant to, and all rights of the Seller and its Affiliates under, this Agreement and the Transaction Documents to which such Person is a party;
(e) all rights of the Seller or any of its Affiliates to file for or receive any refunds or credits for Taxes levied and imposed upon, or in connection with, the Transferred Assets or the conduct or operation of the Cystinosis Business allocable to any Pre-Closing Tax Period or to the portion of the Straddle Period ending on the Closing Date pursuant to Section 6.3;
(f) the Seller Benefit Plans and all assets related thereto;
(g) except as set forth in clause (q) of the definition of Transferred Assets, all insurance policies of the Seller and all rights to applicable claims and proceeds thereunder;
(h) except to the extent primarily related to the Transferred Assets or the Cystinosis Business, all rights to any action, suit or claim of any nature available to or being pursued by the Seller, whether arising by way of counterclaim or otherwise; the assets, if any, expressly set forth on Schedule 5; and
(i) the Seller’s and its Affiliates’ right, title and interests in and to and under the Shared Contracts.
Section 2.3 Assumption of Assumed Liabilities. Upon the terms and subject to the conditions of this Agreement, Purchaser shall, effective at the Closing, assume and, subject to Article 10 hereof, shall pay, perform, and discharge when due, (i) the Liabilities under the Transferred Contracts arising on or after the Closing Date, and (ii) the Liabilities arising out of the use, ownership, possession, operation, or sale of the Transferred Assets from and after the Closing Date, but excluding, in each event, any Liabilities arising on or after the Closing Date that are based on facts, circumstances, or occurrences arising prior to the Closing Date, or relating to any breach, violation or failure to perform that occurred prior to the Closing Date (the “Assumed Liabilities”).
Section 2.4 Excluded Liabilities. Notwithstanding the provisions of Section 2.3, the Assumed Liabilities shall not include, and Purchaser shall not assume, nor shall it agree to pay, perform or discharge, and the Seller shall retain all Liabilities of the Seller or any of its Affiliates other than Assumed Liabilities (the “Excluded Liabilities”), which Excluded Liabilities shall include each of the following:
(a) all Indebtedness of the Seller;
(b) all Liabilities for Taxes levied and imposed upon, or in connection with, the Transferred Assets and Cystinosis Business allocable to any Pre-Closing Tax Periods or to the portion of any Straddle Period ending on the Closing Date pursuant to Section 6.3;
(c) all Liabilities related to any Excluded Asset;
(d) all Taxes arising from or attributable to any Excluded Asset;
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(e) any Liabilities arising out of, related to, or in connection with the Seller’s or any other Person’s use, ownership or operation of the Cystinosis Business or the Transferred Assets prior to the Closing, including any Liability for claims or other Legal Proceedings of, or Liens imposed on the Transferred Assets or any other assets of Purchaser by, creditors of the Seller or its Affiliates or any other Person arising out of, related to, or in connection with the Seller’s or any other Person’s use, ownership or operation of the Cystinosis Business or the Transferred Assets prior to the Closing, whether arising prior to, at or after the Closing;
(f) any Liability for claims or other Legal Proceedings of, or Liens imposed on the Transferred Assets or any other assets of Purchaser by, creditors of the Seller or its Affiliates or any other Person arising as a result of the Contemplated Transactions, whether arising prior to, at or after the Closing;
(g) any Liabilities arising out of, in respect of or in connection with the failure by the Seller or any of its Affiliates to comply, in any respect, with its certificate of incorporation, bylaws or other governing documents, in each case as amended or restated, or any Legal Requirement or Order, including in connection with or on or prior to the Closing, or any Legal Requirement related thereto;
(h) any Liabilities related to infringement of third-party intellectual property rights prior to the Closing;
(i) any Liabilities for any current or former officer, retiree, employee, independent contractor, consultant, agent, director or manager of the Seller or any its Subsidiaries, including any Liabilities arising from or relating to the employment or engagement by the Seller or any of its Subsidiaries of any such persons, or the termination of employment or service of any such persons or any Liabilities associated with any claims for wages or other benefits, bonuses, accrued vacation, workers’ compensation, severance, retention, termination or other payments;
(j) any Liabilities under (i) any Contracts that are not Transferred Contracts, (ii) Transferred Contracts to the extent arising prior to the applicable Closing Date or (iii) any Contracts (A) which are not validly and effectively assigned to Purchaser pursuant to this Agreement, or (B) to the extent such Liabilities arise out of or relate to a breach by the Seller of such Contracts prior to the Closing;
(k) any Liabilities of the Seller or its Affiliates arising or incurred in connection with the performance of this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby;
(l) any Liabilities related to matters set forth on Schedule 4; and
(m) any Transaction Expenses.
Section 2.5 Consideration for the Transferred Assets.
(a) Purchase Price. Subject to the terms and conditions of this Agreement and subject to adjustment in accordance with the terms of this Agreement (including Section 2.8 and Article 10), the aggregate purchase price payable by or on behalf of Purchaser for the sale, transfer, and delivery of the Transferred Assets shall consist of: (x) the assumption by Purchaser of the Assumed Liabilities and (y) a one-time cash payment of Eighty-Seven Million Five Hundred Thousand Dollars ($87,500,000) (the “Purchase Price”). The Purchase Price less the Indebtedness Pay-off Amount (the “Closing Payment”) shall
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be paid by Purchaser at the Closing by wire transfer in immediately available funds to a bank account designated in writing by the Seller no later than [***] Business Days prior to the Closing Date.
(b) Closing; Other Payments and Actions. The consummation of the Contemplated Transactions (the “Closing”) shall take place by means of a virtual closing through electronic exchange of signatures, no later than the [***] Business Day following the satisfaction or waiver of the conditions set forth in Article 7 and Article 8 (other than those conditions set forth in Article 7 and Article 8 that are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or at such other place, time, or date as Purchaser and the Seller may jointly designate. The date on which the Closing actually takes place is referred to in this Agreement as the “Closing Date”. The Closing will be deemed to occur at 11:59:59 PM Eastern Time on the Closing Date.
(c) At the Closing:
(i) the Seller shall (A) subject to Section 2.1 and Section 2.3, transfer to Purchaser the Transferred Assets, free and clear of all Liens, and Assumed Liabilities; and (B) deliver to Purchaser each deliverable set forth in Section 7.5, in each case, other than those Transferred Assets and deliverables that by their nature or pursuant to the terms of this Agreement, the Separation Services Agreement and the Data Transition Plan, are to be delivered after the Closing or are not in the Seller’s possession or Control as of the Closing Date, which such Transferred Assets shall be delivered promptly after the Closing Date, and in no event longer than [***] months thereafter (subject to reasonable extension with the consent of Purchaser, not to be unreasonably withheld, conditioned or delayed); and
(ii) Purchaser shall (A) subject to Section 2.8, pay or cause to be paid to the Seller an amount equal to the Closing Payment, in cash, by wire transfer of immediately available funds to the account designated by the Seller in writing no later than [***] Business Days prior to the Closing; (B) the payees set forth in the Debt Payoff Letters the applicable Indebtedness Pay-off Amount; and (C) deliver to the Seller each deliverable set forth in Section 8.3.
Section 2.6 Restricted Assets. Notwithstanding any other provision in this Agreement to the contrary, no asset, claim, right or benefit, the assignment or transfer of which is otherwise contemplated by this Agreement (or any Transaction Document), other than any Shared Contracts or any rights or benefits to be assigned or transferred to Purchaser thereunder, which are addressed in Section 6.9, shall be assigned or transferred if such assignment or transfer (or attempt to make such an assignment or transfer) without the consent or approval of a third party would constitute a breach, violation or other contravention of the rights of such third party (such assets, claims, rights or benefits being collectively referred to herein as “Restricted Assets”) until such consent or approval is obtained, at which time such Restricted Asset shall be automatically assigned or transferred. The Seller shall be solely responsible for and shall pay any and all costs and fees associated with obtaining such consent or approval. If any such consent or approval is not obtained prior to the Closing, then until the earliest date when (a) such consent or approval is obtained, (b) the earlier termination or expiration of the then-current term of such Restricted Asset and (c) [***] months following the Closing Date: (i) the Seller shall, beginning on the Closing Date (x) upon request of Purchaser, continue to use its commercially reasonable efforts to coordinate with Purchaser in attempting to obtain any such consent or approval and (y) endeavor to provide Purchaser with the benefits under each Restricted Asset as if such Restricted Asset had been assigned to Purchaser (including by means of any licensing, operating, subcontracting, sublicensing or subleasing arrangement), if the same is permitted under the
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applicable Restricted Asset and (ii) for the avoidance of doubt, Purchaser shall pay, perform or otherwise discharge all of the covenants and obligations of the Seller pursuant to each such Restricted Asset (in accordance with the respective terms and subject to the respective conditions thereof); provided, however, that Purchaser shall use its commercially reasonable efforts to assist and cooperate with the Seller in connection therewith; and, provided, further, that none of Seller or any its Affiliates shall be required to pay money to any Third Party (unless such amounts are agreed to be reimbursed by Purchaser), commence any litigation or offer or grant any material accommodation (financial or otherwise) to any Third Party in connection with such efforts.
Section 2.7 Wrong Pockets. Subject to Section 2.6, if any Transferred Asset or Assumed Liability remains vested in the Seller or any of its Affiliates following the Closing, the Seller shall (or shall cause its applicable Affiliate to) transfer such Transferred Asset or Assumed Liability as soon as reasonably practicable to Purchaser or its designee for no additional consideration. The Seller shall notify Purchaser as soon as reasonably practicable upon becoming aware that there are any Transferred Assets or Assumed Liabilities in its possession or control or that of any Affiliate of the Seller. If any Excluded Asset or Excluded Liability is vested in Purchaser or any of its Affiliates following the Closing, Purchaser shall (or shall cause its applicable Affiliate to) transfer such Excluded Asset or Excluded Liability as soon as reasonably practicable to the Seller or its designee for no consideration. Purchaser shall notify the Seller as soon as reasonably practicable upon becoming aware that there are any Excluded Assets or Excluded Liabilities in its possession or control.
Section 2.8 Withholding.
(a) In the event any payments to be made to the Seller or its Affiliates under this Agreement are subject to withholding tax under Legal Requirements, including extra-territorial taxation, or if it is unclear whether the Legal Requirements, including extra-territorial taxation, are met, Purchaser or its Affiliates shall be authorized to deduct any such withholding tax from any payment hereunder, and shall pay all such amounts that have been withheld or deducted to the relevant tax authority, so that only the correspondingly reduced amount of payments (i.e. the full amount payable less withholding tax) is paid out to the Seller. Purchaser shall use reasonable efforts to provide written notice of the intention to withhold at least [***] days prior to any such withholding and shall provide the Seller with proof of the withholding tax payment. For the avoidance of doubt: the term withholding tax does not cover Swiss VAT (including Swiss input VAT).
(b) The Seller and Purchaser shall make all commercially reasonable efforts to obtain relief or reduction of withholding tax under the applicable tax treaties, including but not limited to the submission or issuance of requisite forms and information. If a special procedure is required for treaty relief under any Legal Requirement, a treaty relief based on a tax treaty will only be taken into account if the Seller submits any exemption certificate requested by Purchaser to Purchaser in accordance with Legal Requirements on or prior to the time of the payment to the Seller.
(c) If no withholding tax deduction has been made on the payments to the Seller or its Affiliates under this Agreement, but tax authorities subsequently take the position that a withholding tax deduction should have been made, including extra-territorial taxation, the Seller shall provide, at its own expense, all reasonable support to Purchaser to obtain relief or reduction of withholding under the applicable laws and tax treaties, including but not limited to the submission or issuance of requisite forms and information, and the Parties will bear such liability (reimburse one another as necessary) in a manner consistent with that which would have resulted had the tax been originally withheld. Any refunds of
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withholding taxes that are granted to the Seller by the competent tax authority and which would cause the Seller to receive payments in excess of that which Purchaser would owe under this Agreement, including related interest, shall be paid to Purchaser by the Seller.
Section 2.9 Allocation of the Purchase Price. Within [***] days following the Closing Date, Purchaser shall prepare and deliver to the Seller an allocation schedule (the “Allocation Schedule”) allocating the Purchase Price plus the amount of any Assumed Liabilities (as determined for United States federal income tax purposes as of the Closing) among the Transferred Assets. The Allocation Schedule shall be prepared in accordance with Section 1060 of the Code, the Treasury Regulations promulgated thereunder, and as set forth on Schedule 1. Within [***] days of its receipt of such Allocation Schedule, the Seller shall notify Purchaser in writing whether it has any objection to such Allocation Schedule and, if it has any objection, it shall specify the nature and grounds for such objection with particularity; provided, however, no objection shall be raised or considered that is contrary to the Parties’ agreement set forth on Schedule 1. Purchaser and the Seller shall, during the [***] day period following such delivery, negotiate in good faith to resolve any disputes with respect to the Allocation Schedule. Thereafter, if the Seller and Purchaser are unable to resolve any such dispute with respect to the Allocation Schedule within a [***] day period after the delivery of the Allocation Schedule to the Seller, such dispute shall be resolved by an impartial nationally recognized firm of independent certified public accountants mutually appointed by Purchaser and the Seller, and shall provide the Seller and Purchaser with a copy of the final Allocation Schedule (the “Final Allocation Schedule”). The fees and expenses of such accounting firm shall be borne equally by Purchaser and the Seller. Notwithstanding anything to the contrary herein, should the parties be unable to agree to the appointment of an impartial nationally recognized firm of independent certified public accountants within [***] days after the parties determine that the Allocation Schedule is disputed, either in whole or in part, Purchaser shall select an accounting firm from Schedule 8 and such firm shall be appointed to resolve the dispute provided no conflict exists for either party at the time of appointment of the hiring of such firm. The Parties shall act in accordance with the computations and allocations contained in the Final Allocation Schedule and not take any position inconsistent therewith, including with respect to any Tax Return filings (including, without limitation, IRS Form 8594) or with respect to any prosecution, defense, or conduct of any pending or threatened Tax contest, unless otherwise required to do so in connection with a final determination within the meaning of Section 1313 of the Code or a comparable provision of state, local or non-U.S. law, and after which prompt notice thereof shall be given to the other Parties. If the Purchase Price is adjusted pursuant to the terms of this Agreement, Purchaser shall adjust the Final Allocation Schedule to reflect such adjustment in Purchase Price in accordance with this Section 2.9 and provide the Seller with a copy thereof.
Article 3
REPRESENTATIONS AND WARRANTIES RELATING TO THE SELLER AND THE Cystinosis BUSINESS
Except as specifically set forth in the corresponding Section of the Disclosure Schedule, the Seller hereby represents and warrants to Purchaser that the following statements contained in this Article 3 are true and correct:
Section 3.1 Organizational Matters; Authority.
(a) The Seller (i) is a corporation that is duly organized, validly existing and in good standing under the law of the State of Delaware, (ii) has corporate power and authority to own, lease and operate its properties and assets, including the Transferred Assets, and to conduct its business, including
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the Cystinosis Business, as currently conducted and (iii) is duly qualified or licensed to do business as a foreign corporation and is in good standing (with respect to jurisdictions that recognize such concept) in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except, with respect to clause (iii), where the failure to be so qualified or licensed has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) Authority. The Seller has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to consummate the Contemplated Transactions. This Agreement has been, and each other Transaction Document has been or will be, duly executed and delivered by the Seller and, assuming due execution and delivery by the other parties hereto and thereto, constitutes or will constitute the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms. The execution, delivery and performance of this Agreement and the other Transaction Documents to which the Seller is a party by the Seller, and the consummation of the Contemplated Transactions, have been duly authorized by all necessary corporate action on the part of the Seller and its stockholders and its board of directors, and no other corporate action or approval on the part of the Seller or the stockholders of the Seller is necessary to authorize the execution, delivery or performance of this Agreement or any of the other Transaction Documents by the Seller or to consummate any of the Contemplated Transactions. The Transferred Assets do not constitute and at Closing will not constitute substantially all of the assets of the Seller.
(c) Organizational Documents. The Seller has made available to Purchaser (or, in the case of any amendments made after the date hereof, included as an exhibit to the Seller SEC Documents and made publicly available on the SEC EDGAR database) complete and correct copies of the Charter Documents of the Seller and each Subsidiary of the Seller, including all amendments thereto, and each as so made available is in full force and effect (collectively, “Seller Organizational Documents”). The Seller is not in violation of any of the provisions of the Seller Certificate of Incorporation or the Seller Bylaws and will not be in violation of any of the provisions of the Seller Certificate of Incorporation or the Seller Bylaws, as the Seller Certificate of Incorporation and the Seller Bylaws may be amended (subject to Section 5.2) between the date hereof and the Closing Date.
Section 3.2 Non-Contravention and Consents. Except as set forth on Section 3.2 of the Disclosure Schedule, the execution and delivery of this Agreement and the other Transaction Documents by the Seller, do not, and the consummation of the Contemplated Transactions by the Seller and the performance of this Agreement and the other Transaction Documents to which Seller is a party by the Seller will not: (i) cause a violation of any of the provisions of the Charter Documents of the Seller; (ii) cause a violation by the Seller of any Legal Requirement applicable to the Seller or the Cystinosis Business; or (iii) require any Consent under, violate or cause a breach or default under, or give rise to a right of termination, cancelation, acceleration, modification, first offer or first refusal or any person to receive a payment under, or loss of a benefit to the Seller under, or result in the imposition or creation of any Lien on (A) any Transferred Contract, Shared Contract or Transferred Asset or (B) any Permit that pertains to the Cystinosis Business. The Seller is not required to make any filing with or to obtain any Consent or Permit from or provide any notice to any Governmental Entity in connection with the execution, delivery and performance of this Agreement or the other Transaction Documents by the Seller or the consummation by the Seller of the Contemplated Transactions. For purposes of this Agreement, including this Section 3.2 and Section 6.1, a Consent or Permit shall be deemed “required” to be obtained, a notice shall be deemed “required” to be given and a filing or declaration shall be deemed “required” to be made if (A) set forth on Section 3.2 of
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the Disclosure Schedule and/or (B) the failure to obtain such Consent or Permit, give such notice or make such filing or declaration could result in the Seller or the Cystinosis Business: (i) becoming subject to any material Liability; (ii) being required to make any material payment, issue any Equity Interests or deliver anything of value; or (iii) losing or forgoing any material right or benefit.
Section 3.3 Financial Statements.
(a) The financial statements (including any related notes and schedules) contained or incorporated by reference in the documents the Seller has filed with the SEC since January 1, 2021: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto as in effect at the time of such filing; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements or, in the case of unaudited statements, as permitted by Form 10-Q, Form 8-K or any successor form under the Exchange Act); and (iii) fairly present, in all material respects, the consolidated financial position of the Seller as of the respective dates thereof and the consolidated results of operations and cash flows of the Seller for the periods covered thereby (subject, in the case of the unaudited financial statements, to the absence of footnotes and normal year-end audit adjustments that are not individually or in the aggregate material). No financial statements of any Person other than the Seller are required by GAAP to be included in the consolidated financial statements of the Seller.
(b) The Seller maintains, and since January 1, 2021 has maintained, a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), which is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Seller; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Seller that could have a material effect on the Seller’s financial statements. Since January 1, 2021, neither the Seller nor the Seller’s independent registered accountant has identified or been made aware of: (A) any significant deficiency or material weakness in the design or operation of the internal control over financial reporting utilized by the Seller, which is reasonably likely to adversely affect the Seller’s ability to record, process, summarize and report financial information; or (B) any fraud, whether or not material, that involves the management or other employees of the Seller who have a significant role in the Seller’s internal control over financial reporting.
(c) The Seller does not have any Liabilities of any nature (whether accrued, absolute, contingent or otherwise) with respect to the Cystinosis Business, except for: (i) liabilities or obligations specifically disclosed and adequately reserved against in the Most Recent Balance Sheet (including any related notes); (ii) Liabilities incurred in the ordinary course of business consistent with past practice since the date of the Most Recent Balance Sheet and are not material in amount or significance; (iii) Liabilities to perform that relate solely to the period following the Closing under Contracts entered into by the Seller that have been made available to Purchaser or been entered into in the ordinary course of business (none of which is a liability for breach of contract, breach of warranty, tort, infringement, violation of any Legal Requirement, or that relates to any lawsuit or other Legal Proceeding); and (iv) Liabilities incurred in connection with the Contemplated Transactions.
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Section 3.4 Solvency.
(a) The Seller: (i) owns and will own assets the fair saleable value of which are: (A) greater than the total amount of its liabilities (including contingent liabilities); and (B) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to it; (ii) has capital that is not unreasonably small in relation to its business as presently conducted or any contemplated or undertaken transaction; (iii) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due; and (iv) the Seller is “solvent” within the meaning given that term and similar terms under applicable Legal Requirements relating to fraudulent transfers and conveyances;
(b) The Seller (i) has not entered into this Agreement or the other Transaction Documents or any related transactions with the actual intent to hinder, delay or defraud any creditor or obligee and (ii) has received and will, in the performance of this Agreement and the other Transaction Documents, continue to receive, reasonably equivalent value in exchange for its obligations and the transactions contemplated hereunder;
(c) No petition in bankruptcy has been filed by or against the Seller or any Affiliate in the last seven (7) years, and neither the Seller nor any Affiliate in the last seven (7) years has made an assignment for the benefit of creditors or taken advantage of any other insolvency laws or proceedings affecting the rights of creditors; and
(d) Neither the Seller nor any of its Affiliates are contemplating either the filing of a petition or proceeding by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of the Seller’s assets, other than the sale of the Transferred Assets to Purchaser pursuant to this Agreement, and the Seller has no knowledge of any Person contemplating the filing of any such petition or proceeding against the Seller or its Affiliates.
Section 3.5 Absence of Certain Changes.
(a) Since the date of the Most Recent Balance Sheet through the date hereof, (i) except for discussions, negotiations and activities related to this Agreement, the Seller has conducted the Cystinosis Business in all material respects in the ordinary course consistent with past practice, and (ii) there has not been any action taken by the Seller that, if taken during the period between the execution of this Agreement and the Closing Date without Purchaser’s consent, would constitute a breach of Section 5.2.
(b) Since the date of the Most Recent Balance Sheet, there has not been any Material Adverse Effect.
Section 3.6 Litigation.
(a) There are no, and since January 1, 2021 there have not been any, Legal Proceedings pending (or, to the Knowledge of the Seller, threatened) against the Seller (or its properties or assets) or, to the Knowledge of the Seller, against any current or former director, officer or employee of the Seller in such individual’s capacity as such, in each case (x) that are, or would reasonably be expected to be, individually or in the aggregate, material to the Seller or (y) in any way affecting or arising out of the operation of the Cystinosis Business or involving any of the Transferred Assets or Licensed IP.
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(b) The Seller is not, and since January 1, 2021 has not been, subject to any outstanding Order, and to the Knowledge of the Seller, no Order is, and since January 1, 2021 no Order has been, threatened to be imposed on the Seller, in each case that would be applicable to any operation of the Cystinosis Business or the Transferred Assets or Licensed IP.
(c) There is no, and since January 1, 2021 there has not been any, investigation by any Governmental Entity pending or, to the Knowledge of the Seller, threatened with respect to the Seller, except for an investigation (x) that in no way affecting or arising out of any operation of the Cystinosis Business or involve any Transferred Asset or Licensed IP and (y) is not, and would not reasonably be expected to be, individually or in the aggregate, material to the Seller.
Section 3.7 Taxes.
(a) The Seller has timely filed, with the appropriate Governmental Entities all income and other material Tax Returns for taxable periods ending on or prior to the Closing Date that are required to be filed by them with respect to the Transferred Assets, Licensed IP and Cystinosis Business and such Tax Returns are true, correct and complete in all material respects. All income and other material Taxes due and owing by or with respect to the Transferred Assets, Licensed IP and Cystinosis Business have been timely paid regardless of whether such Taxes have been shown as due and payable on any Tax Return. The Seller currently is not the beneficiary of any extension of time within which to file any income or other material Tax Return with respect to the Transferred Assets, Licensed IP and Cystinosis Business, other than customary extensions that have been obtained consistent with past practice except as otherwise required by applicable law. There are no Liens on any Transferred Asset or Licensed IP that arose in connection with any failure (or alleged failure) to pay any Tax (other than any Tax not yet due and payable).
(b) Except as would not be material to the Seller, the Seller has, with respect to the Transferred Assets, Licensed IP and Cystinosis Business: (i) complied with all applicable Legal Requirements relating to the payment, reporting and withholding (including any amount not withheld because of exemption or similar circumstance) of Taxes; (ii) within the time and in the manner prescribed by applicable Legal Requirements, paid over to the proper Governmental Entity (or is properly holding for such timely payment) all amounts required to be so withheld and paid over in connection with any amounts paid or owing to any employee, independent contractor, creditor, member, or other third party; (iii) properly charged, collected and remitted sales, value added, and similar Taxes with respect to sales made to, purchases made by, or supplies to any Person; and (iv) as applicable, received and retained the appropriate certification or similar documentation to establish an exemption from withholding.
(c) There is no dispute or Legal Proceeding concerning any income or other material Tax liability pending or, to the Knowledge of the Seller, threatened by any Governmental Entity against, or with respect to, the Transferred Assets, Licensed IP and Cystinosis Business that remains unpaid, and the Seller has not received written notice of any threatened audits, examinations or investigations relating to any income or other material Taxes relating to the Transferred Assets, Licensed IP and Cystinosis Business.
(d) The Seller has not waived any statute of limitations in respect of Taxes or agreed to, or requested, any extension of time with respect to a Tax assessment or deficiency that is in effect as of the date hereof, in each case with respect to the Transferred Assets, Licensed IP and Cystinosis Business.
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(e) The Seller is not a beneficiary of any Tax exemption, Tax holiday or other Tax incentive that would terminate or be subject to recapture or claw back by reason of the Contemplated Transactions with respect to the Transferred Assets, Licensed IP and Cystinosis Business.
(f) The Seller has not entered into or been a party to any “listed transaction” within the meaning of Treasury regulations Section 1.6011-4(b)(2) for a taxable period for which the applicable statute of limitations remains open.
(g) There are no agreements relating to the allocating or sharing of Taxes, including Tax indemnity agreements, to which the Seller is a party with respect to the Transferred Assets, Licensed IP and Cystinosis Business and there are no such agreements for which the Transferred Assets and the Cystinosis Business are otherwise subject to that would continue enforce after the Closing Date.
(h) The Seller has not been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code or within the meaning of any similar Legal Requirement to which the Seller may be subject, including any combined or unitary Tax group, other than the affiliated group of which the Seller is the common parent. The Seller has no liability for the Taxes of any Person (other than the Seller) under Treasury Regulations Section 1.1502-6 (or any similar Legal Requirement) as a transferee or successor, or by contract.
(i) The Seller is not subject to Tax in any jurisdiction other than the jurisdiction in which it is organized, by virtue of having a permanent establishment, fixed place of business or, to the Knowledge of the Seller, otherwise. As of the date hereof, no claim has been made by a Governmental Entity in a jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.
(j) There are no prepaid amounts or deferred revenue accrued on or prior to the Closing Date that will be required to be recognized after the Closing Date with respect to the Transferred Assets, Licensed IP and Cystinosis Business.
(k) The Seller has not requested or received a ruling from any Governmental Entity or signed any binding agreement with any Governmental Entity that would reasonably be expected to affect the amount of Tax due with respect to the Transferred Assets, Licensed IP and Cystinosis Business after the Closing Date.
(l) The Seller has not taken advantage of any Tax-related relief provisions with respect to the Transferred Assets and Cystinosis Business, including payroll Tax deferrals or carrybacks of net operating losses, related to COVID-19 for Tax purposes, whether federal, state, local or foreign, including the CARES Act.
(m) All transactions that could give rise to an underpayment of Tax (within the meaning of Section 6662 of the Code) were reported by the Seller in a manner for which there is substantial authority or for which such items were adequately disclosed on the Tax Returns of the Seller as required in accordance with Section 6662(d)(2)(B) of the Code.
(n) As related to the Transferred Assets, Licensed IP and/or the Cystinosis Business, the Seller is not a party to or member of any joint venture, partnership, limited liability company or other arrangement or Contract (in each case, other than customary provisions in agreements entered into in the
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ordinary course of business, the principal purpose of which is not related to Taxes) which could be treated as a partnership for U.S. federal income Tax (or any similar state, local or foreign Legal Requirement).
(o) None of the Transferred Assets or Cystinosis Business are treated or could be treated as interests in a passive foreign investment company (as defined in Section 1297 of the Code).
(p) None of the Transferred Assets or Licensed IP is tax-exempt use property within the meaning of Section 168(h) of the Code.
(q) This Section 3.7 and Section 3.15 contain the only representations and warranties by the Seller with respect to Taxes in this Agreement.
Section 3.8 Property and Assets.
(a) Sufficiency of Assets. Except as set forth on Section 3.8(a) of the Disclosure Schedule, the Transferred Assets, together with the services contemplated by the Separation Services Agreement, the Data Transition Plan, the Licensed IP and the Consents listed on Schedule 2 constitute all of the properties, assets and rights used in or necessary and sufficient to conduct and operate the Cystinosis Business in the ordinary course consistent with past practice after the Closing, in all material respects, in the manner conducted and proposed to be conducted by the Seller immediately prior to the Closing and in accordance with applicable Legal Requirements. This Section 3.8(a) is not, and shall not be construed as, a representation or warranty regarding non-infringement or misappropriation by the Seller of the Intellectual Property of other Persons (which representation and warranty is provided in Section 3.9(e)).
(b) The Seller (and not its Affiliates) has sole and exclusive, good, valid, and marketable title to, or a valid leasehold interest in or valid and enforceable right to use, practice, and exploit all such properties, assets and rights included in the Transferred Assets, and at Closing, Purchaser will acquire good, valid and marketable title to such properties, assets and rights included in the Transferred Assets. No such properties, assets or rights are subject to any Lien, other than Permitted Liens. The Seller and its applicable Affiliates each has the authority and right to, and at the Closing, shall, sell, assign, transfer and deliver to Purchaser title to the Transferred Assets free and clear of all Liens, other than Permitted Liens. No other Person holds any assets or properties that would be a Transferred Asset if held by the Seller. The last sentence of this Section 3.8(b) is not, and shall not be construed as, a representation or warranty regarding non-infringement or misappropriation by the Seller of the Intellectual Property of other Persons (which representation is provided in Section 3.9(e)).
(c) The Transferred Assets are (to the extent applicable) in good operating condition (ordinary wear and tear excepted) and are adequate for the uses to which they are being put, and none of such tangible Transferred Assets is in need of maintenance or repairs except for ordinary, routine maintenance and repairs.
(d) Leased Real Property. The Seller does not own, and has never owned, any real property. Section 3.8(d) of the Disclosure Schedule sets forth: (i) all leases, subleases, and occupancy agreements, together with all amendments and modifications thereto, pursuant to which any real property at which the Cystinosis Business is operated is leased by the Seller (each such lease, sublease, or occupancy agreement being referred to as a “Real Property Lease” and any such real property leased by the Seller being referred to as a “Leased Real Property”); and (ii) the address of each Leased Real Property and any security deposit, guaranty, or letter of credit provided to the landlord under the related Real Property Lease. The Seller has a valid leasehold interest in each Leased Real Property. Each building, structure, fixture, and
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other improvement located on any Leased Real Property is (A) in good operating condition and repair, (B) free of any material defect, and (C) adequate for use in the operation of the Cystinosis Business, as currently conducted at such Leased Real Property, by the Seller. With respect to each Real Property Lease, the tenant thereunder enjoys peaceful, exclusive, and undisturbed use and possession in all material respects of the demised premises thereunder. The Seller has not subleased or otherwise granted to any Person the right to use or occupy any Leased Real Property.
Section 3.9 Intellectual Property and Related Matters.
(a) Section 3.9(a) of the Disclosure Schedule contains a true and complete list of all Patents, Marks and Copyrights included in the Business Intellectual Property that are (x) Business Owned Intellectual Property or (y) Business Licensed Intellectual Property, and in either of case x or y, issued by, registered or the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or any similar office or agency anywhere in the world, with each such registration or application designated therein as Transferred IP as applicable, and for Business Licensed Intellectual Property, designated as exclusive or non-exclusive (such registrations and applications, the “Company Registered IP”), including, with respect to each such item, (i) the jurisdiction of application/registration (or for domain names, the registrar), (ii) the application or registration number, (iii) the date of filing, or issuance or registration (and for domain names, the expiration date), and (iv) the record owner or owners, for each such item. Each item of Company Registered IP that is not a Patent is subsisting, valid and enforceable, and each item of Company Registered IP that is a Patent is subsisting and, to the Knowledge of the Seller, valid and enforceable. All filing, registration, maintenance, renewal and similar fees applicable to any Company Registered IP that are currently due have been paid, and all documents and certificates related to such items have been filed with the relevant Governmental Entity or other office or agency in the applicable jurisdictions for the purposes of filing, registering and maintaining such items. All assignments of Company Registered IP have been recorded with such relevant Governmental Entity or other office or agency. Notwithstanding anything to the contrary, the representations and warranties in this Section 3.9(a) with respect to Business Licensed Intellectual Property that is not Exclusively Licensed Intellectual Property shall be to the Knowledge of the Seller.
(b) No interference, opposition, reissue, reexamination, inter partes or post grant review, or cancellation proceeding or other Legal Proceeding (other than routine ordinary course proceedings as part of patent prosecution) is pending or, to the Knowledge of the Seller, threatened regarding any Business Owned Intellectual Property or Exclusively Licensed Intellectual Property or, to the Knowledge of the Seller, any other Business Licensed Intellectual Property, including with respect to the scope, validity, enforceability, registration, priority, inventorship or ownership of, or rights to, any such Business Intellectual Property.
(c) All founders, Key Employees and any other employees, contractors, consultants or other personnel involved in the development of material Business Owned Intellectual Property have signed confidentiality and invention assignment agreements or similar agreements for the transfer or assignment of such personnel’s interest in such Business Owned Intellectual Property with the Seller pursuant to which both (i) the Seller has obtained ownership of and is the exclusive owner of all right, title and interest in and to such Business Owned Intellectual Property, and (ii) such personnel are bound by commercially reasonable confidentiality obligations with respect to all Business Intellectual Property. To the Knowledge of the Seller, no such personnel are in violation of any such agreements, or of any agreements with any prior employer or other Person with respect to development of any Business Owned Intellectual Property.
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(d) Section 3.9(d) of the Disclosure Schedule contains a true and complete list of (i) all material Seller Inbound Licenses, other than OTS Software Agreements; and (ii) all Seller Outbound Licenses, other than limited, non-exclusive licenses granted by the Seller to a service provider or consultant solely for the purpose of providing applicable services to, or on behalf of, the Seller, in each case, in the ordinary course of business consistent with past practice. All of the Seller Exclusive Inbound Licenses are (A) valid and binding on the Seller, and, to the Knowledge of the Seller, each other party thereto, and (B) in full force and effect and enforceable against the Seller and, to the Knowledge of the Seller, each other party thereto in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar applicable Legal Requirement affecting creditors’ rights generally and by general principles of equity. The Seller has not, and to the Knowledge of the Seller, none of the other parties thereto has, violated or breached any provision of any Seller Exclusive Inbound License or committed or failed to perform any act which (with or without notice, lapse of time or both) would constitute a default under the provisions of any such Contract, and no other event, circumstance or condition exists which (with or without notice, lapse of time or both) would constitute a default under the provisions of any such Contract, and the Seller has not delivered or received written notice of any of the foregoing. The Seller has not delivered or received written notice of any intent to terminate, not renew or seek renegotiation of any Seller Exclusive Inbound License. The Seller has not waived any rights under any Seller Exclusive Inbound License. The Seller has Made Available to Purchaser complete and correct copies of all Seller Inbound Licenses and Seller Outbound Licenses in effect as of the date hereof. The Business Owned Intellectual Property is solely and exclusively owned by the Seller free and clear of any Lien, other than Permitted Liens. The Exclusively Licensed Intellectual Property is solely and exclusively in-licensed by the Seller in accordance with the terms of the applicable Seller Exclusive Inbound License, free and clear of any Lien, other than Permitted Liens. The material other Business Licensed Intellectual Property is in-licensed by the Seller, free and clear of any Lien, other than Permitted Liens. Such ownership or licenses will not be affected by the execution, delivery, or performance of this Agreement or the other Transaction Documents or the consummation of the Contemplated Transactions, and all Intellectual Property subject thereto will be owned or in-licensed by the Seller on the same terms and conditions thereafter, except that (I) upon the Closing, Purchaser will acquire sole and exclusive ownership of (and good and marketable title to) all Transferred IP (provided that, with respect to any Transferred IP that is Business Licensed Intellectual Property subject to a Transferred Contract, Purchaser will acquire all of Seller’s rights in, to and under such Transferred IP pursuant to such Contract), free and clear of any Lien other than Permitted Liens, and (II) the Licensed IP shall be licensed to Purchaser by the Seller as set forth in Section 6.7, free and clear of any Lien other than Permitted Liens. The Seller owns or has a valid and enforceable license to use all material Intellectual Property necessary for, or used or held for use in, the operation of the Cystinosis Business as currently conducted, provided that the foregoing is not, and shall not be construed as, a representation or warranty regarding non-infringement or misappropriation by the Seller of the Intellectual Property of other Persons (which representation and warranty is provided in Section 3.9(e)). No Affiliate of the Seller, or current or former director, officer, employee or contractor of, or consultant to, the Seller or any Affiliate of the Seller owns or has any claim, right (whether or not currently exercisable) or interest (or, to the Knowledge of the Seller, has alleged that they own or have any such claim, right or interest) to or in any (x) Business Intellectual Property, or (y) other Intellectual Property necessary for the Cystinosis Business as currently conducted. No other Person holds any Intellectual Property that would be Transferred IP or Licensed IP if held by the Seller, provided that the foregoing is not, and shall not be construed as, a representation or warranty regarding non-infringement or misappropriation by the Seller of the Intellectual Property of other Persons (which representation is provided in Section 3.9(e)).
(e) To the Knowledge of the Seller (provided that this knowledge qualifier shall apply solely to infringement of Patents), the operation of the Cystinosis Business as currently conducted does not
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infringe, misappropriate or otherwise violate, and has not infringed, misappropriated or otherwise violated, and, to the Knowledge of the Seller, the further research, development, manufacturing and commercialization of the Seller Products as currently planned by the Seller will not infringe, misappropriate or otherwise violate, any Intellectual Property owned by any other Person. The Seller has not, nor, to the Knowledge of the Seller, has any of the licensors of the Seller, received any notice or claim alleging any such infringement, misappropriation or other violation, including any so-called “invitation to license” letter. No Legal Proceeding has been asserted, is pending or, to the Knowledge of the Seller, has been threatened, against the Seller or, to the Knowledge of the Seller, such licensors relating to any infringement, misappropriation or other violation of any Intellectual Property of any other Person.
(f) None of the Seller, Business Owned Intellectual Property, Exclusively Licensed Intellectual Property, or, to the Knowledge of the Seller, any other Business Licensed Intellectual Property is subject to any Order, and none of the Seller nor, to the Knowledge of the Seller, any of its licensors has entered into or is a party to any agreement made in settlement of any pending or threatened litigation or other Legal Proceeding, which in any case restricts, impairs or relates to the Seller’s use or other exploitation in any manner of (i) any Business Intellectual Property; or (ii) any other Intellectual Property owned by any other Person and relating to the Cystinosis Business, Transferred Assets or Licensed IP.
(g) To the Knowledge of the Seller, (i) no Person is infringing, misappropriating or otherwise violating, or has infringed, misappropriated or otherwise violated, any material Business Intellectual Property, and (ii) no Legal Proceeding has been asserted or is pending or has been threatened against any Person alleging any infringement, misappropriation or other violation of any Business Intellectual Property.
(h) The Seller has taken commercially reasonable steps necessary to protect the Business Intellectual Property, including its right, title and interest therein and thereto. The Seller has taken commercially reasonable steps necessary to maintain and protect the secrecy and confidentiality (including limitations on use) of all material Trade Secrets and other material confidential information included in the Business Intellectual Property and, to the Knowledge of the Seller there has not been any unauthorized use, disclosure of or access to any such Trade Secrets or confidential information.
(i) Section (A) of Section 3.9(a) of the Disclosure Schedule contains a true and complete list of any and all Business Intellectual Property that was created, developed or reduced to practice, or is being created, developed or reduced to practice, (i) pursuant to, or in connection with, any Contract with any Governmental Entity or Governmental Entity-affiliated Entity, or any university, college or other educational institution or research institute, or (ii) using any funding, facilities or personnel of any Governmental Entity or Governmental Entity-affiliated Entity, or any university, college or other educational institution or research institute (collectively, “Government-Funded IP”). The Seller and, to the Knowledge of the Seller, each of its licensors with respect to any Government-Funded IP, have complied with any and all Intellectual Property disclosure, licensing and other obligations under any applicable Contract referenced in clause (i) of the foregoing sentence. Except as set forth in Section (B) of Section 3.9(a) of the Disclosure Schedule, no Governmental Entity or Governmental Entity-affiliated Entity, or university, college or other educational institution or research institute, has any material right, title or interest (including any “march in” or co-ownership rights) in or to any Government-Funded IP. Notwithstanding anything to the contrary, the representations and warranties in this Section 3.9(i) with respect to Business Licensed Intellectual Property that is not Exclusively Licensed Intellectual Property shall be to the Knowledge of the Seller.
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(j) The Seller has the right to grant the license and other rights to Purchaser in, to and under the Licensed IP and Other Seller IP provided in Section 6.7 and Section 6.8. Following the Closing, Purchaser (A) will have and be permitted to exercise all rights that the Seller had prior to the Closing with respect to the Transferred IP to the same extent that the Seller would have had, and been able to exercise, had the Transaction Documents not been entered into and this transaction not occurred and (B) will have and be permitted to exercise all rights regarding the Transferred IP and Licensed IP, in each case, without the payment of any additional amounts or consideration, except for payments expressly due pursuant to the terms of any Seller Inbound License (for the applicable Business Intellectual Property that is Transferred IP or Licensed IP) that is a Transferred Contract or a Shared Contract.
(k) To the Knowledge of the Seller, there are no facts, circumstances, or information that would or reasonably could be expected to adversely affect, limit, restrict, impair, or impede the ability of Purchaser to use, practice, exploit, defend and enforce any of the Transferred IP, or Licensed IP as applicable, after the Closing in the same manner as currently used, practiced, exploited, defended or enforced by the Seller and planned by the Seller to be used, practiced, exploited, defended or enforced.
Section 3.10 Privacy and Data Security.
(a) IT Systems and Networks. The Seller Systems have been properly maintained, in all material respects, by technically competent personnel in accordance with standards set by the manufacturers and, at a minimum, in accordance with industry standards for similarly situated businesses at Entities comparable in size, resources and stage to the Seller, to ensure proper operation, monitoring, and use. All of the Seller Systems, including information technology systems and networks, (i) are in good repair and operating condition and (ii) do not contain any viruses or other computer code intentionally designed to disrupt, disable, or harm in any manner the operation of any software or hardware or to provide unauthorized access to any software or hardware. The Seller has taken all reasonable measures to secure all of the Seller Systems prior to implementation and has applied patches and updates to the Seller Systems available in accordance with industry standards adopted by similarly situated businesses. Without limitation to the foregoing, the Seller has performed penetration tests and external vulnerability scans of the Seller Systems and those tests and scans were conducted in accordance with industry standards for Entities comparable in size, resources and stage to the Seller. Each vulnerability identified by any such tests or scans has been fully remediated. There has been no failure, breakdown, or continued substandard performance of any system or network that has caused a material disruption or interruption in or to the Seller since January 1, 2018. The Seller has implemented reasonable backup and security plans, procedures, and facilities consistent with industry practice adopted by similarly situated businesses.
(b) Privacy and Data Security. Since January 1, 2021, the Seller has complied with all Privacy Laws, including with respect to the collection, acquisition, use, storage and transfer (including cross-border transfer) of Personal Information. Since January 1, 2021, the Seller has complied in all material respects with its written and published policies concerning the privacy of Personal Information (the “Privacy Policies”). The Seller maintains commercially reasonable policies, procedures and security measures with respect to the physical and electronic security and privacy of Personal Information that are designed to achieve compliance with Privacy Laws, and the Seller is in compliance in all material respects with such policies and procedures. There have been no breaches or material violations of any of the Seller’s security measures, or any unauthorized access, use or disclosure of any Personal Information. The Seller has not received written notice or any other communication of (a) any violation or breach, or alleged violation or breach, of Privacy Laws and/or Privacy Policies, or (b) any claims against the Seller by any
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Person, and there is no Legal Proceeding pending or, to Knowledge of the Seller, threatened against the Seller, alleging a violation or breach of Privacy Laws and/or Privacy Policies.
(c) Data Breach; Investigations. Since January 1, 2018, there has been no data security breach of any of the Seller Systems, or unauthorized acquisition, access, use or disclosure of any Protected Information, owned, transmitted, used, stored, received, or controlled by or on behalf of the Seller. Since January 1, 2018, the Seller has performed annual security risk assessments in accordance with industry standards and addressed and fully remediated all threats and deficiencies identified in those security risk assessments. The Seller (i) is not under investigation by any Governmental Entity for a violation of any Information Privacy and Security Laws; or (ii) has not received any written notices or audit requests from a Governmental Entity relating to any such violations.
(d) Authority. The (i) collection, storage, processing, transfer, sharing and destruction of Protected Information in connection with the Contemplated Transactions, and (ii) execution, delivery and performance of this Agreement and the other Transaction Documents and consummation of the Contemplated Transactions comply in all material respects with all applicable Information Privacy and Security Laws. Purchaser shall have at least the same rights to use, process and disclose Protected Information as used, processed, and disclosed by the Seller after Closing as the Seller had immediately prior to the Closing.
Section 3.11 Compliance; Permits; Sanctions.
(a) The Seller is and, since January 1, 2021, has been in compliance with all Legal Requirements applicable to the Seller, and, since January 1, 2021, the Seller has not received any written notice (or, to the Knowledge of the Seller, any other communication from any Governmental Entity) alleging any actual or suspected violation with respect to any applicable Legal Requirements including any applicable to the conduct or operation of the Cystinosis Business or the ownership or use of any of the Transferred Assets or Licensed IP, or been charged with any unresolved violation of any applicable Legal Requirement, including any applicable to the conduct or operation of the Cystinosis Business or the ownership or use of any of the Transferred Assets or Licensed IP, except in each case as is not, and would not reasonably be expected to be, individually or in the aggregate, material to the Seller or the Cystinosis Business.
(b) The Seller holds, and since January 1, 2021 has held, all Permits necessary for the Seller to lawfully own, lease or otherwise hold and operate its properties and assets and conduct the Cystinosis Business in the manner in which the Cystinosis Business is currently being conducted by the Seller, except where failure to hold such Permits is not, and would not reasonably be expected to be, individually or in the aggregate, material to the Seller. The Permits held by the Seller with respect to the Cystinosis Business are (i) valid and in full force and effect and (ii) are not subject to any administrative or judicial proceeding that would reasonably be expected to result in any termination, suspension, revocation, nonrenewal (and, to the Knowledge of the Seller, no such termination, suspension, revocation or nonrenewal has been otherwise threatened), and the Seller is in compliance with the terms and requirements thereof, except in the case of each of clauses (i) and (ii), as is not, and would not reasonably be expected to be, individually or in the aggregate, material to the Seller or the Cystinosis Business.
(c) To the Knowledge of the Seller, the Seller Products are being, and, since January 1, 2021, have been, developed, studied, tested, manufactured, labeled, distributed, and stored in compliance in all material respects with all applicable Legal Requirements pertaining to preclinical- and clinical-stage
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product candidates, including those requirements relating to current Good Manufacturing Practices, Good Laboratory Practices, and Good Clinical Practices, and any equivalent non-U.S. Legal Requirements, as relevant to the stage of development of each candidate and/or as required by the applicable study protocol. Neither the Seller, nor, to the Knowledge of the Seller, any Collaboration Partner has received any written notices or other correspondence from any Drug Governmental Entity or any institutional review board or ethics committee with respect to any ongoing clinical or pre-clinical studies or trials relating to the Cystinosis Business (i) placing (or threatening the initiation of any action to place) a clinical hold order on any such studies or trials or (ii) otherwise requiring the delay, termination or suspension of such studies or trials. Since January 1, 2021, neither the Seller nor, to the Knowledge of the Seller, any Collaboration Partner has received any Form FDA 483, warning letter, notice of violations, or other written administrative, regulatory or enforcement notice from the FDA or any other Drug Governmental Entity relating to the Seller Products. To the extent the foregoing representation and warranty is made with respect to activities conducted by Collaboration Partners (or other Entities that are not Affiliates of the Seller), such representation and warranty is made solely to the Knowledge of the Seller.
(d) The Seller has filed (or caused to be filed) with the applicable Drug Governmental Entities all required material Healthcare Submissions with respect to the Seller Products. To the Knowledge of the Seller, all such filings for the Seller Permits and Healthcare Submissions were complete and accurate in all material respects and in material compliance with applicable Legal Requirements when filed or were subsequently corrected or completed by a subsequent filing made prior to the date hereof. The Seller has made available to Purchaser true, correct and complete copies of all Healthcare Submissions filed by the Seller with respect to the Seller Products and all material correspondence with and from all Drug Governmental Entities with respect to the Seller Products, in each case since January 1, 2021, until the date hereof. No deficiencies have been asserted in writing by any applicable Drug Governmental Entity to the Seller with respect to any Healthcare Submission, except as are not, and would not reasonably be expected to be, individually or in the aggregate, material to the Seller.
(e) The Seller has not, and, to the Knowledge of the Seller, no other Person has, with respect to the Cystinosis Business or other Seller activities (i) engaged in any conduct that is not compliant in any material respect with applicable Healthcare Laws, or (ii) altered, falsified or otherwise manipulated any data generated or used in any clinical trials or other studies in any material respect.
(f) All manufacturing and distribution of the Seller Products have been conducted in compliance with applicable Legal Requirements and binding guidance, including Good Manufacturing Practices and equivalent non-U.S. statutory and regulatory provisions. The Seller has instituted and maintained policies and procedures reasonably designed (i) to ensure the integrity of data generated in manufacturing any Seller Product and all chemistry, manufacturing, and controls data included in the Licensed IP and (ii) to encourage employees to report any compliance issues related thereto, and the Seller has made available to Purchaser copies or written summaries of any such reports related to the Cystinosis Business or the Seller Products.
(g) Since January 1, 2021, neither the Seller, nor any authorized person acting on its behalf, has (i) made an untrue statement of a material fact or a fraudulent statement to the FDA or any other Drug Governmental Entity, (ii) failed to disclose a material fact required to be disclosed to the FDA or any other Drug Governmental Entity or (iii) committed any act, made any statement or failed to make a statement to the FDA or any other Drug Governmental Entity, in each such case, that, at the time such statement was made or such disclosure or statement was not made, would reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery,
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and Illegal Gratuities,” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or for any Governmental Entity to invoke any similar policy.
(h) The Seller has not, nor has any director, officer or employee of the Seller (acting in the capacity of a director, officer or employee of the Seller) or, to the Knowledge of the Seller, any representative or agent of the Seller (acting in the capacity of a representative or agent of the Seller), has been: (i) debarred under 21 U.S.C. § 335a or any similar applicable Legal Requirement; (ii) excluded under 42 U.S.C. §§ 1320a-7 or 1320a-7a or any similar applicable Legal Requirement, including persons identified on the HHS/OIG List of Excluded Individuals/Entities; (iii) suspended or otherwise declared ineligible for U.S. or non-U.S. federal, state, provincial or other healthcare program participation, including persons identified on the General Services Administration’s List of Parties Excluded from Federal Programs; (iv) convicted of any crime or engaged in any conduct that would reasonably be expected to result in debarment, exclusion or suspension as described in the foregoing clauses (i), (ii) or (iii); (v) declared ineligible for awards of contracts by any U.S. or non-U.S. federal, state, provincial or other agency; (vi) disqualified as a clinical investigator by the FDA or any other Drug Governmental Entity; or (vii) convicted of any offense related to any U.S. or non-U.S. federal, state, provincial or other healthcare program.
(i) The Seller is not a party to or nor has any ongoing reporting obligations pursuant to or under any order by any applicable Governmental Entity (including, for the avoidance of doubt, any corporate integrity agreement, monitoring agreement, deferred prosecution agreement, consent decree, settlement order or other similar agreements) and, to the Knowledge of the Seller, no such order is currently proposed or pending. Neither the Seller, nor any director, officer or employee of the Seller (acting in the capacity of a director, officer or employee of the Seller) or to the Knowledge of Seller, any representative or agent of the Seller (acting in the capacity of a representative or agent of the Seller), is subject to any investigation by any Governmental Entity or enforcement, regulatory or administrative proceeding relating to or arising under any other Healthcare Law, and, to the Knowledge of the Seller, no such investigation or enforcement, regulatory or administrative proceeding has been threatened.
(j) The Seller has made available to Purchaser complete and accurate copies of (i) each Seller Product CSA and all material correspondence relating to clinical trial applications submitted to the FDA or any other Drug Governmental Entity by or on behalf of the Seller, including any supplements or amendments thereto, relating to any Seller Product, (ii) all final preclinical study and clinical trial results or reports relating to any Seller Product in the possession of the Seller, (iii) all documents in the possession of the Seller related to inspections by any Drug Governmental Entity, in each case relating to any Seller Product, (iv) all material information relating to adverse drug experiences, events or reactions or other safety information obtained or otherwise received by the Seller relating to any Seller Product, and (v) all material manufacturing and analytical reports, clinical study reports, clinical trial databases, clinical trial master files, and statistical programs for ongoing and completed clinical trials and studies in the possession of the Seller or, to the Knowledge of the Seller, in a Collaboration Partner’s possession, relating to the Seller Products. The Seller has a complete documentary record of all documents described in clauses (i) though (vi) of this section, except as have not been, and would not reasonably be expected to be, individually or in the aggregate, material to the Seller.
(k) Sanctions and Related Matters.
(i) None of the Seller, or any of its directors, managers, officers, employees, partners, shareholders or, to the Knowledge of the Seller, any other Person acting on behalf
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of any of them, is (A) a Sanctioned Person, (B) organized, resident or located in a Sanctioned Country, (C) engaged in any unlawful dealings with any Sanctioned Person or in any Sanctioned Country, or (D) otherwise in violation of Sanctions Laws.
(ii) The Seller complied with and taken appropriate steps to enforce customary “know-your-customer” and anti-money laundering programs and reporting procedures and other policies and procedures that are reasonably designed to prevent, detect and deter violations of applicable Legal Requirements, including Sanctions Laws, Legal Requirements relating to the prevention of corruption and bribery, and Legal Requirements relating to the prohibition of money laundering, and has not received from any Governmental Entity or any other Person any notice, inquiry or internal or external allegation, made any voluntary or involuntary disclosure to a Governmental Entity or conducted any internal investigation or audit concerning any actual or potential violation or wrongdoing related to Sanctions Laws in connection with the Cystinosis Business.
(l) Anti-Corruption and Anti-Bribery. None of the Seller, nor any of its officers, directors, employees, agents, Representatives or consultants, and no other Person associated with or acting for or on behalf of the Seller has, directly or, to the Knowledge of the Seller, indirectly, in connection with the conduct of the Cystinosis Business:
(i) made, offered or promised to make or offer any payment, loan or transfer of anything of value, including any reward, advantage or benefit of any kind, to or for the benefit of any Foreign Government Official, candidate for public office, political party or political campaign, or any official of such party or campaign, for the purpose of: (A) influencing any act or decision of such Foreign Government Official, candidate, party or campaign or any official of such party or campaign; (B) inducing such Foreign Government Official, candidate, party or campaign, or any official of such party or campaign, to do or omit to do any act in violation of a lawful duty; (C) obtaining or retaining business for or with any person; (D) expediting or securing the performance of official acts of a routine nature; or (E) otherwise securing any improper advantage;
(ii) paid, offered or promised to pay or offer any bribe, payoff, influence payment, kickback, unlawful rebate, or other similar unlawful payment of any nature;
(iii) made, offered or promised to make or offer any unlawful contributions, gifts, entertainment or other unlawful expenditures;
(iv) established or maintained any unlawful fund of corporate monies or other properties;
(v) created or caused the creation of any false or inaccurate books and records of the Seller related to any of the foregoing; or
(vi) materially violated any provision of the Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§ 78dd-1, et seq., or any other applicable anti-corruption or anti-bribery law or similar Legal Requirement.
Section 3.12 Brokers’ and Finders’ Fees. Except as listed on Section 3.12 of the Disclosure Schedule, the Seller has not incurred, nor shall incur, directly or indirectly, any Liability for any brokerage
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or finder’s fee, agent’s commission, or any similar charge in connection with this Agreement, any other Transaction Document or any Contemplated Transaction. Section 3.12 of the Disclosure Schedule identifies each Person who is or may become entitled to receive any fee or other amount from the Seller or any Affiliate thereof for professional or other services performed or to be performed in connection with any Contemplated Transaction.
Section 3.13 Restrictions on Business Activities. Except as listed on Section 3.13 of the Disclosure Schedule, there is no Transferred Contract pursuant to which Purchaser or any Affiliate of Purchaser shall be or may become after the Closing subject to or purportedly subject to any restriction or purported restriction on selling, licensing, or otherwise commercializing any Business Intellectual Property or any Seller Product.
Section 3.14 Employment Matters.
(a) The Seller is not, nor has it at any time been bound by any labor, collective bargaining or similar agreements or arrangements with a labor union binding on the Seller with respect to any Seller Associate. There is no labor strike, slow down, work stoppage, picketing, lockout, walkout, or other organized work interruption pending or, to the Knowledge of the Seller, threatened against the Seller, and the Seller has not experienced any such organizing or organized work interruption in five (5) years prior to the date hereof. In the five (5) years prior to the date hereof, there have been no labor unions, works councils or other organizations representing or purporting to represent any Seller Associate and, to the Knowledge of the Seller, no organizational efforts, such as union organization campaigns or labor organization certifications, with respect to the formation of a new collective bargaining unit are in progress or threatened with respect to, any Seller Associate. No petition has been filed nor has any proceeding been instituted with the National Labor Relations Board or similar Governmental Entity by any union or labor organization seeking recognition as the bargaining representative of any group of Seller Associates, and no grievance, unfair labor practice charge or complaint, or arbitration or other proceeding arising out of or under any collective bargaining agreement relating to the Seller is pending or threatened. The consent of, consultation of or the rendering of formal advice by any labor or trade union, works council or any other employee representative body is not required for Purchaser to enter into this Agreement or the other Transaction Documents or to consummate any of the Contemplated Transactions.
(b) None of the Key Employees has provided informal or formal notice of termination.
(c) The Seller has not, in the three (3) years prior to the date hereof, received a written notice, citation, complaint or charge asserting any violation or Liability under the federal Occupational Safety and Health Act of 1970 or any similar Legal Requirement regulating employee health and safety.
(d) The Seller has properly classified all Seller Associates as either employees or independent contractors, as the case may be, and as exempt or non-exempt, as the case may be, for all purposes under the Fair Labor Standards Act and any similar Legal Requirement (including for purposes of the Seller Benefit Plans). The Seller maintains accurate and complete records of all hours worked by each Seller Associate eligible for overtime compensation and compensates all Seller Associates in accordance with the requirements of the Fair Labor Standards Act and the applicable Legal Requirements of all jurisdictions in which such Seller Associate works. No Seller independent contractor or consultant is eligible to participate in any Seller Benefit Plan.
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(e) The Seller is and during three (3) years prior to the date hereof has been in material compliance with all applicable labor and employment-related Legal Requirements pertaining to Seller Associates, employment matters, employment practices, hiring and termination of employment or engagement, including: (i) the payment of wages (including overtime and meal and rest breaks); (ii) equal employment practices; (iii) labor; (iv) terms and conditions of employment; (v) collective bargaining; (vi) occupational safety and health requirements; (vii) plant closings, including hiring and termination of employees; (viii) pay equity; (ix) worker classification (including the classification of its employees as exempt or nonexempt); (x) employee privacy; (xi) employment records and files; including personnel files; (xii) employment discrimination, harassment, or retaliation; (xiii) employee disability rights or benefits; (xiv) equal employment opportunity and civil rights, including affirmative action; (xv) labor relations, including fair labor practices; (xvi) employee leave issues, including paid sick leave; (xvii) workers’ compensation and unemployment insurance; and (xviii) pay transparency laws. In the three (3) years prior to the date hereof, there have been no Legal Proceedings pending, or, to the Knowledge of the Seller, threatened against or otherwise affecting or involving the Seller or any of its properties or rights, or against any of its officers, directors or managers (x) by any Seller Associate or (y) by any Governmental Entity in connection with the employment of any such Seller Associate, including relating to wages and hours, overtime, leave of absence, vacation, break and meal periods, plant closing notifications, employment statutes or regulations, employee privacy rights, labor disputes, long-term-disability policies, retaliation, wrongful discharge, constructive dismissal, harassment, reasonable accommodations, immigration, discrimination matters involving any Seller Associate, including unfair labor practices, unlawful retaliation, discrimination or harassment complaints, in each case that is or would reasonably be expected to be, individually or in the aggregate, material to the Seller. To the Knowledge of the Seller, there are no threats, charges, investigations, administrative proceedings or complaints of discrimination, harassment or retaliation (including, but not limited to, discrimination, harassment or retaliation based upon sex, age, marital status, race, national origin, sexual orientation, disability or veteran status) pending before the Equal Employment Opportunity Commission, the National Labor Relations Board, the U.S. Department of Labor or the U.S. Occupational Health and Safety Administration against the Seller.
(f) In the three (3) years prior to the date hereof, the Seller has not effectuated: (i) a “plant closing” (as defined in the U.S. Worker’s Adjustment and Retraining Notification Act (the “WARN Act”), or any similar Legal Requirement) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of such Person; (ii) a “mass layoff” (as defined in the WARN Act, or any similar labor or employment-related Legal Requirement) affecting any site of employment or facility of such Person, nor has the Seller announced any such action or program for the future; or (iii) any other triggering event under the WARN Act, or any similar foreign, state, or local Legal Requirement.
(g) No allegation, complaint, charge, or claim, whether formal or informal, of harassment on the basis of gender, sex or race, sexual assault, sexual misconduct, gender discrimination, racial or ethnic discrimination, or similar behavior (a “Misconduct Allegation”) has been made against any Person who is or was an officer, director, manager or supervisory-level employee of the Seller in such Person’s capacity as such, or in any such capacity in the four (4) years prior to the date hereof. In the four (4) years prior to the date hereof, the Seller has not entered into any settlement agreement, tolling agreement, non-disparagement agreement, confidentiality agreement or non-disclosure agreement, or any contract or provision similar to any of the foregoing, relating directly or indirectly to any Misconduct Allegation against the Seller, or any Person who is or was an officer, director, manager or supervisory-level employee of the Seller.
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(h) No Seller Associate has, in violation of any Legal Requirement, used, disclosed, or proposed to use or disclose, in connection with such Seller Associate’s service to the Seller or any of its Subsidiaries, any trade secret, information or documentation confidential or proprietary to any former employer or other Person for whom such individual performed services or received confidential or trade secret information.
(i) All Seller Associates are and in the three (3) years prior to the date hereof were lawfully entitled to work for the Seller or otherwise provide services for or to the Seller with appropriate visa, permit and consent (as applicable) and without restriction of any visa, permit, export license or consent being required.
(j) The Seller complies with all applicable labor and employment-related Legal Requirements with respect to COVID-19 and has taken commercially reasonable steps to protect Seller Associates in the workplace with respect to COVID-19 and has not received any written notice asserting any material employment-related liability with respect to COVID-19.
Section 3.15 Seller Benefit Plans.
(a) Section 3.15(a) of the Disclosure Schedule sets forth a correct and complete list of each material Seller Benefit Plan. The Seller has made available to Purchaser, with respect to each material Seller Benefit Plan, accurate and complete copies (as applicable) of: (i) the most recent summary plan description (and any summaries of material modifications thereto) or, if none, other summary of the material terms of such Seller Benefit Plan; and (ii) the most recent determination letter or opinion letter issued by the IRS or the United States Department of Labor.
(b) Neither the Seller, any of its Subsidiaries nor any of their respective ERISA Affiliates sponsors, maintains or contributes or is obligated to contribute to, or has ever sponsored, maintained or contributed or been obligated to contribute to, or has or is reasonably expected to have any direct or indirect Liability with respect to, any, and no Seller Benefit Plan is a, (i) plan subject to Section 302 of ERISA, Title IV of ERISA or Section 412 of the Code, including any “single employer” defined benefit plan whether or not subject to ERISA, (ii) “multiemployer plan” within the meaning of Section 4001(a)(3) or 3(37) of ERISA, (iii) “multiple employer plan” (as defined in Section 4063 or 4064 of ERISA), (iv) “multiple employer welfare arrangement” within the meaning of Section 3(40)(A) of ERISA, or (v) with respect to a Seller Benefit Plan maintained primarily for the benefit of employees outside of the United States, defined benefit pension plan.
(c) Each Seller Benefit Plan intended to be qualified under Section 401(a) of the Code has received or is permitted to rely upon a favorable determination or opinion letter that it is so qualified, or has time remaining for application to the IRS for a determination of the qualified status of such Seller Benefit Plan, and there are no circumstances that would reasonably be expected to cause the loss of such qualification.
(d) Except as is not, and would not reasonably be expected to be, individually or in the aggregate, material to the Seller, each Seller Benefit Plan has been operated, maintained and administered in compliance with its terms and with the requirements prescribed by applicable Legal Requirements, including ERISA and the Code.
(e) Neither the execution and delivery of this Agreement or the other Transaction Documents nor the consummation of the Contemplated Transactions will (either alone or together with any
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other event) (i) result in, or cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any severance, notice of termination, change of control, bonus or other payment or benefit to any Seller Associate, or (ii) result in any “parachute payment” (as defined in Section 280G(b)(2) of the Code).
Section 3.16 Material Contracts.
(a) Section 3.16(a) of the Disclosure Schedule lists each Contract relating to the Cystinosis Business or any Transferred Asset, as of the date of this Agreement (other than the Transaction Documents or Seller Benefit Plans, or any Contract included in the Excluded Assets):
(i) that is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the Exchange Act);
(ii) requiring or otherwise involving payment by or to the Seller of more than an aggregate of $250,000 during any fiscal year commencing with the fiscal year ending December 31, 2022 (other than any Seller Benefit Plan entered into in the ordinary course of business);
(iii) evidencing a commitment by the Seller to make a future capital expenditure in excess of $250,000 that is not terminable by the Seller upon notice of sixty (60) days or less without penalty or liability;
(iv) (A) that includes (1) any “most favored nations” terms or conditions, including with respect to pricing, (2) containing exclusivity obligations or otherwise limiting the freedom or right of the Seller to sell, distribute or manufacture any products or services for, or to purchase products or services from, another Person, or (3) any rights of first refusal, rights of first negotiation or similar obligations or restrictions, including such rights, obligations or restrictions which provide any right of first negotiation or refusal or similar right to purchase, lease, sublease, license, sublicense, use, possess or occupy any securities, assets (including Intellectual Property) or other interest of the Seller, except non-exclusive rights or licenses of Intellectual Property granted by the Seller in the ordinary course of business consistent with past practice, (B) containing any provision or covenant that limits, or purports to limit, the ability of the Seller (or that, after the Closing, would purport to limit the ability of Purchaser or any of its Affiliates) to engage in any line of business (whether generally or in any geographic area) or compete with any Person or in any line of business or geographic area, or (C) with any sole source supplier of any product or service that is material to the Cystinosis Business;
(v) relating to or evidencing indebtedness for borrowed money or any guarantee of indebtedness for borrowed money by the Seller in excess of $250,000 (excluding loans by the Seller to wholly owned Subsidiaries in the ordinary course of business);
(vi) providing for or governing any joint venture, partnership, strategic alliance, research and development collaboration, or similar arrangement, or pertaining to the formation, creation, operation, management or control thereof;
(vii) that is (A) a material Seller Inbound License, other than OTS Software Agreements, or (B) a Seller Outbound License (other than limited, non-exclusive licenses granted by the Seller to a service provider or consultant solely for the purpose of providing
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applicable services to, or on behalf of, the Seller, in each case, in the ordinary course of business consistent with past practice);
(viii) that has continuing obligations or interests involving (A) “milestone” or other similar contingent payments, including upon the achievement of development, regulatory or commercial milestones, or (B) payment of royalties or other amounts calculated based upon sales, revenue, income or similar measure of the Seller;
(ix) that is a settlement, conciliation or similar Contract with or approved by any Governmental Entity (A) pursuant to which the Seller will be required after the date of this Agreement to pay any monetary obligations or (B) that contains material obligations or limitations on the Seller’s conduct (other than customary confidentiality obligations);
(x) with any Governmental Entity, except for non-disclosure agreements entered into in the ordinary course of business;
(xi) that is a clinical trial agreement, clinical study agreement, clinical services agreement, clinical vendor agreement, contract manufacturing agreement, or similar agreement;
(xii) (A) that is a collective bargaining agreement or (B) with any labor organization, union or works council;
(xiii) that prohibits the payment of dividends or distributions in respect of the capital stock of the Seller, the pledging of the capital stock or other equity interests of the Seller or the issuance of any guaranty by the Seller;
(xiv) (A) with any current or former (who was employed or engaged on or after January 1, 2021) officer, director or employee of the Seller (other than indemnification agreements or employment and separation agreements entered into in the ordinary course of business) or (B) that is the type of Contract that would be required to be disclosed under Item 404 of Regulation S-K of the Exchange Act;
(xv) the Shared Contracts; or
(xvi) any other Contract material to the Cystinosis Business or related to any material Transferred Asset.
(b) Each Contract of the type described above in this Section 3.16, whether or not set forth in Section 3.16(a) of the Disclosure Schedule, and each Seller Inbound License or Seller Outbound License, is referred to herein as a “Material Contract.” Except Material Contracts that have expired or terminated by their terms, all of the Material Contracts are (i) valid and binding on the Seller, and, to the Knowledge of the Seller, each other party thereto, and (ii) in full force and effect and enforceable against the Seller and, to the Knowledge of the Seller, each other party thereto in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar applicable Legal Requirement affecting creditors’ rights generally and by general principles of equity and except where the failure of such Material Contract to be valid, binding, enforceable or in full force and effect, is not, and would not reasonably be expected to be, individually or in the aggregate, material to the Cystinosis Business. As of the date hereof, the Seller has not, and to the Knowledge of the Seller, none of
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the other parties thereto has, materially violated or breached any provision of any Material Contract or committed or failed to perform any act which (with or without notice, lapse of time or both) would constitute a default under the provisions of any Material Contract, and no other event, circumstance or condition exists which (with or without notice, lapse of time or both) would constitute a default under the provisions of any Material Contract, except in each case for those violations, commitments, failures to act, and defaults which would not reasonably be expected to be, individually or in the aggregate, material to the Cystinosis Business and to the Knowledge of the Seller, and the Seller has not delivered or received written notice of any of the foregoing. The Seller has not delivered or received written notice of any intent to terminate, not renew or seek renegotiation of any Material Contract. The Seller has not waived any material rights under any Material Contract. The Seller has Made Available to Purchaser complete and correct copies of all Material Contracts in effect as of the date hereof.
Section 3.17 Insurance. Section 3.17 of the Disclosure Schedule sets forth a true, complete and correct list and description of all current insurance policies or binders (including policies providing fire, liability, product liability, umbrella liability, real and personal property insurance, casualty insurance, directors and officers liability insurance, professional liability insurance, errors and omissions insurance, workers’ compensation coverage, and bond and surety arrangements), with including policies by which the Cystinosis Business, any of the Transferred Assets, or the Assumed Liabilities are insured, and the Seller has Made Available to Purchaser an accurate and complete copy of each such insurance policy. The Seller and its assets and operations have been covered since January 1, 2018 by insurance in scope and amount reasonable for the operations it is, and for such period has been, engaged. Each such insurance policy is legal, valid, binding, enforceable, and in full force and effect, and all premiums payable thereon have been fully paid. Neither the Seller nor, to the Knowledge of the Seller, any other Person is in breach or default under any such insurance policy (including with respect to the payment of any premium or the giving of any notice), and, to the Knowledge of the Seller, no event has occurred and no circumstance or condition exists that, with notice or the lapse of time or both, would constitute such a breach or default under, or permit the termination or modification of, any such insurance policy. To the Knowledge of the Seller, no party to any such insurance policy has repudiated any provision thereof. The information in the application for each insurance policy was accurate and complete at the time such application was submitted, and the Seller has complied with any obligation to update the information in each such application.
Section 3.18 Transactions with Related Parties. No Related Party has or has had any interest in any material asset used in or otherwise relating to the Cystinosis Business. To the Knowledge of the Seller, no Related Party has any direct or indirect ownership interest in or relationship with: (a) any Person with which the Seller is affiliated or with which the Seller has a business relationship related to the Cystinosis Business; or (b) any Person that competes with the Cystinosis Business (other than the ownership of less than five percent (5%) of the outstanding publicly traded shares of any publicly traded company that may compete with the Seller). To the Knowledge of the Seller, no Related Party is or has been, directly or indirectly, a party to or otherwise interested in any Transferred Contract (other than Contracts providing for employment and benefit arrangements entered into in the ordinary course of business and on an arms’-length basis) or Licensed IP. No member of the board of directors (or other similar body) of the Seller has ever had a conflict of interest with respect to the Seller.
Section 3.19 Accounts and Notes Receivable and Payable. All of the accounts receivable of the Cystinosis Business arose from bona fide transactions entered into by the Cystinosis Business involving the actual sale of goods or the actual rendering of services in the ordinary course of business consistent with past practice and are payable on ordinary trade terms. None of the accounts or notes receivable of the Cystinosis Business (a) are subject to any valid set-off or counterclaim or (b) represent obligations for goods
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sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement. There is no Lien on any accounts receivable of the Cystinosis Business, and no written request or agreement for deduction or discount has been made with respect to any accounts receivable of the Cystinosis Business. All accounts payable related to the rent, utilities and other services of the Cystinosis Business provided at the Leased Real Property are current within thirty (30) days of the due date.
Section 3.20 CFIUS. The Cystinosis Business does not and has not (a) produced, designed, tested, manufactured, fabricated or developed one or more critical technologies, as defined at 31 C.F.R. § 800.215, (b) performed the functions set forth in column 2 of Appendix A to 31 C.F.R. part 800 with respect to covered investment critical infrastructure, as defined at 31 C.F.R. § 800.212, or (c) maintained or collected, directly or indirectly, U.S. citizens’ sensitive personal data, as defined at 31 C.F.R. § 800.241.
Section 3.21 Full Disclosure. This Agreement (including the Disclosure Schedule) does not, and the and the other Transaction Documents will not: (a) contain any representation, warranty or information that is false or misleading with respect to any material fact; or (b) omit to state any material fact necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading. To the Knowledge of the Seller, there is no information or other fact that is or may become materially adverse to the business, condition, assets, capitalization, Intellectual Property, Liabilities, operations, results of operations, financial performance or prospects of the Cystinosis Business or the Seller that has not been set forth in this Agreement or in the Disclosure Schedule.
Article 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants, to and for the benefit of the Seller, that the following statements contained in this Article 4 are true and correct:
Section 4.1 Standing; Authority and Due Execution.
(a) Standing. Novartis Pharma AG is a company duly organized, validly existing, and in good standing under the Legal Requirements of Switzerland. Novartis Pharmaceuticals Corporation is corporation duly organized, validly existing, and in good standing under the Legal Requirements of Delaware.
(b) Authority. Purchaser has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to consummate the Contemplated Transactions. The execution and delivery by Purchaser of this Agreement and the performance of its obligations hereunder and the other Transaction Documents to which Purchaser is a party and the consummation by Purchaser of the Contemplated Transactions have been duly authorized by all necessary corporate action on the part of Purchaser and no other corporate proceedings on the part of Purchaser are necessary to authorize the execution, delivery, and performance of this Agreement and such other Transaction Documents by Purchaser or to consummate the Contemplated Transactions.
(c) Due Execution. This Agreement has been, and, upon execution and delivery, each other Transaction Document to which Purchaser is a party shall be, duly executed and delivered by Purchaser and, assuming due execution and delivery by the other parties hereto and thereto, constitutes, or
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upon execution and delivery shall constitute, the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, subject only to the Enforceability Exceptions.
Section 4.2 Non-Contravention. The execution and delivery by Purchaser of this Agreement and each other Transaction Document to which Purchaser is a party, do not, and the consummation of the Contemplated Transactions by Purchaser and the performance of this Agreement and the other Transaction Documents to which Purchaser is a party by Purchaser will not, (a) conflict with or violate Purchaser’s Charter Documents or (b) assuming the making of all required filings and notifications under any applicable Legal Requirement, and assuming the receipt of all clearances, approvals, authorizations, or waiting period expirations or terminations under each applicable Legal Requirement, conflict with or violate any Legal Requirements applicable to Purchaser, except, in the case of each of clauses (a) and (b), as would not have a material adverse effect on Purchaser’s ability to consummate the Contemplated Transactions, and perform its obligations under this Agreement and the other Transaction Documents to which it is a party.
Section 4.3 Sufficiency of Funds. Purchaser or its Affiliates have sufficient cash on hand or other sources of immediately available funds to enable Purchaser, or an Affiliate of Purchaser on behalf of Purchaser, to make payment of the Purchase Price and to consummate the Contemplated Transactions.
Section 4.4 Legal Proceedings. There are no Legal Proceedings pending or, to Purchaser’s actual knowledge (after reasonable inquiry), threatened against or by Purchaser or any Affiliate of Purchaser that challenge or seek to prevent, enjoin, or otherwise delay the Contemplated Transactions.
Section 4.5 Brokers’ and Finders’ Fees. Neither Purchaser nor any Affiliate of Purchaser has incurred, nor shall any of the foregoing incur, directly or indirectly, any Liability for any brokerage or finder’s fee, agent’s commission or any similar charge in connection with this Agreement, any other Transaction Document, or the Contemplated Transactions.
Section 4.6 Independent Investigation. Purchaser has conducted its own independent investigation, review and analysis of the Cystinosis Business and the Transferred Assets, and acknowledges that it has been provided access to the personnel, properties, assets, premises, books and records, and other documents and data of Seller for such purpose.
Article 5
CERTAIN COVENANTS OF THE SELLER
Section 5.1 Access and Investigation. During the period commencing on the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to Article 9 and the Closing (the “Pre-Closing Period”), the Seller shall, and shall ensure that the Representatives thereof: (a) promptly, upon reasonable advance written request (email being sufficient), provide Purchaser and Purchaser’s Representatives with reasonable access during normal business hours to the Seller’s Representatives, personnel, assets, and properties and to all books, records, Tax Returns, work papers and other documents and information relating to the Cystinosis Business or any Transferred Asset or Licensed IP; and (b) promptly, upon reasonable advance written request (email being sufficient), provide Purchaser and Purchaser’s Representatives with copies of such books, records, Tax Returns, work papers and other documents and information relating to the Cystinosis Business or any Transferred Asset or Licensed IP, and with such additional financial, operating and other data and other information regarding the Cystinosis
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Business or any Transferred Asset or Licensed IP, as Purchaser may reasonably request. Without limiting the forgoing, during the Pre-Closing Period the Seller shall provide Purchaser with reasonable access to, and shall make its employees reasonably available for, knowledge transfer, training sessions and general informational meetings, and the Seller shall provide information reasonably requested to facilitate Purchaser’s integration activities with respect to the Contemplated Transactions, including Purchaser performing activities as are reasonably necessary in order to ensure the orderly transition of the Transferred Assets and Assumed Liabilities from the Seller to Purchaser, effective from and after the Closing. All access provided during the Pre-Closing Period to Purchaser by the Seller shall be in such a manner as not to unreasonably interfere with the normal operation of the business of the Seller, and solely at Purchaser’s expense; provided, however, that the Seller shall not be required to permit any inspection or other access, or to disclose any information to the extent: (i) such disclosure would, in the reasonable judgment of the Seller and after notice to Purchaser: (a) result in the disclosure of any trade secrets of Third Parties; (b) violate any obligation of the Seller with respect to confidentiality, non-disclosure or privacy; (c) jeopardize protections afforded to the Seller under the attorney-client privilege or the attorney work product doctrine; (d) violate any Legal Requirement; provided, further, that the Seller shall use its commercially reasonable efforts to obtain any required consents or make alternative arrangements to permit such inspection, access or disclosure in a manner that does not give rise to the consequences referred to in the foregoing clauses (a) through (d); or (ii) without limiting the rights of Purchaser and the obligations of Seller under Section 5.3, such information is included in the minutes of the meetings of the Board of Directors or its committees and relates to the discussion by the Board of Directors or any applicable committee of the Contemplated Transactions or any similar transaction between the Seller and any other Person (including any presentations or other materials prepared by or for the Board of Directors, whether in connection with a specific meeting, or otherwise relating to such subject matter); provided, further that any such access shall be afforded and any such information shall be furnished solely at Purchaser’s expense; provided, further that any access to the properties of the Seller shall be subject to their reasonable security measures.
Section 5.2 Operation of the Cystinosis Business. During the Pre-Closing Period, except (i) with the prior written consent of Purchaser (which consent shall be at Purchaser’s sole discretion, except in the case of clauses (i) and (j) in which case such consent shall not be unreasonably withheld, conditioned or delayed), (ii) as specifically disclosed on Section 5.2 of the Disclosure Schedule, (iii) as expressly contemplated by this Agreement, or (iv) as required by any Legal Requirement, the Seller shall, and shall cause each of its Subsidiaries to:
(a) not (i) enter into any Material Contract (or any Contract which, if entered into prior to the date hereof, would have been a Material Contract); (ii) any other agreement or arrangement that would adversely impact the Seller’s ability to perform under this Agreement or any of the Transaction Documents; or (iii) accelerate, extend, amend or prematurely terminate, or waive any material right or remedy under, a Material Contract (or any Contract which, if entered into prior to the date hereof, would have been a Material Contract) or any other Contract that is a Transferred Contract;
(b) not dispose of, sell (whether by merger, consolidation, or the sale of an Equity Interest or assets), lease, license, transfer, or abandon any Transferred Asset or Licensed IP to any other Person;
(c) not mortgage, pledge or subject to any Lien (other than Permitted Liens) any Transferred Asset or Licensed IP;
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(d) not, except in the ordinary course of business consistent with past practice (i) change any of its practices or procedures with respect to the payment of accounts payable; (ii) extend any incentive (whether to an account creditor, or any employee or third party responsible for the payment of payables) with respect to any account payable or the payment or collection thereof, or (iii) take or omit to take any other action with the intent or effect of delaying the payment of payables, in each case with respect to the Cystinosis Business or Transferred Assets;
(e) not commence, settle, cancel, compromise, waive or release (or offer to settle, release, waive or compromise) any right or claim or Legal Proceeding relating to the Cystinosis Business or any Transferred Asset or Licensed IP;
(f) not change any method of accounting or accounting practices relating to the Cystinosis Business or any Transferred Asset, in each case except as required by Legal Requirement;
(g) with respect to the Transferred Assets and the Cystinosis Business, prepare and file, or cause to be prepared and filed, any Tax Return that is required to be filed on or prior to the Closing Date and pay all Taxes due with respect to such Tax Return and all previously filed Tax Returns within the time and in the manner required by applicable Legal Requirements;
(h) with respect to the Transferred Assets and the Cystinosis Business, not (i) make, change, or rescind any election relating to any Tax; (ii) settle or compromise any claim, controversy, or Legal Proceeding relating to any Tax; (iii) make any change to (or make a request to any Taxing Authority to change) any of its methods, policies, or practices of tax accounting (including a change in the tax accounting period) or methods of reporting income or deductions for tax purposes, in each case except as required by Legal Requirements; (iv) amend, refile or otherwise revise any previously filed Tax Return, or forgo the right to any amount of refund or rebate of a previously paid Tax; (v) enter into or terminate any agreement with a Taxing Authority; (vi) prepare any Tax Return in a manner inconsistent with past practice except as required by Legal Requirements; (vii) consent to an extension or waiver of the statutory limitation period applicable to a claim or assessment in respect of any Tax; (viii) enter into any allocation, sharing or indemnity agreement or arrangement with respect to Taxes; (ix) grant any power of attorney relating to any Tax matter; or (x) request a ruling with respect to any Tax;
(i) conduct its business and operations in the ordinary course and in substantially the same manner as such business and operations have been conducted prior to the date of this Agreement;
(j) use commercially reasonable efforts to preserve and maintain in effect all material Permits necessary to carry on the Cystinosis Business or for the ownership or use of the Transferred Assets or Licensed IP, preserve intact its current business organization, and keep available the services of its current officers and employees and maintain its present relations and goodwill with all suppliers, Governmental Entities licensors, licensees, strategic partners, creditors, and other Persons having material business dealings with the Seller with respect to the Cystinosis Business;
(k) not become a party to any Acquisition Transaction;
(l) not (i) acquire, lease, license, sell, or otherwise dispose of any real property that constitutes a Transferred Asset; or (ii) enter into, modify, or terminate, or waive or relinquish any right under, the Real Property Lease that constitutes a Transferred Asset;
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(m) maintain in full force and effect all material Permits necessary for the conduct of the Cystinosis Business as currently conducted;
(n) not, (i) license, sell, transfer, assign or otherwise dispose of or permit the expiration or lapse of any Business Intellectual Property or (ii) modify, terminate, or waive or relinquish any right under any Seller Inbound License or Seller Outbound License;
(o) not adopt a plan or agreement of complete or partial liquidation, dissolution or merger or amend any Charter Document of Seller to the extent such amendment would prevent, impede or delay the consummation of the transactions contemplated hereby or otherwise adversely affect the Transferred Assets, Licensed IP or the Assumed Liabilities;
(p) pay the debts, Taxes and other Liabilities of the Cystinosis Business when due (other than those being contested in good faith and disclosed to Purchaser); and
(q) not authorize, approve, agree, commit, or offer to take any action inconsistent with the foregoing clauses (a) through (p).
Nothing contained in this Agreement shall give any Party, directly or indirectly, the right to control or direct the operations of the other Party prior to the Closing. Prior to the Closing, each Party shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Affiliates’ respective businesses and operations.
Section 5.3 Notification. During the Pre-Closing Period, the Seller shall promptly notify Purchaser in writing of: (a) the discovery of any event, condition, fact, or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a material breach of or a material inaccuracy in any representation or warranty made by the Seller in this Agreement that, individually or in the aggregate with any other inaccuracies, would reasonably be expected to cause any of the conditions set forth in Section 7.1 not to be satisfied; (b) any event, condition, fact or circumstance that occurs, arises, or exists after the date of this Agreement and that would cause or constitute a breach of or an inaccuracy in any representation or warranty made by the Seller in this Agreement that, individually or in the aggregate with any other inaccuracies, would reasonably be expected to cause any of the conditions set forth in Section 7.1 not to be satisfied if (i) such representation or warranty had been made as of the time of the occurrence, existence, or discovery of such event, condition, fact, or circumstance or (ii) such event, condition, fact, or circumstance had occurred, arisen, or existed on or prior to the date of this Agreement; (c) the commencement of or, to the Knowledge of the Seller, any threat to commence, any Legal Proceeding that challenges or that, if adversely determined, would reasonably be expected to have the effect of preventing, materially delaying, making illegal, or otherwise materially interfering with any Contemplated Transaction; (d) any material breach of any covenant or obligation of the Seller; and (e) any event, condition, fact, or circumstance that would make the timely satisfaction of any condition set forth in Article 7 impossible or unlikely. No such notification shall be deemed to supplement or amend the Disclosure Schedule for the purpose of (x) determining the accuracy of any representation or warranty made by the Seller in this Agreement or (y) determining whether any condition set forth in Article 7 has been satisfied.
Section 5.4 No Negotiation. During the Pre-Closing Period, the Seller shall not, and shall ensure that each Representative of the Seller shall not, (a) solicit, initiate, seek, encourage, accept or otherwise facilitate the initiation or submission of any expression of interest, inquiry, proposal, offer from, or
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agreement with any Person (other than Purchaser) relating to, or which may be reasonably expected to lead to, a possible Acquisition Transaction; (b) participate or engage in any discussions, conversations, negotiations, or other communications or enter into any agreement, understanding, or arrangement with, or provide any information to, any Person (other than Purchaser or its Representatives) relating to, or which may be reasonably expected to lead to, a possible Acquisition Transaction or otherwise assist or cooperate with any Person (other than Purchaser) in connection with a possible Acquisition Transaction; (c) provide any Confidential Information to any Person (other than Purchaser) regarding any possible Acquisition Transaction or (d) entertain or accept any proposal or offer from any Person (other than Purchaser) relating to a possible Acquisition Transaction. The Seller shall, and the Seller shall cause its Representatives to, immediately cease and cause to be terminated any discussions and negotiations with any person conducted heretofore with respect to any Acquisition Transaction, or proposal or offer that would reasonably be expected to lead to any Acquisition Transaction. The Seller will promptly inform the individuals and entities referred to in the preceding sentence of the obligations undertaken in this Section 5.4. The Seller will promptly request from each person that has executed a confidentiality agreement in connection with its consideration of making an Acquisition Transaction (other than the currently contemplated bona fide financing) within the past [***] months to return or destroy (as provided in the terms of such confidentiality agreement) all confidential information concerning the Cystinosis Business, Transferred Assets, or Licensed IP and promptly terminate all physical and electronic data access previously granted to such person. During the Pre-Closing Period, the Seller shall promptly (and in any event within [***] hours after receipt thereof) provide Purchaser notice orally and in writing of any inquiry, indication of interest, proposal, offer, or request for information relating to a possible Acquisition Transaction that is received by the Seller or any of its Representatives during the Pre-Closing Period, and the name of such Person and the material terms of any such communication (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements).
Section 5.5 Restrictive Covenants.
(a) Restriction on Competition. Each Restricted Party agrees that, during the Restricted Period, such Restricted Party shall not, and shall ensure that its Affiliates do not (except with Purchaser’s prior written consent), (i) engage directly or indirectly in Competition in any part of the Restricted Territory, or (ii) directly or indirectly be or become an officer, director, member, stockholder, owner, co-owner, Affiliate, partner, promoter, employee, agent, Representative, consultant, advisor, or manager of, for, or to, or acquire or hold any direct or indirect interest in, any other Person (including any division, parent company or Subsidiary thereof) that engages directly or indirectly in Competition in any part of the Restricted Territory; provided, however, that a Restricted Party may, without violating this Section 5.5(a), own, as a passive investment, the voting securities of a public company that engages in Competition if: (x) such securities are actively traded on an established securities market; (y) the number of voting securities of such company that are owned beneficially by such Restricted Party, together with the number of voting securities of such company that are owned beneficially by Affiliates of such Restricted Party, represent, in the aggregate, less than [***] percent ([***]%) of the total number of outstanding voting securities of such company; and (z) neither such Restricted Party nor any Affiliate thereof shall be otherwise associated directly with such company or with any Affiliate of such company in a manner that otherwise violates this Section 5.5(a); provided, further, that Seller may engage in an Acquisition Transaction with a Person who engages in Competition in any part of the Restricted Territory so long as (A) such Person is not engaged in gene therapy for cystinosis and (B) any Restricted Party related to the Acquisition Transaction who is an individual shall not engage directly or indirectly in such Competition.
(b) Non-Interference; Non-Solicitation.
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(i) Each Restricted Party agrees that, during the Restricted Period, such Restricted Party shall not, and shall ensure that its Affiliates do not, directly or indirectly, personally or through others, intentionally interfere or attempt to intentionally interfere with the relationship of Purchaser or any of Purchaser’s Affiliates with any Specified Business Contact.
(ii) Each Restricted Party agrees that, at all times hereafter, such Restricted Party shall not, and shall ensure that its Affiliates do not libel, slander, or disparage Purchaser or any Affiliate of Purchaser in any manner that would reasonably be expected to be harmful to Purchaser or any of its Affiliates or the Cystinosis Business. Purchaser agrees that, during the Restricted Period, Purchaser shall not, and Purchaser shall direct its Affiliates not to, libel, slander, or disparage any Restricted Party or any Affiliate thereof in any manner that would be expected to be harmful to any Restricted Party or any Affiliates thereof or to the reputation of any Restricted Party or any Affiliates thereof.
(c) Confidentiality. From and after the date of this Agreement, in addition to any other obligations of confidentiality that any Restricted Party may be subject to with respect to the Cystinosis Business, Transferred Assets, Licensed IP, the Contemplated Transactions, or in connection with any limited liability company, employment, consulting, or confidentiality agreement between such Restricted Party and Purchaser or any Affiliate thereof, which is similar in form and substance to the confidentiality terms set forth in this Section 5.5(c), each Restricted Party shall keep confidential, and shall ensure that each Affiliate and Representative of the Seller and such Restricted Party keeps confidential, at all times after the date of this Agreement, all Confidential Information and all information concerning the Contemplated Transactions and the Transaction Documents, except (i) if required to be disclosed by applicable Legal Requirement or judicial process, but only to the extent it must be so disclosed, in each case after prior consultation with Purchaser so that Purchaser may seek an appropriate protective Order or waive such Restricted Party’s compliance with this Agreement (and, if Purchaser seeks a protective Order, such Restricted Party shall cooperate and shall cause its Affiliates and Representatives to cooperate, as Purchaser shall reasonably request at Purchaser’s expense); or (ii) except with respect to Personal Information, to the extent that such Confidential Information or other information is or has been made generally available to the public other than through improper disclosure by a Restricted Party or any Affiliate or Representative of the Seller. In the event that any Confidential Information is required to be disclosed by a Restricted Party in order to comply with any applicable Legal Requirement or judicial process, such Restricted Party shall (x) consult with Purchaser so that Purchaser may seek an appropriate protective Order, and (y) if Purchaser seeks a protective Order, cooperate as Purchaser shall reasonably request, at Purchaser’s expense. No Restricted Party shall use, and each Restricted Party shall ensure that such Restricted Party’s Representatives do not use, any Confidential Information at any time following the date of this Agreement, other than to the extent necessary for such Restricted Party’s performance of its obligations under this Agreement.
(d) Acknowledgements. Each Restricted Party hereby agrees and acknowledges that (i) the restrictions imposed upon such Restricted Party under this Section 5.5 are reasonable and necessary to protect Purchaser’s legitimate business interests and the goodwill or customer relationships of the Cystinosis Business; (ii) the geographic scope of the Restricted Territory is reasonable and necessary to protect Purchaser’s legitimate business interests; (iii) if such Restricted Party is an individual, such Restricted Party’s experience and capabilities are such that such Restricted Party can earn a living without breaching the terms and conditions of this Agreement; (iv) the restrictions contained in this Section 5.5 are fair and reasonable under the circumstances and do not limit fair competition; (v) the duration, area, and
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scope of the covenants contained in this Section 5.5 have been considered by such Restricted Party and such Restricted Party has received independent legal counsel with respect thereto; and (vi) such Restricted Party, either alone or through its Affiliates, has received sufficiently high consideration and other benefits as a result of the Contemplated Transactions, and such consideration and other benefits justify the covenants contained in this Section 5.5.
(e) Specific Performance. Notwithstanding anything in this Agreement to the contrary, each Restricted Party agrees that, in the event of any breach, attempted breach, or threatened breach by such Restricted Party of any covenant, obligation, or other provision set forth in this Section 5.5: (i) Purchaser or one of the other Beneficiaries may suffer irreparable harm which cannot adequately be compensated for with monetary Damages; and (ii) Purchaser and each other Beneficiary shall be entitled, without proof of actual Damages (in addition to any other remedy that may be available to it, including monetary Damages) to seek: (A) a decree or Order of specific performance to enforce the observance and performance of such covenant, obligation, or other provision; and (B) an injunction restraining such breach, attempted breach, or threatened breach. Each Restricted Party further agrees that no Beneficiary shall be required to obtain, furnish, or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 5.5(e), and such Restricted Party irrevocably waives any right such Restricted Party may have to require any Beneficiary to obtain, furnish, or post any such bond or similar instrument.
(f) Severability. Notwithstanding anything in this Agreement to the contrary, any term or provision of this Section 5.5 that is illegal, invalid, or unenforceable in any situation in any jurisdiction shall not affect the legality, validity, or enforceability of the remaining terms and provisions of this Section 5.5 or the legality, validity, or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 5.5 is illegal, invalid, or unenforceable, the Parties agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any illegal, invalid, or unenforceable term or provision with a term or provision that is legal, valid, and enforceable and that comes closest to expressing the intention of the illegal, invalid, or unenforceable term or provision, and this Section 5.5 shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the Parties agree to amend this Section 5.5 to replace such illegal, invalid, or unenforceable term or provision with a legal, valid, and enforceable term or provision that shall achieve, to the extent possible, the economic, business, and other purposes of such illegal, invalid, or unenforceable term or provision and that comes closest to expressing the intention of the illegal, invalid, or unenforceable term or provision.
(g) Relationship to Other Covenants.
(i) Notwithstanding anything to the contrary in this Section 5.5, to the extent that any Restricted Party is subject to any restrictive covenant, which is similar in form and substance to the restrictive covenants set forth in this Section 5.5, in connection with any limited liability company, employment, consulting, non-compete or non-solicit agreement between such Restricted Party and the Seller or any Affiliate thereof that is not a Transferred Contract, the terms of this Section 5.5 shall supersede and control to the extent that such terms exceed the scope of the restrictive covenants set forth in such agreement.
(ii) Notwithstanding anything to the contrary in this Section 5.5, to the extent that any Restricted Party is subject to any restrictive covenant, which is similar in form and substance to the restrictive covenants set forth in this Section 5.5, in connection with any
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limited liability company, employment, consulting, non-compete or non-solicit agreement between such Restricted Party and Purchaser or any Affiliate thereof, including any agreement that is a Transferred Contract, the terms of such agreement shall supersede and control to the extent that such restrictive covenants exceed the scope set forth in this Section 5.5.
(h) For the avoidance of doubt, the provisions of this Section 5.5 will apply to all of the successors and assigns of Seller or its Affiliates. In the event that a majority of the business of Seller (other than the Cystinosis Business) is sold to any Person or Persons other than to Purchaser or its Affiliates, whether in one transaction or a series of transactions, then Seller will, in each such case, ensure that the successors and assigns of Seller will assume the obligations set forth in this Section 5.5.
Section 5.6 Ancillary Agreements. Prior to or at the Closing, the Seller shall execute and deliver to Purchaser all agreements and documents set forth in Article 7 as to be executed by the Seller.
Section 5.7 Seller Business After the Closing. Following the Closing, the Seller shall remain in existence and remain solvent as necessary to meet its obligations hereunder, including under Article 10 and with respect to all Excluded Liabilities. The Seller shall promptly pay all Excluded Liabilities when due.
Section 5.8 Payoff Letter. The Seller shall use reasonable best efforts to (a) obtain a customary pay-off letter or termination agreement (the “Debt Payoff Letter”), and lien terminations to the extent necessary for the release of all Liens related to, and the prepayment, payoff, discharge and termination in full of, all obligations (other than inchoate indemnity or other obligations which, by their express terms, survive termination of the Existing Loan Agreement) outstanding under the Loan and Security Agreement, dated as of November 2, 2021, by and among the Seller, Silicon Valley Bank, as administrative agent, collateral agent and a lender, SVB Innovation Credit Fund VIII, L.P., as a lender, and the other lenders from time to time party thereto (as may be amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Existing Loan Agreement”), (b) provide Purchaser with a copy of such Debt Payoff Letter at least [***] Business Days prior to the Closing and (c) give (by no later than the date required under the Existing Loan Agreement) any necessary notices (including notices of prepayment and/or notice of commitment termination) to allow for the prepayment, payoff, discharge and termination in full (other than inchoate indemnity or other obligations which, by their terms, survive termination of the Existing Loan Agreement) of the Existing Loan Agreement at the Closing upon the payoff of the obligations thereunder.
Article 6
CERTAIN COVENANTS OF THE PARTIES
Section 6.1 Filings and Consents.
(a) Governmental Filings. Each Party shall use its commercially reasonable efforts to file, as soon as practicable after the date of this Agreement, all notices, reports and other documents required or reasonably requested by the other Party to be filed by such Party with any Governmental Entity with respect to the Contemplated Transactions, and to submit promptly any additional information reasonably requested by any such Governmental Entity.
(b) Notification. Each Party shall promptly notify the other Party upon (i) the receipt of any communication from any official of any Governmental Entity in connection with any filing made in
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connection with any of the Contemplated Transactions; (ii) the commencement or threat of commencement of any Legal Proceeding by or before any Governmental Entity with respect to any of the Contemplated Transactions (and shall keep the other Party informed as to the status of any such Legal Proceeding or threat); and (iii) any request by any Governmental Entity for any amendment or supplement to any filing made in connection with any of the Contemplated Transactions or any information required to comply with any Legal Requirement applicable to any of the Contemplated Transactions. Whenever any event occurs that is required to be set forth in an amendment or supplement to any filing made pursuant to Section 6.1(a), each Party shall (promptly upon learning of the occurrence of such event) inform the other Party of the occurrence of such event and cooperate with the other Party in filing with the applicable Governmental Entity such amendment or supplement.
(c) Other Filings. Each Party: (i) shall make all filings (if any) and give all notices (if any) required to be made and given by such Party in connection with any Contemplated Transaction; and (ii) shall use its commercially reasonable efforts to obtain each Consent (if any) required to be obtained (pursuant to any applicable Legal Requirement or Contract, or otherwise) by such Party in connection with any Contemplated Transaction, including the Consents set forth on Schedule 2; provided, however, that, under no circumstances may the Seller pay a fee to any third party in order to obtain any Consent pursuant to this Section 6.1(c) without Purchaser’s prior written consent. Each such filing, and the form of each such notice or Consent, shall be subject to the prior review and reasonable approval of Purchaser.
Section 6.2 Announcements. Seller shall be permitted to issue a press release in form and substance reasonably acceptable by Purchaser promptly following the execution hereof (the timing of such press release to be established in consultation with Purchaser), and Seller shall provide Purchaser a meaningful opportunity to review and comment upon and to approve in writing such press release or public announcement in advance. Except as set forth in the prior sentence, Seller shall not, and shall cause its Affiliates and Representatives not to, issue any public report, statement or press release or otherwise make any public statement or disclosure to any Person with respect to this Agreement, the other Transaction Documents or the Contemplated Transactions, without Purchaser’s prior written consent (which consent shall be in Purchaser’s sole discretion), except as may be required by Legal Requirements or any national or international stock exchange regulations applicable to Seller (in which event Seller shall provide Purchaser a meaningful opportunity to review and comment upon such press release or public announcement in advance, to the extent reasonable under the circumstances). Purchaser may make any disclosures, announcements, public statements or issue any press releases in its sole discretion.
Section 6.3 Tax Matters.
(a) Purchaser and the Seller shall cooperate with each other in connection with the preparation of any Tax Return of, and with any audit examination or Legal Proceeding relating to any Liability for Taxes with respect to the Transferred Assets and Cystinosis Business for any Pre-Closing Tax Period or Straddle Period, including furnishing or making available during normal business hours records, personnel (as reasonably required), books of account, powers of attorney, or other materials reasonably necessary or useful for the preparation of any such Tax Return, the conduct of any audit examination, or the defense of any claim by any Taxing Authority relating to the imposition of any Tax; provided, however, that nothing in this Section 6.3(a) shall require Purchaser to provide the Seller with any consolidated, combined, unitary, or other Tax Return of Purchaser.
(b) All transfer, documentary, sales, use, stamp, registration, value added, and other such Taxes and fees (including any penalties and interest) except for Swiss VAT (including Swiss input VAT)
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incurred in connection with this Agreement (including any real property transfer Tax and any other similar Tax) (“Transfer Taxes”) shall be borne and paid by the Seller when due. The Seller shall, at its own expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Purchaser shall cooperate with respect thereto as necessary).
(c) The Parties agree, and will cooperate with each other, to comply with the filing of any tax related bulk sales notifications required in each jurisdiction in which it is obliged to do so prior to the due date of such filing before the Closing. The Parties further agree that Purchaser will comply with any directives from any Taxing Authority in response to such filing, and any amounts ordered to be withheld shall be deemed to have been paid to the Seller in satisfaction of Purchaser’s obligation to pay the Purchase Price unless otherwise required by applicable Legal Requirements.
(d) Liability for ad valorem real or personal property Taxes or other similar Taxes (but excluding, for the avoidance of doubt, Transfer Taxes), if any, attributable to the Transferred Assets and Cystinosis Business for a Straddle Period that includes but does not end on the Closing Date will be prorated between the Seller and Purchaser as of the Closing Date, with the Seller liable to the extent such items relate to any time period ending on or before the Closing Date and Purchaser liable to the extent such items relate to periods beginning after the Closing Date. For purposes of the preceding sentence, the amount of such Taxes that are allocable to the Seller shall be deemed to be the amount of such Taxes for the entire taxable period multiplied by a fraction, the numerator of which is the number of days in such taxable period ending on the Closing Date and the denominator of which is the number of days in the entire taxable period, and the amount of such Taxes allocable to Purchaser shall be determined in the same manner except that the numerator shall be the number of days in such taxable period subsequent to the Closing Date. Upon receipt of any bill for real or personal property Taxes levied with respect to the Transferred Assets, the Seller and Purchaser shall present a statement to the other setting forth the amount of reimbursement to which each is entitled under this Section 6.3(d), together with such supporting evidence as is reasonably necessary to calculate the proration amount. The proration amount shall be paid by the party owing it to the other within [***] days after delivery of such statement. In the event that either the Seller or Purchaser shall make any other payment for which it is entitled to reimbursement under this Section 6.3(d), the other party shall make such reimbursement promptly but in no event later than [***] days after the presentation of a statement setting forth the amount of reimbursement to which the presenting party is entitled along with such supporting evidence as is reasonably necessary to calculate the amount of reimbursement.
Section 6.4 Clinical Study Authorizations. The Parties will co-operate to transfer to Purchaser (or one of Purchaser’s Affiliates), on a country-by-country basis, the Clinical Study Authorizations held by the Seller or a member of the Seller Group as soon as practicable following Closing or (if later) on such date as Purchaser shall determine (in each relevant country, the “CSA Transfer”). Pending the CSA Transfer for a Clinical Study, the relevant member of the Seller Group will perform the Services (as defined in the Separation Services Agreement) in that country and retain the relevant Clinical Study Authorizations and responsibility for fulfilling the regulatory requirements in connection therewith in accordance with Legal Requirements.
Section 6.5 Commercially Reasonable Efforts. Purchaser and the Seller shall use their respective commercially reasonable efforts to take, or cause to be taken, all actions necessary to consummate the Acquisition and make effective the other Contemplated Transactions on a timely basis. Prior to the Closing, (a) the Seller shall use its commercially reasonable efforts to cause the conditions set forth in Article 7 to be satisfied on a timely basis and (b) Purchaser shall use its commercially reasonable efforts to cause the conditions set forth in Article 8 to be satisfied on a timely basis.
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Section 6.6 Employee Matters. The Seller shall, at its own expense, give all notices and other information required to be given to the Seller Associates, any labor or trade union, works council or any other employee representative body, and any applicable Governmental Entity under the WARN Act, the National Labor Relations Act, as amended, the Code, the Consolidated Omnibus Budget Reconciliation Act of 1985 and other Legal Requirements in connection with the execution of the Transaction Documents or the Contemplated Transactions.
Section 6.7 License.
(a) License Grant. Effective as of the Closing, Seller hereby grants and agrees to grant to Novartis Pharma AG an exclusive (subject to Section 6.7(c)), worldwide, irrevocable, perpetual, fully-paid up, royalty-free, sublicensable (through multiple tiers, in accordance with Section 6.7(b)), non-transferable (provided, that Novartis Pharma AG may assign its rights hereunder (x) to any Affiliate of Novartis Pharma AG, or (y) in connection with the transfer by Novartis Pharma AG of all or substantially all of the Transferred Assets) right and license under the Licensed IP, subject to Novartis Pharma AG’s obligations under Section 6.7(d), to use, disclose and otherwise exploit in any manner, all Licensed IP, in each case within the Field (including to (i) make, have made, use, sell, have sold, offer for sale, have offered for sale, import and have imported products and (ii) access, use, copy, modify and create derivative works of Licensed IP within the Field). All rights not expressly granted herein are reserved by Seller, and no other licenses are granted herein, by implication, estoppel or otherwise. Seller shall deliver to Novartis Pharma AG the Licensed IP in accordance with the terms of the Transaction Documents.
(b) Sublicensing. Novartis Pharma AG’s rights granted to it under Section 6.7(a) include the right to sublicense, through multiple tiers, pursuant to written sublicense agreements that are consistent with, and conform to, the applicable obligations and conditions of this Section 6.7, including obligations of confidentiality and non-use at least as stringent as those in this Section 6.7. Novartis Pharma AG shall be responsible for its sublicensees and shall not grant any rights which are inconsistent with the rights granted to and obligations of Novartis Pharma AG hereunder. Any act or omission of a sublicensee which would be a breach of this Section 6.7 if performed by Novartis Pharma AG with respect to the Licensed IP shall be deemed to be a breach by Novartis Pharma AG of this Agreement.
(c) Reservation of Rights. Seller reserves its rights to fully exploit the Licensed IP (a) outside the Field (other than in a manner that would limit or conflict with any license or other rights granted to Novartis Pharma AG hereunder), and (b) in the Field solely to perform Seller’s obligations under the Separation Services Agreement.
(d) Confidentiality.
(i) Novartis Pharma AG shall (A) maintain in confidence the Licensed IP with the same degree of care with which Novartis Pharma AG holds its own confidential information of similar kind and value (but in no event less than a commercially reasonable degree of care); (B) not disclose the Licensed IP to any Third Party without the prior written consent of Seller, except as otherwise expressly permitted in clause ii below, and (C) not use the Licensed IP except in connection with exercising the license granted to Novartis Pharma AG under Section 6.7(a) herein.
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(ii) Novartis Pharma AG may disclose the Licensed IP to Third Parties if and only to the extent such disclosure is reasonably necessary in the following instances (which instances shall be limited to the particular Licensed IP to which it applies):
(A) complying with requirements by Drug Governmental Entities in connection with Healthcare Submissions;
(B) complying with applicable court orders or governmental laws, rules, regulations or regulators, including those relating to securities laws; and
(C) disclosure to (I) its and its Affiliates’ consultants, contractors, and agents, and to sublicensees in each case on a need to know basis in connection with exercising the license granted to Novartis Pharma AG under Section 6.7(a) herein, and in each case who are under written obligations of confidentiality and non-use reasonably appropriate and customary for the circumstances, and (II) its and its Affiliates’ employees, in connection with exercising such license, in each case who are under written obligations of confidentiality and non-use set forth in Novartis Pharma AG’s or its Affiliates’ employee agreements.
(iii) Without limiting any other obligations it may have under the Transaction Documents, Seller agrees to maintain in confidence the Licensed IP with the same degree of care with which Seller holds its own other confidential information of similar kind and value (but in no event less than a commercially reasonable degree of care).
(e) Exceptions. Notwithstanding anything else herein to the contrary, all restrictions, limitations and obligations of Novartis Pharma AG under this Section 6.7 above or under Section 6.8 below shall (i) subject to clause ii below, be limited to only the Seller-proprietary elements of Licensed IP; and (ii) exclude any Know-How or Materials that (A) is or becomes generally known to the public other than due to breach of these nondisclosure obligations by Purchaser, (B) is rightfully in Novartis Pharma AG’s or its Affiliates’ possession at the time of disclosure without an obligation of confidentiality, (C) is independently developed by or on behalf of Novartis Pharma AG or its Affiliates without use of such Know-How or Materials, (D) is rightfully obtained by Novartis Pharma AG from a third party without restriction on use or disclosure, or (E) has been modified by or on behalf of Novartis Pharma AG other than by an immaterial modification.
(f) Additional Seller Obligations. If (i) Seller assigns or transfers to another Person, or grants to another Person any assertion rights under, any of the Licensed IP, or (ii) Seller or any of its Affiliates assigns or transfer to another Person, or grants to another Person any assertion rights under, any of the Other Seller IP, then Seller (and if applicable such Affiliate) shall require that such Person receives the Licensed IP, Other Seller IP, or assertion rights, subject to, and ensure that each such Person is bound by and agrees in writing to comply with, the license granted in this Section 6.7 and the covenant not to sue in Section 6.8 below, as if such Person were substituted for the Seller in this Section 6.7 and Section 6.8 below, and that such Person agrees to (A) perform the obligations described in this sentence if such Person assigns or transfers, or grants any assertion rights under, any of such Licensed IP or Other Seller IP, and (B) promptly provide Novartis Pharma AG with written notice describing such assignment, transfer or grant, including the identity of the recipient thereof.
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Section 6.8 Covenant Not to Sue. To the extent that Seller or its respective Affiliates owns or Controls, as of the Closing Date, any patent or other intellectual property rights other than the Licensed IP (together with any patent or other intellectual property rights resulting after the Closing Date and claiming or otherwise covering an invention developed or conceived by or on behalf of Seller or its current Affiliates prior to the Closing Date, “Other Seller IP”), that would be infringed, misappropriated or otherwise violated by the activities covered by the license granted to Novartis Pharma AG pursuant to Section 6.7(a), in such a case, from and after the Closing Date, Seller and its respective Affiliates shall not sue, assert any claim or counterclaim against, otherwise participate in any action or proceeding against Novartis Pharma AG or its Affiliates or sublicensees of the Licensed IP, or cause, assist, or authorize any Person to do any of the foregoing, in each case claiming or otherwise asserting that Novartis Pharma AG is infringing, misappropriating or otherwise violating (a) such Other Seller IP or (b) this Agreement, in connection with Novartis Pharma AG exercising the rights granted to it under Section 6.7. From and after the Closing Date, Seller and its respective Affiliates shall not sue, assert any claim or counterclaim against, otherwise participate in any action or proceeding against Novartis Pharma AG or its Affiliates, or cause, assist, or authorize any Person to do any of the foregoing, in each case claiming or otherwise asserting that Novartis Pharma AG or any of its Affiliates has violated or otherwise infringed or misappropriated the Licensed IP or this Agreement based upon any act by Purchaser, provided that the foregoing shall not apply to any acts by Novartis Pharma AG or its Affiliates in the research, development, manufacture, or commercialization of lentiviral-based gene therapy products for the treatment, diagnosis or prevention of Gaucher disease, Hunter syndrome, Pompe disease, or Fabry disease, or should Novartis Pharma AG or its Affiliates knowingly exploit the Licensed IP for such indications. For clarity, any reference to Novartis Pharma AG in this paragraph above shall include its Affiliates and sublicensees of the Licensed IP. In addition and for clarity, the benefit of the above covenants shall be extendable and extended, through multiple tiers, to Novartis Pharma AG’s sublicensees of the Licensed IP.
Section 6.9 Shared Contracts. From the Closing Date, the Parties and their Affiliates shall enter into or grant, and cause each Third Party counterparty to a Shared Contract to enter into or to grant, any such new agreements or consents as are reasonably necessary to permit Purchaser and its Affiliates to derive such benefits, and assume such obligations and economic burdens of such Shared Contract to the extent that such Shared Contract pertains to the Cystinosis Business, on an independent basis and to the extent such agreements or consents are not obtained prior to the Closing, in each case pursuant to the terms and conditions of the Separation Services Agreement; provided that none of Purchaser or any of its respective Affiliates shall be required to offer or grant any financial or non-financial accommodation in connection therewith. The Seller undertakes not to terminate, breach or commit a repudiatory breach of any Transferred Contract pending (i) an assignment of a Transferred Contract (or part of a Shared Contract or any applicable work order thereunder) or (ii) a determination by Purchaser that it does not elect to take an assignment of such Transferred Contract (or part of a Shared Contract or any applicable work order thereunder).
Section 6.10 Data Transition Plan. The Seller agrees to complete the actions required under the Data Transition Plan attached as Exhibit D hereto in accordance with the Separation Services Agreement.
Section 6.11 Continuity and Maintenance of Seller Product CSAs, Regulatory Activities, and Research Collaborations.
(a) The Seller shall use its commercially reasonable efforts to maintain all Seller Product CSAs until the effective transfer date of the Seller Product CSAs to Purchaser. The Seller shall not initiate any new CSAs submitted to a Drug Governmental Entity primarily related to the Seller Products or
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additional variations or amendments of any current Seller Product CSA, except (i) in the event they are indispensable for the manufacture, sale, marketing, distribution, or other commercialization of any Seller Product; (ii) required by a Drug Governmental Entity; or (iii) upon Purchaser’s written request. The Seller shall keep Purchaser informed on a reasonably current basis of any material developments (including the occurrence of any serious Adverse Event relating to any Seller Product or the Seller Gene Therapy Platform), or any material submissions to, discussions or negotiations with Drug Governmental Entities or other Third Parties including Collaboration Partners, exclusively relating to the Cystinosis Business.
(b) The Seller shall (i) consult with Purchaser and reasonably promptly inform Purchaser, and provide Purchaser with a reasonable opportunity to review, (in the case of filings, submissions, new CSAs submitted to a Drug Governmental Entity, new agreements with Collaboration Partners, amendments to existing agreements with Collaboration Partners, correspondence or other written communications or materials), as far in advance as is reasonably practicable under the circumstances, and consider in good faith Purchaser’s comments to or in connection with, any material meetings, filings, submissions, correspondence or other activities or communications made by or on behalf of any Seller to or with the FDA or any other Drug Governmental Entity exclusively relating to the Cystinosis Business, and (ii) reasonably promptly inform Purchaser and provide Purchaser with a reasonable opportunity (but no fewer than [***] Business Days) to comment, in each case, prior to making any material change to any study protocol or clinical trial, initiating or adding any new clinical trial, making any material change to a manufacturing plan or process, making any material change to a development timeline or initiating, or making any material change to, promotional or marketing materials or activities exclusively relating to the Cystinosis Business.
(c) If any Governmental Entity asks Purchaser for safety information related to other products developed or manufactured using the Seller Gene Therapy Platform, the Parties will cooperate in good faith to respond to the Governmental Entity’s request.
Section 6.12 CSA Cross-References. The Seller shall grant to Purchaser a right of cross reference (or such analogous right as is recognized outside of the United States) to all safety information contained in each CSA currently held by or later opened by the Seller related to the Seller Gene Therapy Platform. Purchaser shall grant to the Seller a right of cross reference (or such analogous right as is recognized outside of the United States) to all safety information contained in each CSA acquired by Purchaser from the Seller or later opened by Purchaser for the Seller Product. The obligations set forth in this Section 6.12 shall survive until 11:59 PM ET on the date that is [***] years after the Closing Date. For the avoidance of doubt, this Section 6.12 shall not require the Seller or Purchaser to maintain such CSAs in active form with any Drug Governmental Entity.
Section 6.13 Safety Monitoring. As soon as reasonably practicable, and in no event longer than [***] days after the Closing Date, the Parties shall execute a Safety Data Exchange Agreement to cover the terms for exchange of verified Safety Signals for the Seller Gene Therapy Platform. For clarity, the Parties are solely responsible for the detection, validation, prioritization, assessment, and management of Safety Signals related to their respective products, including any determination of whether the Safety Signal or issue requires further investigation and/or regulatory action.
Article 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
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The obligations of Purchaser to cause the Contemplated Transactions to be consummated are subject to the satisfaction (or waiver by Purchaser), at or prior to the Closing, of each of the following conditions:
Section 7.1 Accuracy of Representations. (a) Each Fundamental Representation and the representations and warranties in Section 3.5(b) made by the Seller in this Agreement shall be accurate in all respects at and as of the Closing (other than any such Fundamental Representation that by its terms is made as of a specific earlier date, which shall have been accurate in all respects as of such earlier date); and (b) each representation and warranty made by the Seller in this Agreement (other than the Fundamental Representations) shall be accurate in all material respects at and as of the Closing (other than any such representation or warranty that by its terms is made as of a specific earlier date, which shall have been accurate in all material respects as of such earlier date); provided, that, except for the representations and warranties in Section 3.5(b), for purposes of determining the accuracy of any such representation or warranty, any materiality, Material Adverse Effect, or similar qualifications in such representation or warranty shall be disregarded.
Section 7.2 Performance of Covenants. Each covenant and obligation that the Seller is required to comply with or to perform at or prior to the Closing under this Agreement shall have been complied with and performed in all material respects.
Section 7.3 Governmental and Other Consents.
(a) Governmental Consents. All filings with and Consents of any Governmental Entity required to be made or obtained in connection with any Contemplated Transaction shall have been made or obtained and shall be in full force and effect.
(b) Other Consents. All Consents identified on Schedule 2, each in form and substance reasonably acceptable to Purchaser, shall have been obtained and shall be in full force and effect.
(c) No Restraint on Business. No action shall have been taken by any Governmental Entity, and no Legal Requirement or Order (whether temporary, preliminary, or permanent) shall have been enacted, adopted, or issued by any Governmental Entity, in connection with any Contemplated Transaction that has the effect of limiting or restricting the ownership, conduct, or operation of the business of Purchaser or any of its Affiliates, or the effect of limiting or restricting the ownership, conduct, or operation of the Cystinosis Business or any Transferred Asset or Licensed IP following the Closing.
Section 7.4 No Material Adverse Effect. There shall not have occurred since the date of this Agreement any Material Adverse Effect.
Section 7.5 Agreements and Documents. Purchaser shall have received the following agreements and documents, each of which shall be in full force and effect (or conditioned upon Closing), as applicable:
(a) a certificate, duly executed by the chief executive officer of the Seller, certifying that the conditions set forth in Section 7.1, Section 7.2 and Section 7.4, have been duly satisfied (the “Business Closing Certificate”);
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(b) an opinion of counsel to the Seller, in a form reasonably acceptable to Purchaser stating that the vote and approval of the stockholders of the Seller is not required in connection with the Contemplated Transactions under Legal Requirements and the Seller Organizational Documents.
(c) a certificate of good standing (or equivalent thereof) of the Seller dated no earlier than [***] Business Days prior to the Closing Date from the Secretary of State of the State of Delaware;
(d) an IRS Form W-9, duly executed by the Seller;
(e) duly executed copies of each of the Consents identified on Schedule 2, each in form an substance reasonably acceptable to Purchaser, which are in full force and effect;
(f) the Debt Payoff Letter executed by the lenders of the Indebtedness set forth therein, and written evidence, in form satisfactory to Purchaser in its sole discretion, that all Liens on the Transferred Assets, other than Permitted Liens, including those set forth on Schedule 3, have been released in full, including by filing termination statements with respect to all UCC financing statements and otherwise satisfying the requirements of Section 7.5(f);
(g) copies of the resolutions of the board of directors of the Seller, certified by an officer of the Seller, as to the authorization of the Transaction Documents and the Contemplated Transactions;
(h) the Bill of Sale, duly executed by the Seller;
(i) the Separation Services Agreement, duly executed by the Seller; and
(j) such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Purchaser, as may be required to give effect to the Transaction Documents.
Section 7.6 Lien Releases. The Seller shall secure Lien releases, duly executed by the applicable lender(s) (or administrative agent if applicable), providing that at or prior to the Closing all Liens (other than Permitted Liens), including those set forth on Schedule 3, relating to the Transferred Assets will be released. The Seller shall take such actions (and the Seller shall bear all cost and expense) as may be necessary to facilitate the release at or prior to the Closing of any Liens (other than Permitted Liens) relating to the Transferred Assets, including by filing UCC financing statement terminations with respect to all UCC financing statements and otherwise satisfying the requirements in Section 5.8.
Section 7.7 No Restraints. No temporary restraining order, preliminary or permanent injunction, or other Order preventing or otherwise impeding the consummation of the Acquisition shall have been issued by any court of competent jurisdiction or other Governmental Entity and remain in effect, and there shall not be any applicable Legal Requirement enacted or deemed applicable to the Acquisition that makes the consummation of the Acquisition illegal.
Section 7.8 No Legal Proceedings. No Governmental Entity or other Person shall have commenced any Legal Proceeding that remains pending, or shall have threatened to commence any Legal Proceeding: (a) challenging any Contemplated Transaction; (b) seeking recovery of a material amount of Damages in connection with any Contemplated Transaction; (c) seeking to prohibit or limit the exercise by Purchaser of any material right pertaining to any Transferred Asset; or (d) that would reasonably be
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expected to have the effect of preventing, delaying, making illegal, or otherwise interfering with any Contemplated Transaction.
Section 7.9 Delivery of Copy of Data Room. Prior to the Closing, the Seller shall use its reasonable best efforts to deliver to Purchaser, on one or more USB electronic storage devices, a complete and accurate electronic copy of the Data Room, which shall include all documents and other materials included in the Data Room at the time of, or at any time prior to, the Closing (including all documents and other materials included in the Data Room on, or at any time prior to, the date hereof).
Article 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
The obligation of the Seller to consummate the Contemplated Transactions is subject to the satisfaction (or waiver by the Seller), at or prior to the Closing, of the following conditions:
Section 8.1 Accuracy of Representations. Each representation and warranty made by Purchaser in this Agreement shall be accurate in all material respects at and as of the Closing (other than any such representation or warranty that by its terms is made as of a specific earlier date, which shall have been accurate in all material respects as of such earlier date); provided, that for purposes of determining the accuracy of any such representation or warranty, any materiality, material adverse effect or similar qualifications in such representation or warranty shall be disregarded.
Section 8.2 Performance of Covenants. Each covenant and obligation that Purchaser is required to comply with or to perform at or prior to the Closing under this Agreement shall have been complied with and performed in all material respects.
Section 8.3 Agreements and Documents. The Seller shall have received the following agreements and documents, each of which shall be in full force and effect:
(a) a certificate duly executed on behalf of Purchaser by an officer of Purchaser, certifying that the conditions set forth in Section 8.1 and Section 8.2 have been satisfied;
(b) the Bill of Sale, duly executed by Purchaser; and
(c) the Separation Services Agreement, duly executed by Purchaser.
Section 8.4 No Restraints. No temporary restraining order, preliminary or permanent injunction, or other Order preventing the consummation of the Acquisition shall have been issued by any court of competent jurisdiction or other Governmental Entity and remain in effect, and there shall not be any applicable Legal Requirement enacted or deemed applicable to the Acquisition that makes the consummation of the Acquisition illegal.
Section 8.5 Governmental and Other Consents.
(a) Governmental Consents. All filings with and Consents of any Governmental Entity required to be made or obtained in connection with any Contemplated Transaction shall have been made or obtained and shall be in full force and effect.
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(b) No Restraint on Business. No action shall have been taken by any Governmental Entity, and no Legal Requirement or Order (whether temporary, preliminary, or permanent) shall have been enacted, adopted, or issued by any Governmental Entity, in connection with any Contemplated Transaction that has the effect of limiting or restricting the ownership, conduct, or operation of the business of Purchaser or any of its Affiliates, or the effect of limiting or restricting the ownership, conduct, or operation of the Seller or any Affiliate thereof following the Closing.
Section 8.6 No Legal Proceedings. No Governmental Entity or other Person (other than Purchaser or Purchaser’s Affiliates) shall have commenced any Legal Proceeding that remains pending, or shall have threatened to commence any Legal Proceeding: (a) challenging any Contemplated Transaction; (b) seeking recovery of a material amount of Damages in connection with any Contemplated Transaction; or (c) that would reasonably be expected to have the effect of preventing, delaying, making illegal, or otherwise interfering with any Contemplated Transaction.
Article 9
TERMINATION
Section 9.1 Termination Events. This Agreement may be terminated prior to the Closing:
(a) by the mutual written consent of Purchaser and the Seller;
(b) by Purchaser, at any time after the End Time, if (i) the Closing has not taken place on or before the End Time and (ii) any condition set forth in Article 7 has not been satisfied or waived as of the time of termination (in each case, other than as a result of any failure on the part of Purchaser to comply with or perform any covenant or obligation of Purchaser set forth in this Agreement or in any other Transaction Document or instrument delivered to the Seller in connection with the Contemplated Transactions, in all material respects);
(c) by the Seller, at any time after the End Time, if (i) the Closing has not taken place on or before the End Time and (ii) any condition set forth in Article 8 has not been satisfied or waived as of the time of termination (in each case, other than as a result of any failure on the part of the Seller to comply with or perform any covenant or obligation set forth in this Agreement or in any other Transaction Document or instrument delivered to the Seller in connection with the Contemplated Transactions, in all material respects);
(d) by Purchaser or the Seller if: (i) a court of competent jurisdiction or other Governmental Entity shall have issued a final and nonappealable Order or shall have taken any other action, having the effect of permanently restraining, enjoining, or otherwise prohibiting the Acquisition; or (ii) there shall be any applicable Legal Requirement enacted, promulgated, issued, or deemed applicable to the Acquisition by any Governmental Entity that would make consummation of the Acquisition illegal;
(e) by Purchaser if (i) any representation or warranty made by the Seller in this Agreement shall be inaccurate as of the date of this Agreement, or shall have become inaccurate as of a date subsequent to the date of this Agreement, such that any condition set forth in Section 7.1 would not be satisfied; or (ii) any covenant of the Seller contained in this Agreement shall have been breached such that any condition set forth in Section 7.2 would not be satisfied; provided, however, that if an inaccuracy in any representation or warranty made by the Seller in this Agreement as of a date subsequent to the date of this Agreement or a breach of a covenant by the Seller is curable by the Seller through the use of
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commercially reasonable efforts within [***] days after Purchaser notifies the Seller in writing of the existence of such inaccuracy or breach (the “Seller Cure Period”), then Purchaser may not terminate this Agreement under this Section 9.1(e) as a result of such inaccuracy or breach prior to the expiration of the Seller Cure Period; provided, further, that the Seller continues to exercise commercially reasonable efforts during the Seller Cure Period to cure such inaccuracy or breach (it being understood that Purchaser may not terminate this Agreement pursuant to this Section 9.1(e) with respect to such inaccuracy or breach if such inaccuracy or breach is cured prior to the expiration of the Seller Cure Period); or
(f) by the Seller if: (i) any representation or warranty made by Purchaser in this Agreement shall be inaccurate as of the date of this Agreement, or shall have become inaccurate as of a date subsequent to the date of this Agreement, such that any condition set forth in Section 8.1 would not be satisfied; (ii) any covenant of Purchaser contained in this Agreement shall have been breached such that any condition set forth in Section 8.2 would not be satisfied; provided, however, that if an inaccuracy in any representation or warranty made by Purchaser in this Agreement as of a date subsequent to the date of this Agreement or a breach of a covenant by Purchaser is curable by Purchaser through the use of commercially reasonable efforts within [***] days after the Seller notifies Purchaser in writing of the existence of such inaccuracy or breach (the “Purchaser Cure Period”), then the Seller may not terminate this Agreement under this Section 9.1(f) as a result of such inaccuracy or breach prior to the expiration of the Purchaser Cure Period; provided, further, that Purchaser continues to exercise commercially reasonable efforts during the Purchaser Cure Period to cure such inaccuracy or breach (it being understood that the Seller may not terminate this Agreement pursuant to this Section 9.1(f) with respect to such inaccuracy or breach if such inaccuracy or breach is cured prior to the expiration of the Purchaser Cure Period).
Section 9.2 Termination Procedures. If Purchaser wishes to terminate this Agreement pursuant to Section 9.1, Purchaser shall deliver to the Seller a written notice stating that Purchaser is terminating this Agreement and setting forth a brief description of the basis on which Purchaser is terminating this Agreement. If the Seller wishes to terminate this Agreement pursuant to Section 9.1, the Seller shall deliver to Purchaser a written notice stating that the Seller is terminating this Agreement and setting forth a brief description of the basis on which the Seller is terminating this Agreement.
Section 9.3 Effects of Termination. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the Parties under this Agreement shall terminate and there shall be no liability of any Party to any other Party; provided, however, that: (a) no Party shall be relieved of any obligation or liability arising from any prior material breach by such party of any representation and warranty, or any willful breach by such party of any covenant or obligation, contained in this Agreement, or fraud; and (b) the Parties shall, in all events, remain bound by and continue to be subject to the provisions set forth in Section 5.5(c), Section 6.2 and Article 11 and the Confidentiality Agreement.
Article 10
INDEMNIFICATION
Section 10.1 Indemnification by the Seller. Subject to the limitations set forth herein, from and after the Closing, the Seller shall be liable for, and shall indemnify Purchaser, Purchaser’s Affiliates and each of their respective officers, directors, employees, stockholders, members, agents, and Representatives (the “Purchaser Indemnitees”) against, and hold them harmless from, any and all Damages suffered or incurred by such Purchaser Indemnitees (without duplication for any indemnification that may be sought under more than one (1) clause of this Section 10.1) resulting from:
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(a) any breach of any representation or warranty made by the Seller in this Agreement (other than Fundamental Representations) or in any certificate delivered pursuant to this Agreement;
(b) any breach of any Fundamental Representation made by the Seller in this Agreement or in any certificate delivered pursuant to this Agreement;
(c) any breach of any obligation, covenant, or agreement of the Seller contained in any Transaction Document;
(d) regardless of the disclosure of any matter set forth on the Disclosure Schedule, (i) any Liability of or with respect to the Seller for any Tax, together with any Damages arising out of, in connection with, or incidental to the determination, assessment, or collection of any Tax for any taxable period, including any Tax as a result of any transferee or successor liability; (ii) any Tax imposed on or with respect to any Purchaser Indemnitee with respect to any Transferred Asset, Licensed IP or the Cystinosis Business, for any Pre-Closing Tax Period or for the portion of any Straddle Period ending on the Closing Date (as determined in accordance with Section 6.3(d)); (iii) any Liability or Damages resulting from the inaccuracy in or breach of any representation or warranty set forth in Section 3.7 (Taxes); or (iv) any Transfer Taxes pursuant to Section 6.3(c);
(e) any fraud on the part of or committed by the Seller or any Representative of the Seller in connection with or relating directly or indirectly to (i) the negotiation, execution, delivery, or performance of this Agreement or any other Transaction Document, or (ii) any of the Contemplated Transactions;
(f) regardless of the disclosure of any matter set forth on the Disclosure Schedule, any Liability arising out of those matters set forth on Schedule 4;
(g) any Excluded Asset or Excluded Liability or any business of the Seller and its Affiliates other than the Cystinosis Business; and
(h) the gross negligence or willful misconduct of the Seller in connection with granting Purchaser the rights hereunder with respect to the Licensed IP.
Section 10.2 Indemnification by Purchaser. From and after the Closing, Purchaser shall be liable for, and shall indemnify the Seller, the Seller’s Affiliates and each of their respective officers, directors, employees, stockholders, members, agents, and Representatives (the “Seller Indemnitees”) against, and hold them harmless from, any and all Damages suffered or incurred by such Seller Indemnitees (without duplication for any indemnification that may be sought under more than one (1) clause of this Section 10.2) resulting from:
(a) any breach of any representation or warranty made by Purchaser in this Agreement or in any certificate delivered pursuant to this Agreement;
(b) any breach of any obligation, covenant, license, or agreement of Purchaser contained in this Agreement (including with respect to the Licensed IP);
(c) any Assumed Liability; and
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(d) any Third Party Claim arising out of the gross negligence or willful misconduct of Purchaser with respect to the Licensed IP.
Section 10.3 Certain Limitations.
(a) Notwithstanding anything to the contrary in this Agreement, but subject to Section 10.3(b), (i) Seller shall not be required to indemnify any Purchaser Indemnitee, nor shall Seller have any liability under Section 10.1(a), unless the total amount of all Damages exceeds the Tipping Basket Amount, then the Purchaser Indemnitees shall be entitled to be indemnified against and compensated and reimbursed for the entire amount of such Damages, and not merely the portion of such Damages exceeding the Tipping Basket Amount; provided, that, subject to Section 10.3(b), Seller shall not be required to indemnify any Purchaser Indemnitee, nor have any liability, under Section 10.1(a), in the aggregate in excess of [***]% of the Purchase Price; and (ii) Purchaser shall not be required to indemnify any Seller Indemnitee, nor shall Purchaser have any liability under Section 10.2(a), unless the total amount of all Damages exceeds the Tipping Basket Amount, then the Seller Indemnitees shall be entitled to be indemnified against and compensated and reimbursed for the entire amount of such Damages, and not merely the portion of such Damages exceeding the Tipping Basket Amount; provided, that, subject to Section 10.3(b), Purchaser shall not be required to indemnify any Seller Indemnitee, nor have any liability, under Section 10.2(a), in the aggregate in excess of [***]% of the Purchase Price.
(b) Subject to Section 10.3(c), (i) the Seller shall not be required to indemnify any Purchaser Indemnitee, nor shall the Seller have any liability, under Section 10.1(b), Section 10.1(c), Section 10.1(d), Section 10.1(f) and Section 10.1(h) in the aggregate in excess of the cash amounts actually received by the Seller under this Agreement, and (ii) Purchaser shall not be required to indemnify any Seller Indemnitee, nor shall Purchaser have any liability, under Section 10.2(b) or Section 10.2(d) in the aggregate in excess of the cash amounts actually received by the Seller under this Agreement.
(c) Notwithstanding anything in this Article 10 to the contrary, the limitations set forth in Section 10.3(a) and Section 10.3(b) shall not apply to Damages arising out of, relating to, or in connection with (i) any liability under Section 10.1(e) or Section 10.1(g), or (ii) any liability under Section 10.2(c).
Section 10.4 Survival of Representations, Warranties, and Covenants. The representations, warranties, covenants, and agreements contained in this Agreement and in any certificate delivered pursuant to this Agreement shall survive as follows:
(a) each Fundamental Representation, and the right of any Indemnified Party to seek indemnification in connection with a breach thereof in accordance with this Article 10, shall survive until the date that is [***] days after the expiration of the longest statute of limitations (as it may be extended) applicable thereto (as such statute of limitations pertains to the subject matter thereof or to the ability of Purchaser or any third party to make a claim relating to a breach thereof, whichever is later);
(b) the representations and warranties in Article 3 (other than the Fundamental Representations) and Article 4, and the right of any Indemnified Party to seek indemnification in connection with a breach thereof in accordance with this Article 10, shall survive until 11:59 PM ET on the date that is [***] months after the Closing Date; and
(c) all obligations, covenants, and agreements contained in this Agreement, and the right of any Indemnified Party to seek indemnification in connection with a breach thereof in accordance with this Article 10, shall survive for (i) in the case of any obligation, covenant, or agreement to be fully
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performed prior to or at the Closing, 11:59 PM ET on the date that is [***] months after the Closing Date, and (ii) in the case of any obligation, covenant, or agreement to be fully performed following the Closing, 11:59 PM ET on the date that is [***] days following the last date upon which such covenant or obligation could be fully performed.
Section 10.5 Termination of Indemnification. No Indemnifying Party shall have liability hereunder for Damages with respect to any representation, warranty, covenant, or agreement, unless a claim in writing for indemnification in respect thereof has been delivered to such Indemnifying Party by the Indemnified Party in accordance with Section 10.7 prior to the expiration of the survival periods set forth in Section 10.4 with respect to the representation, warranty, covenant, or agreement to which they pertain. Notwithstanding any provision to the contrary contained in this Agreement, an Indemnifying Party’s indemnification obligation under this Article 10 shall continue as to any matter as to which a claim for indemnification is submitted in writing to the Indemnifying Party prior to the relevant expiration date in accordance with Section 10.7 and any such representation, warranty, covenant, or agreement subject to such indemnification claim shall continue to survive until such time as the matter is resolved.
Section 10.6 Nature of Remedies.
(a) Except as otherwise provided in Section 10.6(c), the Parties acknowledge that their sole and exclusive monetary remedy after the Closing with respect to any claims relating to, arising under, or resulting from this Agreement, and the sole and exclusive monetary remedy available to any Purchaser Indemnitee or Seller Indemnitee after the Closing with respect to any claims relating to, arising under, or resulting from this Agreement, shall be pursuant to the indemnification provisions set forth in this Article 10; provided that notwithstanding the foregoing, nothing in this Section 10.6 shall limit the right of any Party to pursue an action for or to seek remedies with respect to claims for fraud. Subject to Section 11.9, in furtherance of the foregoing, each Party hereby waives, from and after the Closing, to the fullest extent permitted under applicable Legal Requirements, any rights, claims, and causes of action for Damages it may have against the other Parties arising under this Agreement or any certificate delivered in connection herewith, except pursuant to the indemnification provisions set forth in this Article 10.
(b) To the extent permitted by applicable Legal Requirements, payments made in respect of Damages under this Agreement shall be treated by all Parties as adjustments to the aggregate consideration paid for the Transferred Assets.
(c) In calculating the amount of Damages suffered or incurred by a Party for which indemnification is sought hereunder, there shall be deducted the amount of any insurance actually paid to such Party as a result of any such Damages (net of any increase in premiums actually imposed by the applicable insurance carrier as a result of the occurrence of such Damages, the impact of any applicable deductibles, and all costs and Expenses incurred in recovering such insurance proceeds).
(d) Notwithstanding any other provision of this Agreement, for purposes of calculating Damages hereunder and for purposes of determining the failure of any representations or warranties to be true and correct, any materiality and Material Adverse Effect qualifications shall be disregarded.
(e) The right of indemnification provided under this Article 10 and any other remedy based on the representations, warranties, covenants, and agreements contained in this Agreement shall not be affected by any investigation conducted at any time, or any knowledge acquired (or capable of being
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acquired) at any time, whether before or after the Closing Date, with respect to the accuracy or inaccuracy of, or compliance or noncompliance with, any such representation, warranty, covenant, or agreement.
Section 10.7 Procedures.
(a) Third Party Claims.
(i) In order for a Person (the “Indemnified Party”) to be entitled to any indemnification provided for under this Article 10 in respect of, arising out of, or involving a claim made by any third Person against the Indemnified Party (a “Third Party Claim”), such Indemnified Party shall notify the Person obligated to provide indemnification under this Article 10 (the “Indemnifying Party”) in writing of such Third Party Claim promptly (but no later than [***] calendar days after receiving notice of the Third Party Claim) following receipt by such Indemnified Party of written notice of such Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided under this Agreement except to the extent the Indemnifying Party shall have actually been materially prejudiced as a result of such failure and then only to the extent of such prejudice. Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, following the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to such Third Party Claim.
(ii) If a Third Party Claim is made against an Indemnified Party, the Indemnifying Party shall be entitled to assume the defense thereof by written notice to the Indemnified Party within [***] Business Days after the Indemnifying Party’s receipt of the notice of such Third Party Claim contemplated by Section 10.7(a)(i) with counsel selected by the Indemnifying Party; provided, that such counsel is not reasonably objected to by the Indemnified Party; provided, further, that notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume control of such defense, compromise or settlement of any such Third Party Claim and, instead, shall pay the reasonable legal fees, costs, and Expenses of counsel retained by the Indemnified Party if (A) the claim for indemnification relates to or arises in connection with any criminal or other proceeding, action, indictment, allegation, or investigation by a Governmental Entity, (B) the claim seeks an injunction or equitable relief against the Indemnified Party, (C) the Indemnifying Party failed or is failing to reasonably prosecute or defend such claim and such claim, together with all other then outstanding and unresolved claims, could reasonably be expected to give rise to Damages that are more than the remaining amount indemnifiable by such Indemnifying Party with respect to such claims pursuant to this Article 10, (D) in the Indemnified Party’s reasonable judgment based upon a written opinion from such Indemnified Party’s counsel, a conflict of interest between the Indemnified Party and the Indemnifying Party exists with respect to the claim, (E) the claim is by a customer, supplier or licensor, the loss of the commercial relationship with whom would be material to the Indemnified Party or the Cystinosis Business or (F) the Third Party Claim seeks monetary damages and the sum of the amount of the monetary damages would reasonably be expected to be greater than the maximum amount from which the Indemnifying Party is required to indemnify the Indemnified Party pursuant to this Article 10.
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(iii) If the Indemnifying Party assumes the defense of a Third Party Claim, (A) the Indemnifying Party shall not be liable to the Indemnified Party for any legal Expenses subsequently incurred by the Indemnified Party in connection with the defense thereof and (B) the Indemnified Party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party shall control such defense. The Indemnifying Party shall be liable for the fees, costs, and Expenses of counsel employed by the Indemnified Party for any period during which the Indemnifying Party has not assumed the defense thereof, including in respect of a Third Party Claim, the defense of which the Indemnifying Party was not entitled to assume or continue in accordance with the second proviso of the first sentence of this Section 10.7(a)(iii). If the Indemnifying Party assumes the defense of a Third Party Claim, all the Indemnified Parties shall cooperate in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the Indemnifying Party’s request) the provision to the Indemnifying Party of records and information that are reasonably relevant to such Third Party Claim and making employees available on a mutually convenient basis to provide additional information and explanation of any materials provided hereunder, and the Indemnified Party shall keep the Indemnifying Party reasonably informed regarding the status of any such Third Party Claim. No Party shall admit any liability with respect to, or settle, compromise, or discharge any Third Party Claim without the other applicable Parties’ prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed). The Indemnified Party shall not agree to any settlement, compromise, or discharge of a Third Party Claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld, and provided that the Indemnifying Party shall be deemed to consent to any such compromise or settlement if it does not respond to notice of such proposed compromise or settlement within [***] Business Days.
(iv) The indemnification with respect to an Indemnifying Party’s obligation to pay legal fees and other costs and Expenses of defense of a Third Party Claim required by this Article 10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense of such Third Party Claim, as and when bills are received.
(v) All claims under this Article 10 other than Third Party Claims shall be governed by Section 10.7(b).
(b) Direct Claims. If any Indemnified Party should have a claim against any Indemnifying Party under this Article 10 that does not involve a Third Party Claim being asserted against or sought to be collected from such Indemnified Party (any such claim, a “Direct Claim”), the Indemnified Party shall deliver notice of such Direct Claim with reasonable promptness (but no later than [***] calendar days following the Indemnified Party becoming aware of such claim) to the Indemnifying Party (which notice shall set forth in reasonable detail the basis upon which such Indemnified Party believes it is entitled to indemnification pursuant to this Article 10 and the estimated amount of Damages, if reasonably practicable, it is seeking recovery from the Indemnified Party); provided, that the failure to give such notification shall not affect the indemnification provided under this Agreement except to the extent the Indemnifying Party shall have actually been materially prejudiced as a result of such failure and then only to the extent of such prejudice. If the Indemnifying Party does not notify the Indemnified Party within [***] days following its receipt of such notice that the Indemnifying Party disputes its liability to the Indemnified
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Party under the applicable provisions of this Article 10, such Direct Claim specified in such notice shall be conclusively deemed a liability of the Indemnifying Party under the applicable provision of this Article 10, and the Indemnifying Party shall pay the amount of such liability to the Indemnified Party on demand or, in the case of any notice in which the amount of the Direct Claim (or any portion thereof) is estimated, on such later date when the amount of such Direct Claim (or such portion thereof) becomes finally determined. If the Indemnifying Party has timely disputed its liability with respect to such Direct Claim as provided above, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute within the [***] day period after the Indemnifying party delivers notice of such dispute, and, if not resolved through negotiations within the [***] day period, then either Party may initiate a litigation in an appropriate court of competent jurisdiction with respect to the subject matter of such Direct Claim in accordance with this Agreement.
Section 10.8 Payment; Sources of Recovery.
(a) Payment. Upon a final determination (whether by mutual agreement or in any settlement or final non-appealable resolution pursuant to Section 10.7) of liability under this Article 10, any amounts so determined to be owing by:
(i) the Seller to any Purchaser Indemnitee shall be satisfied by direct payment within [***] Business Days after the date of such final determination, by wire transfer of immediately available funds to a bank account designated in writing by such Purchaser Indemnitee;
(ii) Purchaser to any Seller Indemnitee shall be satisfied by direct payment within [***] Business Days after the date of such final determination, by wire transfer of immediately available funds to a bank account designated in writing by such Seller Indemnitee.
(b) Payment of Non-Disputed Amounts. If there should be a dispute as to the amount or manner of determination of any indemnity obligation owed under this Agreement, the Indemnifying Party shall nevertheless pay, or cause to be paid, when due such portion of the Damages not subject to dispute.
Article 11
MISCELLANEOUS
Section 11.1 Further Assurances. Each Party shall execute and cause to be delivered to each other Party such instruments and other documents, and shall take such other actions, as such other Party may reasonably request (prior to, at, or after the Closing) for the purpose of carrying out or evidencing any of the Contemplated Transaction.
Section 11.2 Fees and Expenses. Subject to Article 10, each Party shall bear and pay all fees, costs, and Expenses that have been incurred or that are incurred in the future by such Party in connection with the Contemplated Transactions, including all fees, costs, and Expenses incurred by such Party in connection with or by virtue of: (a) the investigation and review conducted by Purchaser and its Representatives with respect to the Cystinosis Business (and the furnishing of information to Purchaser and its Representatives in connection with such investigation and review); (b) the negotiation, preparation, and review of this Agreement (including the Disclosure Schedule) and all agreements, certificates and other instruments and documents delivered or to be delivered in connection with the Contemplated Transactions;
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(c) the preparation and submission of any filing or notice required to be made or given in connection with any Contemplated Transaction and the obtaining of any Consent required to be obtained in connection with any Contemplated Transaction; and (d) the consummation of the Acquisition.
Section 11.3 Notices.
Any notices or other communications required or permitted under, or otherwise given in connection with, this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date delivered or sent if delivered in person or sent by email (provided confirmation of receipt of email is obtained), (b) on the Business Day after being sent by email if receipt is not confirmed according to prior subsection (a) on the date sent or (c) on the next Business Day if transmitted by nationally recognized overnight courier (providing proof of delivery), in each case addressed to the applicable Party at the address set forth below; provided, that a Party may change its address for receiving notice by the proper giving of notice hereunder:
if to Novartis, to:
Novartis Pharma AG
Lichtstrasse 35
CH-4056 Basel, Switzerland
Attention: Head of C&BD
with copies to:
Novartis Pharma AG
Lichtstrasse 35
CH-4056 Basel, Switzerland
Attention: General Counsel
Novartis Pharmaceuticals Corporation
Lichtstrasse 35
CH-4056 Basel, Switzerland
Attention: Head of Legal
with a copy (which shall not constitute notice) to:
Hogan Lovells US LLP
555 Thirteenth Street, NW
Washington, DC 20004
Attention: Mahvesh Qureshi
Gabrielle Witt
Jessica Bisignano
Email: [***]
[***]
[***]
if to the Seller, to:
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AVROBIO, Inc.
100 Technology Square, 6th Floor
Cambridge, MA 02139 USA
Attention:
Erik Ostrowski, Chief Executive Officer
Steven Avruch, Chief Legal Officer
Email:
[***]
[***]
with a copy (which shall not constitute notice) to:
Goodwin Procter LLP
620 Eighth Avenue
New York, NY 10018
Attention: Mitchell S. Bloom
Beni Surpin
James Xu
Email: [***]
[***]
[***]
Section 11.4 Headings. The bold-faced headings and the underlined headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
Section 11.5 Counterparts and Exchanges by Electronic Transmission. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission in portable document format (PDF) by any electronic means shall be sufficient to bind the Parties to the terms of this Agreement.
Section 11.6 Governing Law.
(a) Governing Law. This Agreement, and any action, arbitration, suit, or other Legal Proceeding arising out of or relating to this Agreement (including the enforcement of any provision of this Agreement), any Contemplated Transaction, or the legal relationship of the Parties (whether at law or in equity, whether in contract or in tort, or otherwise), shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware, as to all matters, including matters of validity, construction, effect, enforceability, performance, and remedies and in respect of the statute of limitations or any other limitations period applicable to any claim, controversy, or dispute.
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(b) Forum and Venue. Except as otherwise provided in Article 10, any action, suit, or other Legal Proceeding arising out of or relating to this Agreement (including the enforcement of any provision of this Agreement), any Contemplated Transaction or the legal relationship of the Parties (whether at law or in equity, whether in contract or in tort, or otherwise), including an action, suit, or other Legal Proceeding based upon intentional misrepresentation, willful breach, willful misconduct, or fraud, shall be brought or otherwise commenced exclusively in the state or federal courts sitting in the State of Delaware, County of New Castle. Each Party: (i) expressly and irrevocably consents and submits to the jurisdiction of each state and federal court located in the State of Delaware, County of New Castle (and each appellate court located in the same) in connection with any such action, suit, or Legal Proceeding; (ii) agrees that each state and federal court located in the State of Delaware, County of New Castle shall be deemed to be a convenient forum; (iii) waives any objection that it may now or hereafter have to the jurisdiction or laying of venue of any action or Legal Proceeding arising out of or relating to this Agreement or any of the Contemplated Transactions in any such court; and (iv) agrees not to assert (by way of motion, as a defense, or otherwise), in any such action, suit, or Legal Proceeding commenced in any state or federal court located in the State of Delaware, County of New Castle, any claim that such Party is not subject personally to the jurisdiction of such court, that such action, suit, or Legal Proceeding has been brought in an inconvenient forum, that the venue of such action, suit, or Legal Proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court. The Parties hereby agree that mailing of process or other papers in connection with any such action, suit, or Legal Proceeding in the manner provided in Section 11.3 or in such other manner as may be permitted by applicable Legal Requirements shall be valid and sufficient service thereof.
Section 11.7 Successors and Assigns. This Agreement shall be binding upon: (a) Purchaser and its successors and assigns (if any) and (b) the Seller and its successors and permitted assigns (if any). This Agreement shall inure to the benefit of: (i) Purchaser; (ii) the Seller; and (iii) the respective successors and permitted assigns (if any) of the foregoing. Neither Purchaser nor the Seller shall be permitted to assign any of its rights or delegate any of its obligations under this Agreement without the other Party’s prior written consent; provided, that Purchaser may assign its rights, interests, and obligations hereunder without such prior written consent (x) to any Affiliate of Purchaser, or (y) in connection with the transfer by Purchaser of all or substantially all of the Transferred Assets. No assignments shall relieve the assigning Party of any of its obligations hereunder. Any attempted assignment or delegation by Purchaser or the Seller in violation of this Section 11.7 shall be null and void.
Section 11.8 Specific Performance. The Parties agree that a breach by any Party of any covenant, obligation, or other provision set forth in this Agreement may cause irreparable harm, and that in the event of any breach or threatened breach of this Agreement: (a) the other Party shall be entitled, without proof of actual Damages and without being required to prove that money Damages are an inadequate remedy (in addition to any other remedy that may be available to it) to (i) a decree or Order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation, or other provision and (ii) an injunction restraining such breach or threatened breach; and (b) the other Party shall not be required to provide any bond or other security in connection with any such decree, Order, or injunction or in connection with any related action, suit, or other Legal Proceeding.
Section 11.9 Waiver. No failure on the part of any Person to exercise any power, right, privilege, or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege, or remedy under this Agreement, shall operate as a waiver of such power, right, privilege, or remedy; and no single or partial exercise of any such power, right, privilege, or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege, or remedy. No Person shall be
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deemed to have waived any claim arising out of this Agreement, or any power, right, privilege, or remedy under this Agreement, unless the waiver of such claim, power, right, privilege, or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.
Section 11.10 Waiver of Jury Trial. Each Party hereby irrevocably waives, TO THE FULLEST EXTENT PERMITTED BY LAW, any right IT MAY HAVE to A trial by jury in any action, suit, or other LEGAL Proceeding directly or indirectly arising out of, under or related to this Agreement, any Contemplated Transaction or disputes related hereto. each party (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other party have been induced to enter into this agreement by, among other things, mutual waivers and CERTIFICATIONs in this Section 11.10.
Section 11.11 Amendments. This Agreement may not be amended, modified, altered, or supplemented, in whole or in part, other than by means of a written instrument, duly executed and delivered by Purchaser and the Seller.
Section 11.12 Severability. In the event that any provision of this Agreement, or the application of any such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void, or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void, or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by applicable Legal Requirements.
Section 11.13 Parties in Interest. No provision of this Agreement is intended to provide any rights or remedies to any employee, creditor, or other Person, other than Purchaser, the Seller, and their respective successors and permitted assigns (if any).
Section 11.14 Entire Agreement. This Agreement and the other agreements referred to herein set forth the entire understanding of the Parties relating to the subject matter hereof and thereof and supersede all prior agreements and understandings among or between any of the Parties relating to the subject matter hereof and thereof; provided, however, that the Confidentiality Agreement shall not be superseded by this Agreement and shall remain in effect in accordance with its terms until the earlier of (a) the Closing and (b) the date on which the Confidentiality Agreement is terminated or expires in accordance with its terms.
Section 11.15 Disclosure Schedule. The Disclosure Schedule shall be arranged in separate parts corresponding to the numbered and lettered Sections and sub-Sections contained in this Agreement, and the information disclosed in any numbered or lettered Section shall be deemed to relate to and to qualify only the particular representation or warranty set forth in the corresponding numbered or lettered Section or sub-Section of this Agreement, except to the extent that: (a) such information is cross-referenced on another Section of the Disclosure Schedule; or (b) it is reasonably apparent on the face of the disclosure (without reference to any document referred to therein or any independent knowledge on the part of the reader regarding the matter disclosed) that such information qualifies another representation or warranty of the Seller in this Agreement. The mere listing of a document or other item in, or attachment of a copy thereof to, the Disclosure Schedule shall not be deemed adequate to disclose an exception to a representation
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or warranty made in this Agreement (unless the representation or warranty pertains directly to the existence of the document or other item itself).
Section 11.16 Construction. For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders. The Parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party shall not be applied in the construction or interpretation of this Agreement. As used in this Agreement, the words “include” and “including”, and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation”. As used in this Agreement, the word “or” shall mean “and/or”. Except as otherwise indicated, all references to “Sections”, “Schedules”, and “Exhibits” in this Agreement or in any Schedule or Exhibit to this Agreement are intended to refer to Sections of this Agreement and Schedules and Exhibits to this Agreement, respectively. Any Contract, instrument, or statute defined or referred to in this Agreement or in Article 1 means such Contract, instrument, or statute, in each case as from time to time amended, modified, or supplemented, including (in the case of Contracts or instruments) by waiver or consent and (in the case of statutes) by succession or comparable successor statutes. Any Contract or instrument defined or referred to in this Agreement or in Article 1 shall include all exhibits, schedules, and other documents or Contracts attached thereto. Any statute defined or referred to in this Agreement or in Article 1 shall include all rules and regulations promulgated thereunder. The terms “hereof”, “herein”, “hereunder”, “hereby”, “herewith”, and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. Any period of time hereunder ending on a day that is not a Business Day shall be extended to the next Business Day. For all purposes of this Agreement, including any deadlines, delivery of notices or measurements of the period hereunder, a “day” shall mean 12:00 a.m. Eastern Time to 11:59 p.m. Eastern Time, on such day. Any references in this Agreement to “Dollars” or “$” shall be to U.S. dollars, unless otherwise specified. Unless otherwise specified in this Agreement, in computing any period of time described in this Agreement, the date that is the reference date in calculating such period, or the day of the act or event after which the designated period of time begins to run, will be excluded, and the last day of the period so computed will be included.
[Remainder of page intentionally left blank.]
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CONFIDENTIAL
IN WITNESS WHEREOF, the undersigned have executed and delivered this Asset Purchase Agreement as of the date first set forth above.
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PURCHASER: NOVARTIS PHARMACEUTICALS CORPORATION |
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By: |
/s/ Eduard Marti |
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Name: Eduard Marti Title: Treasurer
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NOVARTIS PHARMA AG |
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By: |
/s/ Susanne Kreutz |
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Name: Susanne Kreutz Title: Global Head, Corporate and Business Development
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NOVARTIS PHARMA AG |
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By: |
/s/ Antoine Audoly |
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Name: Antoine Audoly Title: Head, Finance M&A
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ACTIVE/123404471.12
CONFIDENTIAL
IN WITNESS WHEREOF, the undersigned have executed and delivered this Asset Purchase Agreement as of the date first set forth above.
SELLER: AVROBIO, INC. |
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By: |
/s/ Erik Ostrowski |
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Name: Erik Ostrowski Title: President, Interim Chief Executive Officer, Chief Financial Officer and Treasurer |
ACTIVE/123404471.12
EXHIBIT 10.1
AVROBIO, INC.
EXECUTIVE RETENTION PAYMENT AGREEMENT
This Executive Retention Payment Agreement (“Agreement”) is made as of the 26th day of June, 2023, between AVROBIO, Inc., a Delaware corporation (the “Company”), and Erik Ostrowski (the “Executive”).
WHEREAS, the Executive’s continued service and dedication to the Company is highly valued by the Company;
and
WHEREAS, to incentivize the Executive to remain employed with the Company, the Company desires to offer the Executive a cash retention bonus payment on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereby have executed this Agreement on June 26, 2023.
AVROBIO, INC.
26-Jun-2023
/s/ Bruce Booth
By: Bruce Booth
Its: Chairman of the Board
EXECUTIVE
27-Jun-2023
/s/ Erik Ostrowski
Erik Ostrowski
EXHIBIT 10.2
AVROBIO, INC.
EXECUTIVE RETENTION PAYMENT AGREEMENT
This Executive Retention Payment Agreement (“Agreement”) is made as of the 26th day of June, 2023, between AVROBIO, Inc., a Delaware corporation (the “Company”), and Steven Avruch (the “Executive”).
WHEREAS, the Executive’s continued service and dedication to the Company is highly valued by the Company;
and
WHEREAS, to incentivize the Executive to remain employed with the Company, the Company desires to offer the Executive a cash retention bonus payment on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereby have executed this Agreement on June 26, 2023.
AVROBIO, INC.
27-Jun-2023
/s/ Erik Ostrowski
By: Erik Ostrowski
Its: Interim CEO & CFO
EXECUTIVE
27-Jun-2023
/s/ Steven Avruch
By: Steven Avruch
EXHIBIT 10.3
AVROBIO, INC.
EXECUTIVE RETENTION PAYMENT AGREEMENT
This Executive Retention Payment Agreement (“Agreement”) is made as of the 26th day of June, 2023, between AVROBIO, Inc., a Delaware corporation (the “Company”), and Azadeh Golipour (the “Executive”).
WHEREAS, the Executive’s continued service and dedication to the Company is highly valued by the Company;
and
WHEREAS, to incentivize the Executive to remain employed with the Company, the Company desires to offer the Executive a cash retention bonus payment on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereby have executed this Agreement on June 26, 2023.
AVROBIO, INC.
27-Jun-2023
/s/ Erik Ostrowski
By: Erik Ostrowski
Its: Interim CEO & CFO
EXECUTIVE
27-Jun-2023
/s/ Azadeh Golipour
By: Azadeh Golipour
EXHIBIT 10.4
AVROBIO, INC.
EXECUTIVE RETENTION PAYMENT AGREEMENT
This Executive Retention Payment Agreement (“Agreement”) is made as of the 26th day of June, 2023, between AVROBIO, Inc., a Delaware corporation (the “Company”), and Essra Ridha (the “Executive”).
WHEREAS, the Executive’s continued service and dedication to the Company is highly valued by the Company;
and
WHEREAS, to incentivize the Executive to remain employed with the Company, the Company desires to offer the Executive a cash retention bonus payment on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereby have executed this Agreement on June 26, 2023.
AVROBIO, INC.
27-Jun-2023
/s/ Erik Ostrowski
By: Erik Ostrowski
Its: Interim CEO & CFO
EXECUTIVE
27-Jun-2023
/s/ Essrah Ridha
By: Essrah Ridha
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Erik Ostrowski, certify that:
Date: August 10, 2023 |
By: |
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/s/ Erik Ostrowski |
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Erik Ostrowski |
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President, Interim Chief Executive Officer, Chief Financial Officer and Treasurer (Principal Executive, Financial, and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AVROBIO, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge that:
Date: August 10, 2023 |
By: |
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/s/ Erik Ostrowski |
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Erik Ostrowski |
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President, Interim Chief Executive Officer, Chief Financial Officer and Treasurer (Principal Executive, Financial, and Accounting Officer) |
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