UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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)
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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, a 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.
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Smaller reporting company |
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Emerging growth company |
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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
As of August 3, 2022, the registrant had
Table of Contents
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Page |
PART I. |
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
2 |
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3 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
38 |
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Item 4. |
39 |
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PART II. |
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Item 1. |
40 |
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Item 1A. |
40 |
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Item 2. |
86 |
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Item 3. |
86 |
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Item 4. |
86 |
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Item 5. |
86 |
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Item 6. |
87 |
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89 |
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i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Quince Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share amounts)
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June 30, 2022 |
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December 31, 2021 (1) |
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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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Short term investments |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets, net |
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Long term investments |
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Goodwill |
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Intangible asset |
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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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Total current liabilities |
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Long-term financing lease liabilities |
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Long-term operating lease liabilities |
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Deferred tax liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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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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(1) The balance sheet as of December 31, 2021 is derived from the audited financial statements as of that date
See accompanying notes.
1
Quince Therapeutics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share amounts)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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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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Loss from operations |
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( |
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( |
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( |
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Interest income |
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Other expense, net |
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( |
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( |
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( |
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( |
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Net loss before income tax benefit |
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( |
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( |
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( |
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Income tax benefit |
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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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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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Unrealized loss on available for sales securities |
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( |
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( |
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( |
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( |
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Total comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per share - basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares of common stock outstanding - basic and diluted |
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See accompanying notes.
2
Quince Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share and per share amounts)
For the three months ended June 30, 2022 and 2021 |
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Common Stock |
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Additional |
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Accumulated Other |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Income / (Loss) |
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Deficit |
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Equity |
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Balance March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock on exercise of stock options and vesting of restricted stock units |
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— |
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— |
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— |
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Stock based compensation |
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— |
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— |
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— |
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— |
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Share issuance in connection with acquisition of Novosteo, Inc. |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Other comprehensive 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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( |
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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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( |
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Balance June 30, 2022 |
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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 March 31, 2021 |
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$ |
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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 |
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— |
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— |
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— |
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— |
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Other comprehensive 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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( |
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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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( |
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Balance June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes.
3
Quince Therapeutics, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share and per share amounts)
For the six months ended June 30, 2022 and 2021 |
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Common Stock |
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Additional |
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Other |
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Accumulated |
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Shareholders' |
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Shares |
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Amount |
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Capital |
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Income / (Loss) |
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Deficit |
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Equity |
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Balance January 1, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock in connection with open market sales agreement, net of issuance costs of $ |
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— |
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— |
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— |
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Issuance of common stock on exercise of stock options and vesting of restricted stock units |
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— |
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— |
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— |
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Stock based compensation |
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— |
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— |
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— |
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— |
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Share issuance in connection with acquisition of Novosteo, Inc. |
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— |
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— |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Other comprehensive 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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( |
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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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( |
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Balance June 30, 2022 |
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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 January 1, 2021 |
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$ |
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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 |
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— |
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— |
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— |
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— |
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Other comprehensive 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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( |
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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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( |
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Balance June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes.
4
Quince Therapeutics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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For The Six Months Ended June 30, |
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2022 |
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2021 |
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Cash flows from operating activities |
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Net 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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Non-cash rent expense |
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Stock based compensation |
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Depreciation and amortization |
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Impairment loss on operating lease |
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Loss on disposal of fixed assets |
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Amortization of premium on available for sale investments |
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Change in deferred tax liabilities due to acquisition of Novosteo, Inc. |
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( |
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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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( |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
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( |
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Net cash used in operating activities |
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( |
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( |
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Cash flow from investing activities: |
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Purchase of investments |
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( |
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( |
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Proceeds from maturities of investments |
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Cash acquired from Novosteo, Inc. |
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Proceeds from disposal of assets |
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Purchase of property and equipment |
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( |
) |
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( |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Payments of finance leases |
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( |
) |
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Proceeds from issuance of common stock upon exercise of stock options |
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Proceeds from issuance of common stock in connection with open market sales agreement, net of issuance costs |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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( |
) |
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Net increase (decrease) in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosures of non-cash information: |
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Net assets acquired of Novosteo, Inc. in exchange for common stock |
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$ |
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$ |
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Right-of-use assets obtained in exchange for new operating lease liabilities |
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$ |
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$ |
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Right-of-use asset and operating lease liability reduction as a result of lease modification |
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$ |
( |
) |
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$ |
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See accompanying notes.
5
Quince Therapeutics, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Organization
Description of Business
Effective August 1, 2022, Cortexyme Inc. changed its name to Quince Therapeutics, Inc (the "Company"). The Company was incorporated in the State of Delaware in and is headquartered in South San Francisco, California. In April 2021, the Company established a wholly owned subsidiary in Australia, Cortexyme Australia, Pty Ltd. The Company is a preclinical stage biopharmaceutical company advancing innovative precision therapeutics for debilitating and rare diseases. In May 2022, the Company completed the acquisition of Novosteo, Inc. ("Novosteo"), a Delaware corporation, a privately held biotech focused on targeted therapeutics to treat rare skeletal diseases, bone fractures, and injury. In addition to the skeletal disease candidate, the Company’s pipeline includes proprietary drug candidates for the treatment of Central Nervous System ("CNS") disorders including Alzheimer’s disease, oncology applications designed to prevent the development of oral squamous cell carcinoma, as well as for the treatment of underserved and chronic conditions like periodontitis. The Company’s pipeline also includes a proprietary irreversible protease inhibitor under development for the treatment of coronavirus infection.
Novosteo, Inc. Acquisition
On May 9, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Novosteo, Quince Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, Quince Merger Sub II, LLC, a Delaware limited liability company and a wholly owned subsidiary of Company, Novosteo, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the securityholders’ representative.. The transaction closed on May 19, 2022. Pursuant to the terms of the Merger Agreement, at the closing of the Acquisition ("Acquisition"), each share of capital stock of Novosteo that was issued and outstanding immediately prior to the Effective Time was automatically cancelled and converted into the right to receive
Pursuant to the Merger Agreement, upon the terms and subject to the conditions set forth therein, Merger Sub I merged with and into Novosteo (the “First Merger”), with Novosteo as the surviving entity in the First Merger (the “First Step Surviving Corporation”). Immediately following the First Merger, the First Step Surviving Corporation merged with and into Merger Sub II, with Merger Sub II surviving the Acquisition. Merger Sub II was renamed Novosteo, LLC and is a wholly-owned single member limited liability corporation. Novosteo, LLC has a wholly owned subsidiary in Australia, Novosteo Pty Ltd.
Company Management and Board Member Changes
On May 19, 2022, the Company appointed Dirk Thye, M.D., the Chief Executive Officer of Novosteo, as Chief Executive Officer of the Company, Karen Smith, M.D., Ph.D., the Chief Medical Officer of Novosteo, as Chief Medical Officer of the Company and Brendan Hannah, the Chief Operating Officer of Novosteo, as Chief Business Officer of the Company. The Company also agreed to expand its Board of Directors (the “Board”) to appoint Dr. Thye and Philip Low, Ph.D., each a director of Novosteo prior to the Acquisition, as a Class II and Class I director of the Board, respectively.
On May 20, 2022, the Company announced the departure of Caryn McDowell, the Company’s Chief Legal and Administrative Officer and Corporate Secretary, effective as of July 8, 2022 (the “CLO Departure Date”). In connection with the departure of Ms. McDowell from the Company, the Company entered into a transition agreement (the “CLO Separation Agreement”) with Ms. McDowell on May 19, 2022, providing for (i) a release of claims against the Company; (ii) cash severance payments of $
On June 8, 2022, Christopher Lowe resigned as a member of the Board. Mr. Lowe resigned from his roles as the Chief Financial Officer and Chief Operating Officer of the Company, effective as of June 10, 2022 (the “CFO Departure Date”). In connection with the departure of Mr. Lowe from the Company, the Company entered into a separation agreement (the “CFO
6
Separation Agreement”) with Mr. Lowe on June 10, 2022, providing for (i) a release of claims against the Company; (ii) cash severance payments of $
On June 9, 2022, the Company designated Ted Monohon, the Company’s Chief Accounting Officer and Vice President of Finance, as the principal financial officer, to fill the vacancy resulting from Mr. Lowe’s resignation from the Company. Mr. Monohon serves as the principal financial officer in addition to his role as a principal accounting officer.
On June 9, 2022, upon recommendation of the Nominating and Corporate Governance Committee of the Board, the Board appointed June Bray to serve as a Class III director of the Company, effective immediately, to fill the vacant directorship, until her successor is elected and qualified, or sooner in the event of her death, resignation or removal. Ms. Bray joined the class of directors whose term expires at the Company’s 2025 annual stockholders’ meeting.
On July 22, 2022, we announced the departure of Leslie Holsinger, Ph.D., the Executive Vice President of Research and Development, effective as of July 31, 2022 (the “EVP of Research Departure Date”). The Separation Agreement provides for (i) a release of claims against the Company, (ii) cash severance payments of $
Liquidity and Capital Resources
The Company has incurred losses and negative cash flows from operations since inception and expects to continue to generate operating losses for the foreseeable future. As of June 30, 2022, the Company had an accumulated deficit of $
Management expects to incur additional losses in the future to fund the Company's operations and conduct product research and development and may need to raise additional capital to fully implement its business plan. The Company may raise additional capital through the issuance of equity securities, debt financings or other sources including out-licensing or partnerships, in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates.
Note 2. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Quince Therapeutics, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to
7
the instructions of the SEC on Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the management’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.
The condensed consolidated balance sheet as of June 30, 2022, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021, and the financial data and other financial information disclosed in the notes to the condensed consolidated financial statements are unaudited. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Form 10-K filed with the SEC on March 1, 2022. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any other future annual or interim period.
Risks and Uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the
Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of the Company’s drug candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers. The Company’s drug candidates will require approvals from the U.S. Food and Drug Administration ("FDA") and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any drug candidate will receive the necessary approvals. On January 25, 2022, the Company received a letter from the FDA Division of Neurology 1 placing a full clinical hold on atuzaginstat (COR388) IND application. Other divisions of the FDA may impose a clinical hold on atuzaginstat (COR388) as the Company explores other indications for this drug, or otherwise limit the Company’s ability to proceed with other clinical programs in the Company's pipeline, which could have a materially adverse impact on the Company.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses, as well as related disclosure of contingent assets and liabilities. The most significant estimates used in the Company’s consolidated financial statements relate to the determination of the fair value of stock-based awards and other issuances, determination of the fair value of identifiable assets and liabilities in connection with the acquisition of Novosteo, Inc., including associated intangible assets and goodwill, accruals for research and development costs, useful lives of long-lived assets, stock-based compensation and related assumptions, the incremental borrowing rate for leases and income tax uncertainties, including a valuation allowance for deferred tax assets, eligibility of expenses for the Australia research and development refundable tax credits; and contingencies. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that it believes to be 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. Actual results could differ materially from the Company’s estimates.
Foreign Currency Translation and Transactions
The functional currency of two of the Company’s wholly-owned subsidiaries is the Australian Dollar. Its financial results and financial position are translated into U.S. dollars using exchange rates at balance sheet dates for assets and liabilities and using average exchange rates for income and expenses. The resulting translation differences are presented as a separate component of accumulated other comprehensive income (loss), as a separate component of equity.
Foreign currency transactions are translated into the functional currencies using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses, resulting from the settlement of such transactions and from the re-measurement of monetary assets and liabilities denominated in foreign currencies using exchange rates at balance sheet date and non-monetary assets and liabilities using historical exchange rates, are recognized in the consolidated statements of operations and comprehensive loss.
Significant Accounting Policies
There have been no significant changes to the accounting policies during the six months ended June 30, 2022, as compared to the significant accounting policies described in our Annual Report on Form 10-K other than as noted below:
8
Business Combinations
The Company accounts for business combinations using the acquisition method pursuant to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 805. This method requires, among other things, that results of operations of acquired companies are included in the Company's financial results beginning on the respective acquisition dates, and that identifiable assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using one of three valuation approaches, the income approach, the market approach or the cost approach. The Company reviewed the three valuation approaches and determined the income approach was the most appropriate model to approximate fair value for the Acquisition. The income approach model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of identifiable assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
Intangible Assets
Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. Intangible assets with an indefinite useful life are not amortized. Intangible assets acquired in a business combination or an acquisition that are used in research and development activities (regardless of whether they have an alternative future use) shall be considered indefinite lived until the completion or abandonment of the associated research and development efforts. Intangible assets acquired in a business combination are initially recorded at fair value. During the period that those assets are considered indefinite lived, they shall not be amortized but shall be tested for impairment. Once the research and development efforts are completed or abandoned, the entity shall determine the useful life of the assets. An intangible asset shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the intangible asset is less than its carrying amount, If that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the intangible asset. Qualitative factors to be considered include but are not limited to:
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired as of the acquisition date. Goodwill has an indefinite useful life and is not amortized. The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill.
The Company recognized
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash and cash equivalents. Cash equivalents, which consist of amounts invested in money market funds, are stated at fair value. There are
9
Fair Value Measurements
The fair value of the Company’s financial instruments reflects the amounts that the Company estimates that it would receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:
Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
Level 2 - Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly, including inputs in markets that are not considered to be active;
Level 3 - Inputs that are unobservable. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period.
ASU 2021-10, Disclosures by Business Entities about Government Assistance. In November 2021, the FASB issued ASU
2021-10, “Government Assistance (Topic 832)," which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, IFRS guidance in IAS 20 or guidance on contributions for not-for-profit entities in ASC 958-605). For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for annual reporting periods beginning after
Recent Accounting Pronouncements Not Yet Adopted
The following are new accounting pronouncements that the Company is evaluating for future impacts on its financial statements:
Financial Instruments—Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the principles around the recognition of credit losses by mandating entities incorporate an estimate of current expected credit losses when determining the value of certain assets. The guidance also amends reporting around allowances for credit losses on available-for-sale marketable securities. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which established that a one-time determination of the effective date for ASU 2016-13 would be based on the Company’s SEC reporting status as of November 15, 2019. The Company was a “smaller reporting company” as defined by Item 10 of Regulation S-K, and therefore, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of the guidance on its financial statements.
All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.
Note 3. Fair Value Measurements
The Company measures and reports its cash equivalents and investments at fair value.
Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classified as Level 2 inputs.
10
Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of June 30, 2022 and December 31, 2021 are presented in the following tables (in thousands):
|
|
Fair Value Measurements at June 30, 2022 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Certificates of Deposit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Government and agency notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Municipal notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial Paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Fair Value Measurements at December 31, 2021 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Certificates of Deposit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Government and agency notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Municipal notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table summarizes the available-for-sale securities (in thousands):
|
|
Fair Value Measurements at June 30, 2022 |
|
|||||||||||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair Value |
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Certificates of Deposit |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Government and agency notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Commercial Paper |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Municipal notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total cash equivalents and investments |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents (maturities within 90 days) |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Short-term investments (maturities within one year) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-term investments (maturities beyond 1 year) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total cash equivalents and investments |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
11
|
|
Fair Value Measurements at December 31, 2021 |
|
|||||||||||||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair Value |
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Certificates of Deposit |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Government and agency notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Municipal notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total cash equivalents and investments |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents (maturities within 90 days) |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Short-term investments (maturities within one year) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Long-term investments (maturities beyond 1 year) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total cash equivalents and investments |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
As of June 30, 2022, the remaining contractual maturities of available-for-sale securities was approximately 7 months. There have been no significant realized gains or losses on available-for-sale securities for the period presented. Based on the Company’s review of its available-for-sale securities, the Company has a limited number of available-for-sale securities in insignificant loss positions as of June 30, 2022,
The investments are classified as available-for-sale securities. At June 30, 2022 and December 31, 2021, the balance in the Company’s accumulated other comprehensive income was comprised primarily of activity related to the Company’s available-for-sale securities. There were
There were
12
Note 4. Cash, Cash Equivalents and Investments
The following tables categorize the fair values of cash, cash equivalents, short-term investments and long-term investments measured at fair value on a recurring basis on our balance sheets (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents: |
|
|
|
|
|
|
||
Cash |
|
$ |
|
|
$ |
|
||
Money market funds |
|
|
|
|
|
|
||
Repurchase agreements |
|
|
|
|
|
|
||
Government and agency notes |
|
|
|
|
|
|
||
Total cash and cash equivalents |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Short-term investments: |
|
|
|
|
|
|
||
Certificates of deposit |
|
$ |
|
|
$ |
|
||
Municipal notes |
|
|
|
|
|
|
||
Corporate notes |
|
|
|
|
|
|
||
Government and agency notes |
|
|
|
|
|
|
||
Commercial Paper |
|
|
|
|
|
|
||
Total short-term investments |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Long-term investments: |
|
|
|
|
|
|
||
Corporate notes |
|
$ |
|
|
$ |
|
||
Certificates of deposit |
|
|
|
|
|
|
||
Municipal notes |
|
|
|
|
|
|
||
Government and agency notes |
|
|
|
|
|
|
||
Total long-term investments |
|
$ |
|
|
$ |
|
||
Note 5. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Prepaid expenses |
|
$ |
|
|
$ |
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Prepaid research and development expenses |
|
|
|
|
|
|
||
Australia research and development refundable tax credit |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
Cortexyme Australia, Pty, Ltd is eligible to obtain a cash refund from the Australian Taxation Office for eligible R&D
expenditures under the Australian R&D Tax Incentive Program (the “Australian Tax Incentive”). The Australian Tax Incentive is recognized as a reduction to R&D expense when there is reasonable assurance that the relevant expenditure has been incurred, the amount can be reliably measured and the Australian Tax Incentive will be received. The Company recognized reductions to R&D expense of $
Novosteo Pty, Ltd is eligible to obtain a cash refund from the Australian Taxation Office for eligible R&D expenditures
under the Australian Tax Incentive as well. The Company will receive a refundable tax credit of $
13
Property and Equipment, Net
Property and equipment, net consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Computer equipment |
|
$ |
|
|
$ |
|
||
Lab equipment |
|
|
|
|
|
|
||
Finance lease right of use assets |
|
|
|
|
|
|
||
Leasehold improvement |
|
|
|
|
|
|
||
Office furniture |
|
|
|
|
|
|
||
Less: accumulated amortization and depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Personnel expenses |
|
$ |
|
|
$ |
|
||
Severance expense |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Research and development expenses |
|
|
|
|
|
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
|
||
Current portion of finance lease liability |
|
|
|
|
|
— |
|
|
Other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
In response to the reprioritization of the Company's pipeline following the clinical hold on atuzaginstat (COR388) IND
application, on February 2, 2022, the Board approved a cost reduction program to reorganize operations and allow continued support for the needs of the business. Under the cost reduction program, the Company is reducing headcount through a reduction in workforce. A majority of this reduction in force took place by June 30, 2022, and is expected that the remainder will be completed by July 2022. To be eligible for the severance payments, employees must remain with the Company through their communicated severance date. The Company is recognizing the severance and related expenses over the requisite employment obligation period.
|
|
June 30, |
|
|
|
|
2022 |
|
|
Beginning accrued severance |
|
$ |
|
|
Incurred during the period |
|
|
|
|
Severance paid during the period |
|
|
( |
) |
Ending accrued severance |
|
$ |
|
|
Note 6. Leases
Real Estate Operating Leases
In June 2018, the Company entered into a
The Company completed its IPO on May 13, 2019 and as a result, pursuant to the terms of the lease agreement, all previously unvested shares were fully vested and as part of the IPO process, all outstanding shares of the Company’s redeemable
14
convertible preferred stock including the Series B redeemable convertible preferred stock issued in connection with the lease agreement were converted into shares of the Company’s common stock on a
In May 2019, the Company entered into an amendment to the lease agreement to rent additional space in the same facility under the same terms as its existing facility lease except the terms of payment. Under the terms of the amendment, the Company paid a one-time fee of approximately $
In May 2020, the Company entered into a second amendment to the lease agreement to rent additional space in the same facility under the same terms as its existing facility lease except the terms of payment. Under the terms of the amendment, the Company paid rent monthly for the additional space and the lease agreement was set to terminate in
In May 2021, the Company entered into a third amendment to the lease agreement to extend the term of its existing
facility space to July 15, 2022 under the same terms as its existing facility lease except the terms of payment. The lease amendment provides for one-year extension period under the same terms. As a result of this amendment, the Company recognized an additional right-of-use asset and corresponding lease liability of $
In March 2022, in response to the reprioritization of the Company's pipeline following the clinical hold on atuzaginstat
(COR388) IND application, the Company has decided not to exercise the
In May 2020, the Company entered into a lease agreement to rent space in San Diego, California. The lease agreement is for
In June 2022, the Company entered into a Sublease Agreement to rent office space in South San Francisco, California.
The Sublease agreement commenced on June 18, 2022 and ends on November 30, 2023. The total payments under the term of the lease are expected to be approximately $
The Company recognizes lease expense on a straight-line basis over the term of its operating lease. As of June 30, 2022, total future rent expense from all real estate operating leases of $
Clinical Equipment Operating Lease
The Company uses certain vendor supplied equipment in connection with its on-going clinical trial. The Company has analyzed the vendor agreement and determined that it contains an embedded operating lease. The Company recognizes monthly the leases costs in our research and development expenses. The right of use asset and lease liability are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company’s lease does not provide an implicit rate. The Company used an adjusted historical incremental borrowing rate, based on the information available at the approximate lease commencement date, to determine the present value of lease payments. As of June 30, 2022, the lease expense has been fully recognized.
15
Equipment Financing Lease
As part of the Novosteo Acquisition the Company acquired a financing lease for lab equipment. The Company recognizes the depreciation expense in research and development expenses in the condensed consolidated statements of operations and comprehensive loss and recognizes expense on a straight-line basis starting when the equipment is placed into service until the end of the remaining contract term of
Supplemental balance sheet information related to leases as follows (in thousands except lease terms and discount rates):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Operating lease right of use asset, net |
|
$ |
|
|
$ |
|
||
Short-term operating lease liability |
|
|
|
|
|
|
||
Long-term |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance lease right of use asset |
|
|
|
|
|
|
||
Finance lease accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Total lease right of use asset, net |
|
$ |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted average remaining lease term |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
||||
Finance leases |
|
|
|
|
— |
|
||
|
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
|
— |
% |
|
|
|
|
|
|
|
|
||
Year ended December 31, |
|
Operating Lease |
|
|
Operating Lease |
|
||
2022 (excluding the six months ended June 30, 2022) |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
Total lease payments |
|
|
|
|
|
|
||
Less: imputed interest |
|
|
( |
) |
|
|
( |
) |
Total remaining lease liability |
|
$ |
|
|
$ |
|
||
Note 7. Stock-Based Compensation
The Company operates three stock plans as of June 30, 2022.
2019 Equity Incentive Plan (Quince)
On December 4, 2014, the Company’s stockholders approved the 2014 Stock Plan (“2014 Plan”), and most recently amended the 2014 Plan on April 25, 2019. The 2014 Plan was amended, restated and re-named the 2019 Equity Incentive Plan (the “Quince 2019 Plan”), which became effective as of May 7, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The remaining shares available for issuance under the 2014 Plan were added to the shares reserved for issuance under the Quince 2019 Plan.
The Quince 2019 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to the Company’s employees, directors, and consultants. The maximum aggregate number of shares that may be issued under the Quince 2019 Plan is
16
The Quince 2019 Plan may be amended, suspended or terminated by the Board at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the Quince 2019 Plan as required by applicable law or listing requirements. Unless sooner terminated by the Board, the Quince 2019 Plan will automatically terminate on April 23, 2029.
As of June 30, 2022, the Company had
Stock Options
Activity for service-based stock options under the Quince 2019 Plan is as follows:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
||||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Options cancelled / forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balance at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested and expected to vest as of June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options exercisable as of June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $
Performance Stock Options (“PSOs”)
The following table summarizes activity under the Company’s PSOs from the Quince 2019 Plan and related information:
|
|
Shares Subject to Outstanding PSOs |
|
|
Weighted |
|
|
Weighted average remaining contractual life (years) |
|
|||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|||
Surrendered |
|
|
( |
) |
|
$ |
|
|
— |
|
||
Vested |
|
— |
|
|
— |
|
|
— |
|
|||
Balance at June 30, 2022 |
|
— |
|
|
— |
|
|
— |
|
|||
In February 2022, the Company and certain executive officers agreed to voluntarily surrender
result of the surrender, the Company accelerated the total remaining expense on these options and recognized approximately $
In February 2022, the Company's Chief Executive Officer and Chief Scientific Officer resigned from the Company. As a
result, the
For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $
$
Restricted Stock Units (“RSUs”)
17
The following table summarizes activity under the Company’s RSUs from the Quince 2019 Plan and related information:
|
|
Quince 2019 Plan |
|
|||||
|
|
Restricted Stock Units Outstanding |
|
|||||
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested - December 31, 2021 |
|
|
|
— |
|
|||
RSUs granted |
|
|
|
|
$ |
|
||
RSUs vested |
|
|
( |
) |
|
$ |
|
|
RSUs cancelled |
|
|
( |
) |
|
$ |
|
|
Unvested - June 30, 2022 |
|
|
|
|
$ |
|
||
The fair value of the RSUs is determined on the grant date based on the fair value of the Company’s common stock. The
fair value of the RSUs is recognized as expense ratably over the vesting period of
For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of
$
2019 Equity Incentive Plan (Novosteo)
On May 19, 2022, in accordance with the term of the Merger Agreement, the Company assumed the 2019 Novosteo, Inc Equity Incentive Plan (the "2019 Novosteo Plan"). The 2019 Novosteo Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to the Novosteo legacy employees. On the closing date, each outstanding Novosteo stock option granted under Novosteo’s equity compensation plans was converted into a corresponding stock option with the number of shares underlying such option and the applicable exercise price adjusted based and adjusted into the right to purchase
The 2019 Novosteo Plan may be amended, suspended or terminated by the Board at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the 2019 Novosteo Plan as required by applicable law or listing requirements. Unless sooner terminated by the Board, the 2019 Novosteo Plan will automatically terminate on May 20, 2029.
As of June 30, 2022, the Company had
Activity for service-based stock options under the 2019 Novosteo Plan is as follows:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
||||
Balance at December 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options granted |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Options exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options cancelled / forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested and expected to vest as of June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Options exercisable as of June 30, 2022 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
18
For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $
On May 19, 2022, in accordance with the term of the Merger Agreement, the Company assumed a number of restricted stock awards ("RSAs") agreements with certain employees. Each outstanding Novosteo RSA was converted into a corresponding RSA with the number of shares underlying such RSA adjusted into
Restricted Stock Awards (“RSAs”)
|
|
Restricted Stock Awards Outstanding |
|
|||||
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
||
Unvested - December 31, 2021 |
|
|
|
— |
|
|||
RSAs granted |
|
|
|
|
$ |
|
||
RSAs vested |
|
|
( |
) |
|
— |
|
|
RSAs cancelled |
|
— |
|
|
— |
|
||
Unvested - June 30, 2022 |
|
|
|
|
$ |
|
||
For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $
2022 Inducement Plan
On May 9, 2022, the Company's stockholders approved
As of June 30, 2022, the Company had
Activity for service-based stock options under the 2022 Inducement Plan is as follows:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
||||
Balance at December 31, 2021 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options granted |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Options exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options cancelled / forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Options vested and expected to vest as of June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Options exercisable as of June 30, 2022 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
19
For the three and six months ended June 30, 2022, the Company recognized stock-based compensation expense of $
Stock-Based Compensation Expense
The following table summarizes employee and non-employee stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 and the allocation within the condensed consolidated statements of operations and comprehensive loss (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
General and administrative expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Employee Stock Purchase Plan
On April 24, 2019, the Board adopted its 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which was subsequently approved by the Company’s stockholders and became effective on May 7, 2019, the day immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code (the “Code”) for U.S. employees. In addition, the 2019 ESPP authorizes grants of purchase rights that do not comply with Section 423 of the Code under a separate non-423 component for non-U.S. employees and certain non-U.S. service providers. The Company has reserved
Note 8. Related Party Transactions
In the first quarter of 2021, the Company entered into one agreement with LifeSci Advisors, LLC for non-capital advisory
consulting services and was renewed during the first quarter of 2022. The Company’s Interim Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer, Christopher Lowe, has an investment in a sister entity to LifeSci Advisors, LLC whose business is unrelated to the services being offered by LifeSci Advisors, LLC to the Company. For the six months ended June 30, 2022 and 2021 the Company has incurred total expenses of $
David Lamond, Chairperson of the Board of Quince Therapeutics was a director and an equity holder in Novosteo, Inc.
which Quince acquired on May 19, 2022. The shares of Novosteo, Inc. beneficially owned by Mr. Lamond were automatically cancelled and converted into the right to receive shares of Quince common stock in accordance with the terms of the Merger Agreement. The respective boards of directors of Quince and Novosteo have approved the Merger Agreement, and the Novosteo’s stockholders adopted the Merger Agreement upon recommendation of the Novosteo board of directors. Mr. Lamond was not part of either company's special committees that evaluated the Acquisition and recused himself from board meetings where the Acquisition was discussed.
Philip Low, Board member of Quince Therapeutics, Inc., is employed as a professor at Purdue University. The Company
rents a lab facility and office space from Purdue Research Foundation, a private, nonprofit foundation of Purdue University. Purdue Research Foundation also owns
20
University and owned by Purdue Research Foundation. In addition, we are required to pay Purdue Research Foundation annual license maintenance fees, development milestones (up to $
On February 1, 2022, the Company announced that Casey C. Lynch stepped down as the chairperson of the Board and the
President and Chief Executive Officer, effective as of January 28, 2022. As of the effective date of her departure, Ms. Lynch held
On February 1, 2022, the Company announced that Stephen S. Dominy M.D. stepped down as a member of the Board and
the Chief Scientific Officer, effective as of January 28, 2022. As of the effective date of his departure, Dr. Dominy held
On May 2, 2022, the Company announced that Michael Detke, M.D., Ph.D. stepped down as the Chief Medical Officer of
the Company, effective as of May 2, 2022. As part of the severance agreement, the Company made a cash severance payment of $
On May 20, 2022, the Company announced that Caryn McDowell stepped down as the Chief Legal and Administrative
Officer and Corporate Secretary of the Company, effective as of July 8, 2022. As the effective date of her departure Ms. McDowell held
On June 8, 2022, the Company announced that Christopher Lowe stepped down as a member of the Board and the Chief
Financial Officer and Chief Operating Officer of the Company, effective as of June 10, 2022. As the effective date of his departure Mr. Lowe held
Note 9. Income Taxes
The Company has a history of losses and expects to record a loss in 2022.
The Company accounts for income taxes under ASC Topic 740 – Income Taxes. Under this standard, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The income tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate as adjusted for discrete items arising in that quarter. The effective income tax rate was
21
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") into law. On December 21, 2020, President Trump also signed into law the Consolidated Appropriations Act, 2021 ("CAA Act") which includes further COVID-19 economic relief and extension of certain expiring tax provisions. The Company has reviewed the aspects of these laws as it relates to the income taxes and has concluded that at this time, the CARES Act and CAA Act did not have material impact to the Company's 2021 provision for income taxes. The Company will continue to evaluate changes and revisions of the CARES Act and CAA Act and their impact on the Company’s financial position, results of operations and cash flows.
Note 10. Net Loss Per Share
The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the period presented due to their anti-dilutive effect:
|
|
June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Stock options issued and outstanding |
|
|
|
|
|
|
||
Performance stock options |
|
|
|
|
|
|||
Restricted stock units |
|
|
|
|
|
|
||
Restricted stock awards |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Note 11. Business Combination
On May 19, 2022, the Company completed the Acquisition. Pursuant to the terms of the Merger Agreement, at the closing of the Acquisition (the “Effective Time”), each share of capital stock of Novosteo (the “Novosteo Capital Stock”) that was issued and outstanding immediately prior to the Effective Time was automatically cancelled and converted into the right to receive
The Company has included the financial results of Novosteo in the condensed consolidated financial statements from the date of the Acquisition and recorded immaterial amounts of expenses and earnings since the period from May 19, 2022 through June 30, 2022. The transaction costs associated with the Acquisition were approximately $
The Company accounted for the Acquisition as a business combination in accordance with ASC Topic 805, Business Combinations ("ASC 805"). The Company applied the acquisition method, which requires the identifiable assets acquired and liabilities assumed be recorded at fair value with limited exceptions.
|
|
May 19, |
|
|
|
|
2022 |
|
|
Identifiable assets acquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Prepaid expenses and other current assets |
|
|
|
|
ROU asset |
|
|
|
|
Property and equipment |
|
|
|
|
Intangible assets |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
Net assets acquired |
|
$ |
|
|
Goodwill |
|
$ |
|
|
22
The final determination of the fair value of assets and liabilities will be completed within the one-year measurement period as required by ASC 805. The Novosteo, Inc. Acquisition will necessitate the use of this measurement period to adequately analyze and assess the factors used in establishing the fair values of the net assets acquired as of the acquisition date, primarily involving deferred tax liabilities.
The excess of the fair value of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes. Goodwill amounts are not amortized but are rather tested for impairment at least annually. Goodwill is not deductible for tax purposes.
The Intangible asset balance above is attributable to in-process research and development with an indefinite useful life.
The amounts of the Company's revenue and net loss included in the acquirer's condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021, and the unaudited pro forma revenue and net loss of the combined entity had the acquisition date been January 2, 2021 are as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Net loss |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
The 2022 supplemental pro forma earnings were adjusted to exclude $
Note 12. Intangible Assets
The intangible asset acquired as a result of the Acquisition consists of in-process research and development ("IPRD") related to NOV004, the Company's bone targeting molecule designed to accelerate fracture repair. The value of the IPRD was determined using discounted probable future cash flows. Significant assumptions used in determining the value of the intellectual property were:
Significant assumptions used in determining the value of the intellectual property include the initiation of clinical trials and NDA approval with respect to NOV004, probability of reaching various phases of development, costs and cost of goods sold, and the risk adjusted discount rate applied to the cash flows.
All intangible assets acquired in a business combination that are used in research and development activities are capitalized as indefinite-lived intangible assets. During the period that those assets are considered indefinite lived, they are not amortized but are tested for impairment. Once the research and development efforts are completed, the asset will be amortized over its remaining useful life. If the research and development efforts are abandoned, the intangible asset will be expensed in that period.
The following table provides details of the carrying amount of our indefinite-lived intangible asset (in thousands):
|
|
|
June 30, |
|
|
|
|
|
2022 |
|
|
Unamortized intangible assets: |
|
|
|
||
|
Goodwill |
|
$ |
|
|
|
In-process research and development |
|
$ |
|
|
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”), on March 1, 2022. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Quince,” “we,” “us” and “our” refer to Quince Therapeutics, Inc.and "our legacy assets" refer to atuzaginstat (COR388), COR588, COR852, and COR803, collectively.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations, adequacy of our cash resources and working capital, impact of COVID-19 pandemic on our research and development activities and business operations, and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this Quarterly Report in Part II, Item 1A -“Risk Factors,” and in our Annual Report on Form 10-K for the year ended December 31, 2021 and elsewhere in this Quarterly Report on Form 10-Q and in other filings we make with the SEC from time to time. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. These forward-looking statements speak only as of the date hereof. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a preclinical stage biopharmaceutical company focused on advancing innovative precision therapeutics for debilitating and rare diseases. The company discovered a broad bone-targeting drug platform designed to precisely deliver small molecules, peptides, or large molecules directly to the site of bone fracture and disease to promote more rapid healing with fewer off-target safety concerns compared to non-targeted therapeutics. Our discovery pipeline is positioned for rapid expansion across multiple skeletal therapeutic indications to address underserved therapeutic areas with major, unmet medical needs, including osteogenesis imperfecta, fractures, spinal fusion, and other severe bone diseases. Additionally, our pipeline includes small molecule therapeutics available for out-licensing that target the infectious pathogen P. gingivalis’ role in degenerative disease progression, including for indications such as Alzheimer’s disease, periodontal disease, and oral potentially malignant disorders, , among others.
Business Acquisition
On May 19, 2022, we acquired all of the equity voting interests and completed the acquisition of Novosteo, Inc. ("Novosteo"), a Delaware corporation, pursuant to that certain Agreement and Plan of Merger and Reorganization dated as of May 9, 2022, by and among the Company, Quince Merger Sub I, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, Quince Merger Sub II, LLC, a Delaware limited liability company and a wholly owned subsidiary of Company, Novosteo, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the securityholders’ representative. To affect this transaction a combination of transactions was executed with the intention of being treated as integrated steps in a single transaction resulting in Novosteo being a wholly owned subsidiary of the Company.
Pursuant to the terms of the Merger Agreement, at the closing of the Acquisition (the “Effective Time”), each share of capital stock of Novosteo that was issued and outstanding immediately prior to the Effective Time was automatically cancelled and
24
converted into the right to receive 0.0911 shares of common stock, par value $0.001 per share. We issued 5,520,000 shares of common stock representing approximately 15.5% of outstanding stock on the completion of the Acquisition. We also assumed 507,108 options to purchase shares of our common stock upon conversion of the outstanding Novosteo options with awards retaining the same vesting and other terms and conditions as in effect immediately prior to consummation of the Acquisition.
In conjunction with the Acquisition, we appointed Novosteo executives Dirk Thye, M.D. as Chief Executive Officer, Dr. Karen Smith, M.D., Ph.D. as Chief Medical Officer and Brendan Hannah as Chief Business Officer. We also appointed Dr. Thye and Phillip S. Low, Ph.D. to our Board of Directors as Class II and Class I directors, respectively.
From our inception, we have been focused on novel therapeutic approaches to improve the lives of patients diagnosed with Alzheimer’s and other degenerative diseases. Our company was initially founded on the seminal discovery of the presence of Porphyromonas gingivalis, or P. gingivalis, and its secreted toxic virulence factor proteases, called gingipains, in the relevant brain areas of both Alzheimer's and Parkinson's disease patients. The acquisition of Novosteo, and the addition of new executive management has allowed us to strategically shift focus and prioritize the internal development of our innovative bone-targeting drug platform and lead compound NOV004 for development for rare skeletal diseases, bone fractures, and injury. We plan to advance the gingipain and 3CLpro inhibitor programs through a proactive out-licensing effort.
Effective August 1, 2022, we changed our corporate name to Quince Therapeutics, Inc. and our ticker symbol to "QNCX".
Company Management and Board Member Changes
On May 20, 2022, we announced the departure of Caryn McDowell, our Chief Legal and Administrative Officer and Corporate Secretary, effective as of July 8, 2022 (the “CLO Departure Date”). In connection with the departure of Ms. McDowell, we entered into a transition agreement (the “CLO Separation Agreement”) with Ms. McDowell on May 19, 2022, providing for (i) a release of claims against us; (ii) cash severance payments of $339,000, which equals to nine months of Ms. McDowell’s 2022 base salary, to be paid in a lump sum; and (iii) certain health care continuation benefits. The CLO Separation Agreement also provides for an accelerated vesting of the restricted stock award issued to Ms. McDowell on March 3, 2022 and an extension of the post-termination exercise period for all vested stock options or other equity awards held by Ms. McDowell through the twelve-month period following the CLO Departure Date, provided that the specified severance preconditions are met. In addition, in the event we consummate a change in control within three months after the CLO Departure Date, subject to satisfaction of specified conditions, Ms. McDowell would also be entitled to additional cash severance and COBRA coverage, payment of target annual bonus and accelerated vesting with respect to her equity awards.
On June 8, 2022, Christopher Lowe, the Chief Financial Officer, Chief Operating Officer and a member of the Board of Directors, resigned as a member of the Board, effective immediately. Mr. Lowe has also resigned from his roles as the Chief Financial Officer and Chief Operating Officer, effective as of June 10, 2022 (the “CFO Departure Date”). In connection with the departure of Mr. Lowe, we entered into a separation agreement (the “CFO Separation Agreement”) with Mr. Lowe on June 10, 2022, providing for (i) a release of claims against us; (ii) cash severance payments of $354,750, which equals to nine months of Mr. Lowe’s 2022 base salary, to be paid in accordance with our normal payroll practices; and (iii) certain health care continuation benefits. The CFO Separation Agreement also provides for an accelerated vesting of the restricted stock award issued to Mr. Lowe on March 3, 2022 and an extension of the post-termination exercise period for all vested stock options or other equity awards held by Mr. Lowe through the twelve-month period following the CFO Departure Date, provided that the specified severance preconditions are met. In addition, in the event we consummate a change in control within three months after the CFO Departure Date, subject to satisfaction of specified conditions, Mr. Lowe would also be entitled to additional cash severance and COBRA coverage, payment of target annual bonus and accelerated vesting with respect to his equity awards.
On June 9, 2022, we designated Ted Monohon, Chief Accounting Officer and Vice President of Finance, as the principal financial officer, to fill the vacancy resulting from Mr. Lowe’s resignation. Mr. Monohon will serve as the principal financial officer in addition to his role as a principal accounting officer.
On June 9, 2022, upon recommendation of the Nominating and Corporate Governance Committee of the Board, the Board appointed June Bray to serve as a Class III director, effective immediately, to fill the vacant directorship, until her successor is elected and qualified, or sooner in the event of her death, resignation or removal. Ms. Bray joins the class of directors whose term expires at our 2025 annual stockholders’ meeting.
On July 22, 2022, we announced the departure of Leslie Holsinger, Ph.D., the Executive Vice President of Research and Development, effective as of July 31, 2022 (the “EVP of Research Departure Date”). The Separation Agreement provides for (i) a release of claims against the Company, (ii) cash severance payments of $339,000, which equals to nine months of Dr. Holsinger’s 2022 base salary, to be paid in a lump sum; and (iii) certain health care continuation benefits. The Separation Agreement also provides
25
for an extension of the post-termination exercise period for all vested stock options or other equity awards held by each of Dr. Holsinger through the twelve-month period following the VP of Research Departure Date, in each case provided that the specified severance preconditions are met. In addition, in the event the Company consummates a change in control of control within three months after the EVP of Research Departure Date, subject to satisfaction of specified conditions, Dr. Holsinger would also be entitled to additional cash severance and COBRA coverage, payment of target annual bonus, and accelerated vesting with respect to her equity awards. The Company and Dr. Holsinger anticipate entering into a consulting agreement to facilitate the transition of activities until the end of the year.
Drug Candidate Portfolio
NOV004
NOV004 is a systemically administered bone anabolic peptide engineered to target and concentrate at bone fracture sites. By improving fracture site accumulation and retention, NOV004 stimulates a robust healing response in preclinical studies. Notable preclinical observations include:
Quince plans to progress towards an IND submission for NOV004 in the first half of 2023.
Atuzaginstat (COR388)
Atuzaginstat (COR388) is a novel, orally-administered, small molecule, bacterial protease inhibitor targeting gingipains produced by the periodontal pathogen Porphyromonas gingivalis (P gingivalis).. This pathogen has been associated with several diseases in humans including Alzheimer’s Disease, Periodontal Disease and certain head and neck cancers. We are currently exploring the therapeutic effect of atuzaginstat (COR388) on the below indications.
Alzheimer's Disease
On October 26, 2021, we announced top-line results from our global Phase 2/3 clinical trial of atuzaginstat (COR388), called the GAIN (GingipAIN Inhibitor for Treatment of Alzheimer’s Disease) trial, in mild to moderate Alzheimer’s patients. The 643-participant study did not meet statistical significance on its co-primary cognitive and functional endpoints as measured by ADAS-Cog11 and ADCS- ADL at end of the treatment period in the overall cohort. The study did show a dose response for a pre-specified subgroup of participants with P. gingivalis DNA detectable in saliva at baseline (n=242),with a 57% slowing of cognitive decline as measured by ADAS-Cog11 in the 80 mg BID arm (p=0.02) and a 42% slowing in the 40 mg BID arm (p=0.07) vs. placebo. No benefits in this subgroup were seen on the other co-primary, ADCS-ADL. The study also indicated that most adverse events were mild to moderate in severity. The most common were gastrointestinal, such as diarrhea in up to 16% and nausea in 6% of participants treated with atuzaginstat (COR388) vs. 3% and 2% of placebo participants, respectively. Atuzaginstat (COR388) was associated with dose-related liver enzyme elevations >3X the upper limit of normal: 2% on placebo, 7% on 40 mg BID, and 15% on 80 mg BID. These elevations alone were not clinically significant, and virtually all participants were asymptomatic. Two participants in the 80 mg BID arm had concomitant bilirubin elevations without alternative explanation. Lab changes resolved while participants remained on drug or after withdrawal without any known long-term adverse effects.
On January 25, 2022, we received a letter from the Food and Drug Administration (“FDA”) Division of Neurology 1 placing a full clinical hold on the IND application for atuzaginstat (COR388). We believe atuzaginstat (COR388) holds therapeutic potential in non-CNS indications, including Oncology and Periodontitis, however, we intend to only continue development of atuzaginstat through external out-licensing or partnership opportunities.
26
Periodontal Disease
P. gingivalis has been identified as a key pathogen in the development of periodontal disease. Periodontal disease is a common age-related disease affecting nearly 50% of the population over 50 years of age, or 65 million people, in the United States. The disease presents with symptoms including chronic inflammation, degeneration of gum tissue and tooth loss. Periodontal disease is associated with increased risk of cardiovascular disease, diabetes and certain cancers. The disease is often chronic and recurring due to persistent bacterial infection and antibiotic resistance. Current standard of care for the treatment of periodontal disease commonly involves scaling and root planning to remove bacterial plaque and tartar, in addition to local delivery of antibiotics in some cases. Atuzaginstat (COR388) reduced periodontal disease and associated bone loss in multiple animal models of periodontal disease. Target engagement and efficacy data for atuzaginstat (COR388) in aged dogs was published in January 2020 in the journal Pharmacology Research and Perspectives.
The GAIN Trial sub-study in periodontal disease demonstrated a trend to benefit on the primary clinical endpoint of pocket depth in the same pre-specified sub-group with P. gingivalis DNA detectable in saliva.
We are examining alternative formulations of atuzaginstat (COR388) and alternative molecules in our library of gingipain inhibitors to address periodontal disease in a non-systemic manner. We believe the inhibition of gingipains from P. gingivalis, and the disruption of biofilms directly in the oral cavity, may provide a therapeutic benefit to patients. We intend to only continue development of atuzaginstat (COR388) through external out-licensing or partnership opportunities.
Oncology
We are examining atuzaginstat (COR388), to prevent the development of oral/head and neck squamous cell carcinoma (O/HNSCC). P. gingivalis infection is associated with the development of O/HNSCC, and also with a significantly worse overall survival in patients with P. gingivalis positive O/HNSCC. Most cases of O/HNSCC are preceded by high-risk oral potentially malignant diseases (OPMD), including oral pre-malignant dysplasia, proliferative verrucous leukoplakia (PVL), and carcinoma-in-situ.
Non-clinical studies and peer-reviewed literature support the testing of atuzaginstat (COR388) as a therapy for P. gingivalis positive, high-risk OPMDs and could reduce the incidence and progression to oral squamous cell carcinoma based upon the mode of action and the evidence demonstrating the benefits of atuzaginstat (COR388) on P. gingivalis-driven tumor growth and PDL1 expression.
We held a pre-IND meeting with FDA in August of 2021 and believe we are able to advance atuzaginstat (COR388) in certain oncology indications. We expect to advance this asset only if we are successful in out-licensing or partnering the asset.
COR588
COR588 is a second-generation brain penetrant lysine gingipain inhibitor which has completed IND-enabling studies. We began a Phase 1 SAD/MAD trial of COR588 in a cohort of healthy participants in Australia in August 2021. In March 2022, we announced results from the SAD portion of the Phase 1 trial and in July 2022 we announced results from the MAD portion of the Phase 1 trial. Preliminary results indicate COR588 was well-tolerated across all cohorts in the dose range from 25 mg to 200 mg with no serious adverse events. No clinically significant findings were observed on other safety measures, including vital signs, laboratory findings, telemetry, or ECGs. We expect to advance this program only if we are successful in out-licensing or partnering the asset.
COR 803
COR803 for coronavirus is a novel patent-pending small molecule 3CL pro inhibitor discovered and developed by us based on our expertise in cysteine protease inhibition.
Coronavirus
We selected COR803 as a lead compound for treatment of coronavirus infections, including COVID-19 disease, caused by SARS-CoV-2 infection. 3CLpro,or Mpro, is a validated antiviral drug target shown to be essential in viral replication of SARS-CoV-2. COR803 has beneficial properties over other COVID-19 therapeutics and 3CLpro inhibitors in development including high potency as assessed using human lung cell viral replication assays; and high selectivity for 3CLpro versus other cellular proteases.
In June 2022, we announced key findings from our latest mouse study of COR803:
27
The target of COR803 is highly conserved across coronavirus strains observed to date and, therefore, has the potential to address both current and future coronavirus infection. We believe COR803 has beneficial properties over other COVID-19 therapeutics and 3CLpro inhibitors in development, including:
We are currently exploring partnership and licensing opportunities to support the future development of COR803.
Platform and Pipeline
NOV004 was discovered using our broad drug-targeting platform designed to precisely deliver small molecules, peptides, or large molecules directly to the site of bone fracture and disease to promote more rapid healing with fewer off-target safety concerns compared to non-targeted therapeutics. Our discovery pipeline is positioned for rapid expansion across multiple skeletal therapeutic indications to address underserved therapeutic areas with major, unmet medical needs, including osteogenesis imperfecta, fractures, spinal fusion, and other severe bone diseases. We plan to expand our discovery efforts utilizing our drug-targeting platform and will advance candidates with internal funding and through external partnerships.
Business Update Regarding COVID-19
The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
To date, our employees, vendors and clinical trial sites have been able to complete our GAIN clinical trial, advance our Phase 1 clinical trial for COR588 and conduct other preclinical and IND-enabling studies for our other pipeline assets. At this time the impact of the COVID-19 pandemic has not resulted in changes to our previously stated analysis timelines. We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, preclinical operations and clinical trials. All employees have returned to their pre-pandemic work locations and activities. We continue to assess the risks which take into account applicable public health authority and local government guidelines and are designed to ensure community and employee safety. The Company has not experienced significant hinderances to its operations or material negative financial impacts as compared to prior periods.
All employees have returned to their pre-pandemic work locations and activities. However, the effects of the COVID-19
pandemic continue to rapidly evolve and we may have to resume a more restrictive remote work model or close again certain of our offices, whether as a result of spikes or surges in COVID-19 infection or hospitalization rates or public authority mandates. Also, as long as the pandemic continues, our employees may be exposed to health risks. We are not currently experiencing any significant supply chain disruptions due to COVID-19. We have diversified our vendor relationships geographically for both starting materials and manufacturing. However, in the future, the ongoing COVID-19 pandemic, may result in the inability of some of our suppliers to deliver drug supplies on a timely basis. We have taken and continue to take proactive measures to maintain the integrity of our ongoing clinical trial. Despite these efforts, the COVID-19 pandemic could impact timelines, subject follow up visits and study completion. We will continue to monitor the COVID-19 situation and its impact on the ability to continue the development of, and seek regulatory approvals for, our product candidates.
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For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included in this Quarterly Report on Form 10-Q.
Financial Overview
Since commencing material operations in 2014, we have devoted substantially all of our efforts and financial resources to building our research and development capabilities, establishing our corporate infrastructure and most recently, executing our Phase 1a, Phase 1b and Phase 2/3 clinical trials of atuzaginstat (COR388) and our Phase I SAD/MAD clinical trial of COR588.
To date, we have not generated any product revenue and we have never been profitable. We have incurred net losses since the commencement of our operations. As of June 30, 2022, we had an accumulated deficit of $274.8 million. We incurred a net loss of $16.8 million and $38.5 million in the three and six months ended June 30, 2022. We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize a drug candidate, and we cannot assure you that we will ever generate significant revenue or profits.
To date, we have financed our operations primarily through the issuance and sale of convertible promissory notes and redeemable convertible preferred stock and common stock. From inception through June 30, 2022, we received net proceeds of approximately $303.7 million from the issuance of redeemable convertible preferred stock, convertible promissory notes and common stock.
On December 23, 2021, we entered into an Open Market Sales Agreement, with Jefferies LLC, or sales agreement, whereby we may sell up to $150.0 million in aggregate proceeds of common stock from time to time, through Jefferies as our sales agent. During the three and six months ended June 30, 2022, we sold $0 and 51,769 shares of common stock, respectively, under the sales agreement and received net proceeds of $0 and $0.6 million, respectively.
As of June 30, 2022 and December 31, 2021, we had cash, cash equivalents and short-term investments of $94.7 million and $106.8 million, respectively. The balances exclude long-term investments of $11.0 million and $19.9 million as of those same periods. Our cash equivalents, short-term and long-term investments are held in money market funds, certificate of deposits, repurchase agreements, investments in corporate debt securities, municipal debt obligations and government agency obligations.
We believe that our existing cash, cash equivalents and investments will be sufficient to fund our planned operations into the second half of 2025. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
We expect to incur substantial expenditures in the foreseeable future as we develop our pipeline and advance our drug candidates through preclinical and clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term we expect to incur substantial expenses relating to our ongoing and planned clinical trials, the development and validation of our manufacturing processes, and other development activities.
We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until such time as we can generate significant revenue from sales of an approved drug, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources. Adequate funding may not be available to us on acceptable 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 our drug candidates or delay our efforts to expand our product pipeline.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the assumptions and estimates associated with accrued research and development expenditures, stock-based compensation, and assumptions regarding intangible valuation resulting from the Acquisition have the most significant impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
29
The following critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgements and Use Estimates” in our 2021 Annual Report on Form 10-K and the notes to the unaudited condensed consolidated financial statements included in Item 1, “Unaudited Financial Statements,” of this Quarterly Report on Form 10-Q. We believe that of our critical accounting policies, the following accounting policies are the most critical to fully understanding and evaluating our financial condition and results of operations:
Below is a description of our Business Combination accounting policy for the six months ended June 30, 2022, which is our only change in our critical accounting policies from those as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies, Significant Judgments and Use of Estimates” in our Annual Report.
Business Combination
The Company accounts for business combinations using the acquisition method pursuant to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 805. This method requires, among other things, that results of operations of acquired companies are included in the Company's financial results beginning on the respective acquisition dates, and that identifiable assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of identifiable assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.
Components of Results of Operations
Operating Expenses
Research and Development Expenses
Our research and development expenses consist of expenses incurred in connection with the research and development of our research programs. These expenses include payroll and personnel expenses, including stock-based compensation, for our research and product development employees, laboratory supplies, product licenses, consulting costs, contract research, regulatory, quality assurance, preclinical and clinical expenses, allocated rent, facilities costs and depreciation. We expense both internal and external research and development costs as they are incurred. Non-refundable advance payments and deposits for services that will be used or rendered for future research and development activities are recorded as prepaid expenses and recognized as an expense as the related services are performed.
To date, our research and development expenses have supported the advancement of atuzaginstat (COR388) and COR588 and to a lesser extent our other drug candidates in preclinical development. We expect that at least for the foreseeable future, a substantial majority of our research and development expense will support the clinical and regulatory development of NOV004.
We expect our research and development expenses to increase during the next few years from current levels as we seek to complete existing and initiate additional clinical trials, pursue regulatory approval of NOV004 and advance other drug candidates into clinical development. Over the next few years, we expect our preclinical, clinical and contract manufacturing expenses to increase relative to our current levels. Predicting the timing or the final cost to complete our clinical program or validation of our manufacturing and supply processes is difficult and delays may occur because of many factors.
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The duration, costs and timing of our clinical trial and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
In addition, the probability of success for each product candidate will depend on numerous factors, including safety, efficacy, competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential.
Because our product candidates are still in preclinical or clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidate or whether, or when, we may achieve profitability.
The COVID-19 pandemic may have an adverse impact on our operations, supply chains, our current or future clinical trials, and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.
General and Administrative
General and administrative expenses consist principally of personnel-related costs, including payroll and stock-based compensation, for personnel in executive, finance, human resources, business and corporate development, and other administrative functions, professional fees for legal, consulting, insurance and accounting services, allocated rent and other facilities costs, depreciation, and other general operating expenses not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase as the size of our business operations grows to support additional research and development activities.
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Interest Income
Interest and other income, net consists primarily of interest earned on our short-term and long-term investments portfolio.
Results of Operations
Comparison of the three months ended June 30, 2022 to the three months ended June 30, 2021
The following sets forth our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Change |
|
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Research and development |
|
$ |
7,199 |
|
|
$ |
14,719 |
|
|
$ |
(7,520 |
) |
|
|
(51.1 |
) |
% |
|
General and administrative |
|
|
9,059 |
|
|
|
7,064 |
|
|
|
1,995 |
|
|
|
28.2 |
|
% |
Loss from operations |
|
|
(16,258 |
) |
|
|
(21,783 |
) |
|
|
5,525 |
|
|
|
(25.4 |
) |
% |
|
Interest income |
|
|
145 |
|
|
|
160 |
|
|
|
(15 |
) |
|
|
(9.4 |
) |
% |
|
Other expense, net |
|
|
(735 |
) |
|
|
(131 |
) |
|
|
(604 |
) |
|
|
461.1 |
|
% |
|
Net loss before income tax benefit |
|
|
(16,848 |
) |
|
|
(21,754 |
) |
|
|
4,906 |
|
|
|
(22.6 |
) |
% |
|
Income tax benefit |
|
|
284 |
|
|
|
— |
|
|
|
284 |
|
|
|
100.0 |
|
% |
|
Net loss |
|
$ |
(16,564 |
) |
|
$ |
(21,754 |
) |
|
$ |
5,190 |
|
|
|
(23.9 |
) |
% |
|
Research and Development Expenses (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Change |
|
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
||||
Direct research and development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Atuzaginstat (COR388) |
|
$ |
143 |
|
|
$ |
6,732 |
|
|
$ |
(6,589 |
) |
|
|
(97.9 |
) |
% |
|
COR588 |
|
|
1,837 |
|
|
|
1,195 |
|
|
|
642 |
|
|
|
53.7 |
|
% |
|
NOV004 |
|
|
319 |
|
|
|
— |
|
|
|
319 |
|
|
|
100.0 |
|
% |
|
Other direct research costs |
|
|
553 |
|
|
|
910 |
|
|
|
(357 |
) |
|
|
(39.2 |
) |
% |
Indirect research and development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Personnel related (including stock-based compensation) |
|
|
4,035 |
|
|
|
5,277 |
|
|
|
(1,242 |
) |
|
|
(23.5 |
) |
% |
|
Facilities and other research and development expenses |
|
|
312 |
|
|
|
605 |
|
|
|
(293 |
) |
|
|
(48.4 |
) |
% |
Total research and development expenses |
|
$ |
7,199 |
|
|
$ |
14,719 |
|
|
$ |
(7,520 |
) |
|
|
(51.1 |
) |
% |
|
32
Research and development expenses were $7.2 million for the three months ended June 30, 2022, compared to $14.7 million for the three months ended June 30, 2021, a decrease of $7.5 million.
The costs for atuzaginstat (COR388) decreased $6.6 million from the prior year due to a decrease of $4.0 million in clinical trial costs, a $1.0 million decrease in drug manufacturing costs, and a decrease in non-clinical analysis related to the GAIN trial of $0.9 million, a $0.6 million decrease in consulting expenses related to atuzaginstat (COR388), and a $0.1 million decrease in the depreciation of our financing lease.
In the quarter ended June 30, 2022, we completed the Phase 1 SAD/MAD trial for our new compound COR588 in a cohort of healthy participants in Australia. The costs for COR588 increased $0.6 million from the prior year due to $0.1 million in clinical trial costs and $0.5 million for non-clinical work supporting COR588.
In the quarter ended June 30, 2022, the costs for NOV004 increased by $0.3 million after the Acquisition on May 19, 2022, primarily in drug manufacturing costs. We anticipate expense increases related to NOV004 to increase from current levels as we advance this asset to a Phase 1 clinical trial in 2023.
Other direct research costs decreased $0.4 million primarily due to the winddown of pipeline development of our two arginine gingipain inhibitors, COR788 and COR822, our 3CLpro inhibitor, COR803, COR852 and other preclinical research.
We do not expect to incur significant future costs related to atuzaginstat (COR388) or COR588 as we advance our legacy neuroscience and antiviral assets through a proactive out-licensing efforts.
We also incurred decreases of $1.2 million in personnel related expenses due to a $1.3 million decrease in allocated stock-based compensation costs and a decrease of $0.9 million for decreased headcount year over year, offset by an increase in severance expenses of $1.0 million related to our rationalization of our operational costs and shift in our focus to prioritize our internal development of our bone-targeting drug platform.
Facilities and other research and development expenses decreased $0.3 million for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021 primarily due to a $0.2 million decrease in regulatory, quality assurance, and other consulting expenses and a $0.1 million decrease in rent and facilities expenses.
General and Administrative Expenses
General and administrative expenses increased by $2.0 million to $9.1 million for the three months ended June 30, 2022 from $7.1 million for the three months ended June 30, 2021. The increase in general and administrative expenses is primarily due to an increase of $0.7 million in personnel related expenses due to severance expenses offset by a $0.4 million decrease in allocated stock-based compensation expense, an increase in legal expenses of $1.1 million related to the Acquisition, and $0.6 million increase in other legal compliance costs.
Interest Income
Interest income was $0.1 million for the three months ended June 30, 2022 compared to $0.2 million for the three months ended June 30, 2021. The decrease was a result of decreased average cash and investment balances. We anticipate higher investment yields as short-term interest rates continue to rise.
Other Expense
Other expense increased by $0.6 million for the three months ended June 30, 2022, primarily due to unrealized losses resulting from changes in foreign exchange rates, as well as a $0.2 million increase related to the San Diego lease impairment loss and loss on disposal of fixed assets.
Income tax
We recorded an $0.3 million income tax benefit for the three months ended June 30, 2022 as a result of the acquisition of Novosteo.
33
Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021
The following sets forth our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
|
Six Months Ended June 30, |
|
|
Change |
|
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Research and development |
|
$ |
19,960 |
|
|
$ |
31,543 |
|
|
$ |
(11,583 |
) |
|
|
(36.7 |
) |
% |
|
General and administrative |
|
|
18,116 |
|
|
|
13,553 |
|
|
|
4,563 |
|
|
|
33.7 |
|
% |
Loss from operations |
|
|
(38,076 |
) |
|
|
(45,096 |
) |
|
|
7,020 |
|
|
|
(15.6 |
) |
% |
|
Interest income |
|
|
217 |
|
|
|
387 |
|
|
|
(170 |
) |
|
|
(43.9 |
) |
% |
|
Other expense, net |
|
|
(630 |
) |
|
|
(131 |
) |
|
|
(499 |
) |
|
|
380.9 |
|
% |
|
Net loss before income tax benefit |
|
|
(38,489 |
) |
|
|
(44,840 |
) |
|
|
6,351 |
|
|
|
(14.2 |
) |
% |
|
Income tax benefit |
|
|
284 |
|
|
|
— |
|
|
|
284 |
|
|
|
100.0 |
|
% |
|
Net loss |
|
$ |
(38,205 |
) |
|
$ |
(44,840 |
) |
|
$ |
6,635 |
|
|
|
(14.8 |
) |
% |
|
Research and Development Expenses (in thousands):
|
|
|
Six Months Ended June 30, |
|
|
Change |
|
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
||||
Direct research and development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Atuzaginstat (COR388) |
|
$ |
1,261 |
|
|
$ |
15,105 |
|
|
$ |
(13,844 |
) |
|
|
(91.7 |
) |
% |
|
COR588 |
|
|
4,011 |
|
|
|
2,633 |
|
|
|
1,378 |
|
|
|
52.3 |
|
% |
|
NOV004 |
|
|
319 |
|
|
|
— |
|
|
|
319 |
|
|
|
100.0 |
|
% |
|
Other direct research costs |
|
|
1,407 |
|
|
|
1,785 |
|
|
|
(378 |
) |
|
|
(21.2 |
) |
% |
Indirect research and development expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Personnel related (including stock-based compensation) |
|
|
12,337 |
|
|
|
10,984 |
|
|
|
1,353 |
|
|
|
12.3 |
|
% |
|
Facilities and other research and development expenses |
|
|
625 |
|
|
|
1,036 |
|
|
|
(411 |
) |
|
|
(39.7 |
) |
% |
Total research and development expenses |
|
$ |
19,960 |
|
|
$ |
31,543 |
|
|
$ |
(11,583 |
) |
|
|
(36.7 |
) |
% |
|
Research and development expenses were $20.0 million for the six months ended June 30, 2022, compared to $31.5 million for the six months ended June 30, 2021, a decrease of $11.6 million.
34
The costs for atuzaginstat (COR388) development decreased $13.8 million from the same period in the prior year due to a decrease of $9.2 million in clinical trial costs, a $2.1 million decrease in drug manufacturing costs, a decrease in non-clinical analysis related to the GAIN trial samples of $1.6 million, a $0.9 million decrease in consulting expenses as the GAIN Phase 2/3 clinical trial concluded in late 2021. Costs incurred in 2022 related primarily to statistical and biomarker analysis.
During the six months ended June 30, 2022, we completed the Phase 1 SAD/MAD trial for our compound COR588 in a cohort of healthy participants in Australia. The costs for COR588 increased $1.4 million from the same period in the prior year due to a $0.6 million increase in clinical trial costs and $0.7 million for non-clinical studies to support COR588, and a $0.1 million increase in drug manufacturing costs.
Additionally, other direct research costs decreased $0.4 million primarily due to the winddown of pipeline development of our two arginine gingipain inhibitors, COR788 and COR822, our 3CLpro inhibitor, COR803, COR852 and other preclinical research.
For the six months ended June 30, 2022, the costs for NOV004 increased by $0.3 million after the Acquisition on May 19, 2022, primarily as a result of the increase in drug manufacturing costs. We anticipate expense increases related to NOV004 to increase from current levels as we advance this asset to a Phase 1 clinical trial in 2023.
For the six months ended June 30, 2022, we also experienced a net increase of $1.3 million in personnel related expenses due to an increase in severance related expenses of $2.0 million as we reorganized our operations primarily through head-count reductions offset by a decrease in compensation and benefit costs of $0.7 million.
Facilities and other research and development expenses decreased $0.4 million from the six months ended June 30, 2021 due to a $0.3 million decrease in regulatory and quality assurance consulting costs and $0.1 million decrease in the purchase of non-clinical supplies
General and Administrative Expenses
General and administrative expenses increased approximately $4.6 million to $18.1 million for the six months ended June 30, 2022 from $13.6 million for the six months ended June 30, 2021. The increase in general and administrative expenses was primarily due to severances expenses of $1.5 million and $0.6 million increase in allocated stock-based compensation expense related to our operational reorganization and shift in our focus to prioritize our internal development of our bone-targeting drug platform. We also incurred a $1.1 million increase in legal expenses related to the acquisition of Novosteo and $1.0 million increase in other legal costs relating regulatory compliance. Additionally, we incurred increases of $0.2 million in insurance expense, and a $0.2 million increase in facilities expense.
Interest Income
Interest income was $0.2 million for the six months ended June 30, 2022 compared to $0.4 million for the six months ended June 30, 2021. The decrease was a result of decreased average cash and investment balances.
Other Expense
Other expense increased by $0.5 million for the six months ended June 30, 2022, primarily due to unrealized losses resulting from changes in foreign exchange rates, as well as a $0.2 million increase related to the San Diego lease impairment loss and loss on disposal of fixed assets.
Income tax
We recorded an $0.3 million income tax benefit for the three months ended June 30, 2022 as a result of the acquisition of Novosteo.
Liquidity, Capital Resources and Plan of Operations
We have incurred cumulative net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of June 30, 2022, we had an accumulated deficit of $274.8 million. and we had cash, cash equivalents and investments of $105.7 million.
35
Based on our existing business plan, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our anticipated level of operations through into the second half of 2025.
Capital Resources
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to NOV004, atuzaginstat (COR388), COR588, and other research efforts, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Our product candidates are in various stages of drug development, including pre-IND and clinical development and the outcome of these efforts is uncertain. Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. We intend to enter into strategic partnerships/collaborations to develop atuzaginstat (COR388), COR588, COR852 and COR803 as we prioritize the internal development of our innovative bone-targeting drug platform and lead compound NOV004 for development.
In the near term, our primary uses of cash will be to fund our operations, including research and development, preclinical studies, drug manufacturing, other pre-IND activities, and personnel related expenses. Our uses of cash beyond the next 12 months will depend on many factors, including the general economic environment in which we operate and our ability to progress on our drug development timelines, which are uncertain but include Phase 1 study for NOV004 and development of other pipeline compounds.
We will continue to require additional capital to develop our drug candidates and fund operations for the foreseeable future. We may seek to raise capital through private or public equity or debt financings, collaborative or other arrangements with other companies, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:
If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others rights to our drug candidates in certain territories or indications that we would prefer to develop and commercialize ourselves.
36
Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. However, based on our current business plans, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our planned operations through into the second half of 2025.
Summary Statement of Cash Flows
Cash Flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(31,506 |
) |
|
$ |
(31,172 |
) |
Investing activities |
|
|
8,162 |
|
|
|
37,267 |
|
Financing activities |
|
|
730 |
|
|
|
1,113 |
|
Effect of exchange rate changes on cash |
|
|
(182 |
) |
|
|
— |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(22,796 |
) |
|
$ |
7,208 |
|
Operating Activities
Net cash used in operating activities was $31.5 million for the six months ended June 30, 2022. Cash used in operating activities was primarily due to our net loss of $38.2 million for the period, adjusted for $14.5 million of non-cash items, including $14.3 million in stock-based compensation and a net decrease in our current assets of $1.9 million, offset by a net decrease in accounts payable, accrued expenses and other current liabilities of $9.7 million.
Net cash used in operating activities was $31.2 million for the six months ended June 30, 2021. Cash used in operating activities was primarily due to our net loss of $44.8 million for the period, adjusted for $14.5 million of non-cash items, including $13.7 million in stock-based compensation and a net increase in accounts payable, accrued expenses and other current liabilities of $1.1 million offset by increases in our current assets of $2.0 million.
Investing Activities
Cash provided by investing activities was $8.2 million in the six months ended June 30, 2022, primarily related to the purchase of investments of $36.8 million, maturities of investments of $34.4 million, cash acquired from the Acquisition of $10.6 million.
Cash provided by investing activities was $37.3 million for the six months ended June 30, 2021, primarily related to the purchase of investments of $25.2 million, maturities of investments of $62.6 million and the purchase of equipment of $0.1 million.
Financing Activities
Cash provided by financing activities was $0.7 million in the six months ended June 30, 2022, which consisted of proceeds from the issuance of common stock in connection with an open market sales agreement, net of issuance costs as well as proceeds from the exercise of options.
Cash provided by financing activities was $1.1 million for the six months ended June 30, 2021, which consisted primarily of proceeds from the exercise of stock options during the period.
37
Contractual Obligations and Commitments
Except as discussed below, there have been no material changes to our contractual obligations and other commitments as of June 30, 2022, as compared to those disclosed in our Annual Report on Form 10-K.
Our contractual obligations primarily consist of our obligations under non-cancellable operating leases and other purchase obligations.
We enter into contracts in the normal course of business with third party contract organizations for clinical trials, non-clinical studies and testing, manufacturing, and other services and products for operating purposes. The amount and timing of the payments under these contracts varies based upon the timing of the services. We have recorded accrued expense of approximately $2.4 million in our condensed consolidated balance sheet for expenditures incurred by these vendors as of June 30, 2022. We have approximately $7.4 million in cancellable future commitments based on existing contracts as of June 30, 2022.
Recent Accounting Pronouncements
Please refer to Note 2 to our unaudited condensed consolidated financial statements appearing under Part 1, Item 1 of this report for a discussion of new accounting standards updates that may impact us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in a variety of securities of high credit quality and short-term duration, invested in compliance with our policy.
We had cash, cash equivalents, and marketable securities of $105.7 million as of June 30, 2022, which consisted primarily of bank deposits, money market funds, short-term and long-term marketable securities. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant for us. Due to the short-term maturities of our cash equivalents and marketable securities, and the low risk profile of our marketable securities, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities.
Foreign Currency Exchange Rate Risk
We have conducted a clinical trial in Australia, and may in the future conduct clinical trials in other countries outside the United States. We operate two Australian subsidiaries and fluctuations in exchange rates between the U.S. dollar and such foreign currencies could result in increased operating expenses and otherwise have a material effect on our results of operations and financial condition. The impact of future exchange rate fluctuations on the results of our operations cannot be accurately predicted due to our constantly changing exposure to various currencies, and the fact that all foreign currencies do not react in the same manner in relation to the U.S. dollar. To the extent that the percentage of our non-U.S. dollar expense increases in the future, our exposure to risks associated with fluctuations in foreign exchange rates may increase. We are aware of the availability of off-balance sheet financial instruments to hedge exposure to foreign currency exchange rates, including cross-currency swaps, forward contracts and foreign currency options. However, we have not used such instruments in the past, and none were utilized in 2021 or the six months ended June 30, 2022.
We do not believe that inflation, interest rate changes, or exchange rate fluctuations had a significant impact on our results of operations for the three and six months ended June 30, 2022.
38
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended or the Exchange Act, is recorded, communicated to our management to allow timely decisions regarding required disclosure, summarized and reported within the time periods specified in the SEC's rules and forms. Any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including the Chief Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2022. Based on that evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
39
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to any material legal proceedings.
Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties, including those described below that could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock. You should carefully consider the following risks, together with all of the other information in this Quarterly Report on Form 10-Q, including our financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
Summary of Risk Factors
We may be unable for many reasons, including those that are beyond our control, to implement our business strategy successfully. The occurrence of any single risk or any combination of risks could materially and adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock. Some of these risks are:
40
Risks Related to our Recent Acquisition of Novosteo
We may experience difficulties integrating Quince and Novosteo’s operations and realizing the expected benefits of the Acquisition.
On May 19, 2022, we completed our previously announced the Acquisition. The anticipated benefits we expect from the Acquisition depend in part on our ability to realize the expected operational efficiencies and associated cost synergies and anticipated business opportunities and growth prospects from combining Quince and Novosteo in an efficient and effective manner. We may not be able to fully realize the operational efficiencies and associated cost synergies or leverage the potential business opportunities and growth prospects to the extent anticipated or at all.
Challenges associated with the integration may include those related to retaining and motivating executives and other key employees, blending corporate cultures, eliminating duplicative operations, and making necessary modifications to internal control over financial reporting and other policies and procedures in accordance with applicable laws.
Our management may face significant challenges in consolidating the operations of Quince and Novosteo, integrating the technologies, procedures, and policies. We may not be able to integrate our clinical pipelines given that our product candidates are in separate therapeutic spaces. For example, management may have limited experience with the drug candidates in treatment of Alzheimer’s, oncology, COVID-19 and degenerative diseases. Some of these factors are outside our control, and any of them could delay or increase the cost of our integration or out-licensing efforts.
The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, increased tax costs, inefficiencies, and inconsistencies in standards, controls, information technology systems, policies and procedures, any of which could adversely affect our ability to maintain relationships with employees or third parties, or our ability to achieve the anticipated benefits of the transaction, and could harm our financial performance. If we are unable to successfully integrate certain aspects of the operations of Quince and Novosteo or experience delays, we may incur
41
unanticipated liabilities and be unable to fully realize the potential benefit of future revenue and other anticipated benefits resulting from the arrangement, and our business, results of operations and financial condition could be adversely affected.
Our ability to be successful will be dependent upon the efforts of our executive officers and key personnel and the loss of such persons could negatively impact the operations of the combined company.
The combined company’s ability to be successful following the Acquisition will be dependent upon the efforts of our executive officers and key personnel. We recently announced resignation of our President and Chief Executive Officer, Chief Scientific Officer, Chief Medical Officer, Chief Legal and Administrative Officer and Corporate Secretary, Chief Financial Officer and Chief Operating Officer, and our Executive Vice President of Research and Development. Our business following the Acquisition is made up in part of Novosteo’s business, which is different from our historical business. Quince Therapeutics' management has limited experience with NOV004 while Novosteo’s management has limited experience with our legacy assets and other candidates. In addition, the members of Novosteo’s management team have limited experience managing a public company, interacting with public company investors, and complying with the increasingly complex laws, rules and regulations that specifically govern public companies, which could cause the combined company’s management to have to expend time and resources helping them become familiar with such requirements.
Our future results could suffer if we do not effectively manage our expanded operations following the Acquisition.
Following the Acquisition, the scope of operations of our business will increase beyond the current scope of operations of either ours or Novosteo’s current businesses. In addition, we may continue to expand our size and operations through additional acquisitions or other strategic transactions. Our future success depends, in part, upon its ability to manage our expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurances that we will be successful or that we will realize the expected synergies and other benefits currently anticipated from the Acquisition or anticipated from any additional acquisitions or strategic transactions that we may undertake in the future.
Risks Related to Our Business and the Development of Our Drug Candidates
We are substantially dependent on the success of NOV004, and our successful out-licensing of our legacy assets which will require significant additional clinical testing before we or our partners can seek regulatory approval and potentially launch commercial sales, receive regulatory approval or be successfully commercialized, even if approved. If we are not successful in commercializing NOV004 or out-licensing our legacy assets, or are significantly delayed in doing so, our business will be materially harmed
To date, we have invested substantially all of our efforts and financial resources in the research and development of NOV004 and our legacy assets. Before seeking marketing approval from regulatory authorities for the sale of NOV004 and our legacy assets, we and our partners, respectively, must conduct extensive clinical trials to demonstrate the safety and efficacy of the drug in humans. We are not permitted to market or promote any of our drug candidates before we receive regulatory approval from the FDA, or comparable foreign regulatory authorities, and we may never receive such regulatory approval. We cannot be certain that COR588, atuzaginstat (COR388) or NOV004 will be successful in clinical trials. We do not have an open IND for NOV004 and NOV004 has never been tested in humans. NOV004, COR588 or atuzaginstat (COR388) may not receive regulatory approval even if it is successful in clinical trials. For example, on January 25, 2022, we received a letter from the FDA Division of Neurology 1 placing a full clinical hold on the IND for atuzaginstat (COR388). While we believe atuzaginstat (COR388) and COR588 may hold therapeutic potential in non-CNS indications, including Oncology and Periodontitis but there is no guarantee that further efforts with regard to atuzaginstat (COR388) or COR588 will be successful, and our ability to apply, and obtain regulatory approval, for any of these indications is uncertain at this time. If we do not receive regulatory approvals for NOV004, COR588 or atuzaginstat (COR388), we may not be able to continue our operations. Our prospects, including our ability to finance our operations and generate revenue, will depend entirely on the commercialization of NOV004 and successful development and partnering and regulatory approval of COR588, atuzaginstat (COR388), COR803 and COR852. The clinical and commercial success of NOV004 and our legacy assets will depend on a number of factors, including the following:
42
Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of NOV004 and our legacy assets. If we are not successful in commercializing any of our drug candidates, or are significantly delayed in doing so, our business will be materially harmed.
If we are unable to successfully out-license our legacy assets, our business could materially suffer.
We have discovered and are developing a proprietary library of protease inhibitors from which we have selected for COR588, which is under development to treat Alzheimer’s disease, and atuzaginstat (COR388), which is under development to treat other degenerative diseases in non-CNS indications, including Oncology and Periodontitis. Our approach is based on the discovery of P. gingivalis and its secreted virulence factor proteases, gingipains, and represents a new approach to disease modification in Alzheimer’s disease. There is no current academic or general consensus on the causation of Alzheimer’s disease or method of action or current drugs that purport to treat Alzheimer’s disease. Based on the results of our preclinical and clinical studies to date, we believe COR588 and atuzaginstat (COR388) are neuroprotective and have potential to modify or prevent further neurodegeneration, reduce amyloid beta levels and reduce inflammation, when administered orally. However, these ideas and this approach are novel, and we currently have only limited data based on physiological mouse models of Alzheimer’s disease and our Phase 1 a/b clinical trials which enrolled 67 subjects, including nine patients with mild to moderate Alzheimer’s disease and our Phase 2/3 GAIN trial which enrolled 643 patient participants with mild to moderate Alzheimer’s disease. The results from the GAIN trial did not meet statistical significance in its co-primary cognitive and functional endpoints as measured by ADAS-Cog11 and ADCS-ADL at end of the treatment period in the overall cohort. Furthermore, on January 25, 2022, we received a letter from the FDA Division of Neurology 1 placing a full clinical hold on the IND for atuzaginstat (COR388). While we will prioritize the development of our next generation gingipain inhibitor, COR588, in Alzheimer’s disease, we may ultimately discover that COR588 or atuzaginstat (COR388), or any of our other protease inhibitors, do not possess certain properties required for therapeutic effectiveness. We have no long-term evidence
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regarding the efficacy, safety and tolerability of atuzaginstat (COR388) or other compounds in our proprietary library of protease inhibitors in humans. Currently, we intend to enter into strategic partnerships/collaborations to develop atuzaginstat (COR388), COR588, COR852 and COR803. However, we cannot assure that we are unable to identify suitable partners. If we are unable to identify suitable partners for our indications or if we are required to enter into agreements with such partners on unfavorable terms, our business and prospects could materially suffer.
If we are unable to out-license our legacy assets, our business will be entirely dependent on the successful development, regulatory approval and commercialization of NOV004, our only product candidate under development.
In the event that we are unable to partner or develop COR588, atuzaginstat (COR388), COR803 and COR852, our only product candidate will be NOV004, which is currently in preclinical development and has not been approved for sale, clinical trials or commercial use. In addition, we do not have an IND or trial design for NOV004 which has been reviewed or cleared by the FDA. This may make an investment in our company riskier than similar companies that have multiple product candidates in active development and that therefore may be able to better sustain a failure of a lead candidate. The success of our business, including our ability to finance our company and generate any revenue in the future, will, at that point, depend entirely on the successful development, regulatory approval and commercialization of NOV004, which may never occur. We may have inadequate financial or other resources to advance NOV004 through the clinical trial process, depending on the requirements of the FDA and similar foreign regulatory agencies. In addition, our clinical development program for NOV004 may not lead to regulatory approval from the FDA and similar foreign regulatory agencies if we fail to demonstrate that NOV004 is safe and effective in clinical trials, and we may therefore fail to commercialize NOV004. Further, interpretation of trial results by the FDA and similar foreign regulatory agencies may vary and NOV004 may not receive regulatory approval even if it is successful in planned and future clinical trials. Any failure to obtain regulatory approval of NOV004 would have a material and adverse impact on our business. Even if we successfully obtain regulatory approvals to market NOV004, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval. If the markets or patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of NOV004, even if approved.
If the market opportunities for NOV004 are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer. Because the target patient populations of NOV004 are small, and the addressable patient population even smaller, we must be able to successfully identify patients and capture a significant market share to achieve profitability and growth.
NOV004 is a precision bone growth molecule for rare disease. Given the small number of patients who have the disease that we are targeting, it is critical to our ability to grow and become profitable that we continue to successfully identify patients with these rare diseases. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with NOV004, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, or patient foundations, and may prove to be incorrect or contain errors. New studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business. Further, even if we obtain commercial approval and significant market share for our product candidates, because the potential target populations are very small, we may never achieve profitability despite obtaining such significant market share. In addition, we do not have experience in launching and marketing a product targeting rare disease and cannot assure that we will be able to obtain such market share.
Our target patient populations are relatively small, and as a result, the pricing and reimbursement of our product candidates, if approved, is uncertain, but must be adequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell NOV004 will be adversely affected.
Clinical drug development is a lengthy, expensive and uncertain process. The results of preclinical studies and early clinical trials are not always predictive of future results. We did not meet statistical significance on either of the co-primary endpoints in the GAIN Trial and any other drug candidate that we may advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval.
The research and development of drugs is extremely risky. Only a small percentage of drug candidates that enter the development process ever receive marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of any drug candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and
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efficacy of our drug candidates in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain.
The results of preclinical studies and completed clinical trials are not necessarily predictive of future results, and our current drug candidate may not be further developed or have favorable results in later studies or trials. Clinical trial failure may result from a multitude of factors including, but not limited to, flaws in study design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits. As such, failure in clinical trials can occur at any stage of testing. A number of companies in the pharmaceutical industry have suffered setbacks in the advancement of their drug candidates into later-stage clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding results in earlier preclinical studies or clinical trials. The Phase 1a and Phase 1b clinical trials for our drug candidate, atuzaginstat (COR388), included only nine Alzheimer’s patients and 58 healthy volunteers. Further, the results of our earlier stage clinical trials and our preclinical animal studies may not be predictive of the results of outcomes in later-stage clinical studies. For example, data from six Alzheimer’s patients treated with atuzaginstat (COR388) in our Phase 1b clinical trial showed improvements across several exploratory cognitive tests. However, these improvements should be interpreted with caution because they were not all statistically significant. When evaluated in a larger patient population, atuzaginstat (COR388) may not show similar improvements toward cognitive effects or may demonstrate different chemical and pharmacological properties in patients in unforeseen or harmful ways. Additionally, our Phase 2/3 GAIN trial, with 643 patient participants with mild to moderate Alzheimer’s disease, did not meet statistical significance in its co-primary cognitive and functional endpoints as measured by ADAS-Cog11 and ADCS-ADL at end of the treatment period in the overall cohort. Based upon negative or inconclusive results, we may decide, or regulatory authorities may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from preclinical trials and clinical trials are susceptible to varying interpretations, and regulatory authorities may not interpret our data as favorably as we do, which may further delay, limit or prevent development efforts, clinical trials or marketing approval. Furthermore, as more competing drug candidates within a particular class of drugs proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or change.
If we are unable to complete preclinical studies or clinical trials of NOV004 or future drug candidates, due to safety concerns, or if the results of these trials are not sufficient to convince regulatory authorities of their safety or efficacy, we will not be able to obtain marketing approval for commercialization on a timely basis or at all. Even if we are able to obtain marketing approval for our current and any future drug candidates, those approvals may be for indications or dose levels that deviate from our desired approach or may contain other limitations that would adversely affect our ability to generate revenue from sales of those drug candidates. Moreover, if we are not able to differentiate our drug candidate against other approved drug candidates within the same class of drugs, or if any of the other circumstances described above occur, our business would be harmed and our ability to generate revenue from that class of drugs would be severely impaired.
Adverse side effects or properties, the clinical holds imposed by the FDA, or and other safety risks have delayed our development of atuzaginstat (COR388) and could delay or preclude approval, have caused and could cause us to suspend or discontinue clinical trials, abandon further development, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any, relating to COR588, potential new indications for atuzaginstat (COR388) and other potential candidates. We cannot guarantee that similar serious adverse events or clinical holds will not happen in the future with COR588, atuzaginstat (COR388) or any future drug candidates for any current or additional indications. There may be side effects and adverse events associated with the use of COR588, atuzaginstat (COR388) or any future drug candidates.
Our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics as the clinical trials progress to longer exposures at varying dose levels and a larger number of patients. Side effects could include treatment-related adverse events not seen in our Phase 1a and Phase 1b clinical trials of atuzaginstat (COR388) including hepatic adverse events. Undesirable side effects caused by, or unexpected or unacceptable characteristics associated with, atuzaginstat (COR388) or any future drug candidates could result in the delay, suspension or termination of clinical trials by us, the FDA or other regulatory authorities for a number of reasons. For example, on February 12, 2021, we received a letter from the FDA stating that a partial clinical hold has been placed on atuzaginstat (COR388) impacting the OLE phase of the GAIN Trial. The partial clinical hold was initiated following the review of hepatic adverse events in the atuzaginstat (COR388) trial by the FDA. Under the hold, we have stopped enrollment and dosing in the OLE phase of the GAIN Trial. Atuzaginstat (COR388) was associated with dose-related liver enzyme elevations >3X the upper limit of normal: 2% on placebo, 7% on 40 mg BID, and 15% on 80 mg BID. These elevations alone were not clinically significant, and virtually all participants were asymptomatic. Two participants in the 80 mg BID arm had concomitant bilirubin elevations without alternative explanation. On January 25, 2022, we received a letter from the FDA Division of Neurology 1 placing a full clinical hold on atuzaginstat (COR388) IND. The FDA may place additional clinical holds on our current
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or currently contemplated clinical programs or otherwise limit our ability to proceed with other clinical programs in our pipeline, which will harm our business, financial condition, results of operations and may force us to cease our operations.
As we or our potential partners assess data from our Phase 2/3 GAIN trial or safety of atuzaginstat (COR388), we or our partners may identify additional adverse events that were not identified or not considered significant in our earlier trials. If such side effects become later known in development or upon approval, if any, such findings may harm our business, financial condition, results of operations and prospects significantly. If we or others later identify undesirable side effects, a number of potentially significant negative consequences could result, including:
Any of these events could prevent us or our potential partners from achieving or maintaining market acceptance of atuzaginstat (COR388), NOV004 or any future drug candidates, if approved, and could significantly harm our business, financial condition, results of operations and prospects.
Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials.
Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a drug candidate. Preclinical tests and Phase 1 and Phase 2 clinical trials are primarily designed to test safety, to study pharmacokinetics and pharmacodynamics and to understand the side effects of drug candidates at various doses and schedules. Success in preclinical or animal studies and early clinical trials does not ensure that later large-scale efficacy trials will be successful, nor does it predict final results. Our drug candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials. Additionally, in future trials there may be unforeseen serious adverse events or side effects that differ from those seen in our preclinical tests, Phase 1 and Phase 2 clinical trials, which may result in a full or partial clinical hold from the FDA, or similar adverse events or additional adverse events that were not identified or not considered significant in our earlier trials that result in additional clinical holds on our current or currently contemplated clinical programs imposed by the FDA or otherwise limit our ability to proceed with other clinical programs in our pipeline, which will harm our business, financial condition, results of operations and may force us to cease our operations.
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, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our drug candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.
Clinical holds imposed by the FDA could prevent us or a partner from administering atuzaginstat (COR388) in oncology or periodontal or additional studies.
Preclinical data for atuzaginstat (COR388) showed toxicity at very high exposure levels in mice and, as a result, the FDA placed atuzaginstat (COR388) on partial clinical hold to enforce an exposure cap on atuzaginstat (COR388) dosages in humans at
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approximately 2.4 times the top dose of 80 mg BID in our Phase 2/3 GAIN trial. In addition, the FDA placed a partial clinical hold on atuzaginstat (COR388) impacting the OLE phase of the GAIN Trial following the review of hepatic adverse events in the atuzaginstat (COR388) trial by the FDA. Under the hold, we stopped enrollment and dosing in the OLE phase of the GAIN Trial. The results of our Phase 2/3 GAIN trial revealed atuzaginstat (COR388) was associated with dose-related liver enzyme elevations>3X the upper limit of normal: 2% on placebo,7% on 40 mg BID, and 15% on 80 mg BID. These elevations alone were not clinically significant, and virtually all participants were asymptomatic. Two participants in the 80 mg BID arm had concomitant bilirubin elevations without alternative explanation. At the conclusion of the Phase 2/3 GAIN trial the FDA division of Neurology 1 placed a full clinical hold on atuzaginstat (COR388) for Alzheimer’s disease. As a result, other divisions within the FDA could prevent us from administering atuzaginstat (COR388) in other indications, such as oncology and periodontal, which we are currently pursuing, or even if we are allowed to proceed with such other indications, we may not be ultimately successful because the results of these potential trials may prove to be not clinically significant or have side effects that prevent further clinical development.
We may not be successful in our efforts to continue to create a pipeline of drug candidates or to develop commercially successful drugs. If we fail to successfully identify and develop additional drug candidates, our commercial opportunity may be limited.
One of our strategies is to identify and pursue clinical development of additional drug candidates. We currently have five programs in the early phase of development, all of which are in the research, discovery and preclinical stages of development. Identifying, developing, obtaining regulatory approval and commercializing additional drug candidates will require substantial additional funding and is prone to the risks of failure inherent in drug development. We cannot provide you any assurance that we will be able to successfully identify or acquire additional drug candidates, advance any of these additional drug candidates through the development process, successfully commercialize any such additional drug candidates, if approved, or assemble sufficient resources to identify, acquire, develop or, if approved, commercialize additional drug candidates. If we are unable to successfully identify, acquire, develop and commercialize additional drug candidates, our commercial opportunity may be limited.
We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our drug candidates, including:
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For example, enrollment in our clinical trials have been and may be delayed or impeded as a result of the COVID-19 pandemic due to prioritization of healthcare resources toward the pandemic, and some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. For example, we have experienced some delays in enrollment in COR588 SAD/MAD Phase 1 clinical trial due to the restrictions related to COVID-19 placed in Australia. In addition, we may experience increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or because of quarantines or travel limitations (whether voluntary or required) If the patients involved with our clinical trials contract COVID-19, we may have more adverse events and deaths in our clinical trials as a result. We have taken and continue to take proactive measures to maintain the integrity of our ongoing clinical trial. However, these measures may not be successful, and the occurrence of any of these events could delay or impede our ability to release clinical results, delay or impact our clinical trials, including the integrity and completeness of subject data and clinical study endpoints, and could adversely impact our product candidates testing, development and timelines.
Preclinical studies and clinical trials are expensive and time consuming, additional or unsuccessful clinical trials could cause our clinical development activities to be delayed or otherwise adversely affected.
All of our drug candidates are in clinical and preclinical development and their risk of failure is high. The clinical trials and manufacturing of our drug candidates are, and the manufacturing and marketing of our drug, if approved, will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our drug candidates. To date, we have not discussed with the FDA about its drug candidate, NOV004. Before obtaining regulatory approvals for the commercial sale of any of our drug candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our drug candidates are both safe and effective for use in each target indication. We may not be able to develop a trial design that the FDA and other foreign regulatory authorities can accept. Each drug candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.
Clinical trials are expensive and can take many years to complete, and their outcomes are inherently uncertain. We cannot guarantee that our ongoing and any future clinical trials will be conducted as planned or completed on schedule, if at all. Failure can occur at any time during the clinical trial process. Even if our ongoing and any future clinical trials are completed as planned, we cannot be certain that their results will support the safety and effectiveness of our product candidates for their targeted indications or support continued clinical development of such product candidates. Our ongoing and any future clinical trial results may not be successful.
In addition, even if such trials are successfully completed, we cannot guarantee that the FDA, EMA or other foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our drug candidates for approval. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other jurisdiction. To the extent that the results of the trials are not satisfactory to the FDA, EMA or other foreign regulatory authorities for support of a marketing application, we may be required to expend significant
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resources, which may not be available to us, to conduct additional trials in support of potential approval of our drug candidates.
If we are required to conduct additional preclinical studies, clinical trials or other testing of our drug candidates beyond those that we currently contemplate, if we are unable to successfully complete preclinical studies, clinical trials of our drug candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
Drug development costs will also increase if we experience delays in testing or in obtaining marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be amended or will be completed on schedule, or at all. Significant preclinical studies and clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug candidates, could allow our competitors to bring drug candidates to market before we do, and could impair our ability to successfully commercialize our drug candidates, if approved, any of which may harm our business and results of operations. In addition, many of the factors that cause, or lead to a delay in the commencement or completion of, clinical trials may also ultimately lead to termination or suspension of a clinical trial. Any of these occurrences may harm our business, financial condition and prospects significantly. Any termination of any clinical trial of our drug candidates will harm our commercial prospects and our ability to generate revenues.
Risks Relating Our Financial Position
We are a pre-clinical stage biopharmaceutical company with a limited operating history, which may make it difficult to evaluate the prospects for our future viability.
We are a preclinical stage biopharmaceutical company with a limited operating history focused on developing therapeutics for degenerative diseases, including Alzheimer’s disease. We were incorporated in June 2012 and commenced material operations in June 2014. We have a very limited operating history, which may make it difficult to evaluate the success of our business to date and assess our future viability. Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We have recently initiated clinical trials for COR588 and have not initiated clinical trials for any of our other drug candidates. To date, we have reported top-line data in only one Phase 2/3 clinical trial, which is currently subject to a full clinical hold by the FDA, and have not initiated any other late stage clinical trial, obtained marketing approval for any drug candidate, manufactured a commercial scale drug candidate, arranged for a third party to do so on our behalf, or conducted sales and marketing activities necessary for successful drug candidate commercialization. Our short operating history as a company makes any assessment of our future success and viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage biopharmaceutical companies in rapidly evolving fields, and we have not yet demonstrated an ability to overcome such risks and difficulties successfully. If we do not address these risks and difficulties successfully, our business will suffer.
We have no drug candidates approved for commercial sale, we have never generated any revenue from sales, and we may never be profitable.
We have no drug candidates approved for sale, have never generated any revenue from sales, have never been profitable and do not expect to be profitable in the foreseeable future. We have incurred net losses in each year since our inception. For the years ended December 31, 2021, 2020, 2019, our net losses were $89.9 million, $76.8 million and $37.0 million, respectively. We had an accumulated deficit of $274.8 million as of June 30, 2022.
Before we are able to generate any revenue, we will need to commit substantial funds to continue development of our drug candidates and bring any drug candidates to commercialization, and we may not be able to obtain sufficient funds on acceptable terms,
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if at all. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us and/or result in dilution to our stockholders.
To date, we have devoted most of our financial resources to our corporate overhead and research and development of atuzaginstat (COR388) and COR588, including our preclinical development activities and clinical trials of atuzaginstat (COR388) and COR588. We expect that it will be several years, if ever, before we have a drug candidate ready for commercialization. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for our drug candidates, prepare for and begin the commercialization of any approved drug candidates, and add infrastructure and personnel to support our drug development efforts and operations as a public company. We anticipate that any such losses could be significant for the next several years. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. Further, these net losses have fluctuated significantly in the past and are expected to continue to significantly fluctuate from quarter-to-quarter or year-to-year. To become and remain profitable, we must develop and eventually commercialize a drug with significant revenue.
We may never succeed in developing a commercial drug. On January 25, 2022, we received a letter from the FDA Division of Neurology 1 placing a full clinical hold on the IND for atuzaginstat’s (COR388). The FDA may place additional clinical holds on our current or currently contemplated clinical programs or otherwise limit our ability to proceed with other clinical programs in our pipeline, which will harm our business, financial condition, results of operations and may force us to cease our operations. Further, while we believe COR388 holds therapeutic potential in non-CNS indications, including Oncology and Periodontitis, there is no guarantee that further efforts with regard to COR388 will be successful, and our ability to apply, and obtain regulatory approval, or partner with others for further development for any of these indications is uncertain at this time.
We expect to advance atuzaginstat (COR388) only if we are successful in partnering our legacy assets, but we may not be able to find a suitable partner, if at all. See also the risk factor titled “If we are unable to successfully out-license our legacy assets, our business could materially suffer.”
We may elect to discontinue, delay or modify clinical trials of some drug candidates or focus on others. Any changes in the outcome of any of these variables with respect to the development of our drug candidates in clinical development could mean a significant change in the costs and timing associated with the development of these drug candidates. Even if we succeed in commercializing one or more drug candidates, we may never generate revenues that are significant or large enough to achieve profitability.
We may also encounter other unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. Because of these numerous risks and uncertainties, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to generate revenues or achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis and we will continue to incur substantial research and development and other expenditures to develop and market additional drug candidates.
We will require substantial additional funding to finance our operations, complete the development and commercialization of NOV004 and evaluate future drug candidates. If we are unable to raise this funding when needed or on acceptable terms, we may be forced to delay, reduce or eliminate our drug development programs or other operations.
Since our inception, we have used substantial amounts of cash to fund our operations, and we expect our expenses to increase substantially in the foreseeable future in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of, and seek marketing approval for, NOV004. In addition, if we obtain marketing approval for NOV004 or any future drug candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution.
Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. As of June 30, 2022, we had $105.7 million in cash, cash equivalents and investments. Our balance sheet includes publicly-traded corporate debt securities. We may be required to recognize impairments in the value of these investments if the relevant companies are materially adversely effected as a result of the negative effects arising from the COVID-19 pandemic or for other reasons, become unable to repay debt securities when due, or experience credit rating downgrades, or if the public trading price of these securities decreases.
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We believe that our existing capital resources will be sufficient to fund our projected operations through the second half of 2025. However, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may need to raise additional funds sooner than we anticipate if we choose to expand more rapidly than we presently anticipate. The amount and timing of our future funding requirements will depend on many factors, some of which are outside of our control, including but not limited to:
Additional funding may not be available to us on acceptable terms or at all. Any such funding may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or drug candidates or otherwise agree to terms unfavorable to us. Additionally, while the potential global economic impact and the duration of the COVID-19 pandemic may be difficult to assess or predict, a widespread pandemic could result in significant long-term disruption of global financial markets, which could in the future reduce our ability to access capital and negatively affect our liquidity. In addition, the trading prices for our common stock and other biopharmaceutical companies, as well as the broader equity and debt markets, have been highly volatile as a result of the COVID-19 pandemic and the resulting impact on economic activity. Furthermore, a recession or decline in market value resulting from the spread of COVID-19 could materially affect our operations, overall yields from our investment portfolio, including through impairment and loss of investment, and the value of our common stock.
Risks Relating to Regulatory Review and Approval of Our Drug Candidates and Other Legal Compliance Matters
We cannot be certain that the FDA or foreign regulatory authorities will permit us to proceed with our proposed clinical trial designs for COR588 or NOV004. Our drug candidates, including NOV004, COR588, atuzaginstat (COR388) or any of our other potential drug candidates, may not receive regulatory approval, and without regulatory approval we will not be able to market our drug candidates.
Currently, we do not have a trial design for COR588 for Alzheimer's or a non-Alzheimer's indication or NOV004 that has been reviewed or cleared by the FDA or any foreign regulatory authorities. Regulatory agencies, including the FDA, or their advisors may disagree with our trial design and our interpretations of data from preclinical studies and clinical trials.
We currently have no drug candidates approved for sale and we cannot guarantee that we will ever have marketable drug candidates. Our ability to generate revenue related to sales, if ever, will depend on the successful development and regulatory approval of our product candidates.
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The development of a drug candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA in the United States, the EMA in Europe and regulatory authorities in other countries, with regulations differing from country to country. We are not permitted to market our drug candidates in the United States or Europe until we receive approval of a new drug application, or NDA, from the FDA or a marketing authorization application, or MAA, from the EMA, respectively. We have not submitted any marketing applications for any of our drug candidates.
NDAs and MAAs must include extensive preclinical and clinical data and supporting information to establish the drug candidate’s safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry, manufacturing and controls for the drug. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators of other jurisdictions, such as the EMA, have their own procedures for approval of drug candidates. Even if a drug is approved, the FDA or the EMA, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a drug candidate in one country does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of drug development and the emergence of new information regarding our drug candidates or other drug candidates. Also, regulatory approval for any of our drug candidates may be withdrawn.
To date we have concentrated our research and development and clinical efforts on the treatment of Alzheimer’s and other degenerative diseases and rare skeletal diseases, bone fractures and injury, and fields that have seen very limited success in drug development. Most of our drug candidates are based on new therapeutic approaches and novel technology, which also makes it difficult to predict the time and cost of drug candidate development and the regulatory approval process and exposes us to unforeseen risks, including the risk that the U.S. Food and Drug Administration ("FDA") may impose a clinical hold on, or otherwise limit our ability to proceed with, our other clinical programs.
We have focused our research and development efforts on addressing degenerative diseases. Collectively, efforts by pharmaceutical companies in the field of degenerative diseases have seen very limited successes in drug development. There are few effective therapeutic options available for patients with Alzheimer’s disease and other degenerative diseases. Our future success is highly dependent on the successful development of our technology and our drug candidates for treating degenerative diseases. Developing and, if approved, commercializing our drug candidates for treatment of degenerative diseases subjects us to a number of challenges, including ensuring that we have selected the optimal dose of the therapeutic to block gingipains in the brain, executing an appropriate trial to test for efficacy and obtaining regulatory approval from the FDA and other regulatory authorities.
Our approach to the treatment of degenerative diseases aims to understand the cause of disease pathogenesis, select the right patient population, discover and develop potent and selective small molecules that act directly in the brain or other organs on these targets, and leverage both preclinical and human pharmacodynamic data for dose selection. This strategy may not prove to be successful. We cannot be sure that our approach will yield satisfactory therapeutic drug candidates that are safe and effective, scalable, or profitable. Moreover, public perception of drug safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians to prescribe novel treatments.
Although we have continued to make advances in our development of NOV004, our research continues to be at an early stage, and we face challenges. Development of any drug candidates utilizing our technology is expected to require significant additional research and funding. For example, we may experience delays in the manufacture of drug supplies or identify suitable animal disease models for our drug candidates, which could delay or frustrate our ability to proceed into clinical trials or obtain marketing approval. NOV004 is expected to enter Phase 1 clinical trials in 2023 with planned areas of investigation including osteogenesis imperfecta, general fractures and spinal fusion. There is no assurance that we will continue our development of NOV004, that subsequent research will be successful or that we will be able to develop drug candidates or approved products using our technology.
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Clinical failure can occur at any stage of clinical development and we have never conducted a Phase 3 trial or submitted an NDA or MAA before.
We have only recently announced top-line results of our Phase 2/3 GAIN trial for Alzheimer’s disease and reported that it did not meet statistical significance in its co-primary cognitive and functional endpoints as measured by ADAS-Cog11 and ADCS- ADL at end of the treatment period in the overall cohort. On January 25, 2022, we received a letter from the FDA Division of Neurology 1 placing a full clinical hold on atuzaginstat (COR388) IND. Other divisions of the FDA may impose a clinical hold on atuzaginstat (COR388) as we explore other indications for this drug, or otherwise limit our ability to proceed with other clinical programs in our pipeline, which could have a materially adverse impact on us. We cannot guarantee that that similar clinical holds will not happen in the future with COR588, atuzaginstat (COR388) or any future drug candidates for any current or additional indications. The submission of a successful NDA is a complicated process. As an organization, we have never conducted a registrational clinical trial and have limited experience in preparing, submitting and prosecuting regulatory filings, and have not submitted a NDA. Failure to commence or complete, or delays in, our planned clinical trials would prevent us from or delay us in seeking approval for, and if approved, commercializing our drug candidates, and failure to successfully complete any of these activities in a timely manner for any of our drug candidates could have a material adverse impact on our business and financial performance. The commencement, enrollment and completion of clinical trials can be delayed or suspended for a variety of reasons, including:
In addition, the design of a clinical trial can determine whether its results will support approval of a drug and flaws in the design of a clinical trial may not become apparent until the clinical trial is well-advanced. Changes in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial.
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In addition, if we are required to conduct additional clinical trials or other preclinical studies of our drug candidates beyond those contemplated, our ability to obtain regulatory approval of these drug candidates and generate revenue from their sales would be similarly harmed.
If any of our clinical trials of our drug candidates fail to demonstrate safety and efficacy to the satisfaction of the U.S. Food and Drug Administration ("FDA") or similar regulatory authorities outside the United States or do not otherwise produce positive results, or are put on additional clinical holds imposed by the FDA or similar regulatory authorities outside the United States, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our drug candidates.
Before obtaining regulatory approvals for the commercial sale of any of our drug candidates, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our drug candidates are both safe and effective for use in each target indication. Each drug candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies of our drug candidates may not be predictive of the results of early-stage or later-stage clinical trials, and results of early clinical trials of our drug candidates may not be predictive of the results of later-stage clinical trials. The results of clinical trials in one set of patients or disease indications may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same drug candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. Drug candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. This is particularly true in degenerative diseases, where failure rates historically have been higher than in many other disease areas. Most drug candidates that begin clinical trials are never approved by regulatory authorities for commercialization.
In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our drug candidates for approval. Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory authorities. The FDA or other regulatory authorities may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected the integrity of the study. The FDA or other regulatory authorities may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or other regulatory authorities, as the case may be, and may ultimately lead to the denial of marketing approval of any of our drug candidates. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our drug candidates. Even if regulatory approval is secured for any of our drug candidates, the terms of such approval may limit the scope and use of our drug candidate, which may also limit its commercial potential.
We rely on third parties to conduct some of our preclinical studies and clinical trials and some aspects of our research and preclinical testing and on third-party contract manufacturing organizations to manufacture and supply our preclinical and clinical materials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research, manufacturing or testing.
Although we have our own lab to conduct some preclinical studies for NOV004, we currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct some aspects of our research and preclinical testing and our clinical trials. We also rely on third-party contract manufacturing organizations to manufacture and supply our preclinical and clinical materials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If we need to enter into alternative arrangements, it would delay our drug development activities.
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Our reliance on these third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with current good clinical practice regulations, or GCP, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible, reproducible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database within certain timeframes. Failure to do so can result in fines, adverse publicity, and civil and criminal sanctions.
Reliance on third-party manufacturers entails additional risks, such as the possible breach of the manufacturing agreement by the third party, the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us and reliance on the third party for regulatory compliance, quality assurance, safety and related reporting. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for any drug candidates we may develop and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines.
We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any drug candidates we may develop or commercialization of our medicines, producing additional losses and depriving us of potential drug revenue.
The lab facilities in which our product candidates are developed could be adversely affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
We presently develop our product candidates at our lab facilities in West Lafayette, Indiana. If our lab facilities were to be damaged or destroyed by fire, flood, other natural disaster or other occurrences of any kind, it would have a material adverse effect on our ability to develop product candidates and on our business, financial condition and results of operations.
We must comply with applicable regulations and guidelines. We may experience shortages in qualified personnel. We are subject to inspections by regulatory authorities to confirm compliance with applicable regulatory requirements. Any failure to follow regulatory requirements or delay, interruption or other issues that arise in the development of our product candidates as a result of a failure of our facilities or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize our product candidates, leading to significant delays in the availability of therapeutic product for clinical studies or the termination or hold on a clinical study, or the delay or prevention of a filing or approval of marketing applications for our product candidates. Significant noncompliance could also result in the imposition of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could damage our reputation. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our product candidates and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.
We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer, more advanced or more effective than ours.
The development and commercialization of new drugs is highly competitive. Moreover, the degenerative disease field is characterized by strong competition and a strong emphasis on intellectual property. We may face competition with respect to any drug candidates that we seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.
There are a number of large pharmaceutical and biotechnology companies that are currently pursuing the development of drug candidates for the treatment of the degenerative disease indications for which we have research programs, including Alzheimer’s disease. Companies that we are aware are developing therapeutics in the degenerative disease field include large companies with significant financial resources, such as AbbVie Inc., Biogen Inc., Eli Lilly and Company, Eisai Co., Ltd., Merck & Company, Inc., Denali Therapeutics, Inc., Alector, Inc., Cassava Sciences, Inc., Novartis AG and Roche Holding AG (including Genentech, its wholly
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owned subsidiary), as well as companies pursuing a dysfunctional immune system approach to Alzheimer’s disease or other types of therapies.
There are many bone building and osteoporosis drugs currently in development and available in the United States include anti-resorptive agents, anabolic agents, and an agent that has both anabolic and anti-resorptive characteristics. Anti-resorptive agents including bisphosphonates, hormone therapy, selective estrogen receptor modulators (SERMs), and Amgen's Prolia (denosumab), are the most common treatments for osteoporosis. Teriparatide, marketed by Lilly under the name Forteo/Forsteo (outside the U.S.) and abaloparatide, marketed by Radius Health under the name Tymlos are both anabolic drugs targeting the PTH receptor approved in the United States for the treatment of osteoporosis. We are aware of companies pursuing development in the United States of teriparatide through various regulatory pathways, including Teva Pharmaceutical Industries, Ltd., and APOTEX. We believe other companies may be in earlier stages of development of a generic version of teriparatide. Romosozumab, an anti-sclerostin monoclonal antibody for the treatment of osteoporosis, is marketed by Amgen and UCB under the name Evenity, following regulatory approval in the US, Europe and Japan.
There are several therapies in development for osteogenesis imperfecta including setrusumab, an anti-sclerostin monoclonal antibody, in development by Ultragenyx and Mereo BioPharma; SAR439459, and fresolimumab, both anti-TFB-beta monoclonal antibodies, in development by Sanofi; and romosozumab, in development by Amgen.
Fracture repair or spinal fusion therapies and devices available to be applied during surgery include recombinant human bone morphogenetic protein-2 (rhBMP2), marketed by Medtronic under the name Infuse Bone Graft. rhPDGF-BB, marketed by Lynch Biologics and Wright Medical Group N.V., and low-intensity pulsed ultrasound (LIPUS) marketed by BioVentus.
Many of our current or potential competitors, either alone or with their strategic partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved drug candidates than we do. Merger and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drug candidates that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any drug candidates that we may develop. Furthermore, currently approved drug candidates could be discovered to have application for treatment of degenerative disease indications, which could give such drug candidates significant regulatory and market timing advantages over any of our drug candidates. Our competitors also may obtain FDA, EMA or other regulatory approval for their drug candidates more rapidly than we may obtain approval for ours from the FDA for indications our drug candidates are targeting, which could result in our competitors establishing a strong market position before we are able to enter the market.
Additionally, drug candidates or technologies developed by our competitors may render our potential drug candidates uneconomical or obsolete, and we may not be successful in marketing any drug candidates we may develop against competitors. If our competitors market drug candidates that are more effective, safer or less expensive than our drug candidates, if approved, or that reach the market sooner than our drug candidates, if approved, we may not achieve commercial success. In addition, the pharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or drug candidates developed by our competitors may render our technologies or drug candidates obsolete, less competitive or not economical.
If we or any of our third-party manufacturers encounter difficulties in production of our current or any future drug candidate, or fail to meet rigorously enforced regulatory standards, our ability to provide supply of our drug candidates for clinical trials or for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.
The processes involved in manufacturing our drug candidates are highly regulated and subject to multiple risks. As drug candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our drug candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.
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In order to conduct clinical trials of our drug candidates, or supply commercial drug candidates, if approved, we will need to manufacture them in small and large quantities. Our manufacturing partners may be unable to successfully modify or scale-up the manufacturing capacity for any of our drug candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If our manufacturing partners are unable to successfully scale-up the manufacture of our drug candidates in sufficient quality and quantity, the development, testing and clinical trials of that drug candidate may be delayed or become infeasible, and regulatory approval or commercial launch of any resulting drug may be delayed or not obtained, which could significantly harm our business. The same risks would apply to our internal manufacturing facilities, should we in the future decide to build internal manufacturing capacity. In addition, building internal manufacturing capacity would carry significant risks in terms of being able to plan, design and execute on a complex project to build manufacturing facilities in a timely and cost-efficient manner.
In addition, the manufacturing process for any drug candidates that we may develop is subject to FDA, EMA and foreign regulatory requirements, and continuous oversight, and we will need to contract with manufacturers who can meet all applicable FDA, EMA and foreign regulatory authority requirements, including complying with current good manufacturing practices, or cGMPs, on an ongoing basis. If we or our third-party manufacturers are unable to reliably produce drug candidates in accordance with the requirements of the FDA, EMA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such drug candidates. Even if we obtain regulatory approval for any of our drug candidates, there is no assurance that either we or our third party contract manufacturers will be able to manufacture the approved drug in accordance with the requirements of the FDA, EMA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the drug, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our drug candidate, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.
If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any drug candidates we may develop, we may not be successful in commercializing those drug candidates if and when they are approved.
We do not have a sales or marketing infrastructure and have no experience in the sale, marketing, or distribution of pharmaceutical drug candidates. To achieve commercial success for any approved drug candidate for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing, and commercial support infrastructure to sell, or participate in sales activities with collaborators for, some of our drug candidates if and when they are approved.
There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, factors that may inhibit our efforts to commercialize any drug candidates, if and when approved, whether alone or in collaboration with others:
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If the commercial launch of a drug candidate for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our commercialization personnel.
If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, our sales revenue or the profitability of sales revenue may be lower than if we were to market and sell any drug candidates we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to commercialize our drug candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our drug candidates effectively. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our drug candidates if approved.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our drug candidates.
We face an inherent risk of product liability as a result of the clinical testing of our drug candidates and will face an even greater risk when and if we commercialize any drug candidates. For example, we may be sued if our drug candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Product liability claims may be brought against us by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling our drug candidates. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit testing and commercialization of our drug candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of drug candidates we develop, alone or with potential collaborators. Our insurance policies may have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our
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agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
We may be exposed to a variety of international risks that could materially adversely affect our business.
Our business is subject to risks associated with conducting business internationally. Some of our suppliers and clinical trial centers are located outside of the United States. In particular, we are conducting clinical trial operations in Australia. We may enter into agreements with third parties for the development and commercialization of drug candidates in international markets. International business relationships will subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:
Any of these factors could harm our ongoing international clinical operations and supply chain, as well as any future international expansion and operations and, consequently, our business, financial condition, prospects and results of operations.
The COVID-19 pandemic, as well as other public health crises, catastrophic events or other events outside of our control, may adversely affect our capabilities or the capabilities of third parties on which we depend.
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Our headquarters are located in California near major geologic faults that have experienced earthquakes in the past. An earthquake or other natural disaster or power shortages or outages could disrupt operations, impair critical systems or result in loss of clinical samples. Any of these disruptions or other events outside of our control could have a material adverse impact on our business, harming our operating results. In addition, if any of our suppliers or third-party service providers, such as our manufacturing partners or CROs, are affected by natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict, cyberattacks, or other events outside of our control, our business and operating results could suffer. Disasters, public health crises and political crises occurring at third-party facilities also could negatively impact our clinical development and regulatory approval timelines, our reputation and the perception of our company. For example, as a result of the COVID-19 pandemic, we and our third- party service providers temporarily limited our operations or implemented limitations, including work-from-home policies. All employees have now returned to their pre-pandemic work locations and activities. However, as long as the pandemic continues, our employees may be exposed to health risks and government directives may require us to close again certain of our offices or our laboratory facility. In addition, as a result of "shelter-in-place" orders or other mandated travel restrictions, our on-site staff conducting research and development activities may not be able to access our laboratories, and these core activities may be significantly limited or curtailed, possibly for an extended period of time. Further, due to travel restrictions and “shelter-in-place” orders, we may experience limitations on the ability to recruit and hire key personnel due to the inability to meet with candidates and reduced ability to engage with the medical and investor communities due to the cancelation of conferences scheduled throughout the year. We also may experience operational challenges caused by sickness of our employees or their families, the desire of employees to avoid contact with large groups of people, and an increased reliance on working from home or mass transit disruptions. Furthermore, new quarantines for COVID-19 or other viruses could impact personnel at contract manufacturing facilities in China, Europe or elsewhere to deliver key materials or the availability or cost of starting materials. Any disruption of our contract manufacturing vendors in China, Europe or elsewhere to deliver key materials on a timely basis could have a material adverse effect on the initiation of new trials, the duration of open label extension studies and overall product development. In addition, we may experience delays or disruptions in non-clinical experiments and supplies for such experiments, including animals required for such experiments. These and other factors arising from the COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19, could continue to spread to additional countries, or could return to countries where the pandemic has been partially contained, each of which could further 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.
We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As we increase the number of ongoing drug development programs and advance our drug candidates through preclinical studies and clinical trials, we will need to increase our drug development, scientific and administrative headcount to manage these programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that we:
If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
We may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses or any other circumstances that would cause them no longer to provide their professional services to us in the near future. If we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business strategy. In addition, we may need to adjust the size of our workforce as a result of changes to our
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expectations for our business, which can result in diversion of management attention, disruptions to our business, and related expenses.
In addition, we recently announced a cost reduction program to reorganize operations and to allow continued support for the needs of its business following the clinical hold on atuzaginstat (COR388) IND, impacting a number of employees. Any reduction in force may yield unintended consequences and costs, such as the loss of institutional knowledge and expertise, attrition beyond the intended reduction in force, the distraction of employees, reduced employee morale and could adversely affect our reputation as an employer, which could make it more difficult for us to hire new employees in the future and increase the risk that we may not achieve the anticipated benefits from the cost reduction program.
Our industry has experienced a high rate of turnover of management personnel in recent years. We recently announced resignation of our President and Chief Executive Officer, Chief Scientific Officer, Chief Medical Officer, Chief Legal and Administrative Officer and Corporate Secretary, Chief Financial Officer and Chief Operating Officer and our Executive Vice President of Research and Development. Changes in management is disruptive to our business and have also resulted in our loss of unique skills, loss of knowledge about our business. For example, our new management team has limited knowledge of our legacy clinical programs. Such turnover may also result in the departure of other existing employees or partners.
Replacing executive officers, key employees and consultants may be difficult and may take an extended period because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize drug candidates successfully. Competition to hire and retain employees and consultants from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel and consultants. Our failure to retain or replace key personnel or consultants could materially harm our business. We may lose our ability to implement our business strategy successfully and could be seriously harmed. Any of our executive officers or key employees or consultants may terminate their employment at any time.
We have scientific and clinical advisors and consultants who assist us in formulating our research, development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. Non-compete agreements are not permissible or are limited by law in certain jurisdictions and, even where they are permitted, these individuals typically will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing drug candidates or technologies that may compete with ours.
Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.
We are exposed to the risk of fraud or other misconduct by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with health care 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 arrangements in the health care 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 pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. 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, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, products liability and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations.
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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 of our 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, that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of collaborators. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH. Depending on the facts and circumstances, we could be subject to civil, criminal, and administrative penalties if we violate HIPAA.
Several foreign jurisdictions, including the European Union, or the EU, its member states, the United Kingdom and Australia, among others, have adopted legislation and regulations that increase or change the requirements governing the collection, use, disclosure and transfer of the personal information of individuals in these jurisdictions. These laws and regulations are complex and change frequently, at times due to changes in political climate, and existing laws and regulations are subject to different and conflicting interpretations, which adds to the complexity of processing personal data from these jurisdictions. These laws have the potential to increase costs of compliance, risks of noncompliance and penalties for noncompliance.
The General Data Protection Regulation, or GDPR, imposes numerous new requirements for the collection, use and disclosure of personal information, including more stringent requirements relating to consent and the information that must be shared with data subjects about how their personal information is used, the obligation to notify regulatory authorities and affected individuals of personal data breaches, extensive new internal privacy governance obligations, and obligations to honor expanded rights of individuals in relation to their personal information (for example, the right to access, correct and delete their data). In addition, the GDPR generally maintains restrictions on cross-border data transfer. The GDPR will increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional potential mechanisms to ensure compliance.
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 subjects, 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.
Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways that we cannot currently predict, and may have a significant adverse effect on our business and results of operations.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any drug candidates for which we obtain marketing approval. Among policy makers and payors in the United States and elsewhere, including in the European Union, or EU, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry.
Since its enactment, there have been executive, judicial and Congressional challenges to certain aspects of the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the healthcare reform measures will impact the ACA and our business. Other healthcare reform measures that may be adopted in the future could have a material adverse effect on our industry generally and on our ability to maintain or increase sales of our existing
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products that we successfully commercialize or to successfully commercialize our drug candidates, if approved. In addition to the ACA, there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to keep healthcare costs down while expanding individual healthcare benefits. For example, there has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent presidential executive orders, Congressional inquiries, and proposed federal 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.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 and subsequent laws, which began in 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, unless additional Congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. New laws may result in additional reductions in Medicare and other healthcare funding, which may adversely affect customer demand and affordability for our drug candidates and, accordingly, the results of our financial operations.
Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed drug candidates, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Further, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. No legislation or administrative actions have been finalized to implement these principles. It is unclear whether these or similar policy initiatives will be implemented in the future. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Further, Congress is considering additional health reform measures. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological drug pricing, including price or patient reimbursement constraints, discounts, restrictions on certain drug access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Moreover, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
We expect that these and other healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved drug candidate. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drug candidates, once marketing approval is obtained.
Our ability to successfully commercialize any drugs that we develop depends in part on the extent to which coverage and adequate reimbursement are available from government health administration authorities, private health insurers, and other organizations.
Our ability to successfully commercialize any drugs that we develop depends in part on the extent to which coverage and adequate reimbursement are available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, each individually decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Government authorities currently impose mandatory discounts for certain patient groups, such as Medicare, Medicaid and Veterans Affairs, or VA, hospitals, and may seek to increase such discounts at any time. Future regulation may negatively impact the price of our product candidates, if approved. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage or reimbursement will be available for any drug candidate that we commercialize and, if coverage or reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any drug candidate for which we obtain marketing approval. In order to get coverage and reimbursement, physicians may need to show that patients have superior treatment outcomes with our products compared to standard of care drugs, including lower-priced generic versions of standard of care drugs.It is possible that a third-party payor may consider our product candidates, once approved, and other therapies as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, once approved,
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compared to existing products, pricing of existing products may limit the amount we will be able to charge for our product candidates. once approved. Third-party payors may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. Because NOV004 is in the early stages of development, we are unable at this time to determine the likely level or method of coverage and reimbursement from third-party payors. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any drug candidate for which we obtain marketing approval. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors, and coverage decisions and reimbursement levels for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that may require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the medicine is approved by the FDA, EMA or other comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but make their determinations independently and may impose additional restrictions. Our inability to promptly obtain and maintain coverage and profitable payment rates from both government-funded and private payors for any approved products we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drug candidates, and our overall financial condition. Further, coverage policies and third-party payor reimbursement rates may change at any time. Therefore, even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future.
In the EU, coverage and reimbursement status of any drug candidates for which we obtain regulatory approval are provided for by the national laws of EU Member States. The requirements may differ across the EU Member States. Also, at national level, actions have been taken to enact transparency laws regarding payments between pharmaceutical companies and health care professionals.
If we engage in acquisitions, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.
On May 19, 2022, we completed the Acquisition. Although we currently have no plans to do so, we may attempt to acquire other businesses, technologies or drug candidates that we believe are a strategic fit with our business. If we do undertake any acquisitions, the process of integrating an acquired business, technology or drug candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.
We have conducted and in the future may conduct clinical trials for our drug candidates outside the United States, and the FDA, European Medicines Agency and applicable foreign regulatory authorities may not accept data from such trials.
We recently concluded our COR588 Phase 1 trial outside the United States and in the future may choose to conduct one or more of our clinical trials outside the United States. In particular, we are conducting clinical trial operations in Australia. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA, EMA or applicable foreign regulatory authorities may be subject to certain conditions. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the United States population and United States medical practice; and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to Good Clinical Practice regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory bodies have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, EMA or any applicable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable
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jurisdiction. If the FDA, EMA or any applicable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our drug candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.
Interim, top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or top-line data from our clinical studies, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical studies.
In addition, we may report interim analyses of only certain endpoints rather than all endpoints. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular drug candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the top-line data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our drug candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Changes in funding for the FDA and other government agencies or other disruptions at these agencies could prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.
The ability of the FDA to review and approve new drugs 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 government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may prolong 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, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. As a result of the COVID-19 pandemic, health regulatory agencies globally have experienced and may continue to experience disruptions in their operations. The FDA, EMA and comparable foreign regulatory agencies may have slower response times or be under-resourced to continue discussions with us regarding the scope or design of our clinical trials and, as a result, review, inspection, and other timelines may be materially delayed. It is unknown how long these disruptions could continue, were they to occur.
Even if we obtain regulatory approval for a drug candidate, it will remain subject to extensive ongoing regulatory review and requirements.
If any of our drug candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of
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safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturers’ facilities are required to comply with extensive requirements imposed by the FDA, EMA and comparable foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to cGMPs regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA or MAA. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Any regulatory approvals that we receive for our drug candidates will be subject to limitations on the approved indicated uses for which the drug candidate may be marketed and promoted or to the conditions of approval (including the potential for a requirement to implement a Risk Evaluation and Mitigation Strategy), or contain requirements for potentially costly post-marketing testing. We will be required to report certain adverse reactions and production problems, if any, to the FDA, EMA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in drug development or commercialization, or increased costs to assure compliance. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of drug candidates to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. We will have to comply with requirements concerning advertising and promotion for our drug candidates. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the drug candidate’s approved label. As such, we may not promote our drug candidates for indications or uses for which they do not have approval. The holder of an approved NDA or MAA must submit new or supplemental applications and obtain approval for certain changes to the approved drug candidate labeling, or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our drug candidates in general or in specific patient subsets. If original marketing approval was obtained via the accelerated approval pathway, we could be required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our drug candidates. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a drug, such as adverse events of unanticipated severity or frequency, or problems with the facility where the drug candidate is manufactured, or disagrees with the promotion, marketing or labeling of a drug candidate, such regulatory agency may impose restrictions on that drug candidate or us, including requiring withdrawal of the drug candidate from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our drug candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.
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The policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug 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 adversely affect our business, prospects, financial condition and results of operations.
Non-compliance by us or any future collaborator with regulatory requirements, including safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population can also result in significant financial penalties.
If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
Our operations are subject to various federal and state fraud and abuse laws. The laws that may impact our operations include:
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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities, including compensating physicians with stock or stock options, could, despite our efforts to comply, be subject to challenge under one or more of such laws. 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, 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, imprisonment, 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 drug candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
If we or any contract manufacturers and suppliers we engage 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 and any contract manufacturers and suppliers we engage are subject to numerous federal, state, and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing laboratory procedures; the generation, handling, use, storage, treatment, and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air, and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive materials. Our operations also produce hazardous waste. 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. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties.
Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research, drug development and manufacturing efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. 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, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Our business activities may be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery and anti-corruption laws.
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Our business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we may operate, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA. Recently the Securities and Exchange Commission, or SEC, and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents, contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our drug candidates in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.
Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize potential future drug candidates.
We may consider collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of drug candidates depending on the merits of retaining or divesting some or all commercialization rights. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.
Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:
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Risks Relating to Our Intellectual Property
If we are unable to obtain and maintain sufficient intellectual property protection for our current drug candidates, any future drug candidates, and other proprietary technology we develop, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize drug candidates similar or identical to ours, and our ability to successfully commercialize our current drug candidate, if approved, any future drug candidates, and other proprietary technologies if approved, may be adversely affected.
Our commercial success will depend in part on obtaining and maintaining a combination of patent protection, trade secret protection and confidentiality agreements to protect the intellectual property related to our current and future drug candidates and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our drug candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the United States or in many jurisdictions outside of the United States. Changes in either the patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be enforced in the issued patents that we currently own, or in patents that may issue from the applications we currently or may in the future own or license from third parties. Further, if any patents we obtain or license are deemed invalid and unenforceable, our ability to commercialize or license our technology could be adversely affected.
Others may have filed, and in the future are likely to file, patent applications covering drug candidates that are similar, identical or competitive to ours or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed or in-licensed by us, or that we or our licensors will not be involved in interference, opposition or invalidity proceedings before U.S. or non-U.S. patent offices.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. If we do not adequately protect our intellectual property and proprietary technology, competitors may be able to use our current or future drug candidates and proprietary technologies and erode or negate any competitive advantage we may have, which could have a material adverse effect on our financial condition and results of operations. For example:
We have applied, and we intend to continue applying, for patents covering aspects of our current drug candidates, any future drug candidates, or other proprietary technologies and their uses that we deem appropriate. However, we may not be able to apply for patents on certain aspects of our current or future drug candidates, proprietary technologies and their uses in a timely fashion, at a reasonable cost, in all jurisdictions, or at all, and any potential patent coverage we obtain may not be sufficient to prevent
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substantial competition. As of June 30, 2022, we were the owner of record of eight issued U.S. patents, 40 non-U.S. patents, and 58 pending U.S. and non-U.S. patent applications. Through the May 2022 acquisition of Novosteo, Inc., we are also the exclusive licensee of 1 issued U.S. patent, and 20 pending U.S. and non U.S. patent applications and the owner of record of 1 additional pending U.S. patent application (all issued U.S. patents, non-U.S. patents, and pending U.S. and non-U.S. patent applications mentioned above, collectively, “the Quince patent portfolio”).
Five issued U.S. patents and 38 issued non-U.S. patents in the Quince patent portfolio relate to atuzaginstat (COR388), with claims directed to atuzaginstat (COR388) and related pharmaceutical compounds, pharmaceutical compositions containing these compounds, and use of these compounds in the treatment of various indications. Pending U.S. and non-U.S. patent applications in the Quince patent portfolio relate to atuzaginstat (COR388) and related pharmaceutical compounds, pharmaceutical compositions containing these compounds, methods of using these compounds in the treatment of various indications, and methods of making these compounds.
In addition, three issued U.S. patents and two non-U.S. patent in the Quince patent portfolio relate to pharmaceutical compounds that do not encompass atuzaginstat (COR388), with claims directed to pharmaceutical compounds, pharmaceutical compositions containing these compounds, and use of these compounds in the treatment of various indications. Pending U.S. and non-U.S. patent applications relate to additional compounds in these areas; as well as to diagnostic methods and assay methods.
One issued U.S. patent in the Quince patent portfolio relates to NOV004, with claims directed to NOV004 and related pharmaceutical compounds, pharmaceutical compositions containing these compounds, and use of these compounds in the treatment of bone fractures. Pending U.S. and non-U.S. patent applications in the Quince patent portfolio relate to NOV004 and related pharmaceutical compounds, pharmaceutical compositions containing these compounds, and methods of using these compounds in the treatment of various indications.
Without patent protection on the composition of matter of our current or future drug candidates, our ability to assert our patents to stop others from using or selling our current or future drug candidates may be limited. Due to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not obtain patent coverage for all of our current or future drug candidates or methods involving the use of these candidates in a particular patent application. We plan to pursue divisional patent applications or continuation patent applications in the United States and other countries, where applicable, to obtain claim coverage for inventions which were disclosed but not claimed in a particular parent patent application.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our actual or potential future collaborators will be successful in protecting our current drug candidates, any future drug candidate, and other proprietary technologies and their uses by obtaining, defending, and enforcing patents. These risks and uncertainties include the following:
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The patent prosecution process is also expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner, including delays as a result of the COVID-19 pandemic impacting our or our licensor’s operations. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection for such output. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in any of our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. We may also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or feasible. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
We depend on a license agreement with Purdue and termination of this license could result in the loss of significant rights, which would harm our business.
On June 3, 2020, Novosteo entered into a License Agreement with Purdue Research Foundation, as amended on March 21, 2022 (the “Purdue Agreement”). Under the Purdue Agreement, we obtained an exclusive worldwide license under certain bone fracture repair and oncology therapeutics related patents and technology developed by the Purdue University and owned by Purdue Research Foundation to make or have made, use, sell or have sold, and import, and otherwise exploit products that are covered by such patents and technology, including the right to grant and authorize sublicenses, subject to Purdue Research Foundation’s consent. Such exclusive license is subject to certain rights retained by the U.S. government and Purdue Research Foundation.
In addition, we are required to pay Purdue Research Foundation annual license maintenance fee, development milestones (up to $4.25 million for each licensed product), low single digit running royalty on the gross receipts of the licensed products (subject to minimum annual royalty), and a share of certain payments that we may receive from our sublicensees. As a result, it may not be possible for us to develop and manufacture any drug candidates at a cost or in quantities sufficient to make these drugs commercially viable or to maintain current operating margins. The Purdue Agreement also requires us to bear the cost of the prosecution and maintenance of the licensed patents.
Pursuant to the Purdue Agreement, we are required to use commercially reasonable efforts to develop, manufacture and commercialize the licensed product in accordance with a mutually agreed development timelines and commercialization plan.
If we fail to pay any sum due, miss any milestone timelines or otherwise materially breach the agreement or fail to cure such breach within specified cure period), Purdue has the right to terminate our license, and upon the effective date of such termination, we must cease all activities licensed all rights, data, information, know-how, and material licensed or transferred to us
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under this license agreement will revert to Purdue and all rights, data, information, know-how, material, records and registrations developed or made by us that relate in whole or in part to the activities contemplated by our amended and restated license agreement with Purdue will be transferred to Purdue. Any uncured, material breach under the license agreement could result in loss in our rights to develop and market NOV004 and experience significant delays in the development or commercialization of NOV004, which could have a material adverse impact on our operations and financial condition and results.
Further, Purdue Research Foundation or any future licensors may not always act in our best interest. If disputes over intellectual property rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, our business, results of operations, financial condition, and prospects may be adversely affected. We may enter into additional licenses in the future and if we fail to comply with obligations under those agreements, we could suffer adverse consequences.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming, and unsuccessful. Further, our issued patents could be found invalid or unenforceable if challenged in court, and we may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
Third parties, including competitors, may infringe, misappropriate or otherwise violate our patents, patents that may issue to us in the future, or the patents of our licensors that are licensed to us. To counter infringement or unauthorized use, we may need to choose to file infringement claims, which can be expensive and time-consuming. We may not be able to prevent, alone or with our licensors, infringement, misappropriation, or other violation of our intellectual property, particularly in countries where the laws may not protect those rights as fully as in the United States. If we choose to go to court to stop another party from using the inventions claimed in any patents we obtain, that individual or company has the right to ask the court to rule that such patents are invalid or should not be enforced against that third party for any number of reasons. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include an alleged failure to meet any of several statutory requirements for patentability, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. Similar mechanisms for challenging the validity and enforceability of a patent exist in non-U.S. patent offices and may result in the revocation, cancellation, or amendment of any non-U.S. patents we hold in the future. The outcome following legal assertions of invalidity and unenforceability is unpredictable, and prior art could render our patents, or those of our licensor’s, invalid. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more drug candidates. Such a loss of patent protection would have a material adverse impact on our business.
These lawsuits are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we were successful in stopping the infringement of such patents. In addition, there is a risk that the court will decide that such patents are not valid and that we do not have the right to stop the other party from using the claimed inventions. There is also the risk that, even if the validity of such patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our rights to such patents. In addition, the U.S. Supreme Court has recently modified some tests used by the USPTO in granting patents over the past 20 years, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood of challenge of any patents we obtain or license.
Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications, or those of our licensor’s. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties or enter into development or manufacturing partnerships that would help us bring our current and any future drug candidates to market.
Even if resolved in our favor, litigation or other legal proceedings relating to our intellectual property rights may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
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Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their drug candidates. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s drug candidate. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.
In addition, proceedings to enforce or defend our patents, including those of our licensor’s, could put our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents covering our drug candidates are invalidated or found unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our drug candidates, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights. If we initiate lawsuits to protect or enforce our patents, or litigate against third party claims, such proceedings would be expensive and would divert the attention of our management and technical personnel.
We may infringe the intellectual property rights of others, which may prevent or delay our drug development efforts and stop us from commercializing or increase the costs of commercializing our drug candidates.
Our success will depend in part on our ability to operate without infringing the intellectual property rights of third parties. We cannot guarantee that our drug candidates, or manufacture or use of our drug candidates, will not infringe third-party patents.
Furthermore, a third party may claim that we or our manufacturing or commercialization collaborators are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our drug candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need to halt commercialization of the relevant drug candidate. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages for having violated the other party’s patents. If we collaborate with third parties in the development of technology in the future, our collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential liability. Further, our collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability. In the future, we may agree to indemnify our collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of drug candidates or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.
Any claims of patent infringement asserted by third parties would be time consuming and could:
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If we are sued for patent infringement, we would need to demonstrate that our drug candidates or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity or unenforceability is difficult.
For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity or enforceability of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid or unenforceable, we may incur substantial monetary damages, encounter significant delays in bringing our drug candidates to market and be precluded from manufacturing or selling our drug candidates.
We do not routinely conduct independent reviews of pending patent applications of and patents issued to third parties. We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we were the first to invent the technology, because:
Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history and can involve other factors such as expert opinion. Our interpretation of the relevance or the scope of claims in a patent or a pending application may be incorrect, which may negatively impact our ability to market our drug candidates. Further, we may incorrectly determine that our technologies, or drug candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending patent application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our drug candidates.
Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours, and others may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our drug candidates and future approved products or impair our competitive position. Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which we are developing drug candidates. There may be third-party patents or patent applications with claims to compositions, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our drug candidates. Any such patent application may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar inventions prior to our own inventions, resulting in a loss of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and may be entitled to priority over our applications in such jurisdictions.
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Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on any issued patents and/or pending applications are due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm to pay these fees due to the USPTO and non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. If we license intellectual property we may have to rely upon our licensors to comply with these requirements and effect payment of these fees with respect to any patents and patent applications that we license. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and drug candidate could be significantly diminished.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. We may also be subject to claims that former employees, or other third parties have an ownership interest in our patents or other intellectual property. In addition, we may face claims by third parties that our agreements with employees, contractors or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property. 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, which could adversely affect our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. 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.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors, and invention assignment agreements with employees, consultants and advisors, to protect our trade secrets and other proprietary information. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using commonly accepted physical and technological security measures. Despite these efforts, we cannot provide any assurances that all such agreements have been duly executed, and these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
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In addition, such security measures may not provide adequate protection for our proprietary information, for example, in the case of misappropriation of a trade secret by an employee, consultant, customer or third party with authorized access. Our security measures may not prevent an employee, consultant or customer from misappropriating our trade secrets and providing them to a competitor, and any recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our drug candidates that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Even though we use commonly accepted security measures, the criteria for protection of trade secrets can vary among different jurisdictions.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time- consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Moreover, third parties may still obtain this information or may come upon this or similar information independently, and we would have no right to prevent them from using that technology or information to compete with us. Trade secrets could over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions.
Though our agreements with third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Because from time to time we expect to rely on third parties in the development, manufacture, and distribution of our drug candidates and provision of our services, we must, at times, share trade secrets with them. Despite employing the contractual and other security precautions described above, the need to share trade secrets 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. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of this information may be greatly reduced and our competitive position would be harmed.
In the future, we may need to obtain licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.
From time to time we may be required to license technology from third parties to further develop or commercialize our drug candidates. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our drug candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our drug candidates could cause us to abandon any related efforts, which could seriously harm our business and operations.
Where we obtain licenses from or collaborate with third parties, 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, or such activities, if controlled by us, may require the input of such third parties. We may also require the cooperation of our licensors and collaborators to enforce any licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business, in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. Moreover, if we do obtain necessary licenses, we will likely have obligations under those licenses, including making royalty and milestone payments, and any failure to satisfy those obligations could give our licensor the right to terminate the license.
Termination of a necessary license, or expiration of licensed patents or patent applications, could have a material adverse impact on our business. Our business would suffer if any such licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. Furthermore, if any exclusive licenses terminate, or if the underlying patents fail to provide the intended exclusivity, competitors or other third parties may gain the freedom to seek regulatory approval of, and to market, drug candidates identical to ours. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty obligations, we would be required to pay on sales of future drug candidates, if any, the amounts may be significant. The amount of our future royalty obligations will likely depend on the technology and intellectual property we use in drug candidates that we successfully
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develop and commercialize, if any. Therefore, even if we successfully develop and commercialize drug candidates, we may be unable to achieve or maintain profitability.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
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. For example:
Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.
Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.
We may not be able to protect our intellectual property rights throughout the world.
Patents are of national or regional effect, and filing, prosecuting and defending patents on all of our drug candidates throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. As such, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing drug candidates made using our inventions in and into the United States or other jurisdictions. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which
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could make it difficult for us to stop the infringement of our patents or marketing of competing drug candidates in violation of our proprietary rights generally. In addition, certain developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit, and in those countries, we and our licensors and licensees may have limited remedies if patents are infringed or if we or our licensors or licensees are compelled to grant a license to a third party, which could diminish the value of those patents. This could limit our potential revenue opportunities. Further, competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own drug candidates and, further, may export otherwise infringing drug candidates to territories where we have patent protection but where enforcement is not as strong as that in the United States. These drug candidates may compete with our drug candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly 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.
No earlier than October 1, 2022, European applications will soon have the option, upon grant of a patent, of becoming a Unitary Patent which will be subject to the jurisdiction of the Unitary Patent Court (“UPC”). This will be a significant change in European patent practice. As the UPC is a new court system, there is no precedent for the court, increasing the uncertainty of any litigation.
Geo-political actions in the United States and in foreign countries could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future licensors and the maintenance, enforcement or defense of our issued patents or those of any current or future licensors. For example, the United States and foreign government actions related to Russia’s invasion of Ukraine may limit or prevent filing, prosecution and maintenance of patent applications in Russia. Government actions may also prevent maintenance of issued patents in Russia. These actions could result in abandonment or lapse of our patents or patent applications, resulting in partial or complete loss of patent rights in Russia. If such an event were to occur, it could have a material adverse effect on our business. In addition, a decree was adopted by the Russian government in March 2022, allowing Russian companies and individuals to exploit inventions owned by patentees that have citizenship or nationality in, are registered in, or have predominately primary place of business or profit-making activities in the United States and other countries that Russia has deemed unfriendly without consent or compensation. Consequently, we would not be able to prevent third parties from practicing our inventions in Russia or from selling or importing products made using our inventions in and into Russia. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our drug candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Our patent rights may be affected by developments or uncertainty in U.S. or non-U.S. patent statutes, patent case laws in USPTO rules and regulations or in the rules and regulations of non-U.S. patent offices.
Obtaining and enforcing patents in the pharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act (the Leahy-Smith Act), signed into law on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter parties review, and derivation proceedings. After March 2013, under the Leahy-Smith Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
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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. In addition, Congress may pass patent reform legislation that is unfavorable to us.
The U.S. Supreme Court has ruled on several patent cases in recent years, narrowing the scope of patent protection available in certain circumstances and weakening the rights of patent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents, trade secrets or other intellectual property as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our drug candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Patent terms may be inadequate to protect our competitive position on our drug candidates for an adequate amount of time, and if we do not obtain patent term extension for our drug candidates, our business may be materially harmed.
Patent rights are of limited duration. In the United States, the natural expiration of a patent is generally 20 years after its first effective non-provisional filing date. In addition, although upon issuance a U.S. patent’s life can be increased based on certain delays caused by the USPTO, this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after such drug candidates are commercialized. Even if patents covering our drug candidates are obtained, once the patent life has expired for a drug candidate, we may be open to competition from generic products. A patent term extension of up to five years based on regulatory delay may be available in the United States under the Hatch- Waxman Act. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single drug candidate. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the drug candidate as approved. Further, a patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of drug candidate approval and only those claims covering such approved drug candidate, a method for using it or a method for manufacturing it may be extended. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail 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 restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our drug candidate will be shortened and our competitors may obtain approval of competing drug candidates following our patent expiration, and our revenue could be reduced.
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.
Our current or future trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may 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 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. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements
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or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, 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 affect our financial condition or results of operations.
Moreover, any name we have proposed to use with our drug candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. Similar requirements exist in Europe. The FDA typically conducts a review of proposed drug candidate names, including an evaluation of potential for confusion with other drug candidate names. If the FDA (or an equivalent administrative body in a foreign jurisdiction) objects to any of our proposed proprietary drug candidate names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark. At times, competitors or other third parties 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. If we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
If any of our product candidates obtains regulatory approval additional competitors could enter the market with generic versions, which may result in a material decline in sales of affected drugs.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, a pharmaceutical manufacturer may file an abbreviated new drug application, or ANDA, seeking approval of a generic copy of an approved, small molecule innovator drug. Under the Hatch-Waxman Act, a manufacturer may also submit a new drug application, or NDA, under section 505(b)(2) that references the FDA’s prior approval of the small molecule innovator drug. A 505(b)(2) NDA drug may be for a new or improved version of the original innovator drug. The Hatch-Waxman Act also provides for certain periods of regulatory exclusivity, which preclude FDA approval (or in some circumstances, FDA filing and reviewing) of an ANDA or 505(b)(2) NDA. In addition to the benefits of regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, drug formulation or an approved use of the drug, which would be listed with the drug in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” known as the “Orange Book.” If there are patents listed in the Orange Book, a generic or 505(b)(2) applicant that seeks to market its drug before expiration of the patents must include in the ANDA a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.
Accordingly, if any of our small molecule drug candidates receive FDA approval, competitors could file ANDAs for generic versions of our drugs or 505(b)(2) NDAs that reference our drugs, respectively. If there are patents listed for a drug in the Orange Book, those ANDAs and 505(b)(2) NDAs would be required to include a certification as to each listed patent indicating whether the ANDA applicant does or does not intend to challenge the patent. We cannot predict how any generic competitor would address patents we may list in the Orange Book, if any, whether we would sue on any such patents, or the outcome of any such suit.
We may not be successful in securing or maintaining proprietary patent protection for drug candidates and technologies we develop or license. Moreover, if any of our owned or in-licensed patents that are listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected drug could immediately face generic competition and its sales would likely decline rapidly and materially. Should sales decline, we may have to write off a portion or all of the intangible assets associated with the affected drug and our results of operations and cash flows could be materially and adversely affected.
Risks Relating to Owning Our Common Stock
The market price of our common stock is likely to be volatile and could fluctuate or decline, resulting in a substantial loss of your investment.
The market price of our common stock has been and may continue to be volatile and could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
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Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
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We may be subject to securities class action and stockholder derivative actions. These, and potential similar or related litigation, could result in substantial damages and may divert management’s time and attention from our business and adversely impact our business, results of operations and financial condition.
We may become the target of securities class actions or stockholder derivative claims. Securities-related class action litigation has often been brought against companies, including many biotechnology companies, which experience volatility in the market price of their securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies often experience significant stock price volatility in connection with their product development programs. Any preclinical or clinical trial results that the investors may deem as unfavorable, volatility in our stock price and other matters affecting our business and operations may subject us to actual and threatened securities class actions or stockholder derivative claims. In addition, we may be exposed to increased litigation from stockholders, customers, suppliers, consumers and other third parties due to the combination of Novosteo’s business and ours following the Acquisition. These types of proceedings may result in substantial costs, divert management’s attention from other business concerns and adversely impact our business, results of operations and financial condition.
Future sales of our common stock in the public market could cause our share price to fall.
On December 23, 2021, we entered into an Open Market Sales Agreement with Jefferies, whereby we may sell up to $150.0 million in aggregate proceeds of common stock from time to time, through Jefferies as our sales agent. Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. Certain holders of our common stock have rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in Securities Act registration statements that we may file for ourselves or other stockholders. Once we register these shares, they can be freely sold in the public market. Moreover, we have also registered under the Securities Act shares of common stock that we may issue under our equity compensation plans.
In addition, the issuance of shares under awards granted under existing or future employee equity benefit plans may cause immediate and substantial dilution to our existing stockholders. In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with a financing, acquisition, litigation settlement, employee arrangements or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause our stock price to decline.
We have never paid dividends on our common stock and we do not intend to pay dividends for the foreseeable future. Consequently, any gains from an investment in our common stock will likely depend on whether the price of our common stock increases.
We have never declared or paid any dividends on our common stock and do not intend to pay any dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
General Risk Factors
Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:
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These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, the provisions of Section 203 of the Delaware General Corporate Law, or the DGCL, govern us. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent of our board of directors.
These and other provisions in our amended and restated certificate of incorporation and our amended and restated bylaws and under Delaware law could discourage potential takeover attempts, reduce the price investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, unless we consent to the selection of an alternative forum, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for:
provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. Our amended and restated certificate of incorporation also provides that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action against us or any of our directors, officers, employees or agents and arising under the Securities Act.
We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, these provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees. While the Delaware Supreme Court recently determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors, officers, or other employees in a venue other than in the federal district courts of the United States of America. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation, and this may require significant additional costs associated with resolving such action in other jurisdictions.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
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Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:
Our internal computer systems, or those used by our third-party research institution collaborators, CROs or other contractors or consultants, may fail or suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our future CROs and other contractors and consultants may be vulnerable to damage from computer viruses and unauthorized access. Although to our knowledge we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on our third-party research institution collaborators for research and development of our drug candidates and other third parties for the manufacture of our drug candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our drug candidates could be delayed.
Our ability to utilize our federal net operating loss and tax credit carryforwards may be limited.
Our net operating loss, or NOL, carryforwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. NOLs generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward for 20 taxable years under applicable U.S. federal tax law. Moreover, under the Tax Act as modified by the CARES Act, federal NOLs generated in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal NOLs may be limited to 80% of taxable income for tax years beginning January 1, 2018.
Under Sections 382 and 383 of the Internal Revenue Code, limitations on a corporation’s ability to use its NOLs and tax credit carryforwards apply 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 by certain stockholders over a three-year period. If we have experienced an ownership change at any time since our incorporation, we may already be subject to limitations on our ability to utilize our existing NOL carryforwards and other tax attributes to offset taxable income or tax liability. In addition, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change. Similar provisions of state tax law may also apply
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to limit our use of accumulated state tax attributes. As a result, even if we earn net taxable income in the future, our ability to use our pre-change NOL carryforwards and other tax attributes to offset such taxable income or tax liability may be subject to limitations, which could potentially result in increased future income tax liability to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.• timely and successful completion
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, timely and successful completion which Exhibit Index is incorporated herein by reference.
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32.1# |
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32.2# |
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101.INS |
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Inline XBRL Instance Document |
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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 in Inline XBRL (included in Exhibit 101) |
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+ Management contract or compensatory plan or arrangement.
* Portions of this exhibit have been redacted pursuant to Item 601(b)(10) of Regulation S-K as the Registrant has determined that (i) the omitted information is not material and (ii) the omitted material is of the type that the Registrant treats as private or confidential. Registrant agrees to furnish supplementally an unedited copy of the exhibit to the SEC upon request.
# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
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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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Quince Therapeutics, Inc. |
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Date: August 9, 2022 |
By: |
/s/ Dirk Thye |
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Dirk Thye |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: August 9, 2022 |
By: |
/s/ Ted Monohon |
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Ted Monohon |
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Chief Accounting Officer |
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(Principal Financial and Accounting Officer) |
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Exhibit 10.1
CORTEXYME, INC.
May 2, 2022
Michael Detke
VIA EMAIL (mdetke@cortexyme.com) Dear Mike:
This letter sets forth the substance of the separation agreement (the “Agreement”) that Cortexyme, Inc. (the “Company”) is offering to you to aid in your employment transition.
coverage (including coverage for eligible dependents, if applicable) through the period starting on the Separation Date and ending on the earliest to occur of: (a) nine (9) months after the Separation Date;
(b) the date you become eligible for group health insurance coverage through a new employer; or (c) the date you cease to be eligible for COBRA coverage for any reason (the “COBRA Premiums”). Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA Premiums without a substantial risk of violating applicable law, then the Company instead
shall pay you a fully taxable cash payment equal to the remaining COBRA Premiums due under this Section, subject to applicable tax withholdings, which you may, but are not obligated to, use toward the cost of COBRA premiums.
(a) the Base Salary Severance set forth in Section 4 above will increase from nine (9) months to twelve (12) months of your base salary; (b) the potential COBRA Premiums set forth in Section 5(a) above will increase from nine (9) months to twelve (12) months; (c) the Company will pay you an additional cash severance payment in an amount equal to fifty percent (50%) of your target annual bonus opportunity for 2022; and (d) the Company will accelerate 100% of any outstanding Equity Awards that are subject to time-based vesting (the “Vesting Acceleration”) as of the effective date of the Change in Control. The Equity Awards will otherwise remain subject to the terms and conditions of the applicable Equity Awards agreements and documents. Notwithstanding anything stated herein or elsewhere to the contrary, if the successor to the Company or any affiliate of such successor does not agree to assume, substitute or otherwise continue any then outstanding Equity Awards at the time of a Change in Control, you shall receive the Vesting Acceleration as of immediately prior to and contingent upon the Change in Control. In the event that you become eligible for the CIC Severance Benefits after the severance benefits set forth in Section 4 and 5 herein have already been paid to you, then the Company will pay you the difference between the CIC Severance Benefits and the severance benefits previously paid to you, within fifteen (15) business days after the effective date of the Change in Control. For the avoidance of doubt, under no circumstances will you be eligible for the full severance benefits set forth in Sections 4 and 5 and the CIC Severance Benefits.
as expressly provided in this Agreement, you have not earned, will not earn by the Separation Date, and will not receive from the Company any additional compensation (including base salary, bonus, incentive compensation, or equity), severance, or benefits before or after the Separation Date, with the exception of any vested right you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or any vested stock options.
(c) you may make statements and disclosures as permitted under the section of this Agreement entitled “Protected Rights.” In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former Company employee or independent contractor.
federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (the “ADEA”), the Indiana Civil Rights Law, as amended, the Indiana Age Bias Law, the Indiana Employment Discrimination Against Disabled Persons Law, the Indiana Equal Pay Law (equal pay provision of the Indiana Minimum Wage Law of 1965, as amended), as amended, the Indiana False Claims and Whistleblower Protection Act, the Indiana Wage Payment and Wage Claims Act, the Indiana Military Family Leave Act, the Indiana Blacklisting Statute, and the Indiana Off Duty Use of Tobacco by Employees Law. Notwithstanding the foregoing, you are not releasing the Company hereby from: (i) any obligation to indemnify you pursuant to the Articles and Bylaws of the Company, any valid fully executed indemnification agreement with the Company, or applicable law; (ii) any rights you have to file or pursue a claim for workers’ compensation or unemployment insurance; (iii) any claims that cannot be waived by law; or
(iv) any claims for breach of this Agreement. You acknowledge that you have been advised that you have a right to consult an attorney regarding this Agreement and that you were given a reasonable time period of not less than five (5) business days in which to do so. You further acknowledge and agree that, in the event you sign this Agreement prior to the end of the reasonable time period, your decision to accept such shortening of time is knowing and voluntary and is not induced by the Company through fraud, misrepresentation, or a threat to withdraw or alter the offer prior to the expiration of the reasonable time period, or by providing different terms to employees who sign such an agreement prior to the expiration of the time period.
(e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after you sign this Agreement provided that you do not revoke it (the “Effective Date”). You also hereby further acknowledge that the Company has provided you with the ADEA disclosure information (under 29 U.S.C. § 626(f)(1)(H)), attached hereto as Exhibit B.
“A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.”
You hereby expressly waive and relinquish all rights and benefits under that section and any law of any other jurisdiction of similar effect with respect to your release of claims herein, including but not limited to your release of unknown claims.
If this Agreement is acceptable to you, please sign below and return the original to me. You have forty-five (45) calendar days from the date you received this Agreement to decide whether to
accept this Agreement, and you should not sign it before the Separation Date. The Company’s offer contained herein will automatically expire if you do not sign and return it within that timeframe.
We wish you the best in your future endeavors. Sincerely,
By: 
Chris Lowe
Intermin CEO, COO & CFO
I have read, understand and agree fully to the foregoing Agreement:
02-MAY-2022
Date
Exhibit A
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
CORTEXYME, INC.
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
Employee Name: Michael Detke
Effective Date: 16-DEC-2018
As a condition of my becoming employed (or my employment being continued) by Cortexyme, Inc., a Delaware corporation, or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the "Company"), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following:
I. Relationship. This Confidential Information and Invention Assignment Agreement (this "Agreement") will apply to my employment relationship with the Company. If that relationship ends and the Company, within a year thereafter, either reemploys me or engages me as a consultant, I agree that this Agreement will also apply to such later employment or consulting relationship, unless the Company and I otherwise agree in writing. Any such employment or consulting relationship between the parties hereto, whether commenced prior to, upon or after the date of this Agreement, is referred to herein as the "Relationship."
their relationship with the Company, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity.
10. Representations and Covenants.
waived any rights or remedies it may have in law or equity, nor to have given any authorizations or waived any of its rights under this Agreement, unless, and only to the extent, it does so by a specific writing signed by a duly authorized officer of the Company, it being understood that, even if I am an officer of the Company, I will not have authority to give any such authorizations or waivers for the Company under this Agreement without specific approval by the Board of Directors. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement.
(g). Advice of Counsel. I ACKNOWLEDGE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
(h) Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and all of which together shall constitute one and the same agreement. Execution of a facsimile copy will have the same force and effect as execution of an original, and a facsimile signature will be deemed an original and valid signature.
[Signature Page Follows}
The parties have executed this Agreement on the respective dates set forth below, to be effective as of the Effective Date first above written.
THE COMPANY:
CORTEXYME, INC. 
Casey Lynch
President and Chief Executive Officer
Address:
269 East Grand Ave.
South San Francisco, CA 94080
United States
Date: 12/17/2018
EMPLOYEE:
Michael Detke
(PRINT NAME)
Address:
5018 St. Charles Pl
Carmel, IN 46033
Email: mjdetke@gmai l. com
Date: 12/12/2018
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
EXCLUDED UNDER SECTION 4(a) AND CONFLICTING AGREEMENTS DISCLOSED UNDER SECTION 10(b)
The following is a list of (i) all Inventions that, as of the Effective Date: (A) I made, and/or (B) belong solely to me or belong to me jointly with others or in which I have an interest, and that relate in any way to any of the Company's actual or proposed businesses, products, services, or research and development, and which are not assigned to the Company and (ii) all agreements, if any, with a current or former client, employer, or any other person or entity, that may restrict my ability to accept employment with the Company or my ability to recruit or engage customers or service providers on behalf of the Company, or otherwise relate to or restrict my ability to perform my duties for the Company or any obligation I may have to the Company:
Title Date Identifying Number or Brief Description
Except as indicated above on this exhibit, I have no inventions, improvements or original works to disclose pursuant to Section 4(a) of this Agreement and no agreements to disclose pursuant to Section l0(b) of this Agreement.
Additional sheets attached
Signature of Employee: 
Print Name of Employee: Michael Detke
Date: 12/12/2018
EXHIBIT B
Section 2870 of the California Labor Code is as follows:
(2) Result from any work performed by the employee for the
employer.
EXHIBIT C TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to Cortexyme, Inc., a Delaware corporation, its subsidiaries, affiliates, successors or assigns (collectively, the "Company").
I further certify that I have complied with all the terms of the Company's Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any Inventions (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement, and I acknowledge my continuing obligations under that agreement.
I further agree that, in compliance with the Confidential Inf01mation and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from the date of this Certification, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the.
Company's employees or consultants to terminate their relationship with the Company, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity.
Further, I agree that I shall not use any Confidential Information of the Company to negatively influence any of the Company's clients or customers from purchasing Company products or services or to solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.
Further, I acknowledge that the Company has valuable Trade Secrets (as defined by applicable law from time to time) to which I have had access. I understand that the Company intends to vigorously pursue its rights under applicable Trade Secrets law if, during a period of twelve (12) months from the date of this Certification, I solicit or influence or attempt to influence any client, licensor, licensee, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company. Thereafter, the Company intends to vigorously pursue its rights under applicable Trade Secrets law as the circumstances warrant.
Date:
EMPLOYEE:
(Print Employee's Name)
(Signature)
May 9, 2022 Exhibit 10.2
Brendan Hannah
Via Electronic Delivery
Re: Offer of Employment with Cortexyme
Dear Brendan:
As you are aware, Novosteo Inc. (the “Company”), is pleased to offer you continued employment with the Company on the terms described below (the “Agreement”). As you are aware, Cortexyme, Inc. (“Cortexyme”) is acquiring the Company (the “Transaction”), pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among Cortexyme, the Company, and certain other parties. The effective date of this Agreement (the “Effective Date”) will be the date of the Closing (as defined in the Merger Agreement). If the Closing does not occur, this Agreement will have no effect, will not be binding on Novosteo, Cortexyme or any of their affiliates or on you, and neither you nor Novosteo, nor Cortexyme, nor any of their affiliates shall have any rights or obligations hereunder.
Information regarding the Transaction is not publicly available and should be treated as strictly confidential, and we stress the importance of you holding this information in the strictest confidence.
The Option shall be subject to a vesting schedule whereby one-quarter (1/4) of the shares subject to the Option shall vest one year after grant, with the remaining shares vesting in equal monthly installments over the following three years thereafter, in each case, subject to your continuous
service with the Company. With respect to your existing options (“Existing Options”), Cortexyme will amend such
Existing Options to provide for vesting over four (4) years in 48 equal monthly installments, retroactive to their original dates of grant and all other terms shall continue to apply thereto (e.g., with respect to the double trigger accelerated vesting in the Existing Options, the change of control trigger will be treated as having occurred). Cortexyme understands that you would not accept this offer of employment but for the granting of this inducement Option award. The Option shall be granted pursuant to and be governed in all respects by the terms and conditions of Cortexyme’s 2022 Inducement Plan, approved by the Board pursuant to the “inducement grant exception” provided under Nasdaq Market Place Rule 5635(c)(4) and Nasdaq IM-5635-1, and the standard form of option agreement thereunder.
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comparable to your own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by you in the course of your work for the Company or Novosteo.
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conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.
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If you wish to accept this offer of at-will employment, please sign and date both the enclosed duplicate original of this Agreement and the enclosed Confidentiality Agreement, and return them to me. We look forward to your joining a part of our team.
[Signature Page Follows]
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Very truly yours,
CORTEXYME, INC.
By: 
Name: Christopher Lowe
Title: Interim Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, Director
ACCEPTED AND AGREED:
Brendan Hannah
Date: May 8, 2022
ATTACHMENT A
SEVERANCE AGREEMENT
ATTACHMENT B
EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
May 9, 2022 Exhibit 10.3
Karen Smith
Via Electronic Delivery
Re: Offer of Employment with Cortexyme
Dear Karen:
As you are aware, Novosteo Inc. (the “Company”), is pleased to offer you continued employment with the Company on the terms described below (the “Agreement”). As you are aware, Cortexyme, Inc. (“Cortexyme”) is acquiring the Company (the “Transaction”), pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among Cortexyme, the Company, and certain other parties. The effective date of this Agreement (the “Effective Date”) will be the date of the Closing (as defined in the Merger Agreement). If the Closing does not occur, this Agreement will have no effect, will not be binding on Novosteo, Cortexyme or any of their affiliates or on you, and neither you nor Novosteo, nor Cortexyme, nor any of their affiliates shall have any rights or obligations hereunder.
Information regarding the Transaction is not publicly available and should be treated as strictly confidential, and we stress the importance of you holding this information in the strictest confidence.
The Option shall be subject to a vesting schedule whereby one-quarter (1/4) of the shares subject to the Option shall vest one year after grant, with the remaining shares vesting in equal monthly installments over the following three years thereafter, in each case, subject to your continuous
service with the Company. With respect to your existing options (“Existing Options”), Cortexyme will amend such
Existing Options to provide for vesting over four (4) years in 48 equal monthly installments, retroactive to their original dates of grant and all other terms shall continue to apply thereto (e.g., with respect to the double trigger accelerated vesting in the Existing Options, the change of control trigger will be treated as having occurred). Cortexyme understands that you would not accept this offer of employment but for the granting of this inducement Option award. The Option shall be granted pursuant to and be governed in all respects by the terms and conditions of Cortexyme’s 2022 Inducement Plan, approved by the Board pursuant to the “inducement grant exception” provided under Nasdaq Market Place Rule 5635(c)(4) and Nasdaq IM-5635-1, and the standard form of option agreement thereunder.
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comparable to your own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by you in the course of your work for the Company or Novosteo.
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state court of competent jurisdiction. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.
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If you wish to accept this offer of at-will employment, please sign and date both the enclosed duplicate original of this Agreement and the enclosed Confidentiality Agreement, and return them to me. We look forward to your joining a part of our team.
[Signature Page Follows]
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Very truly yours,
CORTEXYME, INC.
By: 
Name: Christopher Lowe
Title: Interim Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, Director
[SIGNATURE PAGE TO K. SMITH OFFER LETTER]
ACCEPTED AND AGREED:
Karen Smith
Date: May 9, 2022
ATTACHMENT A
SEVERANCE AGREEMENT
ATTACHMENT B
EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
May 9, 2022 Exhibit 10.4
Dirk Thye, MD
Via Electronic Delivery
Re: Offer of Employment with Cortexyme
Dear Dirk:
As you are aware, Novosteo Inc. (the “Company”), is pleased to offer you continued employment with the Company on the terms described below (the “Agreement”). As you are aware, Cortexyme, Inc. (“Cortexyme”) is acquiring the Company (the “Transaction”), pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) by and among Cortexyme, the Company, and certain other parties. The effective date of this Agreement (the “Effective Date”) will be the date of the Closing (as defined in the Merger Agreement). If the Closing does not occur, this Agreement will have no effect, will not be binding on Novosteo, Cortexyme or any of their affiliates or on you, and neither you nor Novosteo, nor Cortexyme, nor any of their affiliates shall have any rights or obligations hereunder.
Information regarding the Transaction is not publicly available and should be treated as strictly confidential, and we stress the importance of you holding this information in the strictest confidence.
The Option shall be subject to a vesting schedule whereby one-quarter (1/4) of the shares subject
to the Option shall vest one year after grant, with the remaining shares vesting in equal monthly installments over the following three years thereafter, in each case, subject to your continuous service with the
Company. With respect to your existing options (“Existing Options”), Cortexyme will amend such Existing Options to provide for vesting over four (4) years in 48 equal monthly installments, retroactive to their original dates of grant and all other terms shall continue to apply thereto (e.g., with respect to the double trigger accelerated vesting in the Existing Options, the change of control trigger will be treated as having occurred). Cortexyme understands that you would not accept this offer of employment but for the granting of this inducement Option award. The Option shall be granted pursuant to and be governed in all respects by the terms and conditions of Cortexyme’s 2022 Inducement Plan, approved by the Board pursuant to the “inducement grant exception” provided under Nasdaq Market Place Rule 5635(c)(4) and Nasdaq IM-5635-1, and the standard form of option agreement thereunder.
comparable to your own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by you in the course of your work for the Company or Novosteo.
conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.
If you wish to accept this offer of at-will employment, please sign and date both the enclosed duplicate original of this Agreement and the enclosed Confidentiality Agreement, and return them to me. We look forward to your joining a part of our team.
[Signature Page Follows]
Very truly yours,
CORTEXYME, INC.
By: 
Name: Christopher Lowe
Title: Interim Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, Director
ACCEPTED AND AGREED:
Dirk Thye, MD
Date: May 8, 2022
ATTACHMENT A
SEVERANCE AGREEMENT
ATTACHMENT B
EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
Exhibit 10.9
CORTEXYME, INC.
May 19, 2022
Caryn G. McDowell
VIA EMAIL (cmcdowell@cortexyme.com)
Dear Caryn:
This letter sets forth the substance of the transition separation agreement (the “Agreement”) that Cortexyme, Inc. (the “Company”) is offering to you to aid in your employment transition.
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guilty or no contest by you to any felony involving dishonesty; (ii) participation in any fraud against the Company; (iii) material breach of your contractual duties to the Company (including any material violation of any provision or obligation under this Agreement or the Confidentiality Agreement) after given the opportunity to cure the same; or (iv) your willful misconduct or other willful violation of Company policy that causes material harm to the Company.
(ii) your employment with the Company is not terminated for Cause or as a result of your resignation before July 8, 2022; and (iii) on or within twenty-one (21) days after the Separation Date, you execute and return to the Company the Separation Date Release attached hereto as Exhibit A (the “Release”), and allow the releases contained in the Release to become effective (collectively, the “Severance Preconditions”), then the Company will deem your employment termination to be a termination without Cause outside of the Change in Control Period pursuant to that certain Executive Change in Control and Severance Agreement between you and the Company, dated May 18, 2020 (the “Severance Agreement”), and accordingly, the Company will pay you, as severance, the equivalent of nine (9) months of your base salary in effect as of the Separation Date (in the total amount of $339,000), subject to standard payroll deductions and withholdings (the “Base Salary Severance”). This amount will be paid in a lump sum within four (4) business days after the Release Effective Date (as defined in the Release). You hereby request and authorize the Company to pay you this severance payment by direct deposit to the account specified by you during your employment.
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(a) accelerate vesting of your restricted stock award issued to you on March 3, 2022 (the “RSA”) such that 100% of the shares subject to the RSA will be deemed vested and exercisable as of the Effective Date; and (b) the period of time within which you may exercise any vested Equity Awards will be extended until the date that is twelve (12) months after the Separation Date. Except as expressly set forth in this paragraph, your Equity Awards will continue to be governed by the terms and conditions of the applicable stock option or other equity award agreement, applicable plan documents, and other equity awards documents.
(a) the Base Salary Severance set forth in Section 4 above will increase from nine (9) months to twelve (12) months of your base salary; (b) the potential COBRA Premiums set forth in Section 5(a) above will increase from nine (9) months to twelve (12) months; (c) the Company will pay you an additional cash severance payment in an amount equal to one hundred percent (100%) of your target annual bonus opportunity for 2022; and (d) the Company will accelerate 100% of any outstanding Equity Awards that are subject to time-based vesting (the “Vesting Acceleration”) as of the effective date of the Change in Control. The Equity Awards will otherwise remain subject to the terms and conditions of the applicable Equity Awards agreements and documents. Notwithstanding anything stated herein or elsewhere to the contrary, if the successor to the Company or any affiliate of such successor does not agree to assume, substitute or otherwise continue any then outstanding Equity Awards at the time of a Change in Control, you shall receive the Vesting Acceleration as of immediately prior to and contingent upon the Change in Control. In the event that you become eligible for the CIC Severance Benefits after the severance benefits set forth in Section 4 and 5 herein have already been paid to you, then the Company will pay you the difference between the CIC Severance Benefits and the severance benefits previously paid to you, within fifteen (15) business days after the effective date of the Change in Control. For the avoidance of doubt, under no circumstances will you be eligible for the full severance benefits set forth in Sections 4 and 5 and the CIC Severance Benefits.
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the exception of any vested right you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or any vested stock options.
(c) you may make statements and disclosures as permitted under the section of this Agreement entitled “Protected Rights.” In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former Company employee or independent contractor.
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harmful to its or their business, business reputation, or personal reputation. The Company agrees to instruct its officers and directors to not to make any defamatory comments about you, your character, traits, qualifications, skills, experience or job performance. Notwithstanding the foregoing in this paragraph, you and the Company (including its officers and directors) may respond accurately and fully to any request for information if required by legal process or in connection with a government investigation. In addition, nothing in this provision or this Agreement is intended to prohibit or restrain any party in any manner from making disclosures protected under the whistleblower provisions of federal or state law or regulation or other applicable law or regulation, nor from making statements and disclosures as set forth in the section of this Agreement entitled “Protected Rights.” You acknowledge and agree that the nondisparagement obligation in this section is not provided in exchange for a raise, bonus or as a condition of continued employment, but rather in exchange for the materially modified terms of employment during the Transition Period, eligibility for severance benefits you were not otherwise eligible to receive, and other consideration provided by the Company in this Agreement.
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stock, stock options, or any other ownership, equity, or profits interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (the “ADEA”), the California Labor Code (as amended), the California Family Rights Act and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, you are not releasing the Company hereby from:
(i) any obligation to indemnify you pursuant to the Articles and Bylaws of the Company, any valid fully executed indemnification agreement with the Company, or applicable law; (ii) any rights you have to file or pursue a claim for workers’ compensation or unemployment insurance; (iii) any claims that cannot be waived by law; or (iv) any claims for breach of this Agreement.
“A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the
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release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.”
You hereby expressly waive and relinquish all rights and benefits under that section and any law of any other jurisdiction of similar effect with respect to your release of claims herein, including but not limited to your release of unknown claims.
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be deemed to have been duly and validly delivered and executed and be valid and effective for all purposes.
If this Agreement is acceptable to you, please sign below and return the original to me. You have twenty-one (21) calendar days to decide whether to accept this Agreement, and the Company’s offer contained herein will automatically expire if you do not sign and return it within that timeframe.
We wish you the best in your future endeavors. Sincerely,
By: 
Christopher Lowe
Interim CEO, CFO and COO
I have read, understand and agree fully to the foregoing Agreement:
Caryn G. McDowell
May 19, 2022
Date
Exhibit A
Separation Date Release
(To be signed and returned on or within 21 days after the Separation Date.)
In consideration for the severance benefits provided to me by Cortexyme, Inc. (the “Company”) pursuant to the terms of the transition separation agreement between me and the Company to which this Exhibit is attached (the “Agreement”), I agree to the terms below. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement.
I hereby represent that: (a) I have been paid all compensation owed and have been paid for all hours worked for the Company through the Separation Date; (b) I have received all the leave and leave benefits and protections for which I am eligible pursuant to the federal Family and Medical Leave Act, California Family Rights Act or otherwise; and (c) I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I hereby generally and completely release the Company and its current and former directors, officers, employees, members, participants, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date that I sign this Separation Date Release (the “Release”). This general release includes, but is not limited to: (i) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment;
(ii) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, paid time off, expense reimbursements, severance pay, fringe benefits, and contributions to retirement plan; (iii) all claims for breach of contract (including breach of the Severance Agreement), wrongful termination, and breach of the implied covenant of good faith and fair dealing;
(iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (the “ADEA”), the California Labor Code (as amended), and the California Fair Employment and Housing Act (as amended).
I acknowledge that I have been advised, as required by California Government Code Section 12964.5(b)(4), that I have a right to consult an attorney regarding this Separation Date Release and that I was given a reasonable time period of not less than five (5) business days in which to do so. I further acknowledge and agree that, in the event I sign this Separation Date Release prior to the end of the reasonable time period, my decision to accept such shortening of time is knowing and voluntary and is not induced by the Company through fraud, misrepresentation, or a threat to withdraw or alter the offer prior to the expiration of the reasonable time period, or by providing different terms to employees who sign such an agreement prior to the expiration of the time period.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and releases in this Separation Date Release is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release does not apply to any rights or claims that arise after the date I sign this Separation Date Release; (b) I should consult with an attorney prior to signing this Separation Date Release; (c) I have
21 days to consider this Separation Date Release (although I may choose to voluntarily sign it sooner); (d) I have seven (7) days following the date I sign this Separation Date Release to revoke it (by providing written notice of my revocation to the chief executive officer of the Company); and (e) the Separation Date Release will not be
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effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign it (the “Release Effective Date”).
In giving the general release herein, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code, which reads as follows: “A general release does not extend to claims which the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” I hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any other jurisdiction of with respect to my release of claims contained herein, including but not limited to the release of unknown and unsuspected claims.
Notwithstanding the foregoing, I am not hereby releasing any of the following claims (the “Excluded Claims”): (a) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, under the charter, bylaws or operating agreements of the Company, or under applicable law; (b) any rights that cannot be waived as a matter of law; (c) any rights I have to file or pursue a claim for workers’ compensation or unemployment insurance; and (d) any claims arising from the breach of this Separation Date Release. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims that I have or might have against any of the Released Parties that are not included in the Released Claims.
I agree not to disparage the Company, and the Company’s officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation. The Company agrees to instruct its officers and directors to not to make any defamatory comments about you, your character, traits, qualifications, skills, experience or job performance. However, nothing herein shall prevent me or the Company from responding accurately and fully to any question, inquiry or request for information if required by legal process or in connection with a government investigation. In addition, nothing herein shall prevent me from: making disclosures that are protected under the whistleblower provisions of federal law or regulation or under other applicable law or regulation; engaging in any conduct permitted under the section entitled Protected Rights in the Agreement; filing a charge or complaint with any Government Agency; communicating with any Government Agencies; or otherwise participating in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. However, I understand and agree that, to the maximum extent permitted by law, I am otherwise waiving any and all rights I may have to individual relief based on any claims I have released and any rights I have waived by signing this Separation Date Release, provided that this Separation Date Release does not limit my right to receive any award for information provided to the Securities and Exchange Commission.
This Separation Date Release, together with the Agreement (and its exhibits), constitutes the entire agreement between me and the Company with respect to the subject matter hereof. I am not relying on any representation not contained herein or in the Agreement.
By: Caryn G. McDowell
Date:
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Exhibit B
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
CORTEXYME, INC.
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
Caryn McDowell
Employee Name:
05/05/2020
Effective Date:
As a condition of my becoming employed (or my employment being continued) by Cortexyme, Inc., a Delaware corporation, or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the “Company”), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following:
Agreement (this “Agreement”) will apply to my employment relationship with the Company. If that relationship ends and the Company, within a year thereafter, either reemploys me or engages me as a consultant, I agree that this Agreement will also apply to such later employment or consulting relationship, unless the Company and I otherwise agree in writing. Any such employment or consulting relationship between the parties hereto, whether commenced prior to, upon or after the date of this Agreement, is referred to herein as the “Relationship.”
and information and physical material entrusted to the Company in confidence by third parties. Confidential Information includes, without limitation: (i) Company Inventions (as defined below); and (ii) technical data, trade secrets, know-how, research, product or service ideas or plans, software codes and designs, algorithms, developments, inventions, patent applications, laboratory notebooks, processes, formulas, techniques, biological materials, mask works, engineering designs and drawings, hardware configuration information, agreements with third parties, lists of, or information relating to, employees and consultants of the Company (including, but not limited to, the names, contact information, jobs, compensation, and expertise of such employees and consultants), lists of, or information relating to, suppliers and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), price lists, pricing methodologies, cost data, market share data, marketing plans, licenses, contract information, business plans, financial forecasts, historical financial data, budgets or other business information disclosed to me by the Company either directly or indirectly, whether in writing, electronically, orally, or by observation.
made, copy, modify, make derivative works of, use, sell, import, and otherwise distribute such Invention under all applicable intellectual property laws without restriction of any kind.
made for hire” (to the greatest extent permitted by applicable law) and are compensated by my salary. Any assignment of Company Inventions includes all rights of attribution, paternity, integrity, modification, disclosure and withdrawal, and any other rights throughout the world that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like (collectively, “Moral Rights”). To the extent that Moral Rights cannot be assigned under applicable law, I hereby waive and agree not to enforce any and all Moral Rights, including, without limitation, any limitation on subsequent modification, to the extent
permitted under applicable law.
times. I agree not to remove such records from the Company’s place of business except as expressly permitted by Company policy which may, from time to time, be revised at the sole election of the Company for the purpose of furthering the Company’s business. I agree to
deliver all such records (including any copies thereof) to the Company at the time of termination of the Relationship as provided for in Section 5 and Section 6.
disclosure to the Company or its designee of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company or its designee shall deem necessary in order to apply for, obtain, maintain and transfer such rights, or if not transferable, waive and agree never to assert such rights, and in order to assign and convey to the Company or its designee, and any successors, assigns and nominees the sole and exclusive right, title and interest in and to such Company Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue during and at all times after the end of the Relationship and until the expiration of the last such intellectual property right to expire in any country of the world. I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and in my behalf and stead to execute and file any such instruments and papers and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent, copyright, mask work and other registrations related to such Company Inventions. This power of attorney is coupled with an interest and shall not be affected by my subsequent incapacity.
information relating to the Company’s employees, consultants, customers and others, and that I will not use or disclose such Confidential Information except as authorized by the Company. I further agree as follows:
waived any rights or remedies it may have in law or equity, nor to have given any authorizations or waived any of its rights under this Agreement, unless, and only to the extent, it does so by a specific writing signed by a duly authorized officer of the Company, it being understood that, even if I am an officer of the Company, I will not have authority to give any such authorizations or waivers for the Company under this Agreement without specific approval by the Board of Directors. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement.
[Signature Page Follows]
The parties have executed this Agreement on the respective dates set forth below, to be effective as of the Effective Date first above written.
THE COMPANY:
CORTEXYME, INC.
Cortexyme, Inc.
By:
Address:
United States
5/4/2020
Date:
EMPLOYEE:
Caryn McDowell
(PRINT NAME)
(Signature)
Address:
80 Pagan Dr,
Hillsborough, CA 94010
Email:cmcdowell@cortexyme.com
Date: 5/4/2020
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
EXCLUDED UNDER SECTION 4(a) AND CONFLICTING AGREEMENTS DISCLOSED UNDER SECTION 10(b)
The following is a list of (i) all Inventions that, as of the Effective Date: (A) I made, and/or (B) belong solely to me or belong to me jointly with others or in which I have an interest, and that relate in any way to any of the Company’s actual or proposed businesses, products, services, or research and development, and which are not assigned to the Company and (ii) all agreements, if any, with a current or former client, employer, or any other person or entity, that may restrict my ability to accept employment with the Company or my ability to recruit or engage customers or service providers on behalf of the Company, or otherwise relate to or restrict my
ability to perform my duties for the Company or any obligation I may have to the Company:
Title Date Identifying Number or Brief Description
CLAO 5/4/202 none
Except as indicated above on this exhibit, I have no inventions, improvements or original works to disclose pursuant to Section 4(a) of this Agreement and no agreements to disclose pursuant to Section 10(b) of this Agreement.
Additional sheets attached
Signature of Employee: 
Caryn McDowell
Print Name of Employee:
5/4/2020
Date:
EXHIBIT B
Section 2870 of the California Labor Code is as follows:
invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer; or
employer.
EXHIBIT C TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to Cortexyme, Inc., a Delaware corporation, its subsidiaries, affiliates, successors or assigns (collectively, the “Company”).
I further certify that I have complied with all the terms of the Company’s Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any Inventions (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement, and I acknowledge my continuing obligations under that agreement.
I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from the date of this Certification, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees or consultants to terminate their relationship with the Company, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity.
Further, I agree that I shall not use any Confidential Information of the Company to negatively influence any of the Company’s clients or customers from purchasing Company products or services or to solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.
Further, I acknowledge that the Company has valuable Trade Secrets (as defined by applicable law from time to time) to which I have had access. I understand that the Company intends to vigorously pursue its rights under applicable Trade Secrets law if, during a period of twelve (12) months from the date
of this Certification, I solicit or influence or attempt to influence any client, licensor, licensee, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company. Thereafter, the Company intends to vigorously pursue its rights under applicable Trade Secrets law as the circumstances warrant.
Date: EMPLOYEE:
(Print Employee’s Name)
(Signature)
Exhibit 10.10
CORTEXYME, INC.
EXECUTIVE CHANGE IN CONTROL AND SEVERANCE AGREEMENT
This Executive Change in Control and Severance Agreement (the “Agreement”) is made and entered into by and between Brendan Hannah (“Executive”) and Cortexyme, Inc. (the “Company”), effective as of May [19], 2022 (the “Effective Date”).
RECITALS
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
normal payroll practices on the Company’s regularly scheduled payroll dates commencing with the first regularly scheduled payroll date that occurs at least 8 days following the Release Deadline, with the first payment being equal to the number of business days between Executive’s last day of employment and the date of the first payment multiplied by Executive’s daily Base Salary Rate.
Executive’s eligible dependents (based on the coverage levels in effect immediately prior to Executive’s termination or resignation and based on the premium amount that would be due for the first month of COBRA coverage if Executive were to elect such COBRA continuation coverage). The benefits severance payment shall be paid to Executive in a single lump-sum within thirty (30) days following the Release Deadline and will be made, subject to all applicable taxes and required withholdings, and regardless of whether Executive elects COBRA continuation coverage.
in a form provided by the Company, and such release becoming effective and irrevocable no later than the sixtieth (60th) day following Executive’s termination (such deadline, the “Release Deadline”). No severance or other benefits will be paid or provided pursuant to this Agreement until the release becomes effective and irrevocable. If the release does not become effective and irrevocable by the Release Deadline other than as a result of an act or omission of the Company, Executive will forfeit all rights to severance payments and benefits under this Agreement.
reimbursements and/or benefits (i) shall be made or provided promptly but no later than December 31st of the calendar year following the year in which the expense was incurred by Executive, (ii) shall not in any way affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other calendar year, and (iii) shall not be subject to liquidation or exchange for another benefit.
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis, of the greatest amount of severance benefits and other payments and benefits, notwithstanding that all or some portion of such severance benefits and other payments and benefits may be taxable under Section 4999 of the Code. Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 will be made in writing by the Company’s outside legal counsel or independent public accountants or other firm selected by the Company (the “Firm”), whose determination will be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required by this Section 5, the Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive will furnish to the Firm such information and documents as the Firm may reasonably request in order to make a determination under this Section. The Company will bear all costs the Firm may reasonably incur in connection with any calculations contemplated by this Section 5. Any reduction made pursuant to this Section 5 shall be made in accordance with the following order of priority: (i) stock options whose exercise price exceeds the fair market value of the optioned stock (“Underwater Options”) (ii) Full Credit Payments (as defined below) that are payable in cash, (iii) non-cash Full Credit Payments that are taxable, (iv) non-cash Full Credit Payments that are not taxable (v) Partial Credit Payments (as defined below) and (vi) non-cash employee welfare benefits. In each case, reductions shall be made in reverse chronological order such that the payment or benefit owed on the latest date following the occurrence of the event triggering the excise tax will be the first payment or benefit to be reduced (with reductions made pro-rata in the event payments or benefits are owed at the same time).
failure to comply with the written, lawful instruction of the Board which are consistent with Executive’s duties as Chief Business Officer of the Company; (iv) fraud, embezzlement or other dishonesty with respect to the Company or its affiliates (but with respect to dishonesty, excluding the de minimis use of Company resources or services for personal reasons); (v) conviction, plea of nolo contendere, guilty plea, or confession to any felony or any crime based upon an act of fraud, embezzlement or moral turpitude (excepting any non-felony traffic offenses); (vi) the Executive being under the influence of alcohol during working hours or under the influence of controlled substances at any time unless taken pursuant to a valid prescription provided by a medical professional (excepting alcohol consumed at a Company party or similar social event), or (vii) a material breach of this Agreement, provided that with respect to conduct subject to (ii), (iii), (vi) or (vii), if curable, shall not constitute Cause unless the Board has (A) determined by the affirmative vote of a majority of the entire Board that Cause exists and (B) provided the Executive with written notice of the acts or omissions giving rise to a termination of his employment for Cause and the Executive fails to correct the act or omission within thirty (30) days after receiving the Company's notice (the “Cure Period”).
In order for Executive to resign for Good Reason, Executive must provide written notice to the Company of the existence of the Good Reason condition within ninety (90) days of his discovery of existence of such Good Reason condition. Upon receipt of such notice, the Company will have thirty (30) days during which it may remedy the Good Reason condition and not be required to provide the severance payments and benefits described herein as a result of such proposed resignation; provided that the Company’s cure right shall be no more than ten (10) days for the failure to pay any compensation to Executive when due. If the Good Reason condition is not remedied within the applicable cure period, Executive may resign based on the Good Reason condition specified in the notice effective no later than ninety (90) days following the expiration of the applicable cure period.
Incentive Plan.
communicated to the Company in writing. In the case of the Company, mailed notices will be addressed to its corporate headquarters, and all notices will be directed to the attention of the Company’s Secretary (or, if Executive is the Company’s Secretary, any other executive officer of the Company).
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the date first set forth above.
THE COMPANY:
CORTEXYME, INC.
By: 
Name: Christopher Lowe
Title: Interim Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, Director
EXECUTIVE
(Signature)
By: Brendan Hannah Date: May 8, 2022
Exhibit 10.11
CORTEXYME, INC.
EXECUTIVE CHANGE IN CONTROL AND SEVERANCE AGREEMENT
This Executive Change in Control and Severance Agreement (the “Agreement”) is made and entered into by and between Karen Smith (“Executive”) and Cortexyme, Inc. (the “Company”), effective as of May [19], 2022 (the “Effective Date”).
RECITALS
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
normal payroll practices on the Company’s regularly scheduled payroll dates commencing with the first regularly scheduled payroll date that occurs at least 8 days following the Release Deadline, with the first payment being equal to the number of business days between Executive’s last day of employment and the date of the first payment multiplied by Executive’s daily Base Salary Rate.
Executive’s eligible dependents (based on the coverage levels in effect immediately prior to Executive’s termination or resignation and based on the premium amount that would be due for the first month of COBRA coverage if Executive were to elect such COBRA continuation coverage). The benefits severance payment shall be paid to Executive in a single lump-sum within thirty (30) days following the Release Deadline and will be made, subject to all applicable taxes and required withholdings, and regardless of whether Executive elects COBRA continuation coverage.
in a form provided by the Company, and such release becoming effective and irrevocable no later than the sixtieth (60th) day following Executive’s termination (such deadline, the “Release Deadline”). No severance or other benefits will be paid or provided pursuant to this Agreement until the release becomes effective and irrevocable. If the release does not become effective and irrevocable by the Release Deadline other than as a result of an act or omission of the Company, Executive will forfeit all rights to severance payments and benefits under this Agreement.
reimbursements and/or benefits (i) shall be made or provided promptly but no later than December 31st of the calendar year following the year in which the expense was incurred by Executive, (ii) shall not in any way affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other calendar year, and (iii) shall not be subject to liquidation or exchange for another benefit.
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis, of the greatest amount of severance benefits and other payments and benefits, notwithstanding that all or some portion of such severance benefits and other payments and benefits may be taxable under Section 4999 of the Code. Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 will be made in writing by the Company’s outside legal counsel or independent public accountants or other firm selected by the Company (the “Firm”), whose determination will be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required by this Section 5, the Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive will furnish to the Firm such information and documents as the Firm may reasonably request in order to make a determination under this Section. The Company will bear all costs the Firm may reasonably incur in connection with any calculations contemplated by this Section 5. Any reduction made pursuant to this Section 5 shall be made in accordance with the following order of priority: (i) stock options whose exercise price exceeds the fair market value of the optioned stock (“Underwater Options”) (ii) Full Credit Payments (as defined below) that are payable in cash, (iii) non-cash Full Credit Payments that are taxable, (iv) non-cash Full Credit Payments that are not taxable (v) Partial Credit Payments (as defined below) and (vi) non-cash employee welfare benefits. In each case, reductions shall be made in reverse chronological order such that the payment or benefit owed on the latest date following the occurrence of the event triggering the excise tax will be the first payment or benefit to be reduced (with reductions made pro-rata in the event payments or benefits are owed at the same time).
failure to comply with the written, lawful instruction of the Board which are consistent with Executive’s duties as Chief Medical Officer of the Company; (iv) fraud, embezzlement or other dishonesty with respect to the Company or its affiliates (but with respect to dishonesty, excluding the de minimis use of Company resources or services for personal reasons); (v) conviction, plea of nolo contendere, guilty plea, or confession to any felony or any crime based upon an act of fraud, embezzlement or moral turpitude (excepting any non-felony traffic offenses); (vi) the Executive being under the influence of alcohol during working hours or under the influence of controlled substances at any time unless taken pursuant to a valid prescription provided by a medical professional (excepting alcohol consumed at a Company party or similar social event), or (vii) a material breach of this Agreement, provided that with respect to conduct subject to (ii), (iii), (vi) or (vii), if curable, shall not constitute Cause unless the Board has (A) determined by the affirmative vote of a majority of the entire Board that Cause exists and (B) provided the Executive with written notice of the acts or omissions giving rise to a termination of his employment for Cause and the Executive fails to correct the act or omission within thirty (30) days after receiving the Company's notice (the “Cure Period”).
In order for Executive to resign for Good Reason, Executive must provide written notice to the Company of the existence of the Good Reason condition within ninety (90) days of his discovery of existence of such Good Reason condition. Upon receipt of such notice, the Company will have thirty (30) days during which it may remedy the Good Reason condition and not be required to provide the severance payments and benefits described herein as a result of such proposed resignation; provided that the Company’s cure right shall be no more than ten (10) days for the failure to pay any compensation to Executive when due. If the Good Reason condition is not remedied within the applicable cure period, Executive may resign based on the Good Reason condition specified in the notice effective no later than ninety (90) days following the expiration of the applicable cure period.
Incentive Plan.
communicated to the Company in writing. In the case of the Company, mailed notices will be addressed to its corporate headquarters, and all notices will be directed to the attention of the Company’s Secretary (or, if Executive is the Company’s Secretary, any other executive officer of the Company).
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the date first set forth above.
THE COMPANY:
CORTEXYME, INC.
By: 
Name: Christopher Lowe
Title: Interim Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, Director
EXECUTIVE
(Signature)
By: Karen Smith Date: May 9, 2022
Exhibit 10.12
CORTEXYME, INC.
EXECUTIVE CHANGE IN CONTROL AND SEVERANCE AGREEMENT
This Executive Change in Control and Severance Agreement (the “Agreement”) is made and entered into by and between Dirk Thye, MD (“Executive”) and Cortexyme, Inc. (the “Company”), effective as of May [19], 2022 (the “Effective Date”).
RECITALS
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
normal payroll practices on the Company’s regularly scheduled payroll dates commencing with the first regularly scheduled payroll date that occurs at least 8 days following the Release Deadline, with the first payment being equal to the number of business days between Executive’s last day of employment and the date of the first payment multiplied by Executive’s daily Base Salary Rate.
Executive’s eligible dependents (based on the coverage levels in effect immediately prior to Executive’s termination or resignation and based on the premium amount that would be due for the first month of COBRA coverage if Executive were to elect such COBRA continuation coverage). The benefits severance payment shall be paid to Executive in a single lump-sum within thirty (30) days following the Release Deadline and will be made, subject to all applicable taxes and required withholdings, and regardless of whether Executive elects COBRA continuation coverage.
in a form provided by the Company, and such release becoming effective and irrevocable no later than the sixtieth (60th) day following Executive’s termination (such deadline, the “Release Deadline”). No severance or other benefits will be paid or provided pursuant to this Agreement until the release becomes effective and irrevocable. If the release does not become effective and irrevocable by the Release Deadline other than as a result of an act or omission of the Company, Executive will forfeit all rights to severance payments and benefits under this Agreement.
reimbursements and/or benefits (i) shall be made or provided promptly but no later than December 31st of the calendar year following the year in which the expense was incurred by Executive, (ii) shall not in any way affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other calendar year, and (iii) shall not be subject to liquidation or exchange for another benefit.
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by Executive on an after-tax basis, of the greatest amount of severance benefits and other payments and benefits, notwithstanding that all or some portion of such severance benefits and other payments and benefits may be taxable under Section 4999 of the Code. Unless the Company and Executive otherwise agree in writing, any determination required under this Section 5 will be made in writing by the Company’s outside legal counsel or independent public accountants or other firm selected by the Company (the “Firm”), whose determination will be conclusive and binding upon Executive and the Company for all purposes. For purposes of making the calculations required by this Section 5, the Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and Executive will furnish to the Firm such information and documents as the Firm may reasonably request in order to make a determination under this Section. The Company will bear all costs the Firm may reasonably incur in connection with any calculations contemplated by this Section 5. Any reduction made pursuant to this Section 5 shall be made in accordance with the following order of priority: (i) stock options whose exercise price exceeds the fair market value of the optioned stock (“Underwater Options”) (ii) Full Credit Payments (as defined below) that are payable in cash, (iii) non-cash Full Credit Payments that are taxable, (iv) non-cash Full Credit Payments that are not taxable (v) Partial Credit Payments (as defined below) and (vi) non-cash employee welfare benefits. In each case, reductions shall be made in reverse chronological order such that the payment or benefit owed on the latest date following
the occurrence of the event triggering the excise tax will be the first payment or benefit to be reduced (with reductions made pro-rata in the event payments or benefits are owed at the same time).
failure to comply with the written, lawful instruction of the Board which are consistent with Executive’s duties as Chief Executive Officer of the Company; (iv) fraud, embezzlement or other dishonesty with respect to the Company or its affiliates (but with respect to dishonesty, excluding the de minimis use of Company resources or services for personal reasons); (v) conviction, plea of nolo contendere, guilty plea, or confession to any felony or any crime based upon an act of fraud, embezzlement or moral turpitude (excepting any non-felony traffic offenses); (vi) the Executive being under the influence of alcohol during working hours or under the influence of controlled substances at any time unless taken pursuant to a valid prescription provided by a medical professional (excepting alcohol consumed at a Company party or similar social event), or (vii) a material breach of this Agreement, provided that with respect to conduct subject to (ii), (iii), (vi) or (vii), if curable, shall not constitute Cause unless the Board has (A) determined by the affirmative vote of a majority of the entire Board that Cause exists and (B) provided the Executive with written notice of the acts or omissions giving rise to a termination of his employment for Cause and the Executive fails to correct the act or omission within thirty (30) days after receiving the Company's notice (the “Cure Period”).
In order for Executive to resign for Good Reason, Executive must provide written notice to the Company of the existence of the Good Reason condition within ninety (90) days of his discovery of existence of such Good Reason condition. Upon receipt of such notice, the Company will have thirty (30) days during which it may remedy the Good Reason condition and not be required to provide the severance payments and benefits described herein as a result of such proposed resignation; provided that the Company’s cure right shall be no more than ten (10) days for the failure to pay any compensation to Executive when due. If the Good Reason condition is not remedied within the applicable cure period, Executive may resign based on the Good Reason condition specified in the notice effective no later than ninety (90) days following the expiration of the applicable cure period.
Incentive Plan.
to its corporate headquarters, and all notices will be directed to the attention of the Company’s Secretary (or, if Executive is the Company’s Secretary, any other executive officer of the Company).
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the date first set forth above.
THE COMPANY:
CORTEXYME, INC.
By: 
Name: Christopher Lowe
Title: Interim Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, Director
EXECUTIVE
(Signature)
By: Dirk Thye, MD Date: May 8, 2022
Exhibit 10.13
CORTEXYME, INC.
June 10, 2022
Christopher Lowe
VIA EMAIL (clowe@cortexyme.com)
Dear Chris:
This letter sets forth the substance of the separation agreement (the “Agreement”) that Cortexyme, Inc. (the “Company”) is offering to you to aid in your employment transition.
Page 2
dependents, if applicable) through the period starting on the Separation Date and ending on the earliest to occur of: (a) nine (9) months after the last day of the month in which the Separation Date occurs; (b) the date you become eligible for group health insurance coverage through a new employer; or (c) the date you cease to be eligible for COBRA coverage for any reason (the “COBRA Premiums”). Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA Premiums without a substantial risk of violating applicable law, then the Company instead shall pay you a fully taxable cash payment equal to the remaining COBRA Premiums due under this
Section, subject to applicable tax withholdings, which you may, but are not obligated to, use toward the cost of COBRA premiums.
(9) months to twelve (12) months; (c) the Company will pay you an additional cash severance payment in an amount equal to one hundred percent (100%) of your target annual bonus opportunity for 2022; and (d) the Company will accelerate 100% of any outstanding Equity Awards that are subject to time-based vesting (the “Vesting Acceleration”) as of the effective date of the Change in Control. The Equity Awards will otherwise remain subject to the terms and conditions of the applicable Equity Awards agreements and documents. Notwithstanding anything stated herein or elsewhere to the contrary, if the successor to the Company or any affiliate of such successor does not agree to assume, substitute or otherwise continue any then outstanding Equity Awards at the time of a Change in Control, you shall receive the Vesting Acceleration as of immediately prior to and contingent upon the Change in Control. In the event that you become eligible for the CIC Severance Benefits after the severance benefits set forth in Section 4 and 5 herein have already been paid to you, then the Company will pay you the difference between the CIC Severance Benefits and the severance benefits previously paid to you, within fifteen (15) business days after the effective date of the Change in Control. For the avoidance of doubt, under no circumstances will you be eligible for the full severance benefits set forth in Sections 4 and 5 and the CIC Severance Benefits.
Page 3
other agreement, plan or policy. By executing this Agreement, you further agree and acknowledge that the Company’s obligations to provide you any and all severance benefits, other than as set forth in this Agreement, are hereby extinguished. You further acknowledge that, except as expressly provided in this Agreement, you have not earned, will not earn by the Separation Date, and will not receive from the Company any additional compensation (including base salary, bonus, incentive compensation, or equity), severance, or benefits before or after the Separation Date, with the exception of any vested right you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or any vested stock options.
(a) you may disclose this Agreement in confidence to your immediate family and to your attorneys, accountants, tax preparers and financial advisors; (b) you may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law; and (c) you may make statements and disclosures as permitted under the section of this Agreement entitled “Protected Rights.” In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former Company employee or independent contractor.
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Page 5
California Labor Code (as amended), the California Family Rights Act and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, you are not releasing the Company hereby from: (i) any obligation to indemnify you pursuant to the Articles and Bylaws of the Company, any valid fully executed indemnification agreement with the Company, or applicable law; (ii) any rights you have to file or pursue a claim for workers’ compensation or unemployment insurance; (iii) any claims that cannot be waived by law; or (iv) any claims for breach of this Agreement.
“A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.”
You hereby expressly waive and relinquish all rights and benefits under that section and any law of any other jurisdiction of similar effect with respect to your release of claims herein, including but not limited to your release of unknown claims.
Page 6
proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. While this Agreement does not limit your right to receive an award for information provided to the Securities and Exchange Commission, you understand and agree that, to maximum extent permitted by law, you are otherwise waiving any and all rights you may have to individual relief based on any claims that you have released and any rights you have waived by signing this Agreement. Nothing in this Agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.
[Signature page to follow]
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If this Agreement is acceptable to you, please sign below and return the original to me. You have twenty- one (21) calendar days to decide whether to accept this Agreement, and the Company’s offer contained herein will automatically expire if you do not sign and return it within that timeframe.
We wish you the best in your future endeavors. Sincerely,
By: 
Dirk Thye
Chief Executive Officer
I have read, understand and agree fully to the foregoing Agreement:
June 8, 2022
Date
Exhibit A
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
CORTEXYME, INC.
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
Employee Name: Christopher Lowe
Effective Date: January 3, 2019
As a condition of my becoming employed (or my employment being continued) by Cortexyme, Inc., a Delaware corporation, or any of its current or future subsidiaries, affiliates, successors or assigns (collectively, the “Company”), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by the Company, I agree to the following:
and information and physical material entrusted to the Company in confidence by third parties. Confidential Information includes, without limitation: (i) Company Inventions (as defined below); and (ii) technical data, trade secrets, know-how, research, product or service ideas or plans, software codes and designs, algorithms, developments, inventions, patent applications, laboratory notebooks, processes, formulas, techniques, biological materials, mask works, engineering designs and drawings, hardware configuration information, agreements with third parties, lists of, or information relating to, employees and consultants of the Company (including, but not limited to, the names, contact information, jobs, compensation, and expertise of such employees and consultants), lists of, or information relating to, suppliers and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the Relationship), price lists, pricing methodologies, cost data, market share data, marketing plans, licenses, contract information, business plans, financial forecasts, historical financial data, budgets or other business information disclosed to me by the Company either directly or indirectly, whether in writing, electronically, orally, or by observation.
made, copy, modify, make derivative works of, use, sell, import, and otherwise distribute such Invention under all applicable intellectual property laws without restriction of any kind.
disclosure to the Company or its designee of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments, recordations, and all other instruments which the Company or its designee shall deem necessary in order to apply for, obtain, maintain and transfer such rights, or if not transferable, waive and agree never to assert such rights, and in order to assign and convey to the Company or its designee, and any successors, assigns and nominees the sole and exclusive right, title and interest in and to such Company Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue during and at all times after the end of the Relationship and until the expiration of the last such intellectual property right to expire in any country of the world. I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney-in-fact, to act for and in my behalf and stead to execute and file any such instruments and papers and to do all other lawfully permitted acts to further the application for, prosecution, issuance, maintenance or transfer of letters patent, copyright, mask work and other registrations related to such Company Inventions. This power of attorney is coupled with an interest and shall not be affected by my subsequent incapacity.
waived any rights or remedies it may have in law or equity, nor to have given any authorizations or waived any of its rights under this Agreement, unless, and only to the extent, it does so by a specific writing signed by a duly authorized officer of the Company, it being understood that, even if I am an officer of the Company, I will not have authority to give any such authorizations or waivers for the Company under this Agreement without specific approval by the Board of Directors. Any subsequent change or changes in my duties, obligations, rights or compensation will not affect the validity or scope of this Agreement.
[Signature Page Follows]
The parties have executed this Agreement on the respective dates set forth below, to be effective as of the Effective Date first above written.
THE COMPANY:
CORTEXYME, INC.
By: 
Casey Lynch
President and Chief Executive Officer
Address:
269 East Grand Avenue
South San Francisco, CA 94080 Date: 5/19/2020
EMPLOYEE:
CHRISTOPHER LOWE
(Signature) Address:
Email: clowe@cortexyme.com
Date:
The parties have executed this Agreement on the respective dates set forth below, to be effective as of the Effective Date first above written.
THE COMPANY:
CORTEXYME, INC.
By: Casey Lynch
President and Chief Executive Officer
Address:
269 East Grand Avenue
South San Francisco, CA 94080
Date:
EMPLOYEE:
CHRISTOPHER LOWE
Address:
Email: clowe@cortexyme.com Date: 5/18/2020
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
EXCLUDED UNDER SECTION 4(a) AND CONFLICTING AGREEMENTS DISCLOSED UNDER SECTION 10(b)
The following is a list of (i) all Inventions that, as of the Effective Date: (A) I made, and/or (B) belong solely to me or belong to me jointly with others or in which I have an interest, and that relate in any way to any of the Company’s actual or proposed businesses, products, services, or research and development, and which are not assigned to the Company and (ii) all agreements, if any, with a current or former client, employer, or any other person or entity, that may restrict my ability to accept employment with the Company or my ability to recruit or engage customers or service providers on behalf of the Company, or otherwise relate to or restrict my ability to perform my duties for the Company or any obligation I may have to the Company:
Title Date Identifying Number or Brief Description
Except as indicated above on this exhibit, I have no inventions, improvements or original works to disclose pursuant to Section 4(a) of this Agreement and no agreements to disclose pursuant to Section 10(b) of this Agreement.
Additional sheets attached
Signature of Employee:
Print Name of Employee: Christopher Lowe
Date: 5/18/2020
EXHIBIT B
Section 2870 of the California Labor Code is as follows:
employer.
EXHIBIT C
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, laboratory notebooks, flow charts, materials, equipment, other documents or property, or copies or reproductions of any aforementioned items belonging to Cortexyme, Inc., a Delaware corporation, its subsidiaries, affiliates, successors or assigns (collectively, the “Company”).
I further certify that I have complied with all the terms of the Company’s Confidential Information and Invention Assignment Agreement signed by me, including the reporting of any Inventions (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement, and I acknowledge my continuing obligations under that agreement.
I further agree that, in compliance with the Confidential Information and Invention Assignment Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from the date of this Certification, I shall not either directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees or consultants to terminate their relationship with the Company, or attempt to solicit, induce, recruit, encourage or take away employees or consultants of the Company, either for myself or for any other person or entity.
Further, I agree that I shall not use any Confidential Information of the Company to negatively influence any of the Company’s clients or customers from purchasing Company products or services or to solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.
Further, I acknowledge that the Company has valuable Trade Secrets (as defined by applicable law from time to time) to which I have had access. I understand that the Company intends to vigorously pursue its rights under applicable Trade Secrets law if, during a period of twelve (12) months from the date of this Certification, I solicit or influence or attempt to influence any client, licensor, licensee, customer or other person either directly or indirectly, to direct any purchase of products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company. Thereafter, the Company intends to vigorously pursue its rights under applicable Trade Secrets law as the circumstances warrant.
Date: EMPLOYEE:
CHRISTOPHER LOWE
(Signature)
Exhibit 10.14
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "Sublease") is made and entered into as of May
5 , 2022, by and between ICON Clinical Research, LLC, a Delaware limited liability company, as sublandlord ("Sublandlord"), and Cortexyme, Inc., a Delaware corporation, as subtenant ("Subtenant").
WHEREAS, Sublandlord, as Tenant, and 601 & 651 Gateway Center LP, a Delaware limited partnership, as Landlord ("Landlord") are parties to that certain Office Lease dated as of October 22, 2012 (the "Original Prime Lease"), as amended by a First Amendment to Office Lease dated as of October 2, 2017 (the "First Amendment"), a Second Amendment to Office Lease dated as of July 27, 2018 (the "Second Amendment"), and an Assignment and Assumption of Lease, Consent to Assignment and Third Amendment to Lease dated as of September 21, 2020 (the "Third Amendment"; the Original Prime Lease, as amended, collectively, the "Prime Lease") for certain Premises consisting of 4,280 rentable square feet of space and commonly known as Suite 1250 located on the 12th floor of the building at 601 Gateway Boulevard, South San Francisco, California 94080, which Premises is more particularly described in the Prime Lease.
WHEREAS, under the terms and conditions of this Sublease, Subtenant desires to sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, all of the Premises (the "Sublease Space").
WHEREAS, any capitalized terms used in this Sublease but not defined in this Sublease shall have the meanings set forth in the Prime Lease.
NOW THEREFORE, for and in consideration of the foregoing and for other good and valuable consideration, and the mutual agreements herein contained, Sublandlord and Subtenant agree as follows:
prior to the date Landlord's Consent is obtained and upon such termination any Security Deposit and prepaid rent shall be returned by Subtenant.
Time Period |
Monthly Amount of Basic Rent |
Monthly Rate (per square foot in Sublease Space) |
Rent Commencement Date - Sublease Month 12 |
$16,692.00 |
$3.90 |
Sublease Month 13 - Expiration Date |
$17,205.60 |
$4.02 |
As used herein, the "Rent Commencement Date" is the 11th day after the Commencement Date. Sublandlord and Subtenant acknowledge that as of the Commencement Date, Sublandlord shall permit Subtenant to enter the Premises for the purpose of installing furniture, equipment and other personal property, including Tenant's telephone and data systems cabling, subject to Landlord's approval; and that Subtenant shall not owe Basic Rent for such 10-day period. Notwithstanding the foregoing, Subtenant shall not be obligated to pay monthly Basic Rent for the initial full Sublease Month (the "Abatement Period") as long as Subtenant is not in an Event of Default. If,
at any time, Subtenant is in an Event of Default and Sublandlord exercises any remedy as a consequence of such Event of Default, then to the fullest extent permitted by law, this waiver by Sublandlord of Subtenant's requirement to pay monthly Basic Rent for the Abatement Period shall be null and void, and Subtenant shall immediately pay to Sublandlord the Basic Rent so waived by Sublandlord.
As used herein, ''Sublease Month" means each calendar month of the Sublease Term; provided, however, that if the Commencement Date shall occur on a day that is not the first day of a calendar month, then (i) the initial Sublease Month shall refer only to that pa11ial calendar month included in the Sublease Term; and (ii) Basic Rent for such partial calendar month shall be paid by Subtenant on a pro rata basis (prorated based upon the actual number of days of the calendar month that are within the Sublease Term). An amount equal to a full month of Basic Rent (i.e.,
$16,692.00) shall be paid concurrently with Subtenant's execution and delivery of this Sublease, and such amount shall be applied to the first full month of the Sublease Term.
Sublandlord may suffer by reason of Subtenant's default. If any portion of the Security Deposit is so used, applied, or drawn upon, then Subtenant shall, within 10 days after notice thereof, deposit cash with Sublandlord in an amount sufficient to restore the Security Deposit to its original amount. Subtenant's failure to do so shall be an automatic Event of Default under this Sublease without any additional notice. Sublandlord shall not, unless otherwise required by law, be required to keep the Security Deposit separate from its general funds, nor pay interest to Subtenant. If Subtenant shall fully and faithfully perform every provision of this Sublease to be performed by it, the Security Deposit or any balance thereof (if any) shall be returned to Subtenant (or to the last transferee of Subtenant's interest hereunder) after the Expiration Date (or sooner termination of this Sublease), provided that Subtenant vacates the Sublease Space in accordance with this Sublease and Subtenant surrenders possession thereof to Sublandlord in the condition required under this Sublease.
zoning requirements and with the terms and conditions of the Prime Lease. Subtenant shall comply with all laws relating to the use, condition, access to, and occupancy of the Sublease Space, including without limitation obtaining all required licenses and permits for Subtenant to conduct business at the Sublease Space.
(i) calling or allowing for the service of notice by the Tenant thereunder, (ii) pertaining to events of default by the Tenant thereunder, or (iii) within which the Tenant thereunder must perform any act or observe any term, covenant or condition thereunder, the same shall be deemed amended for the purposes of this Sublease to provide for time limits of 3 days less and deadlines that are 3 days earlier than those provided for in the Prime Lease.
expenses as and when incurred. Sublandlord does not warrant that any of the services referred to in this Sublease, or any other services that Landlord may supply, will be free from interruption, and Subtenant acknowledges that any such services may become unavailable or be suspended by reason of accident, repairs, inspections, alterations or improvements, or by delays beyond a party's reasonable control, including without limitation, governmental restrictions or regulations, governmental preemption, strikes, labor disputes, shortage of labor or materials, Acts of God, fire, earthquake, floods, extreme weather conditions, enemy action, civil commotion, riot or insurrection, fire or other unavoidable casualty.
(t) Landlord Rights. If under the Prime Lease Landlord reserves or is granted any right, including without limitation the right to enter the Sublease Space, then said right shall inure to the benefit of Landlord as well as Sublandlord with respect to the Sublease Space. Subtenant acknowledges any rights specifically reserved by Landlord under the Prime Lease; and Subtenant further acknowledges that its possession and use of the Sublease Space is subject to such rights. Except as may be otherwise set forth herein, Subtenant hereby releases Sublandlord from all liability in connection with Landlord's exercise of such rights. Sublandlord shall not incur any liability whatsoever to Subtenant for any injury, inconvenience, incidental or consequential damages incurred or suffered by Subtenant as a result of the exercise by Landlord of any of the rights reserved to Landlord under the Prime Lease, nor shall such exercise constitute a constructive eviction or a default by Sublandlord hereunder, except to the extent such exercise would constitute a constructive eviction or a default by Landlord under the Prime Lease. Subtenant's obligations to pay Rent and any other charges due under this Sublease shall not be reduced or abated in the event that Landlord fails to provide any service, to perform any maintenance or repairs, or to perform any other obligation of Landlord under the Prime Lease, except to
the extent such failures would reduce or abate Sublandlord's obligations to pay rent under the Prime Lease. Notwithstanding anything herein to the contrary, to the extent Sublandlord is entitled to any abatement under the Prime Lease for interruption of any service affecting the Sublease Space during the Sublease Term or otherwise under the Prime Lease, Subtenant shall be entitled to the same abatement of Basic Rent on its behalf, but only to the extent that (i) such abatement is actually received by Sublandlord with respect to the Sublease Space, and (ii) an Event of Default by Subtenant has not occurred.
Lease, then Subtenant, at its sole cost and expense, shall remove such Alterations before the Expiration Date or earlier termination of this Sublease. The obligations set forth in the preceding sentence shall survive the termination or expiration of this Sublease.
(c) All maintenance, repairs, and replacements as to the Sublease Space. All such maintenance, repairs, and replacements shall be performed in accordance with the Prime Lease.
(d) All taxes or charges that may be levied against Subtenant's personal property in the Sublease Space or Subtenant's use or occupancy of the Sublease Space during the Sublease Term.
Lease, Sublandlord shall have the right, but not the obligation, without notice to Subtenant and without waiving or releasing Subtenant from any obligations hereunder, to cure any breach or default by Subtenant (and enter upon the Sublease Space in connection therewith if necessary) and/or to perform any such obligations of Subtenant in such manner and to such extent as Sublandlord shall reasonably deem necessary, and in exercising any such right, pay any incidental costs and expenses, employ attorneys, and incur and pay reasonable attorneys' fees. Subtenant shall pay to Sublandlord within 10 days after demand all sums so paid by Sublandlord and all actual, reasonable out-of-pocket costs and expenses of Sublandlord in connection therewith, together with Interest thereon, from the date of the making of such expenditures until the date reimbursed by Subtenant.
Subtenant shall promptly notify Sublandlord. If the Building or Sublease Space is damaged by fire or other casualty and Sublandlord shall, under the terms of the Prime Lease, elect to terminate the Prime Lease, then this Sublease shall cease
and terminate on the date of termination of the Prime Lease. Otherwise, this Sublease shall remain in full force and effect. Sublandlord shall have no obligation hereunder to repair any portion of the Building or Sublease Space, whether or not this Sublease shall be terminated, which obligation shall be Landlord's to the extent required under the Prime Lease. If all or any part of the Sublease Space is damaged and this Sublease is not terminated, then Subtenant shall (to the extent that Landlord is not so obligated) promptly and with due diligence repair and restore any personal property, leasehold improvements, and alterations installed by Subtenant in the Sublease Space.
the date of this Sublease. If Subtenant or any Subtenant Party holds over and fails to vacate the Sublease Space timely, then Sublandlord may exercise any and all remedies available to it at law or in equity to recover possession of the Sublease Space, and to recover any damages incurred by Sublandlord (including, without limitation, damages payable by Sublandlord to Landlord by reason of such holdover), plus any reasonable attorneys' fees and costs incurred by Sublandlord in connection with Subtenant's holdover). Subtenant shall be responsible for any amounts that that are paid, incurred or owed by Sublandlord as a result of the failure of, or the delay by, Subtenant in surrendering the Sublease Space, including without limitation all sums payable by Sublandlord to Landlord. For the period that Subtenant or a Subtenant Party holds over, Subtenant shall pay Rent equal to the greater of: (i) holdover rent for which Sublandlord is liable under the Prime Lease; or (ii) 150% of the Rent that Subtenant was paying at the end of Sublease Tenn. The acceptance by Sublandlord of any lesser sum shall be construed as payment on account and not in satisfaction of damages for such holding over. The provisions of this Section 16 shall survive the expiration or earlier termination of this Sublease.
Sublandlord: ICON Clinical Research, LLC
320 Seven Springs Way, Suite 500
Brentwood, TN 37027 Attention: Summer Morris
With a copy to:
ICON PLC
South County Business Park Leopardstown Dublin 18, Ireland
Attention: David Cahill, Vice President, Facilities and Administration
Subtenant: Cortexyme, Inc.
601 Gateway Boulevard, Suite 1250 South San Francisco, California 94080 Attention: Legal Department
Notices shall be deemed given upon the earlier to occur of actual receipt or refusal of receipt, one
(1) day after the deposit thereof with a nationally recognized overnight courier service, or personal
delivery. Either party hereto may designate a different or additional address for the giving of notice by written notice to the other party.
forth in the Bill of Sale (defined below). Nothing contained herein shall be deemed a representation, warranty or guaranty by or from Sublandlord as to the condition, value, utility or merchantability of or to the Existing Furniture, or any portion thereof, and Sublandlord expressly disclaims any and all warranties in connection with the Existing Furniture, including, without limitation, warranties of merchantability, condition, and fitness, and in no event shall Sublandlord have any liability or responsibility of any type whatsoever with respect thereto. Subject to the foregoing, Sublandlord shall execute a bill of sale conveying the Existing Furniture to Subtenant in the form attached as Exhibit C (the "Bill of Sale"). Sublandlord and Subtenant hereby agree that little or no value will be attributable to the Existing Furniture at the time of transfer to Subtenant and that no part of the Rent payable by Subtenant will be attributable to the Existing Furniture. Sublandlord and Subtenant agree to treat Subtenant as the owner of the Existing Furniture for federal and state income tax reporting purposes during the Sublease Term; and no portion of the Rent payable under this Sublease shall be deemed for any purpose paid on account of the use of the Existing Furniture by Subtenant. Notwithstanding the foregoing, if after complying with the foregoing sales tax is due in connection with the transfer of the Existing Furniture to Subtenant under this Sublease ("Sales Tax"), then Subtenant hereby agrees to pay as and when due such amounts. The provisions of the preceding sentence shall survive the expiration or earlier termination of this Sublease. Subtenant shall remove all Existing Furniture at the end of the Sublease Term and repair any damage caused by such removal.
(i) The recitals set forth at the beginning of this Sublease are incorporated into this Sublease by reference as if fully set forth herein.
[Signatures follow on next two pages]
IN WITNESS WHEREOF, Sublandlord has executed this Sublease as of the day and year first above written.
Sublandlord:
ICON Clinical Research LLC,
a Delaware limited liability company
IN WITNESS WHEREOF, Subtenant has executed this Sublease as of the day and year first above written.
Subtenant:
Cortexyme, Inc.,
a Delaware corporation
Exhibit A Prime Lease
[See Attached.]
Exhibit 10.15
CONSENT TO SUBLEASE
This Consent to Sublease (this “Consent”) is made as of June 8, 2022, by 601 & 651 GATEWAY CENTER LP, a Delaware limited partnership, having an address of 26 North Euclid Avenue, Pasadena, California 91101, Attn: Corporate Secretary, Re: 601/651 Gateway (“Landlord”), ICON CLINICAL RESEARCH, LLC, a Delaware limited liability company, having an address of 601 Gateway Boulevard, Suite 1250, South San Francisco, CA 94080, Attn: Lease Administrator (“Tenant”), and CORTEXYME, INC., a Delaware corporation, having an address of 601 Gateway Boulevard, Suite 1250, South San Francisco, CA 94080, Attn: Legal Department (“Sublessee”) with reference to the following Recitals.
R E C I T A L S
NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord hereby consents to the sublease of the Subleased Premises to Sublessee, such consent being subject to and upon the following terms and conditions to which Tenant and Sublessee hereby agree:
(a) all of the covenants, agreements, terms, provisions and conditions contained in the Lease, (b) superior ground leases, mortgages, deeds of trust, or any other hypothecation
or security now existing or hereafter placed upon the real property of which the Premises are a part and to any and all advances secured thereby and to all renewals, modifications, consolidations, replacements and extensions thereof, and (c) all matters of record affecting the Premises and all laws, ordinances and regulations now or hereafter affecting the Premises.
Tenant shall remain liable and responsible for the due keeping, performance and observance of all the terms, covenants and conditions set forth in the Lease on the part of the Tenant to be kept, performed and observed and for the payment of the annual rent, additional rent and all other sums now and hereafter becoming payable thereunder for all of the Premises, including, without limitation, the Subleased Premises.
[ Signatures on next page ]
IN WITNESS WHEREOF, Landlord, Tenant and Sublessee have caused their duly authorized representatives to execute this Consent as of the date first above written.
LANDLORD:
601 & 651 GATEWAY CENTER LP,
a Delaware limited partnership
By: GATEWAY CENTER GP LLC,
a Delaware limited liability company, general partner
By: GATEWAY PORTFOLIO MEMBER LLC,
a Delaware limited liability company, managing member
By: GATEWAY PORTFOLIO HOLDINGS LLC,
a Delaware limited liability company, managing member
By: ARE-SAN FRANCISCO NO. 83, LLC,
a Delaware limited liability company, managing member
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
a Delaware limited partnership, managing member
By: ARE-QRS CORP.,
a Maryland corporation, general partner
By: Kristen Childs
Its: Vice President - Real Estate
TENANT: ICON CLINICAL RESEARCH LLC,
a Delaware limited liability company
By:
George McMillan
Its: EVP, Chief Commercial Officer
I hereby certify that the signature, name, and title above
are my signature, name and title
SUBLESSEE: CORTEXYME, INC.
a Delaware corporation
By: Caryn McDowell 
Its: Chief Legal and Administrative Officer
I hereby certify that the signature, name, and title above
are my signature, name and title
Exhibit 10.16
CORTEXYME, INC.
July 15, 2022
Leslie Holsinger
VIA EMAIL (lholsinger@cortexyme.com) Dear Leslie:
This letter sets forth the substance of the separation agreement (the "Agreement") that Cortexyme, Inc. (the "Company") is offering to you to aid in your employment transition.
under COBRA and a form for electing COBRA coverage. As an additional severance benefit, subject to satisfaction of the Severance Preconditions, and provided that you timely elect continued coverage under COBRA, then the Company will pay directly the COBRA premiums required to continue your health insurance coverage (including coverage for eligible dependents, if applicable) through the period starting on the Separation Date and ending on the earliest to occur of: (a) nine (9) months after the last day of the month in which the Separation Date occurs;
(b) the date you become eligible for group health insurance coverage through a new employer; or
(c) the date you cease to be eligible for COBRA coverage for any reason (the "COBRA Premiums"). Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA
Premiums without a substantial risk of violating applicable law, then the Company instead shall pay you a fully taxable cash payment equal to the remaining COBRA Premiums due under this Section, subject to applicable tax withholdings, which you may, but are not obligated to, use toward the cost of COBRA premiums.
(9) months to twelve (12) months of your base salary; (b) the potential COBRA Premiums set forth in Section 5(a) above will increase from nine (9) months to twelve (12) months; (c) the Company will pay you an additional cash severance payment in an amount equal to one hundred percent (100%) of your target annual bonus opportunity for 2022; and (d) the Company will accelerate 100% of any outstanding Equity Awards that are subject to time-based vesting (the "Vesting Acceleration") as of the effective date of the Change in Control. The Equity Awards will otherwise remain subject to the terms and conditions of the applicable Equity Awards agreements and documents. Notwithstanding anything stated herein or elsewhere to the contrary, if the successor to the Company or any affiliate of such successor does not agree to assume, substitute or otherwise continue any then outstanding Equity Awards at the time of a Change in Control, you shall receive the Vesting Acceleration as of immediately prior to and contingent upon the Change in Control. In the event that you become eligible for the CIC Severance Benefits after the severance benefits set forth in Section 4 and 5 herein have already been paid to you, then the Company will pay you the difference between the CIC Severance Benefits and the severance benefits previously paid to you, within fifteen (15) business days after the effective
date of the Change in Control. For the avoidance of doubt, under no circumstances will you be eligible for the full severance benefits set forth in Sections 4 and 5 and the CIC Severance Benefits.
consulting or earlier if requested by the Company. If you have used any personally owned computer or other electronic device, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, within five (5) calendar days after the Separation Date (or earlier if requested by the Company), you shall provide the Company with a computer-useable copy of such information and then permanently delete and expunge such Company confidential or proprietary information from those systems; and you agree to provide the Company access to your system as requested to verify that the necessary copying and/or deletion is completed. Your timely compliance with this paragraph is a condition to your receipt of the severance benefits provided under this Agreement.
to provide complete, truthful and accurate information in witness interviews, depositions, and trial testimony. The Company will reimburse you for reasonable out-of-pocket expenses you incur in connection with any such cooperation (excluding foregone wages) and will make reasonable efforts to accommodate your scheduling needs.
(e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after you sign this Agreement provided that you do not revoke it (the "Effective Date").
"A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party."
You hereby expressly waive and relinquish all rights and benefits under that section and any law of any other jurisdiction of similar effect with respect to your release of claims herein, including but not limited to your release of unknown claims.
California Family Rights Act, or otherwise; and not suffered any on-the-job injury for which you have not already filed a workers' compensation claim.
this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach. This Agreement may be delivered and executed via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other transmission method and shall be deemed to have been duly and validly delivered and executed and be valid and effective for all purposes.
If this Agreement is acceptable to you, please sign below and return the original to me. You have twenty-one (21) calendar days to decide whether to accept this Agreement, and the Company's offer contained herein will automatically expire if you do not sign and return it within that timeframe.
We wish you the best in your future endeavors. Sincerely,
By: 
Dirk Thye
Chief Executive Officer
I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT:
EXHIBIT A
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
Exhibit 10.17
CORTEXYME, INC.
OUTSIDE DIRECTOR COMPENSATION POLICY ADOPTED: APRIL 9, 2019; AMENDED AND RESTATED: JUNE 7, 2022
EFFECTIVE: MAY 8, 2019 (the “Effective Date”)
Each member of the Board of Directors (the “Board”) of Cortexyme, Inc. (the “Company”) who is not an employee of the Company (each such member, an “Outside Director”) will receive the compensation described in this Outside Director Compensation Policy (the “Director Compensation Policy”) for his or her Board service following the Effective Date.
The Director Compensation Policy may be amended at any time in the sole discretion of the Board.
Annual Cash Compensation
Each Outside Director will receive the cash compensation set forth below for service on the Board. The annual cash compensation amounts will be payable in arrears, in equal quarterly installments following the end of each fiscal quarter of the Company in which the service occurred. Any amount payable for a partial quarter of service will be pro-rated by multiplying such amount by a fraction, the numerator of which will be the number of days of service that the Outside Director provided in such quarter and the denominator of which will be the number of days in such quarter inclusive. All annual cash fees are vested upon payment. For purposes of clarity, the first quarterly installment of the annual retainers set forth below shall be paid for the first quarter that ends on or after the Effective Date, with the amount of such payment equal to the full quarterly installment, pro-rated as applicable based on the days of service that the Outside Director provided in such quarter regardless of whether such service was before or after the Effective Date.
Equity Compensation
Equity awards will be granted under the Company’s 2019 Equity Incentive Plan or any successor equity incentive plan adopted by the Board and the stockholders of the Company (the “Plan”).
Each Continuing Director Annual Option shall vest 100% on the one-year anniversary of the grant date, subject to the applicable Outside Director’s continued service as a member of the Board through each such vesting date.
Expenses
The Company will reimburse each Outside Director for ordinary, necessary and reasonable out-of-pocket travel expenses to cover in-person attendance at, and participation in, Board and committee meetings; provided, that the Outside Director timely submits to the Company appropriate documentation substantiating such expenses in accordance with the Company’s travel and expense policy, as in effect from time to time.
Exhibit 10.18
[Certain confidential portions of this agreement (marked with [***]) have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K because the Company has determined that such redacted information is (i) not material, and (ii) is the type of information the company treats as private or confidential.]
license Agreement
THIS LICENSE AGREEMENT (this “Agreement”) is made and entered into as of June 3, 2020 (“Effective Date”), by and between PURDUE RESEARCH FOUNDATION, a statutory body corporate formed and existing under the Indiana Foundation or Holding Companies Act of 1921 (hereinafter referred to as “PRF”) with its business offices located at 1281 Win Hentschel Boulevard, West Lafayette, Indiana and Novosteo Inc., an Indiana corporation (hereinafter referred to as “LICENSEE”) with its business offices located at 1281 Win Hentschel Blvd, West Lafayette, IN, 47906, each individually referred to as a “Party” and collectively referred to as the “Parties.”
WITNESSETH
WHEREAS, Purdue researchers have made one or more valuable technologies (each, and collectively, “Technology”) which are the subject of one or more patent applications or patents described on Schedule A;
WHEREAS, the Purdue University Board of Trustees has, by general resolution and/or assignment, designated PRF to administer all matters pertaining to protection, use and commercialization of the intellectual property developed at Purdue University;
WHEREAS, LICENSEE desires to hereby enter into this Agreement whereby LICENSEE obtains rights to use the Technology and Licensed Patents; and
WHEREAS, PRF is willing to enter into this Agreement with LICENSEE, under the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
Definitions
The following terms as used herein shall have the following meaning:
Grant of License
Commercialization Plan and Development Milestones
Consideration for License
Tier 1: MAR Trigger Year through Year [***] following MAR Trigger Year |
[***] |
Tier 2: Years [***] following MAR Trigger Year |
[***] |
Tier 3: All years subsequent to Tier 2 until the Term expires |
[***] |
If the Sublicense is executed prior to [***] |
[***] |
If the Sublicense is executed prior to [***] and after [***] |
[***] |
If the Sublicense is executed prior to [***] and after [***] |
[***] |
If the Sublicense is executed after [***] |
[***] |
Any Sublicense Income payments to PRF are due within [***] of receiving such Sublicense Income payment from Sublicensee.
First anniversary of Effective Date through [***] of the Effective Date |
[***] |
[***] of Effective Date through [***] of Effective Date |
[***] |
[***] of Effective Date through [***] of Effective Date |
[***] |
[***] of Effective Date and onward |
[***] |
Milestone |
Milestone Payment |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
Payments
Purdue Research Foundation
Office of Technology Commercialization
1281 Win Hentschel Blvd
West Lafayette, IN 47906
Attn: Accounting
Records
Patent Prosecution
Infringement
Confidentiality
DISPUTE RESOLUTION
For PRF: Vice President, OTC
For LICENSEE: CEO, Novosteo
Warranty, Merchantability and Exclusion of Warranties
Damages, Indemnification, and Insurance
Term and Termination
Notices
Except as otherwise provided herein, all notices and other communications shall be hand delivered, sent by private overnight mail service, or sent by registered or certified U.S. mail, postage prepaid, return receipt requested,
electronic mail, read receipt requested, and addressed to the Party to receive such notice or other communication at the address given below, or such other address as may hereafter be designated by notice in writing:
If to PRF Purdue Research Foundation
Office of Technology Commercialization
1801 Newman Road
West Lafayette, IN 47906
E-mail: [***]
ATTN: Vice President, OTC
If to LICENSEE Novosteo, Inc
1281 Win Hentschel Blvd.
West Lafayette, IN 47906
Such notices or other communications shall be effective upon receipt by an employee, agent or representative of the receiving party authorized to receive notices or other communications sent or delivered in the manner set forth above.
Miscellaneous
IN WITNESS WHEREOF, PRF and LICENSEE have caused this Agreement to be signed by their duly authorized representatives, under seal, by wet-ink or electronic signature, in one or more counterparts, each having the same validity and effect as the other, as of the Effective Date.
Purdue Research Foundation |
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LICENSEE |
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X /s/ Brooke Beier |
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X /s/ M. Scott Salka |
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Printed Name: |
Brooke Beier |
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Printed Name: |
M. Scott Salka |
Title: |
Vice President, Office of Technology Commercialization |
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Title: |
Executive Chair |
SCHEDULE A
Licensed Intellectual Property
Schedule A: Licensed Intellectual Property
Licensed Patent(s)
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SCHEDULE B
Novosteo Commercialization Plan for NOV004
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SCHEDULE C
Progress Report
Licensee Progress Report
Licensee Name:
Licensee Contact:
Progress Report Date:
Commercialization Diligence:
1. List the Development Milestones to date per Schedule D. Has the company been able to achieve them? If so, please provide proof of achievement and date achieved.
Financial Capacity:
2. How much capital has the company raised since it has licensed Purdue Technology?
3. State the company’s current financial capacity to achieve the Commercialization Plan and Development Milestones per the license agreement. If further funds are required, what are the company’s plans to deploy the necessary capital or to raise funding?
Employment & Development Efforts:
4. Has the company developed a Licensed Product yet? If yes, what is the name of the Licensed Product and where/how is it available for sale? If no, when does the company anticipate launching a Licensed Product?
5. Has the company had any sales of Licensed Products? If yes, please see Schedule D of the license for royalty report template.
6. If applicable, has the company issued any sub licenses? Has the company provided sublicense information to PRF?
Other Updates and Inquiries:
7. Is there any other news that you are interested in sharing with Purdue Research Foundation about the company’s efforts to commercialize the PRF Technology?
8. Does the company need anything from PRF at this time?
9. Is the company interested in learning about any other technologies that are available for licensing from PRF? If so, please provide an area of interest or description of technology that would fit the opportunity company is seeking.
SCHEDULE D
Schedule D: Royalty Report Requirements
a. Identify each Licensed Product by name(s), number(s), and brand identifications (include Licensed Products sold by Affiliate and Sublicensees)
b. List the Development Milestones to date. Has the company been able to achieve them? If so, please provide proof of achievement and date achieved. If not, state the reason.
c. List current published customer price information per Licensed Product
d. State number of units distributed to customers during Reporting Period per License Product (include units distributed by Affiliate and Sublicensees)
e. Summarize/describe unit price(s) charged to customers per Licensed Product during Reporting Period. Specify price ranges and variations where applicable. Where a sale, gift, use, or other disposition of a Licensed Product is transacted for value other than cash, supply corroboration that the charged unit price is consistent with the market value of the Licensed Product.
f. State amount of Gross Receipts per Licensed Product for the Reporting Period. Include summary of netting calculations.
g. State amount of Unit Royalties payable to PRF for each Licensed Product for the Reporting Period (per Gross Receipts of LICENSEE, any applicable Affiliates and Sublicensees)
h. State amount of minimum annual royalty due for the Annual Period (if applicable)
i. State amount of Sublicensing Income receivable during the Reporting Period (Article 4.4) (specify by Sublicense and type of income)
j. State total royalty due to PRF in USD for the Reporting Period. Show monetary conversion rate (if applicable).
k. List names and addresses of current Sublicensees (if applicable)
l. Enclose current certificate of insurance (Article 12.3)
m. Summarize financial capacity for Reporting Period, including third party funding received (dilutive and non-dilutive) related to commercialization of Licensed Product(s).
n. State number of full-time equivalents (FTEs) employed or otherwise actively implementing the Commercialization Plan.
o. State location (city, state, and country) where manufacturing of Licensed Products occurs.
SCHEDULE E
Development Milestones
Date/Timeline |
Milestone |
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SCHEDULE F
Novosteo Inc. – Capitalization Table, 10May20
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Exhibit 10.19
AMENDMENT #1 TO LICENSE AGREEMENT
THIS AMENDMENT #1 TO LICENSE AGREEMENT (the “Amendment”), made and entered into this 21st day of March, 2022 (“Amendment Effective Date”) by and between Purdue Research Foundation, a corporation formed and existing under the Indiana Foundation or Holding Companies Act of 1921 with its main offices located at 1281 Win Hentschel Blvd, West Lafayette, IN 47906 (“PRF”), and Novosteo Inc., an Indiana corporation with business offices at 1281 Win Hentschel Blvd, West Lafayette, IN 47906 (“LICENSEE”), collectively referred to hereinafter as the “Parties,” and each individually as a “Party,” amends the License Agreement dated June 3, 2020, (the “Agreement”); and
WHEREAS, the Parties have agreed to certain modifications to the Agreement, including amending the patent prosecution arrangement and adding certain patent applications to the Licensed Patents as set forth in Schedule A: Licensed Intellectual Property.
NOW, THEREFORE, the Parties hereby revise and amend the Agreement as follows:
“1.15 “Licensed Product” means a product or service, the importation, manufacture, use, or sale of which is covered by a Valid Claim within the Licensed Patents.”
“1.19 “Royalties Term” means on a Licensed Product-by-Licensed Product basis and country-by-country basis, the period commencing on the date of first commercial sale until the expiration of the last Valid Claim covering such Licensed Product in such country.”
“1.21 “Sublicense Income” means the cash consideration received by Licensee in consideration for a Sublicense, but excluding any consideration for:
“2.1 License. Subject to compliance with this Agreement, and subject to the reservation of rights stated below, PRF grants to LICENSEE, and LICENSEE accepts, a royalty-bearing, exclusive, license, including the right to grant and authorize sublicenses, under the Licensed Intellectual Property to make or have made, use, sell or have sold, and import, and otherwise exploit Licensed Products and otherwise exploit the Technical Information in the Field of Use and the Licensed Territory.”
“4.1 Unit Royalties. During the Royalty Term, LICENSEE shall pay PRF an earned royalty of three and a half percent (3.5%) of Gross Receipts (“Unit Royalties”). Unit Royalties accrued in a particular Reporting Period shall be due and payable on or before the Payment Due Date immediately following the end of the applicable Reporting Period.”
agreement, which shall contain customary representations, warranties and covenants and an agreement to execute any agreements or documents that may be required by investors in connection with a Qualified Investment (as defined below). When issued, those shares of common stock will represent one-half of one percent (0.5%) of the common stock in LICENSEE on a Fully Diluted Basis as of September 30, 2021. LICENSEE agrees the shares are valued at 0.03 per common share. LICENSEE shall provide PRF with an updated pro forma capitalization table upon which the above calculation is made.
(Signatures to follow)
IN WITNESS WHEREOF, the Parties have caused this Amendment to be signed by their duly authorized representatives, to be effective as of the date set forth above.
Purdue Research Foundation |
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Novosteo Inc. |
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Printed Name: |
Brooke L Beier, PhD |
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Printed Name: |
Dirk Thye |
Title: |
Sr. Vice President, Commercialization |
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Title: |
CEO |
Schedule A: Licensed Intellectual Property
Licensed Patent(s)
Technology: |
Abalode 10/20 compounds and compositions and methods of treating fractures (including maxillofacial fracture, fracture in patient with diabetes, and fracture in patient with osteoporosis) PRF Ref. No.: 2021-LOW-69248 |
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Patent Info: |
Track Code |
Application # |
Type |
Status |
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App Date |
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2019-LOW-69248-01 |
63/105,669 |
Provisional- Patent |
Converted |
US |
Oct 26, 2020 |
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2019-LOW-69248-02 |
63/193,748 |
Provisional- Patent |
Converted |
US |
May 27, 2021 |
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2019-LOW-69248-03 |
PCT/US21/47824 |
PCT- Patent |
Filed |
WO |
Aug 26, 2021 |
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Inventors: |
Name: Philip Stewart Low Stewart A Low Jeffery Jay Howard Nielsen |
Purdue University Purdue University Purdue University |
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* Federal or other funding of related research? X Yes No * The U.S. Government retains certain rights in the Technology, and the License is subject in all respects to U.S. law applicable to intellectual property funded in whole or in part by the U.S. Government. If yes, provide funding agency and contract no.: No federal funding disclosed |
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Technology: |
Use of abalode 10/20 compounds and compositions to treat spinal fusion PRF Ref. No.: 2021-LOW-69249 |
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Patent Info: |
Track Code |
Application # |
Type |
Status |
Country |
App Date |
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2019-LOW-69249-01 |
63/105,678 |
Provisional- Patent |
Converted |
US |
Oct 26, 2020 |
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2019-LOW-69249-02 |
63/193,753 |
Provisional- Patent |
Converted |
US |
May 27, 2021 |
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2019-LOW-69249-03 |
PCT/US21/47827 |
PCT - Patent |
Filed |
WO |
Aug 26, 2021 |
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Inventors: |
Name: Philip Stewart Low Stewart A Low Jeffery Jay Howard Nielsen |
Purdue University Purdue University Purdue University |
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* Federal or other funding of related research? X Yes X No If yes, provide funding agency and contract no.: No federal funding disclosed. |
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2
Confidential
* The U.S. Government retains certain rights in the Technology, and the License is subject in all respects to U.S. law applicable to intellectual property funded in whole or in part by the U.S. Government. |
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Technology: |
Hydroxyapatite Targeted Imaging and Therapy of Primary and Secondary Bone Cancers PRF Ref. No.: 2022-LOW-69585 |
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Patent Info: |
Track Code |
Application # |
Type |
Status |
Country |
App Date |
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2022-LOW-69585-01 |
63/313,395 |
Provisional- Patent |
Filed |
US |
Feb 24, 2022 |
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Inventors: |
Name: Philip Stewart Low Losha Dasol Dasol Jung |
Purdue University Purdue University |
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* Federal or other funding of related research? Yes X No If yes, provide funding agency and contract no.: * The U.S. Government retains certain rights in the Technology, and the License is subject in all respects to U.S. law applicable to intellectual property funded in whole or in part by the U.S. Government. |
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dirk Thye, certify that:
Date: August 9, 2022 |
/s/ Dirk Thye |
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Dirk Thye |
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President, Chief Executive Officer and Chairman of our Board of Directors (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ted Monohon, certify that:
Date: August 9, 2022 |
/s/ Ted Monohon |
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Ted Monohon |
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Chief Accounting Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Cortexyme, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: August 9, 2022 |
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By: |
/s/ Dirk Thye |
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Dirk Thye |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Cortexyme, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: August 9, 2022 |
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By: |
/s/ Ted Monohon |
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Ted Monohon |
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Chief Accounting Officer |
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(Principal Financial Officer) |