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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES Exchange ACT OF 1934
Commission File Number: 001-40316
VectivBio Holding AG
(Exact name of registrant as specified in its charter)
Switzerland
(Jurisdiction of Incorporation)
Aeschenvorstadt 36
4051 Basel
Switzerland
(Address of principal executive offices)

Luca Santarelli, M.D.
Chief Executive Officer
Aeschenvorstadt 36
4051 Basel
Switzerland
Tel: +41 615513030
Email: luca.santarelli@vectivbio.com
(Name, telephone, e-mail and/or facsimile number and address of Company contact person)




Securities registered or to be registered, pursuant to Section 12(b) of the Act
Title of Each ClassTrading SymbolName of each exchange on which registered
Ordinary Shares, CHF 0.05 nominal value per shareVECTThe Nasdaq Global Market
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 36,635,713 Ordinary Shares, par value CHF 0.05 nominal value per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐      Accelerated filer ☐      Non-accelerated filer ☒ Emerging growth company     
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐      International Financial Reporting Standards as issued by the International Accounting Standard Board ☒      Other ☐
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐



If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No



TABLE OF CONTENTS
Page
E. Critical accounting estimates
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GENERAL INFORMATION
Unless otherwise indicated or the context otherwise requires, all references in this Annual Report on Form 20-F for the year ended December 31, 2021, or Annual Report, to “VectivBio,” “VectivBio Holding,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to VectivBio Holding AG and its consolidated subsidiaries.
We have filed trademark registrations for “VectivBio” and “Vectiv” in Switzerland, the European Union, Canada and the United States. This Annual Report includes trademarks, tradenames and service marks, certain of which belong to us and others that are the property of other organizations. Solely for convenience, trademarks, tradenames and service marks referred to in this Annual Report appear without the ®, ™ and SM symbols, but the absence of those symbols is not intended to indicate, in any way, that we will not assert our rights or that the applicable owner will not assert its rights to these trademarks, tradenames and service marks to the fullest extent under applicable law. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
PRESENTATION OF FINANCIAL INFORMATION
In this Annual Report, unless otherwise specified, all monetary amounts are in U.S. dollars, all references to “U.S. dollars,” “$,” “US$” and “USD” mean United States dollars and all references to “CHF” mean Swiss francs.
Our consolidated and carve-out financial statements are presented in U.S. dollars and in accordance with IFRS, as issued by the International Accounting Standards Board, or IASB. None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
We historically did not operate as an independent, standalone company, but rather as a part of a larger group of companies controlled by Therachon Holding AG, or THAG, and reported our results as part of THAG prior to July 1, 2019, when THAG distributed the shares of VectivBio Holding AG to the existing THAG shareholders, referred to as the Spin-off. The financial information for the period prior to July 1, 2019 has been derived from THAG’s historical financial records as if the Apraglutide Business (as defined in the section titled “Item 4. Information on the Company - History and Development of the Company”) had been a standalone business. Accordingly, the financial information for the periods prior to the Spin-off has been prepared on a “carve-out” basis to present the results of operations and the costs of doing business. There are limitations inherent in the preparation of the carve-out financial statements since our business was previously part of a larger organization. The basis of preparation included in our consolidated and carve-out financial statements provides a detailed description of the treatment of historical transactions in the period prior to the Spin-off.
During this period, our net loss was impacted by the following consequences of carve-out accounting and the Spin-off: an allocation of expenses for the services provided by THAG and its subsidiaries for research and development costs, shared corporate costs for professional services, legal services, other administrative support, and employee-related costs for senior management and other shared employees. The amounts of these allocations may not necessarily be indicative of the similar costs we would incur as an independent, standalone company. The total amount allocated to us from THAG related to the expenses described above was $4.8 million during the six months ended June 30, 2019. Subsequent to the Spin-off on July 1, 2019, the financial information for the Apraglutide Business was prepared on a consolidated basis. For further information on the basis of presentation refer to Note 2 to our consolidated and carve-out financial statements beginning on page F-1 of this Annual Report.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this Annual Report are based upon information available to us as of the date of this Annual Report and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements include, but are not limited to, statements about:
• the ability of our clinical trials to demonstrate acceptable safety and efficacy of our product candidates;
• the timing, progress and results of clinical trials for our product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
• the timing, scope and likelihood of regulatory filings and approvals;
• our ability to obtain marketing approvals of our product candidates and to meet existing or future regulatory standards or comply with post-approval requirements;
• our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents and net proceeds of this offering;
• future milestone or royalty payments to or from our licensing partners or other third-parties, and the expected timing of such payments;
• our expectations regarding the potential market size and the size of the patient populations for our product candidates, if approved for commercial use;
• our expectations regarding the potential advantages of apraglutide over existing therapies for short bowel syndrome with intestinal failure, or SBS-IF, and our expectations regarding potential uses of apraglutide to treat other indications;
• developments and projections relating to our competitors and our industry, including competing therapies;
• the impact of COVID-19 on our business, operations and prospects and on our clinical trials;
• our potential to enter into new collaborations;
• our expectations with regard to our ability to develop additional product candidates or leverage our current product candidates for other indications, and our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
• our ability to develop, acquire and advance additional product candidates into, and successfully complete, clinical trials;
• the commercialization and market acceptance of our product candidates;
• our marketing and manufacturing capabilities or those of third parties with which we contract;
• our ability to operate our businesses without infringing the intellectual property rights and proprietary technology of third parties;
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• the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates;
• estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;
• regulatory development in the United States, Europe and other jurisdictions;
• our ability to effectively manage our anticipated growth;
• our ability to attract and retain qualified employees and key personnel; and
• our expectations regarding the time during which we will be an emerging growth company under the JOBS Act and continue to qualify as a foreign private issuer.
You should refer to the section titled “Item 3. Key Information - Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report.

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PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. Directors and senior management
Not applicable.
B. Advisers
Not applicable.
C. Auditors
Not applicable.
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Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
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Item 3. KEY INFORMATION
A. [Reserved]

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B. Capitalization and indebtedness
Not applicable.
C. Reason for the offer and use of proceeds
Not applicable.
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D. Risk factors
Our business faces significant risks and uncertainties. You should carefully consider all the information set forth in this Annual Report and in other documents we file with or furnish to the Securities and Exchange Commission, or the SEC, including the following risk factors, before deciding to invest in or to maintain an investment in our securities. Our business, as well as our reputation, financial condition, results of operations, and share price, could be materially adversely affected by any of these risks, as well as other risks and uncertainties not currently known to us or not currently considered material.
Summary Risk Factors
Our business is subject to a number of risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Item 3. Key Information - Risk Factors” in Part I, Item 3.D. of this Annual Report. Set forth below is a summary list of the principal risk factors as of the date of the filing this Annual Report:
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur substantial and increasing losses for the foreseeable future.
We have never generated any revenue from product sales and may never be profitable.
We will need substantial additional funding to pursue our business objectives.
We are heavily dependent on the success of our lead product candidate, apraglutide, for which we have not completed a pivotal trial. We cannot give any assurance that apraglutide or any future product candidates will receive regulatory approval, which is necessary before they can be commercialized.
The regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable.
Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes.
We may find it difficult to enroll patients in our clinical trials given the limited number of patients who have the diseases for which our product candidate is being studied, the availability of competing trials and the availability of already marketed products. Difficulty in enrolling patients could delay or prevent clinical trials for apraglutide and the release of the results from these clinical trials.
We may encounter substantial delays in our clinical trials, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
If the market opportunities for our product candidate are smaller than we believe they are, our revenue may be adversely affected and our business may suffer.
We are working in a competitive area with rapidly evolving scientific progress. If our competitors develop therapies that are similar, more advanced or more effective than ours, our commercial opportunity and financial position could be adversely impacted.
We currently have limited marketing and sales organization. If we are unable to establish broad sales, marketing and distribution capabilities or enter into additional agreements with third parties to market and sell our product candidate, we may not be successful in commercializing any approved products and may be unable to generate any revenue.
If we are unable to maintain effective proprietary rights for our product candidate or any future product candidates, we may not be able to compete effectively in our target markets.
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We may not be successful in our efforts to identify, license, acquire, discover, develop or commercialize additional product candidates or additional indications that apraglutide may prove effective in treating.
We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weakness, we may not be able to report our financial results accurately or to prevent fraud.
Risks Related to Our Financial Condition and Capital Requirements
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur substantial and increasing losses for the foreseeable future.
We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred net losses in each year since our inception, including net losses of $87.0 million, $59.9 million and $23.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. Since our inception through December 31, 2021, we had accumulated net losses of $132.9 million.
We have devoted substantially all of our financial resources to identify, acquire and develop our lead product candidate, apraglutide, including by conducting clinical trials and preclinical studies and product candidate development and by providing general and administrative support for these operations. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development is highly speculative and involves a substantial degree of risk. We expect it will be several years, if ever, before we complete pivotal clinical trials and have a product candidate approved for commercialization. If we obtain regulatory approval to market our product candidate or other potential product candidates, our future revenue will depend upon the size of any target markets for which our product candidate may receive approval, our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors and adequate market share for our product candidate in those target markets. However, even if we obtain adequate market share for our product candidate, because the potential markets for which our product candidate may ultimately receive regulatory approval is very small, we may never become profitable despite obtaining such market share and acceptance of our products.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate from period to period. We anticipate that our expenses will increase substantially if and as we:
continue our product candidate research and nonclinical and clinical development of our product candidates;
expand the scope of our current clinical trials for apraglutide and initiate a clinical trial of VB-1197;
advance our future product candidates and programs into clinical trials;
initiate additional nonclinical, clinical or other trials for our current product candidates and potential future product candidates or indications;
change or add additional manufacturers or suppliers;
require additional manufacturing capacity;
seek regulatory approvals for our product candidates upon successful completion of the clinical trials;
establish commercial manufacturing, sales, marketing and distribution infrastructure to commercialize any product candidates that we may obtain marketing approval for;
seek to identify, assess, acquire and develop other product candidates;
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make milestone or other payments under the Comet Therapeutics, Inc. Agreement and Plan of Merger, or the Comet Merger Agreement, our licensing agreements with Ferring International Center S.A., or Ferring, or any potential future collaboration or license agreements;
file, prosecute and maintain, or fund the filing, prosecution and maintenance of, patents and patent applications, and defend and enforce our patent and other intellectual property rights;
defend, in litigation or otherwise, any intellectual property, including claims that we infringe third-party patents or other intellectual property rights;
attract and retain skilled personnel;
create additional infrastructure to support our operations as a public company, product development and planned future commercialization efforts; and
experience any delays or encounter issues with any of the above.
Because of the numerous risks and uncertainties associated with developing our product candidate, we are unable to predict the extent of any future losses or the financial periods in which we will be profitable, if at all.
We have never generated any revenue from product sales and may never be profitable.
We have no products approved for commercialization and have never generated any revenue. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of our product candidates and obtain the regulatory approvals necessary to commercialize our current product candidate. We do not anticipate generating revenue from product sales for the foreseeable future. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including but not limited to:
completing research and clinical development of our product candidates;
obtaining regulatory approvals for our product candidates upon the completion of clinical trials;
developing a sustainable and scalable manufacturing process for any approved product candidates and establishing and maintaining supply and manufacturing relationships with third parties that can conduct the process and provide adequate and sufficient products to support clinical development and the market demand for our product candidates, if approved;
launching and commercializing our current product candidates if and when a regulatory approval is obtained, either directly or with a collaborator or distributor;
obtaining market acceptance of our product candidates, if approved as a viable treatment option;
addressing any competing product, technological and market developments;
identifying, assessing, acquiring or developing new product candidates or pursuing other indications for our existing product candidates;
negotiating favorable terms in any collaboration, licensing or other arrangements that we may enter into;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and
attracting, hiring and retaining qualified personnel.
Even if one of our product candidates is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Because of the numerous risks and uncertainties with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased
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expenses or when, or if, we will be able to achieve profitability. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, whether Swiss or foreign, to change our manufacturing processes or trials, or to perform clinical, nonclinical or other types of studies in addition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market our current product candidate or any future product candidates, our revenue will be dependent, in part, upon the size of the addressable markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price and whether we own the commercial rights for that territory. If the number of our addressable rare disease patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably expected target patient population for treatment is narrowed by competition, physician choice, payor specifications or treatment guidelines, we may not generate significant revenue from sales of our product candidate, even if approved. The development of apraglutide is an important part of our current business strategy. If we are unable to obtain regulatory approval for the desired indications or do not maintain orphan exclusivity for apraglutide for the treatment of SBS-IF, our business may suffer. If we are not able to generate revenue from the sale of any approved products for the foregoing or for other reasons, we may never become profitable.
We will need substantial additional funding to pursue our business objectives.
In order to fund further operations, we will need to raise capital. We may seek these funds through a combination of private and public equity offerings, debt financings, government grants, strategic collaborations and licensing arrangements. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. These conditions raise substantial doubt about our ability to continue as a going concern, and we will be required to raise additional funds, seek alternative means of financial support, or both, in order to continue operations. The accompanying audited consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. If we are unable to raise the requisite funds, we will need to curtail or cease operations. In the first quarter of 2022, we entered into two agreements that provided access to funds that support the Company’s continuance as a going concern (see the section titled “Recent developments”).
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time- consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue to develop our product candidate and, if approved, to market it commercially.
As of December 31, 2021, our cash and cash equivalents were $102.7 million. We expect, based on our current plans, that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. However, we expect that we will require additional capital prior to obtaining regulatory approval for, and commercializing, any of our product candidates. In addition, our operating plans may change as a result of many factors that are currently unknown to us, and we may need to seek additional funds sooner than planned. Changes may occur beyond our control that would cause us to expend our available capital before that time, including changes in and progress of our development activities and changes in regulation. Our future capital requirements will depend on many factors, including:
the scope, rate of progress, results and cost of our ongoing and planned clinical trials and preclinical studies and other related activities;
the cost of formulating and developing new product candidates;
the cost of manufacturing clinical and commercial supplies of our product candidate and any approved products that we may develop;
the cost, timing and outcomes of regulatory approvals;
the cost and timing of establishing sales, marketing and distribution capabilities; and
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the terms and timing of any collaboration, licensing or other arrangements that we may establish, including any required milestone and royalty payments thereunder.
We will require additional capital to complete our ongoing clinical development programs for our lead product candidate to seek regulatory approval and to complete our planned IND-enabling studies for VB-1197. If we receive regulatory approval for our current product candidate, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved.
In addition, we cannot guarantee that future financing will be available on a timely basis, in sufficient amounts or on terms acceptable to us, if at all. Our access to capital will depend on the timing of such capital needs and prevailing conditions in the global capital markets. Further, as a Swiss corporation we have less flexibility to raise capital, particularly in a quick and efficient manner, compared to U.S. corporations. See “—Risks Related to Ownership of Our Ordinary Shares—Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.” As a result, we may not be able to access the capital markets as frequently as comparable U.S. companies. If we are unable to obtain funding on a timely basis on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our current or future research or development programs or the commercialization of any current or future product candidates, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities as desired.
Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams.
Until such time as we can generate substantial product revenue, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and license and development agreements in connection with any future collaborations.
We recently entered into a note financing agreement, or the Loan, with Kreos Capital VI (UK) Limited, or Kreos, which is structured to provide the EUR equivalent of up to USD 75.0 million in borrowing capacity, and in connection with which we issued a warrant to purchase 324,190 of our ordinary shares at a price per share equal to volume weighted average price of the Company’s ordinary shares during the thirty (30) consecutive trading days ending on March 23, 2022. Upon our utilization of the Loan, we will be subject to customary affirmative and negative covenants. The affirmative covenants include, among others, administrative and reporting requirements subject to certain exceptions and materiality thresholds. The negative covenants include, among others, limitations on our ability to incur additional debt, subject to certain exceptions. See the section titled “Item 5. Operating and Financial Review and Prospects - Operating Results - Recent Developments” for more information on the financing agreement.
If we raise additional capital through the sale of equity or convertible debt securities, you and our existing shareholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our ordinary shares. Additional debt financing, if available, could result in increased fixed payment obligations and may involve agreements that include covenants that are more restrictive than those in our existing debt facility, such as additional limitations on our ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends, and other operating restrictions that could negatively impact our ability to conduct our business.
We may also be required to seek funds through collaborations, strategic alliances, or marketing, distribution or licensing arrangements with third parties and we may be required to relinquish rights to our intellectual property, research program or product candidate, or grant licenses that may not be favorable to us, any of which may harm our business, operating results and prospects. Even if we believe we have sufficient funds for our current and future operating plans, we may seek additional capital if market conditions are favorable or in order to accomplish future strategic goals.
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Our operating results may fluctuate significantly and may be difficult to predict, which could cause our operating results to fall below expectations.
Our operating results are difficult to predict and will likely fluctuate from year to year and from period to period. If we receive regulatory approval for our current lead product candidate, our product sales will be difficult to predict from period to period and as a result, you should not rely on sales results in any period as being indicative of future performance and sales may be below the expectation of securities analysts or investors in the future. We believe that our results of operations may be affected by a variety of factors, including:
the level of demand and prices for our current or future product candidates, if approved, and of products with which we compete;
the extent to which coverage and adequate reimbursement is available from third-party payors, including government and health administration authorities, private health insurers, managed care programs and other organizations;
rebates, discounts, other pricing concessions and fees that we may provide to integrated delivery networks, group purchasing organizations, pharmacy benefits managers, other third-party payors and national and regional government reimbursement authorities;
the timing, cost and level of investment in our marketing efforts to support sales;
the timing, cost and level of investment in our research and development activities involving approved products, if any, and our current or future product candidates;
the cost of manufacturing and distribution;
the amount of legally mandated discounts to government entities, product returns and other gross-to-net deductions;
the risk/benefit profile, cost, coverage and reimbursement of existing and potential future drugs that compete with any approved product; and
expenditures that we will or may incur to acquire or develop additional product candidates and technologies.
In addition, from time to time, we may enter into strategic arrangements that include development funding and upfront payments and milestone payments. These upfront and milestone payments may vary significantly from year to year and any such variance could cause a significant fluctuation in our operating results from one year to the next.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also cause us to fail to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our ordinary shares could decline substantially.
The pricing of our lead product candidate, if and when approved for marketing, will depend in part on pricing strategies adopted by our competitors.
The pricing of our lead product candidate, if and when approved for marketing, will depend, in part, on the pricing strategies adopted by our competitors. We compete with companies that are producing drugs for SBS, such as Takeda which currently distributes the GLP-2 analog teduglutide, marketed as Gattex in the United States and Revestive in Europe, or Zealand Pharma, which is developing the GLP-2 analog glepaglutide for the treatment of SBS and which has announced it will be completing its pivotal trial in the third quarter of 2022. Our competitors may also succeed in obtaining FDA or other regulatory approvals more rapidly than us, which could place us at a
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significant competitive disadvantage or deny us marketing exclusivity rights. If these or other companies enact pricing strategies that impact the price we can charge for our product candidate, if approved, we may reduce our prices and our revenue and results of operations could be affected.
Fluctuations in exchange rates may adversely affect our results of operations.
Our reporting currency is in U.S. dollars, but the results of operations and the financial position of our operations in Switzerland are reported in Swiss francs and some operations are in Canada and are reported in Canadian dollars, both then translated into U.S. dollars for reporting purposes. Our financial results are, therefore, impacted primarily by currency fluctuations between U.S. dollars, Swiss francs, Canadian dollars and the Euro. Moreover, a change in the concentration of our business activities could result in an increased effect of exchange rates on our financial position and results of operations. See the section in this Annual Report entitled “Item 11. Quantitative and Qualitative Disclosures about Market Risk” for more information regarding our exposure to currency fluctuations. There is no assurance that we will, in the future, be successful in adequately hedging our currency risk.
Our ability to use tax loss carryforwards may be limited.
As of December 31, 2021, we reported $157.4 million in tax loss carryforwards, of which $139.4 million was in Switzerland, $14.6 in the US and $3.4 million was in Canada. In Switzerland, such tax loss carryforwards could, with certain limitations, be used to offset future taxable income. However, if not used, Swiss tax loss carryforwards expire seven years after the tax year in which they were incurred. US tax loss carryforwards don’t expire. Canadian tax loss carryforwards expire after twenty years. Due to our limited income, there is a high risk that our Swiss tax loss carryforwards will expire in part or in their entirety and will not be used to offset future taxable income for Swiss corporate income tax purposes.
Furthermore, any Swiss tax loss carryforwards that we report in our tax returns are subject to review and confirmation by the competent Swiss tax authorities in their tax assessment of the tax year for which the tax loss carryforwards are used to offset taxable income. Consequently, we are exposed to the risk that the competent Swiss tax authorities may not accept the reported tax loss carryforwards in part or in their entirety. Any limitations in our ability to use tax loss carryforwards to offset taxable income could adversely affect our financial condition.
Business disruptions could seriously harm our future revenue and financial condition and increase costs and expenses.
Our operations and those of our third-party suppliers and collaborators could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes or other extreme weather conditions, medical epidemics, labor disputes, war or other business interruptions. Any interruption could come with high costs for us, as salaries and certain of our other costs would usually continue. Moreover, any interruption could seriously harm our ability to timely proceed with any clinical programs or to supply product candidates for use in our clinical programs or during commercialization. For example, at the end of 2021 and into 2022, tensions between the United States and Russia escalated when Russia amassed large numbers of military ground forces and support personnel on the Ukraine-Russia border and, in February 2022, Russia invaded Ukraine. In response, the North Atlantic Treaty Organization, or NATO, has deployed additional military forces to Eastern Europe, including to Lithuania, and the Biden administration announced certain sanctions against Russia. The invasion of Ukraine and the retaliatory measures that have been taken, or could be taken in the future, by the United States, NATO, and other countries have created global security concerns that could result in a broader regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could disrupt our supply chain, adversely affect our ability to conduct ongoing and future clinical trials of our product candidates, and adversely affect our ability to commercialize our products (subject to regulatory approval) in this region. In particular, apraglutide is currently being evaluated in a global Phase 3 clinical trial called STARS for the treatment of patients with SBS-IF, conducted by a contract research organization, or CRO. This CRO has both Russian and Ukrainian employees in addition to employees located in Switzerland and other locations. We cannot currently estimate what, if any, impact the Russian invasion of the Ukraine will have on the conduct of our STARS trial.
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Risks Related to the Discovery and Development of Our Product Candidates
We are heavily dependent on the success of our lead product candidate, apraglutide, for which we have not completed a pivotal trial. We cannot give any assurance that apraglutide or any future product candidates will receive regulatory approval, which is necessary before they can be commercialized.
To date, we have invested substantially all of our efforts and financial resources to identify, acquire and develop our lead product candidate, including by conducting pharmacology and non-clinical safety studies and clinical trials, and providing general and administrative support for these operations. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and commercialize one or more of our current or future product candidates. We may never be able to develop or commercialize a marketable drug.
Our lead product candidate will require extensive clinical development, management of nonclinical, clinical and manufacturing activities, regulatory approval, adequate manufacturing supply, building of a commercial organization, and significant marketing efforts before we generate any revenue from product sales. To date, we have conducted several clinical trials in which we evaluated apraglutide in healthy volunteers and patients with SBS-IF, but have not yet completed a pivotal trial for our product candidate. We are not permitted to market or promote our product candidate before we receive regulatory approval from the FDA, EMA or comparable foreign regulatory authorities, and we may never receive any such regulatory approval or may not receive all such regulatory approvals for any of our current or future product candidates. We cannot be certain that apraglutide will be successful in clinical trials or receive regulatory approval. Further, apraglutide may not receive regulatory approval even if it is successful in clinical trials. If we do not receive regulatory approvals for apraglutide or for any product candidates at all, we may not be able to continue our operations, and you may lose some or all of your investment.
The regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA, EMA and other comparable regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval of or may result in the decision not to approve our product candidate. We have not obtained regulatory approval for our lead product candidate, and it is possible that we will never obtain regulatory approval for apraglutide or any of our other product candidates.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
the FDA, EMA or other comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials or with our interpretation of data from our preclinical studies or clinical trials;
the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA, MAA, or other submission or to obtain regulatory approval in the United States, Europe or elsewhere;
serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;
the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
we may be unable to demonstrate to the FDA, EMA or other comparable foreign regulatory authorities that any of our product candidates’ risk-to-benefit ratio for their respective proposed indications is acceptable;
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the FDA, EMA or the applicable foreign regulatory authority may disagree regarding the formulation, labeling and/or the specifications of our product candidates;
the FDA, EMA or other comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA, EMA or other comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
In addition, we plan to develop a proprietary injection device for apraglutide, which would cause it to be regulated as drug and device combination product by FDA, EMA and comparable regulatory authorities. Combination products require coordination within the FDA, EMA and comparable regulatory agencies for review of their device and device components. Although the FDA, EMA and comparable foreign agencies have systems in place for the review and approval of combination products such as, we may experience additional delays in the development and commercialization of our product candidate due to regulatory timing constraints and uncertainties in the product development and approval process. Moreover, although we expect that the device component will be reviewed in connection with the review of the drug marketing application for apraglutide, and that no separate marketing application for the drug component will be required, the FDA, EMA or comparable regulatory authorities may disagree and require that we obtain a separate clearance or approval of the device component, which could further delay or prevent marketing approval of apraglutide.
This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failure to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations, and prospects.
Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Furthermore, results of earlier preclinical and clinical trials may not be predictive of results of future clinical trials.
The risk of failure for our product candidates is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive clinical trials that our product candidate is safe and effective in humans.
Clinical testing is expensive, can take many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical trials process. For example, the results of our clinical studies could demonstrate an unfavorable risk-to-benefit ratio or fail to demonstrate sufficient clinical efficiency. Further, results of non-clinical safety and toxicology studies could cause the discontinuation of clinical trials or prevent us from initiating new clinical trials evaluating our product candidates.
Commencing clinical trials in the United States for VB-1197 or any other product candidate, is subject to authorization to proceed under an investigational new drug application, or IND, with respect to each such product candidate.
In addition, the results generated from our completed Phase 2 clinical trials of apraglutide do not ensure that our pivotal Phase 3 clinical trial and any other clinical trials of apraglutide will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and earlier stage clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in later-stage clinical trials due to results indicating lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials, and we may face similar setbacks. Moreover, preclinical and clinical data are susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products based on those results.
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There can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including differences in clinical trial design and procedures set forth in protocols, differences in the size and type of the target patient populations, adherence to the dosing regimen and other clinical trial procedures, and the rate of dropout among clinical trials participants. In particular, variability is common in data collection and reporting between patients participating in inpatient and outpatient clinical trials. For example, with respect to apraglutide, SBS-IF patients suffer from a range of symptoms, and the anatomy and size of the small intestine and severity of the disease in these patients can vary significantly. These factors may result in considerable variability in the results from our clinical trials for apraglutide.
We may find it difficult to enroll patients in our clinical trials given the limited number of patients who have the diseases for which our product candidates are being studied. Difficulty in enrolling patients could delay or prevent clinical trials and the expected release of data from clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our lead product candidate is critical to our success. The timing of our clinical trials depends in part on the speed at which we can recruit patients to participate in testing our lead product candidate, and we may experience delays in our clinical trials if we encounter difficulties in enrollment for any reason, including, for example, as a result of the COVID-19 pandemic or the global instability caused by Russia’s invasion of the Ukraine.
SBS-IF is a rare disease and the patient population that is eligible for our trials is both limited in number and difficult to accurately estimate and recruit. We estimate that there are 7,500 SBS-IF patients in the U.S. and approximately 7,500 SBS-IF patients combined in Germany, the United Kingdom, Italy, Spain and France. The eligibility criteria of our clinical trials will further limit the pool of available study participants as we will require that, in the case of SBS-IF, patients have specific characteristics that we can measure to confirm their disease is both severe enough and not too advanced to include them in a given study. Patient enrollment depends on many factors, including:
the size and nature of the patient population;
the severity of the disease under investigation;
eligibility criteria for the trial;
the proximity of patients to clinical sites;
the design of the clinical protocol;
the ability to recruit clinical trial investigators with the appropriate competencies and experience;
the risk that patients enrolled in clinical trials will drop out of the trials before the administration of our product candidate or trial completion;
the availability of competing clinical trials;
the availability of new drugs approved for the indication the clinical trial is investigating; and
clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies.
Additionally, patients may not be willing or able to participate in our clinical trials due to the COVID-19 pandemic. If patients are unwilling to participate in our clinical trials for any reason, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products may be delayed.
If we experience delays in the completion of, or termination of, the clinical trials of our product candidate, the commercial prospects of our product candidate will be harmed and our ability to generate product revenue from our lead product candidate could be delayed or prevented. In addition, any delays in completing our clinical trials will increase our costs, slow down the development and approval process for our lead product candidate, and jeopardize
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our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects significantly.
We may encounter substantial delays in our clinical trials, or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
Before obtaining marketing approval from regulatory authorities for the sale of any of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidate in humans. Clinical testing is expensive, time consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing, and our future clinical trials may not be successful.
Events that may prevent successful or timely completion of clinical development include but are not limited to:
inability to generate sufficient toxicology, or other in vivo or in vitro data to support the further development of apraglutide;
generation of new preclinical toxicology or other data that precludes further clinical testing in humans;
delays in reaching a consensus with regulatory agencies on study design, including the primary endpoints for a clinical trial and the appropriate ages of the patient populations;
delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
delays in identifying, recruiting and training suitable clinical investigators;
delays in obtaining required Institutional Review Board, or IRB, approval at each clinical trial site;
imposition of a clinical hold by regulatory agencies after review of an IND application or amendment, or equivalent application or amendment, or an inspection of our clinical trial operations or study sites;
delays in recruiting suitable patients to participate in our clinical trials;
difficulty collaborating with patient groups and investigators;
failure by our CROs, other third parties, or us to adhere to clinical trial requirements;
failure to perform in accordance with the FDA’s good clinical practice requirements, and/or with the EMA’s guidelines for clinical trials and the standards set out in both the EU clinical trial directive 2001/20/EC and the EU good clinical practice directive 2005/28/EC, or applicable regulatory guidelines in other countries;
delays in patients completing participation in a study or returning for post-treatment follow-up;
patients dropping out of a study;
adverse events associated with the product candidate that are found to outweigh its potential benefits;
results from clinical studies demonstrating that our product candidates are ineffective, inferior to existing approved products for the same indications, unacceptably toxic or have unacceptable side effects;
changes to the clinical trial protocols;
changes in regulatory requirements, guidance or the standard of care that require amending or submitting new clinical protocols;
selection of clinical endpoints that require prolonged periods of observation or analyses of resulting data;
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delays in establishing the appropriate dosage levels;
lack of funding to continue a trial;
clinical studies of our product candidates that produce negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional clinical trials or abandon a drug development program; and
delays in manufacturing, testing, releasing, validating or importing or exporting sufficient, stable quantities of our product candidates for use in clinical trials or the inability to do any of the foregoing.
In addition, disruptions caused by the COVID-19 pandemic or the globally instability and sanctions resulting from the ongoing Russian invasion of Ukraine may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. Any inability to successfully initiate or complete clinical trials could result in additional costs to us or impair our ability to generate revenue from product sales. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may seriously harm our business.
Clinical trials must be conducted in accordance with the FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and Ethics Committees or IRBs at the medical institutions where the clinical trials are conducted. We could encounter delays if a clinical trial is suspended or terminated by us, by the data safety monitoring board for such trial or by the FDA or any other regulatory authority, or if the IRBs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Further, conducting clinical trials in foreign countries, as we may do for our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with adhering to good clinical practices, or GCP, regulations and other foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
Moreover, principal investigators for our clinical trials may serve and have served 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 comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA or comparable foreign regulatory authority 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 comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of our product candidates.
Any inability to successfully complete clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our lead product candidate, we may need to conduct additional clinical trials to bridge our modified product candidate to earlier versions. Clinical trial delays could also shorten any periods during which our products have patent protection or exclusivity and may allow our competitors to bring products to market before we do. Any of these events may harm our business and results of operations.
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Even if we complete the necessary clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize any of our product candidates.
We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate in the relevant jurisdictions in which we desire to commercialize such product. Even if we believe our product candidate has demonstrated safety and efficacy in clinical studies, FDA, EMA and other regulatory authorities may not complete their review processes in a timely manner, or may disagree with our interpretation of results, which could delay or prevent us from obtaining regulatory approvals. Additional delays may occur if an FDA Advisory Committee, the EMA’s Committee for Medicinal Products for Human Use, or CHMP, or other comparable regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical studies and the review process. Regulatory authorities also may approve a product for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates. If we are unable to obtain necessary regulatory approvals, our business, results of operations and prospects may suffer a negative impact.
Our lead product candidate may cause undesirable side effects and safety issues or have other properties that could delay or prevent its development, create unpredictable clinical trial results, impact its regulatory approval or limit the commercial profile of an approved label.
Undesirable side effects caused by our lead product candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or other comparable foreign regulatory authorities. For example, patients treated with apraglutide may experience well known class-specific adverse events, including, but not limited to, abdominal pain, injection site reactions, nausea, headaches, abdominal distension, upper respiratory tract infection, vomiting and fluid overload. There may be additional mechanistic side effects that only reveal themselves upon the completion of larger studies. Additionally, our product candidate has been designed to have a long half-life, creating uncertainty about its long-term safety profile. For example, the increased pleiotropic activity of apraglutide will need to be assessed in longer-term non-clinical safety studies. Results of our studies are not predictable and could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our studies could be suspended or terminated, and the FDA, EMA or other comparable foreign regulatory authorities could order us to cease further development of, or deny or withdraw approval of, our product candidate for any or all targeted indications.
Drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product liability claims. We currently carry product liability insurance that we believe to be sufficient in light of our current clinical programs. However, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause the price of our shares to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business. In addition, regardless of merit or eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical trial participants, costs due to related litigation, distraction of management’s attention from our primary business, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, the inability to commercialize our product candidate and decreased demand for our product candidate, if approved for commercial sale.
Additionally, if our lead product candidate receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
regulatory authorities may suspend, limit or withdraw approvals of such product, seek an injunction against its manufacture or distribution or require additional warnings on any applicable label;
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we may be required to create a Risk Evaluation and Mitigation Strategy, or REMS, plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers or other elements to assure safe use;
we may be required to change the way the product is administered to patients;
we could be required to conduct expensive post-marketing studies;
we could lose commercial market opportunity and our revenues could decrease substantially;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer and physicians or patients might be less likely to use our product or may refer patients to products produced by our competitors.
Any of these events could prevent us from achieving or maintaining market acceptance of our lead product candidate, if approved, and could significantly harm our business, results of operations, and prospects.
Interim, “topline” 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 preclinical studies and clinical trials, which is 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 or preliminary 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, preliminary or 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 preclinical studies and clinical trials. 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. We also make assumptions, estimations, calculations and conclusions as part of our analyses of interim data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, interim data 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. Adverse differences between 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 ordinary shares.
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 product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular preclinical or clinical study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim, top-line, or preliminary 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 product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
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Even if we obtain regulatory approval for any of our product candidates, we may have additional development commitments and our products will remain subject to regulatory scrutiny.
If any of our product candidates is approved, it will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-marketing information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, EMA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA or MAA. Accordingly, we and others with whom we work, must continue, after any marketing approval, 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 product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, Risk Evaluation and Mitigation Strategy, or REMS, development, and/or surveillance to monitor the safety and efficacy of the product candidate. We will be required to report certain adverse reactions and production problems, if any, to the FDA, EMA and other comparable foreign regulatory authorities. Any new legislation or regulatory requirements addressing product safety issues could result in delays in product development or commercialization or increased costs to assure compliance.
We will have to comply with advertising and promotion requirements for our products. 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 product’s approved label. For example, a company may not promote “off-label” uses for its drug products. An off-label use is the use of a product for an indication that is not described in the product’s FDA-approved label in the U.S. or for uses in other jurisdictions that differ from those approved by the applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. Violations, including actual or alleged promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA, the U.S. Department of Justice, and comparable foreign bodies. Any actual or alleged failure to comply with labeling and promotion requirements may result in fines, warning letters, mandates to corrective information to healthcare practitioners, injunctions, or civil or criminal penalties. As such, we may not promote our products for indications or uses for which they do not have approval. 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 product, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, or if an agency disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including by requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
issue warning letters;
impose civil or criminal penalties;
suspend, limit or withdraw regulatory approval;
suspend any of our ongoing or planned clinical trials;
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refuse to approve pending applications or supplements to approved applications submitted by us;
impose restrictions on our operations, including closing our contract manufacturers’ facilities or imposing new manufacturing requirements; or
seize or detain products, or require a product recall.
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 products, if approved. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
We may be unable to maintain the benefits associated with orphan drug designation, including market exclusivity, which may harm our business.
We have obtained orphan designation for apraglutide for the treatment of SBS-IF and for the prevention of acute graft-versus-host-disease, or GvHD. Under the Orphan Drug Act, the FDA may designate a drug product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Orphan drug designation must be requested before submitting an NDA.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and application fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA.
In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity for the orphan patient population. Exclusive marketing rights in the United States may also be unavailable if we or our collaborators seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective.
Even if we obtain orphan drug designation, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. Further, even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain
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key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. 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.
Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of foreign and domestic manufacturing facilities and has resumed certain on-site inspections subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the United States have adopted similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from marketing our products globally.
In order to market our future products in the European Economic Area, or EEA, Asia Pacific, or APAC, or other foreign jurisdictions, we must obtain separate regulatory approvals.
In the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA that applies to that jurisdiction. If a centralized MA is applied for, which would result in one MA applying across the entire EEA, then the EMA will make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. There are other routes to obtaining MA’s in Europe, which would involve one or more of the competent authorities of the member states of the EEA making their own assessment. In Japan, the Pharmaceuticals and Medical Devices Agency, or PMDA, of the Ministry of Health, Labour and Welfare, or MHLW, must approve an application under the Pharmaceutical Affairs Act before a new drug product may be marketed in Japan.
We have had limited interactions with regulatory authorities outside of the United States and the European Union. Approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA or EMA approval. Moreover, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA or EMA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA or EMA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all the risks associated with obtaining FDA or EMA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and even if we file, we may not receive necessary approvals to commercialize our product candidate in any market. We may expend our limited resources to pursue a potential product candidate or indication and fail to capitalize on our product candidate or indications that may be more profitable or for which there is a greater likelihood of success.
We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with any other product candidates that we may develop in the future or for any other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial opportunities of our product or profitable market opportunities. Our spending on our current product candidates and other future research and development programs and any future product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for our current product candidates, we may relinquish valuable rights to other product candidates that we may develop through collaboration, licensing or other royalty arrangements in cases in
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which it would have been more advantageous for us to retain sole development and commercialization rights to our current product candidates.
Risks Related to our Reliance on Third Parties
We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to continue the development of our product candidates, obtain regulatory approval for or commercialize our product candidates and our business could be harmed.
We have relied upon and plan to continue to rely upon third-party CROs to execute our ongoing clinical trial programs. We control only certain aspects of the CROs’ activities. Nevertheless, we are responsible for ensuring that each of our studies and trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We, our CROs and other vendors are required to comply with cGMP, GCP, and Good Laboratory Practices, or GLP, which are regulations and guidelines enforced by the FDA, the competent authorities of the EEA and comparable foreign regulatory authorities for our current product candidate in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the data generated in our clinical trials may be deemed unreliable and the FDA, EMA, or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with the relevant regulations. Additionally, the CRO conducting our Phase 3 STARS clinical trial for apraglutide has employees in both Russia and the Ukraine, and we cannot be certain that the Russian invasion of Ukraine will not adversely affect our CRO’s ability to execute our clinical trial on our projected timeline.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether they devote sufficient time and resources to our clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated.
Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result of switching CROs, delays may occur, which could impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges in their implementation of our clinical studies or that these challenges will not have an adverse impact on our business, results of operations and prospects.
Manufacturing apraglutide is an inherently uncertain activity in a highly regulated environment which could impact our timelines, budgets, and ability to conduct clinical trials and commercialize our product candidate.
Our lead product candidate has never been manufactured on a commercial scale, and there are risks associated with developing the manufacturing processes to commercial scale including cost overruns, potential problems with process performance, process reproducibility, stability issues, lot consistency and timely availability of raw materials. Even if we could otherwise obtain regulatory approval for apraglutide, there is no assurance that our manufacturer will be able to manufacture the approved product to specifications acceptable to the FDA, EMA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities of any approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, results of operations and prospects.
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The process of manufacturing apraglutide is complex, highly regulated and subject to several risks, including:
product loss due to contamination, operator error and equipment failures. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in apraglutide or in the manufacturing facilities in which it is made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination; and
the manufacturing facilities in which apraglutide is made could be adversely affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
Any adverse developments affecting manufacturing operations for apraglutide or our other product candidate may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls. The COVID-19 pandemic may also adversely affect the supply our product candidates. We may also have to take inventory write-offs and incur other charges and expenses for our current product candidates that fail to meet specifications, undertake costly remediation efforts, or seek more costly manufacturing alternatives.
We rely on third parties to manufacture supplies of our current product candidates, and the drug substances and drug products for our product candidates are currently acquired from a limited number of suppliers. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product, or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our product candidates’ supplies for use in the conduct of our preclinical studies and clinical trials. Reliance on third-party manufacturers may expose us to different risks than if we were to manufacture product candidates ourselves. We also rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates, including the drug substances and drug products for our product candidates.
There are a limited number of suppliers for raw materials, including the drug substances and drug products, that third parties use to manufacture our product candidates, and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our preclinical studies and clinical trials, and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Although we generally do not begin a preclinical study or clinical trial unless we believe we have a sufficient supply of a product candidate to complete such study, any significant delay or discontinuity in the supply of our current product candidate, or the raw material components thereof, for an ongoing study, including due to the COVID-19 pandemic, or the need to replace a third-party manufacturer could considerably delay completion of our preclinical studies and clinical trials, product testing, and potential regulatory approval of our product candidates, which could harm our business, results of operations and prospects.
In addition, we expect that apraglutide may be regulated by the FDA as a drug-device combination product. Our third-party manufacturers may not be able to comply with cGMP regulations applicable to drug-device combination products, including applicable provisions of the FDA’s drug cGMP regulations and device cGMP requirements embodied in the Quality System Regulation, or similar regulatory requirements outside the United States.
We do not have complete control over all aspects of the manufacturing process of, and are dependent on, our contract manufacturing partners for compliance with cGMP regulations for manufacturing both active drug substances and finished drug products and the device components. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, they will not be able to secure and/or maintain marketing approval for their manufacturing facilities. In addition, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of
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product candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates or drugs and harm our business and results of operations.
We and our collaborators and contract manufacturers are subject to significant regulation with respect to formulating, manufacturing and finishing our lead product candidate. The manufacturing facilities on which we rely may not continue to meet regulatory requirements or may not be able to meet our supply demands.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our lead product candidate, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidate that may not be detectable in final product testing.
We, our collaborators, or our contract manufacturers must supply all necessary documentation in support of an NDA, or MAA on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidate or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidate or our future potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for detailed compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time, audit the manufacturing facilities of our collaborators and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies require additional studies if a new manufacturer is relied upon for clinical or commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals or commercialization of our lead product candidate. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or, if our lead product candidate is approved, we could lose potential revenue.
Our reliance on third parties requires us to share our confidential information, which increases the possibility that a competitor will discover our confidential information or that our confidential information will be misappropriated or disclosed.
Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share confidential information with such third parties. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements,
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consulting agreements, or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets, intellectual property, data from clinical studies and future development plans. Despite the contractual provisions employed when working with third parties, the need to share confidential information increases the risk that such confidential information become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our confidential information, a competitor’s discovery of our confidential information or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business.
We may wish to form collaborations in the future with respect to our current or future product candidates, but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans.
The development and potential commercialization of our current or future product candidates will require substantial additional capital to fund expenses. We may, in the future, decide to collaborate with other biopharmaceutical companies for the development and potential commercialization of those product candidates. We will face significant competition in seeking appropriate collaborators. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidate as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third party for development and commercialization of one of our future product candidates, we can expect to relinquish some or all of the control over the future success of that product candidate to the third-party. For example, we recently entered into a partnering agreement, or the Partnering Agreement, with Asahi Kasei Pharma Corporation, or AKP. Under the Partnering Agreement, we granted an exclusive license, with the right to sublicense in multiple tiers, to AKP, to develop, commercialize and exploit products derived from our lead product candidate, apraglutide, within the territory of Japan. We will receive approximately USD 30 million from AKP payable at the closing of this transaction, and we are eligible to receive up to approximately USD 170 million in additional payments for cost-sharing and upon the achievement certain regulatory and commercialization milestones as well as tiered royalties of up to a mid-double digit on sales of products, if approved; however, there is no guarantee that AKP will successfully progress apraglutide in Japan, and we do not know if the Partnering Agreement will result in any future revenue for us or whether we could have entered into a more advantageous agreement with another partner.
Our ability to reach a definitive agreement for any future collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of our technologies, current of future product candidates and market opportunities. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators.
Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company. As a result, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of our product candidate, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for our product candidate, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our current or future product candidates or bring them to market and generate product revenue.
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Our product candidates may also require specific components to work effectively and efficiently, and rights to those components may be held by others. We may be unable to in-license any compositions, methods of use, processes or other third party intellectual property rights from third parties that we identify. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, which would harm our business. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology.
Risks Related to Commercialization of Our Product Candidates
If the market opportunities for our product candidates are smaller than we believe they are, our revenue may be adversely affected and our business may suffer. Because the target patient populations of our product candidates are small, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.
We currently focus our research and product development on treatments for rare diseases, specifically SBS-IF, methylmalonic acidemia, or MMA, and propionic acidemia, or PA. Given the small number of patients who have the diseases that we are targeting, it is critical to our ability to grow and become profitable that we successfully identify patients with these rare diseases generally, and patients with SBS-IF specifically. Our projections of both the number of people who have these diseases and the subset of people with these diseases who have the potential to benefit from treatment with our product candidate are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases and 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 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 significant market share for any of our product candidates, because the potential target populations are very small, and because our product candidates may not be readily affordable to the potential target populations, we may never achieve profitability.
We are working in a competitive area with rapidly evolving scientific progress. If our competitors develop therapies that are similar, more advanced or more effective than ours, our commercial opportunity and financial position could be adversely impacted.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We are currently aware of various existing therapies that may compete with our lead product candidate. For example, SBS-IF, for which we are developing apraglutide, is currently treated with parenteral support, or PS, teduglutide and growth hormones, and may potentially compete with glepaglutide, if approved. We cannot be certain that existing or future therapies, or some combination thereof, will not increase in efficacy or be safer than we currently envision. Furthermore, new therapies and innovations may treat SBS more successfully than our lead product candidate.
The information we include in this Annual Report regarding teduglutide and glepaglutide is based, in some cases, on information disclosed publicly by Takeda Pharmaceutical Company and Zealand Pharma A/S, respectively, and in other cases, on preclinical studies that we or Ferring have conducted comparing those compounds to apraglutide. In the past we and one of our competitors have disagreed about the manner in which we and they have presented information regarding the other’s compound. Our competitors may also in the future claim that information included in this Annual Report regarding their compounds mischaracterize the attributes of their compounds or that their compounds are superior to apraglutide in one or more ways. In addition, our competitors may in the future disclose preclinical or clinical data regarding their compounds that is, or is perceived to be, more favorable than the data we disclose regarding apraglutide. Any such disagreements, claims or disclosures could negatively impact our business, financial prospects or share price.
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We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include Takeda Pharmaceutical Company and Zealand Pharma A/S, and other smaller companies or biotechnology startups and large multinational pharmaceutical companies. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than our product candidates, or achieve earlier patent protection, regulatory approval, product commercialization, and market penetration than we do. Additionally, technologies developed by our competitors may render our product candidates uneconomical or obsolete, and we may not be successful in marketing our product candidates against competitors.
We currently have limited marketing and sales organization. If we are unable to establish broad sales, marketing and distribution capabilities or enter into additional agreements with third parties to market and sell our product candidates, we may not be successful in commercializing our products and may be unable to generate any revenue.
We are in the early stages of developing our sales and marketing infrastructure. Although our employees may have sold similar products in the past while employed at other companies, we as a company have no experience selling and marketing our product candidates and we currently have established a very limited marketing or sales infrastructure. To successfully commercialize any products that may result from our development programs, we will need to further develop these capabilities, either on our own or with additional third parties. If our lead product candidate receives regulatory approval, we intend to establish a broad and wide sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize this product candidate in major markets, which will be expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketing, and distribution capabilities would adversely impact the commercialization of our products.
Further, given our lack of prior experience in marketing and selling biopharmaceutical products, our initial estimate of the size of the required sales force may be more or less than the size of the sales force actually required to effectively commercialize our lead product candidate. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization of our product candidate, or we may incur excess costs as a result of hiring more sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our future collaborators do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We may be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
Third-party payor coverage and reimbursement for newly-approved products are uncertain. Failure to obtain or maintain coverage and adequate reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.
Our target patient populations are small and, accordingly, the pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure and sufficient to recover our development and manufacturing costs to potentially achieve profitability. The availability of coverage and adequacy of reimbursement by third-party payors are essential for most patients to be able to afford expensive
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treatments such as ours, assuming approval. Sales of our product candidates, if approved, will depend substantially, both in the United States and internationally, on the extent to which the costs of our product candidates will be covered and reimbursed for by third-party payors. If coverage and reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a return on our investment. Coverage and reimbursement may impact the demand for, or the price of, our current product candidates if and when we obtain any marketing approval. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize our product candidate if and when we obtain marketing approval.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors, and coverage and reimbursement can differ significantly from payor to payor. It is difficult to predict what third-party payors will decide with respect to coverage and reimbursement for our products, if approved. As a result, the coverage determination process is often time-consuming and costly. This process will require us to provide scientific and clinical support for the use of our products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
Outside the United States, the commercialization of therapeutics is generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of our product candidate. In many countries, particularly the countries of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In some of these countries, pricing negotiations with governmental authorities can take considerable time after a product receives marketing approval. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other therapies, if available. In general, product prices under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicinal products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by third-party payors in the United States, the EEA and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of our product candidate due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drug pricing and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. 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. Further, such payors are increasingly challenging the price, examining the medical necessity and reviewing the cost effectiveness of medical product candidates. There may be especially significant delays in obtaining coverage and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific product candidates on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication.
If we are unable to establish or sustain coverage and adequate reimbursement for our product candidates from third-party payors, the adoption of those products and sales revenue will be adversely affected, which, in turn, could adversely affect the ability to market or sell our product candidate, if approved. Coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
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Risks Related to Our Intellectual Property
We rely on external intellectual property counsel to advise and prosecute our intellectual property portfolio. If we are unable to obtain and maintain effective patent rights for our current and any future product candidates, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, orphan drug exclusivity periods, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies and our current and potential future product candidates. We have also sought to protect our own proprietary position by licensing intellectual property from third parties. Our success depends in large part on our and our licensors’ ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and products. It is possible that our licensors have not or will not prosecute all necessary or desirable patent applications, or actions taken by us or our licensors will negatively impact the scope of protection obtained or maintained for our product candidate or future product candidates. We refer to the intellectual property that we own or in-license as our intellectual property rights.
We have sought to protect our proprietary position by pursuing patent applications in the United States and abroad related to our novel technologies and our product candidate that are important to our business. This process is 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. It is also possible that we will fail to timely identify patentable aspects of our research and development before it is too late to obtain patent protection.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidate in the United States or in other foreign countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidate, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidate, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
We, independently or together with our licensors, have filed several patent applications covering various aspects of our lead product candidate. We cannot offer any assurances about which, if any, of these applications will issue as a patent, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful challenge to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
In connection with the financing agreement with Kreos, VectivBio Holdings AG and each of its subsidiaries have entered into pledge agreements in respect of our worldwide intellectual property in favor of Kreos as pledgee (excluding intellectual property in respect of apraglutide granted, issued or pending in Japan). Kreos will have recourse to our intellectual property (excluding intellectual property in respect of apraglutide granted, issued or pending in Japan) in the event we default under the agreement.
Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents, if granted, or narrow the scope of our patent protection, if obtained. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States and the laws of the United States may not protect our rights to the same extent as the laws of such foreign countries. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United
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States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors were the first to make the invention claimed in our owned and licensed patents or pending applications, or that we or our licensors were the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act, or the AIA, enacted on September 16, 2011, the United States has moved to a first to file system. The AIA also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are uncertain, as the USPTO and the courts have yet to address many of the provisions of the AIA. The applicability of the act and new regulations on the specific patents and patent applications discussed herein have not been determined and would need to be reviewed. In general, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
If we are unable to maintain effective proprietary rights for our current product candidates or any future product candidates, we may not be able to compete effectively in our markets.
In addition to the protection afforded by patents, we rely on trade secret protection, orphan drug exclusivity, and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Although we are not currently involved in any litigation related to our intellectual property, third parties may in the future initiate legal proceedings alleging that we are infringing their intellectual property rights or challenging the inventorship of our intellectual property, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of third parties. We may become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology. Third parties, including potential competitors, may assert infringement claims against us based on existing or future intellectual property rights and we may in the future be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. As we continue to develop and, if approved, commercialize our lead product candidate in its current or updated forms, initiate clinical trials for new product candidates, and launch products and enter new markets, competitors or other third parties may claim that one or more of our product candidates infringe their
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intellectual property rights as part of business strategies designed to impede our successful commercialization and entry into new markets. The large number of patents, the rapid rate of new patent applications and issuances, the complexities of the technology involved and the uncertainty of litigation may increase the risk of business resources and management’s attention being diverted to patent litigation. We may, in the future, receive letters or other threats or claims from third parties inviting us to take licenses under, or alleging that we infringe, their patents. We cannot be certain that we have identified all pending or issued patents of potential relevance to our product candidates or technologies. We may fail to identify relevant patent rights, or incorrectly conclude that an issued patent is invalid or not infringed by our activities. If any third-party patents were asserted against us, even if we believe such claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability or priority. A court of competent jurisdiction could hold that the asserted third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize our products.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. We may also elect to enter into such a license in order to avoid or settle pending or threatened litigation. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and could require us to pay significant royalties and other fees. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorney’s fees, if we are found to have willfully infringed the intellectual property in question.
A finding of infringement could delay or prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. These and other claims that we have misappropriated the confidential information or trade secrets of third parties can have a negative impact on our business similar to the infringement claims discussed above.
Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation or other intellectual property related proceedings could have a material adverse effect on our ability to compete in the marketplace.
We may face competition from generic drugs, which may have a material adverse impact on the future commercial prospects of apraglutide.
Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may face competition from generic drugs with respect to apraglutide. In the United States, the Hatch-Waxman Amendments created a generic drug approval pathway.
If competitors are able to obtain marketing approval for generic and biosimilar versions of our products, our products may become subject to additional, low-cost competition, with the attendant competitive pressure and consequences.
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The patent protection and patent prosecution for our lead product candidate is dependent on third parties.
In some circumstances, we may not have the right to control the preparation, filing, prosecution of patent applications or to maintain, defend and enforce patents that we license to or from third parties, and we may have to rely on our partners to fulfill these responsibilities. For example, under our license agreement with Ferring, Ferring is solely responsible for the prosecution, maintenance, defense, and enforcement of patents and patent applications licensed to us for apraglutide, and is not obligated to consult with us in connection with its prosecution and maintenance decisions. Although Ferring is obligated to consult with us in connection with its defense and enforcement of the patents and patent applications it licenses to us, Ferring maintains ultimate decision-making control. Consequently, any such licensed patents and patent applications may not be prepared, filed, prosecuted, maintained, enforced, or defended in a manner consistent with the best interests of our business. If Ferring or any of our future licensing partners fails to appropriately prepare, file, prosecute, maintain, enforce, or defend licensed patents and other intellectual property rights covering our product candidate, such rights may be reduced or eliminated, and our ability to develop and commercialize our product candidate may be adversely affected and we may not be able to prevent competitors from making, using, and selling competing products.
If we fail to comply with our obligations in current or future agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationship with our licensor, we could lose license rights that are important to our business.
We are a party to an amended and restated intellectual property license agreement with Ferring that is important to our business and expect to enter into additional license agreements in the future. Our existing license agreement imposes, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, and other obligations on us. These milestone payments, and other payments associated with the license, will make it less profitable for us to develop our product candidate. If we fail to comply with our obligations under the agreement, or we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license. If this agreement is terminated, we could lose intellectual property rights that are important to our business, be liable for damages to the licensor or be prevented from developing and commercializing our product candidate. Termination of the agreement or reduction or elimination of our rights under the agreement may also result in us being required to negotiate a new or reinstated agreement with less favorable terms, and it is possible that we may be unable to obtain any such additional license at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to spend significant time and resources to redesign our product candidate or the method for manufacturing it or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis.
In some cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensor fails to obtain or maintain a patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business, and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:
the scope of rights granted under the license agreement and other interpretation-related issues;
the extent to which our technology and processes infringe intellectual property of the licensor that is not subject to the licensing agreement;
the sublicensing of patent and other rights;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors, our collaborators and us;
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the priority of invention of patented technology; and
the fulfilment of our obligations under the license.
Apraglutide is subject to licensing agreements with third parties. If disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize our product candidate.
Our intellectual property in-licenses with third parties may be subject to disagreements over contract interpretations, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.
The agreements under which we currently in-license intellectual property from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could harm our business, financial condition, results of operations and prospects. If any of our current or future licenses or material relationships or any in-licenses upon which our current or future licenses are based are terminated or breached, we may:
lose our rights to develop and market our current or any future product candidates;
lose patent protection for our current or any future product candidates;
experience significant delays in the development or commercialization of our current or any future product candidates;
not be able to obtain any other licenses on acceptable terms, if at all; or
incur liability for damages.
If we experience any of the foregoing, it could harm our business, financial condition and results of operations.
Obtaining and maintaining patent protection depends on our compliance with various procedural deadlines, as well as maintenances and annuity fee payment requirements imposed by government 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 government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in complete and irrevocable loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidate, we may not be able to stop a competitor from marketing drugs that are the same as or similar to our product candidate, which would have a material adverse effect on our business.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity. Therefore, obtaining and enforcing biotechnology patents is costly, time consuming, and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. The AIA also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. 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 partes review, and derivation proceedings. Because of a potentially lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. In addition, a third party may be incentivized to use USPTO proceedings because of the relative speed and lower costs compared to district court actions. Therefore, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates throughout the world would be prohibitively expensive to us and to our licensors. Competitors may use our technologies in jurisdictions where we or our licensors have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but where enforcement is not as strong as in the United States. These products may compete with our potential products in jurisdictions where we or our licensors do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.
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, provide a barrier to entry against our competitors or potential competitors or permit us to maintain our competitive advantage. Moreover, if a third party
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has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:
others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is not covered by the claims of any patents that have, or may, issue from our patent applications;
we or our licensors might not have been the first to make the inventions covered by a pending patent application that we have rights in or to;
we or our licensors might not have been the first to file patent applications covering an invention;
others may independently develop similar or alternative technologies without infringing our intellectual property rights;
pending patent applications that we own or license may not lead to issued patents;
patents, if issued, that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
we may not be able to obtain and/or maintain necessary or useful licenses on reasonable terms or at all;
third parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights over that intellectual property;
we may not develop or in-license additional proprietary technologies that are patentable; and
the patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business and results of operations.
Risks Related to Our Business Operations
The COVID-19 pandemic could adversely impact our business, including the timing or results of our clinical trials.
Since December 2019, a novel strain of coronavirus, COVID-19, has spread to multiple countries, including countries, where we have planned or ongoing clinical trials. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; and facilities and production have been suspended. We may experience disruptions related to the pandemic that could severely impact our business, preclinical studies and clinical trials, including:
delays in receiving approval from local regulatory authorities to initiate our planned preclinical studies and clinical trials;
delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in securing clinical trial site locations, and delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
delays in clinical sites receiving the supplies and materials, such as batch deliveries, needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;
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changes in local regulations as part of a response to COVID-19 which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue such clinical trials altogether;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state or foreign governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;
risk that participants enrolled in our clinical trials will contract COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;
risk that patients may not be willing or able to participate in our clinical trials, which could delay the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products;
interruptions in preclinical studies due to restricted or limited operations at our research and development laboratory facility;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
refusal of the FDA, EMA or of other comparable regulatory authorities to accept data from clinical trials in these affected geographies; and
interruption or delays to our clinical activities.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing practices, business closures or business disruptions and the effectiveness of actions taken in the United States, Europe and other countries to contain and treat the disease. In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity in the future. Moreover, to the extent the COVID-19 pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Our future success depends in part on our ability to retain our Chief Executive Officer and to attract, retain, and motivate other qualified personnel.
We are highly dependent on Dr. Luca Santarelli, our Chief Executive Officer, the loss of whose services may adversely impact the achievement of our objectives. Dr. Santarelli could leave our employment with a notice period of twelve months. Recruiting and retaining other qualified employees, consultants, and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled personnel in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in clinical trials may make it more challenging to recruit and retain qualified personnel.
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The inability to recruit and retain qualified personnel, or the loss of the services of Dr. Santarelli, may impede the progress of our research, development, and commercialization objectives.
Laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, legislation affecting public companies is in force that, among other things, (1) imposes an annual binding shareholders’ “say on pay” vote with respect to the compensation of our executive committee and board of directors, (2) generally prohibits severance, advances, transaction premiums and similar payments to members of our executive committee and board of directors, and (3) requires companies to specify certain compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote. In addition, the competition for qualified personnel in the biopharmaceutical field is intense, and our future success depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. Because the Swiss legislation affecting public companies will apply to operations in the United States and are more onerous and restrictive than comparable laws and regulations applying to U.S. domiciled companies, recruiting and retaining members of our executive committee and board of directors in the United States will be even more difficult as compared to companies domiciled in the United States. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it may be difficult for us to implement our business strategy, which could harm our business.
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
We may be unable to maintain the benefits associated with orphan drug designation, including market exclusivity, which may harm our business.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.
Because the extent and scope of patent protection for our products may in some cases be limited, orphan drug designation is especially important for our products for which orphan drug designation may be available. For eligible drugs, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a competitive position. If we do not obtain orphan drug exclusivity for our drug product candidates that does not have a broad patent protection, our competitors may then sell the same drug to treat the same condition sooner than if we had obtained orphan drug exclusivity and our revenue will be reduced.
Even though we have orphan drug designation for apraglutide in Europe and in the United States, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. For example, teduglutide, sold as Gattex in the United States and as Revestive in Europe, has been granted orphan drug status in Europe and the United States. In July 2018, the FDA initially denied a request for orphan drug designation for apraglutide for the treatment of SBS-IF by asserting that apraglutide is the “same drug” as teduglutide and asserting that a plausible hypothesis of the clinical superiority over teduglutide for the treatment of SBS-IF would need to be provided in order to obtain orphan drug designation. We responded to the FDA in October 2018, and on December 20, 2018, the FDA granted orphan drug designation for apraglutide for the treatment of SBS-IF. The FDA also granted orphan drug designation for apraglutide for the
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prevention of acute GvHD. Orphan drug applicability will be reassessed by health authorities upon completion of clinical studies and submission of our marketing application.
Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA or EMA can subsequently approve the same drug with the same active moiety for the same condition if the FDA or EMA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
We may not be successful in our efforts to identify, license, acquire, discover, develop or commercialize additional product candidates or additional indications for apraglutide.
Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our lead product candidate, the success of our business also depends upon our ability to successfully develop apraglutide for the treatment of additional indications, to successfully develop VB-1197 and to identify, license, acquire, discover, develop and commercialize additional product candidates. Research programs to identify new indications or product candidates require substantial technical, financial, and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Our research programs, licensing and acquisition efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:
our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
our product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
the product candidates that we develop may be covered by third parties’ patents or other exclusive rights;
we may not be able to acquire product candidates on favorable terms, if at all;
the market for our product candidates may change during our development so that such a product may become unreasonable to continue to develop;
we may not be successful in expanding our lead product candidate into new indications;
our product candidates may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
our product candidates may not be accepted as safe and effective by patients, the medical community, or third-party payors.
If any of these events occur, we may be forced to abandon our acquisition or development efforts for a program or programs, or we may not be able to identify, license, acquire, discover, develop or commercialize additional product candidates, which would have an adverse effect on our business and could potentially cause us to cease operations.
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Risks Related to the Regulatory Approval of Our Product Candidates
Legislative developments may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.
In the United States, the European Union, and other foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed reforms to the healthcare system that could affect our future results of operations. In particular, a number of initiatives at the United States federal and state levels seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include:
an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs agents, which is apportioned among these entities according to their market share in certain government healthcare programs;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively and a cap of the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and
establishment of a Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
There remain judicial, executive, and Congressional challenges to certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. For example, the Tax Cuts and Jobs Act of 2017, or Tax Act, included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for
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purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and the health reform measures of the Biden administration will impact the ACA and our business.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2031, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022, 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. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other health care funding, which could have an adverse effect on our customers and accordingly, our financial operations.
In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, on July 24, 2020 and September 13, 2020, President Trump announced several executive orders related to prescription drug pricing that seek to implement several of the administration’s proposals. As a result, the FDA released a final rule and guidance in September 2020, providing pathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. The implementation of the rule has been delayed until January 1, 2026. 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 set out a variety of potential legislative policies that Congress could pursue to advance these principles. No legislation or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of other reform initiatives. 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. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.
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We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidate or additional pricing pressures. It is also possible that additional governmental action is taken in response to the COVID-19 pandemic.
In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product candidate, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidate, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidate may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
We are subject, directly and indirectly, to U.S. federal and state healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and other healthcare laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Our operations are directly and indirectly through our relationships with healthcare professionals, principal investigators, consultants, third-party payors and customers, subject to broadly applicable U.S. fraud and abuse and other healthcare laws and regulations, which may constrain the business or financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval. These laws may impact, among other things, our clinical research programs, proposed sales, marketing, and education programs. The applicable U.S. federal, state and foreign healthcare laws and regulations that may affect our ability to operate include, but are not limited to:
The federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection. Additionally, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The federal civil and criminal false claims laws including, without limitation, the civil False Claims Act, which can be enforced by private citizens on behalf of the U.S. government, through civil whistleblower or qui tam actions, and the federal civil monetary penalties law, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for
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payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. Several pharmaceutical and other health-care companies have been prosecuted under these laws for alleged off-label promotion of drugs, purportedly concealing price concessions in the pricing information submitted to the government for government price reporting purposes, and allegedly providing free product to customers with the expectation that the customers would bill federal healthcare programs for the product. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act,” which requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as ownership and investment interests held by these physicians and their immediate family members.
The analogous state and non-U.S. law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or that apply regardless of payor; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers and other potential referral sources; state and local laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require the reporting of information related to drug pricing; and state and local laws requiring the registration of pharmaceutical sales representatives.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that governmental authorities may conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government health care programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. If any of the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to significant civil, criminal and administrative sanctions, including exclusion from government funded healthcare programs.
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In the future, activities in the United States may subject us to various laws relating to foreign investment and the export of certain technologies, and our failure to comply with these laws or adequately monitor the compliance of our suppliers and others we do business with could subject us to substantial fines, penalties and even injunctions, the imposition of which on us could have a material adverse effect on the success of our business.
We may become subject to U.S. laws that regulate foreign investments in U.S. businesses and access by foreign persons to technology developed and produced in the United States. These laws include section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018, and the regulations at 31 C.F.R. Parts 800 and 801, as amended, administered by the Committee on Foreign Investment in the United States; and the Export Control Reform Act of 2018, which is being implemented in part through Commerce Department rulemakings to impose new export control restrictions on “emerging and foundational technologies” yet to be fully identified. Application of these laws, including as they are implemented through regulations being developed, may negatively impact our business in various ways, including by restricting our access to capital and markets; limiting the collaborations we may pursue; regulating the export our products, services, and technology from the United States and abroad; increasing our costs and the time necessary to obtain required authorizations and to ensure compliance; and threatening monetary fines and other penalties if we do not.
Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that violates (1) the laws and regulations of the FDA, EMA and other similar regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad and (4) laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by employees, consultants and other third parties, 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 be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations.
We are subject to stringent and changing obligations related to privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; government enforcement actions (which could include civil or criminal penalties); private litigation; fines and penalties; adverse publicity; loss of revenue or profits; disruptions of our operating results and business; and other adverse business consequences.
In the ordinary course of business, we process personal information and other sensitive information, including proprietary and confidential business information, trade secrets, intellectual property, information we collect about
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trial participants in connection with clinical trials, and sensitive third-party information. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the processing of personal information and sensitive information by us and on our behalf. In addition, privacy advocates and industry groups have proposed, and may propose in the future, standards with which we are legally or contractually bound to comply.
We and any potential collaborators may be subject to U.S. federal, state, local and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act). In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations. Depending on the facts and circumstances, we could be subject to civil, criminal, and administrative penalties if we knowingly obtain, use, or disclose individually identifiable health information in a manner that is not authorized or permitted by HIPAA. In addition, the California Consumer Privacy Act, or the CCPA, imposes obligations on businesses to which it applies. These obligations include, but are not limited to, providing specific disclosures in privacy notices and affording California residents certain rights related to their personal information. The CCPA allows for statutory fines for noncompliance (up to $7,500 per violation). Further, it is anticipated that the California Privacy Rights Act, or the CPRA, effective January 1, 2023, will expand the CCPA. For example, it creates a new California Privacy Protection Agency to implement and enforce the CPRA, which could result in increased privacy and information security enforcement. Other states have enacted data privacy laws. For example, Virginia passed its Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act, both of which differ from the CPRA and become effective in 2023.
Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, European Union’s General Data Protection Regulation, or the EU GDPR, and the United Kingdom’s GDPR, or the UK GDPR, impose strict requirements for processing the personal information of individuals, including health-related information. For example, under the EU GDPR, government regulators may impose temporary or definitive bans on information processing, as well as fines for noncompliant companies up to the greater of €20 million or 4% of annual global revenue, and separately £17.5 million or 4% of annual global revenue under the UK GDPR. EU member states are also able to legislate separately on health and genetic information, and we must comply with these local laws where we operate. The Swiss Federal Act on Data Protection, or the FADP, also applies to the collection and processing of personal information, including health-related information, by companies located in Switzerland, or in certain circumstances, by companies located outside of Switzerland. The FADP has been revised and adopted by the Swiss Parliament, and the revised version and its revised ordinances may result in an increase of costs of compliance, risks of noncompliance and penalties for noncompliance.
Certain jurisdictions have enacted data localization laws and cross-border personal information transfer laws. For example, absent appropriate safeguards or other circumstances, the EU GDPR generally prohibits the transfer of personal information to countries outside of the EEA, such as the United States, which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted similar restrictions under the FADP. The European Commission released a set of “Standard Contractual Clauses” that are designed to be a valid mechanism by which entities can transfer personal information out of the EEA to jurisdictions that the European Commission has not found to provide an adequate level of protection. Currently, these Standard Contractual Clauses are a valid mechanism to transfer personal information outside of the EEA. The Standard Contractual Clauses, however, require parties that rely upon that legal mechanism to comply with additional obligations, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal information. Moreover, due to potential legal challenges, there exists some uncertainty regarding whether the Standard Contractual Clauses will remain a valid mechanism for transfers of personal information out of the EEA. In addition, laws in Switzerland and the UK similarly restrict transfers of
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personal information outside of those jurisdictions to countries, such as the United States, that do not provide an adequate level of personal information protection. If we cannot implement a valid compliance mechanism for cross-border data transfers, we may face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal information from Europe or elsewhere. The inability to import personal information to the United States could significantly and negatively impact our business operations, including by limiting our ability to conduct clinical trial activities in Europe and elsewhere; limiting our ability to collaborate with parties that are subject to European and other data privacy and security laws; or requiring us to increase our personal information processing capabilities and infrastructure in Europe and/or elsewhere at significant expense.
Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or in conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources (including, without limitation, financial and time-related resources). These obligations may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal information on our behalf. In addition, these obligations may require us to change our business model. Although we endeavor to comply with all applicable data privacy and security obligations, we may at times fail (or be perceived to have failed) to do so. 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. Despite our efforts, our personnel, or third parties upon whom we rely, may fail to comply with such obligations, which could negatively impact our business operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations, or contractual obligations could result in adverse effects, including inability to operate our business and proceedings against us by governmental entities or others.
If we fail, or are perceived to have failed, to address or comply with data privacy and security obligations, we could face significant consequences. These consequences may include, but are not limited to, government enforcement actions (which could include civil, criminal and administrative penalties, investigations, fines, inspections, and similar), private litigation (including class-related claims); additional reporting requirements and/or oversight; bans on processing personal information; orders to destroy or not use personal information; and imprisonment of company officials. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: interruptions or stoppages in our business operations (including clinical trials); inability to process personal information or to operate in certain jurisdictions; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.
Risks Related to Ownership of Our Ordinary Shares
The price of our ordinary shares is likely to be volatile and may fluctuate due to factors beyond our control.
The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. The market price of our ordinary shares may fluctuate significantly due to a variety of factors, including:
positive or negative results of clinical trials reported by us, strategic partners or competitors;
any delay in the commencement, enrollment and the ultimate completion of clinical trials;
technological innovations or commercial product introductions by us or competitors;
failure to successfully develop and commercialize our product candidates;
developments, announcements or changes in government regulations relating to drug products, including related to drug pricing, reimbursement and healthcare coverage;
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delays in in-licensing or acquiring additional complementary product candidates;
developments concerning proprietary rights, including patents and litigation matters;
public concern relating to the commercial value or safety of our product candidates;
financing or other corporate transactions, or inability to obtain additional funding;
failure to meet or exceed expectations of the investment community;
announcements of significant licenses, acquisitions, strategic partnerships or joint ventures by us or our competitors;
publication of research reports or comments by securities or industry analysts;
general market or regulatory conditions in the pharmaceutical industry or in the economy as a whole; or
other events and factors, many of which are beyond our control.
These and other market and industry factors may cause the market price and demand for our securities to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their ordinary shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our ordinary shares. In addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Some companies that have experienced volatility in the trading price of their shares have been the subject of securities class action litigation. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Defending against litigation is costly and time-consuming and could divert our management’s attention and resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of our ordinary shares.
It may be difficult for you to sell your ordinary shares at or above the purchase price therefor or at all.
Although our ordinary shares are listed for trading on the Nasdaq Global Market, an active trading market for our ordinary shares may not be sustained. The market price of our ordinary shares is highly volatile and could be subject to wide fluctuations in price as a result of various factors, some of which are beyond our control. It may be difficult for you to sell your ordinary shares without depressing the market price for the ordinary shares, or at all. As a result of these and other factors, you may not be able to sell your ordinary shares at the current market price, or at all. Further, an inactive market may also impair our ability to raise capital by selling our ordinary shares and may impair our ability to enter into strategic partnerships or acquire companies or products using our ordinary shares as consideration.
Concentration of ownership of our ordinary shares among our existing executive officers, directors and principal shareholders may prevent other investors from influencing significant corporate decisions.
Based upon our ordinary shares outstanding as of December 31, 2021, our executive officers, directors and shareholders who own more than 5% of our outstanding share capital, in the aggregate, beneficially own approximately 76.3% of our outstanding ordinary shares. These shareholders, acting together, will be able to significantly influence all matters requiring shareholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.
In addition, our articles of association will contain provisions stating that if an individual or legal entity acquires ordinary shares and, as a result, directly or indirectly, has voting rights with respect to more than 18% of the share
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capital registered in the commercial register, the ordinary shares exceeding the limit of 18% shall be entered in the share register as shares without voting rights.
Some of these persons or entities may have interests different than yours. For example, because many of these shareholders have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other shareholders.
Future sales, or the possibility of future sales, of a substantial number of our ordinary shares could adversely affect the price of our ordinary shares.
Future sales of a substantial number of our ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of our ordinary shares. On November 26, 2021, we issued an aggregate of 588,237 ordinary shares to certain of our shareholders in connection with the final milestone payment due pursuant to the Share Purchase Agreement, dated September 30, 2018, as amended, under which we acquired intellectual property and technology related to apraglutide. Additionally, in accordance with the Comet Merger Agreement, on September 9, 2021, we issued 185,608 ordinary shares as part of the initial consideration due under that agreement, and we may be required to issue additional ordinary shares if certain milestones are met with respect to VB-1197 or other future potential product candidates developed using the intellectual property that we acquired pursuant to the Comet Merger Agreement. As of December 31, 2021, we have 35,973,339 ordinary shares with a nominal value of CHF 0.05 each outstanding, with a large percentage of shares outstanding held by relatively few shareholders. If these shareholders sell substantial amounts of ordinary shares in the public market, or the market perceives that such sales may occur, the market price of our ordinary shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.
We do not expect to pay dividends in the foreseeable future.
We have not paid any dividends since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. Any proposal of our board of directors to the general meeting of shareholders to pay future dividends will in addition be at the discretion of our board of directors after taking into account various factors including our business prospects, cash requirements, financial performance and new product development and subject to approval by the general meeting of shareholders. In addition, payment of future dividends is subject to certain limitations pursuant to Swiss law. See the section of this Annual Report entitled “Item 8.A. Consolidated statements and other financial information - Dividend Distribution Policy.” Also, we are a holding company with no material direct operations. As a result, we would be largely dependent on dividends or other distributions from our subsidiaries in order to pay a dividend. Our subsidiaries are subject to legal requirements of their respective jurisdictions of incorporation that may restrict their paying dividends or making other distributions to us.
Accordingly, investors cannot rely on dividend income from our ordinary shares and any returns on an investment in our ordinary shares will likely depend entirely upon any future appreciation in the price of our ordinary shares.
We are a Swiss corporation. The rights of our shareholders are different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.
We are a Swiss corporation. Our corporate affairs are governed by our articles of association and by the laws governing companies, including listed companies, incorporated in Switzerland. The rights of our shareholders and the responsibilities of members of our board of directors are different from the rights and obligations of shareholders and directors of companies governed by the laws of the United States. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our company, and may also have regard to the interests of our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge resolutions made or other actions taken by our board of directors in court.
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Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors, but are instead only permitted to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach of fiduciary duty would have to be brought to the competent courts in Basel, Switzerland, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively to the competent courts in Basel, Switzerland. U.S.-style class actions and derivative actions are not available under Swiss law. A further summary of applicable Swiss corporate law is included in this Annual Report, see the sections of this Annual Report entitled “Item 10.B Additional Information - Memorandum and articles of association.” There can be no assurance that Swiss law will not change in the future, which could adversely affect the rights of our shareholders, or that Swiss law will protect our shareholders in a similar fashion as under U.S. corporate law principles.
Our ordinary shares are not listed in Switzerland, our home jurisdiction. As a result, certain Swiss law provisions designed to protect shareholders in the event of a public takeover offer or change of control transaction will not apply.
The Swiss rules that require investors to disclose their interest in a company if they reach, exceed or fall below certain ownership thresholds only applies to issuers that have a listing for their equity securities in Switzerland. Since our ordinary shares are listed exclusively on The Nasdaq Global Market, a U.S. market, the disclosure obligations regarding major shareholdings according to art. 120 of the Swiss Financial Markets Infrastructure Act and its implementing provisions do not apply to us. Likewise, the Swiss takeover regime does not apply to us. In particular, the duty to make a mandatory bid offer for all outstanding listed equity securities of a company by any person or group of persons that acquires more than one third of a company’s voting rights does not apply to us. In addition, the Swiss takeover regime imposes certain restrictions and obligations on bidders in a voluntary public takeover offer that are designed to protect shareholders. However, these protections are applicable only to issuers that list their equity securities in Switzerland and, because our ordinary shares are listed exclusively on The Nasdaq Global Market, will not be applicable to us. Furthermore, since Swiss law restricts our ability to implement rights plans or U.S.-style “poison pills,” our ability to resist an unsolicited takeover attempt or to protect minority shareholders in the event of a change of control transaction may be limited. Therefore, our shareholders may not be protected in the same degree in a public takeover offer or a change-of-control transaction as are shareholders in a Swiss company listed in Switzerland.
U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our executive officers or members of our board of directors.
We are a corporation organized and incorporated under the laws of Switzerland with registered office and domicile in Basel, Switzerland, and the majority of its assets are located within Switzerland. Moreover, a number of our directors and executive officers are not residents of the United States, and all or a substantial portion of the assets of such persons are or may be located outside the United States. As a result, investors may not be able to effect service of process within the United States upon us or upon such persons, or to enforce judgments obtained against us or such persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt that a lawsuit based upon United States federal or state securities laws could be brought in an original action in Switzerland and that a judgment of a U.S. court based upon United States securities laws would be enforced in Switzerland.
The United States and Switzerland currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, may not be enforceable in Switzerland.
Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.
Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the payment of dividends and the cancellation of treasury
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shares must be approved by shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our board of directors to, increase our share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization to 50% of the share capital registered in the commercial register of the Canton of Basel-City at the time of the authorization. The authorization, furthermore, has a limited duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital. Additionally, subject to specified exceptions, including exceptions explicitly described in our articles of association, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of shares, which may be limited or withdrawn under certain conditions. Swiss law also does not provide as much flexibility in the various rights and regulations that can attach to different classes of shares as do the laws of some other jurisdictions. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders.
Shareholders outside of the United States may not be able to exercise pre-emptive rights in future issuances of equity or other securities that are convertible into equity.
Under Swiss corporate law, shareholders may receive certain pre-emptive rights to subscribe on a pro-rata basis for issuances of equity securities or other securities that are convertible into equity securities. Due to the laws and regulations in certain jurisdictions, however, shareholders who are not residents of the United States may not be able to exercise such rights unless we take action to register or otherwise qualify the rights offering, including, for example, by complying with prospectus requirements under the laws of that jurisdiction. There can be no assurance that we will take any action to register or otherwise qualify an offering of subscription rights or shares under the laws of any jurisdiction other than the United States where the offering of such rights is restricted. If shareholders in such jurisdictions were unable to exercise their subscription rights, their ownership interest in our company will be diluted.
Anti-takeover provisions in our articles of association could make an acquisition of us, which may be beneficial to our shareholders, more difficult.
Our articles of association contain provisions that may have the effect of discouraging, delaying or preventing a change in control of us that shareholders may consider favorable, including transactions in which our shareholders may receive a premium for their shares. Our articles of association include provisions that:
in certain cases, allow our board of directors to place up to 15,874,000 ordinary shares and rights to acquire an additional 9,017,720 ordinary shares (approximately 44% and 25%, respectively, of the outstanding share capital as of December 31, 2021) with affiliates or third parties, without existing shareholders having statutory pre-emptive rights in relation to this share placement;
allow our board of directors not to record any acquirer of ordinary shares, or several acquirers acting in concert, in our share register as a shareholder with voting rights with respect to more than 18% of our share capital registered in the commercial register;
restrict shareholders from exercising voting rights with respect to own or represented shares in excess of 18% of our share capital registered in the commercial register;
limit the size of our board of directors to nine members; and
require two-thirds of the votes represented at a general meeting of shareholders for amending or repealing the above-mentioned registration and voting restrictions, the provision setting a maximum board size, and the provision for indemnification of the members of our board of directors and our executive committee as set forth in our articles of association, and for dismissing the chairman or any member of our board of directors or any member of our compensation committee before the end of his or her term of office.
These and other provisions, alone or together, could delay or prevent takeovers and changes in control. These provisions could also limit the price that investors might be willing to pay in the future for our ordinary shares, thereby depressing the market price of our ordinary shares.
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We are a foreign private issuer and, as a result, are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including: (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we have the option to follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.
We are a foreign private issuer. As a result, in accordance with Nasdaq Listing Rule 5615(a)(3), we may choose to comply with home country governance requirements and certain exemptions thereunder rather than complying with certain of the corporate governance requirements of Nasdaq.
Swiss law does not require that a majority of our board of directors consist of independent directors. Our board of directors therefore may include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we are not subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors regularly have scheduled meetings at which only independent directors are present.
Although Swiss law also requires that we set up a compensation committee, we may follow home country requirements with respect to such committee. Among other things, Swiss law does not require that all or a majority of the compensation committee consist of independent directors.
Our articles of association provide for an independent proxy elected by our shareholders, who may represent our shareholders of record at a general meeting of shareholders, and we must provide shareholders of record with an agenda and other relevant documents for the general meeting of shareholders. However, Swiss law does not have a regulatory regime for the solicitation of proxies, thus our practice may vary from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies. Furthermore, in accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.
As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
We may lose our foreign private issuer status, which would then require us to comply with the domestic reporting requirements of the Exchange Act and cause us to incur significant legal, accounting and other expenses.
We are currently a foreign private issuer and therefore are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our status as a foreign private issuer, either (1) a majority of our ordinary shares must be either directly or indirectly owned of record by non-residents of the United States; or (2) (a) a majority of our executive officers or directors may not be United States citizens or residents, (b) more than 50% of our assets cannot be located in the
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United States and (c) our business must be administered principally outside the United States. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. Among other things, we would be required under current SEC rules to prepare our financial statements in accordance with generally accepted accounting principles in the United States, rather than IFRS, which would involve significant time and cost. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time-consuming and costly. If we lose our foreign private issuer status and are unable to devote adequate funding and the resources needed to maintain compliance with U.S. securities laws, while continuing our operations, we could be forced to deregister with the SEC. A deregistration would substantially reduce or effectively terminate the trading of our securities in the United States. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our ordinary shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We could be an “emerging growth company” for up to five years from the date of our initial public offering, although circumstances could cause us to lose that status earlier, including if our annual gross revenues exceed $1.07 billion, if we issue more than $1.0 billion of non-convertible debt in any three-year period or if the aggregate market value of our ordinary shares held by non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and the price of our ordinary shares may be more volatile.
If a United States person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group. Because our group includes one or more U.S. subsidiaries, we expect that certain of our non-U.S. subsidiaries will be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether the controlled foreign corporations make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations from starting with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or
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whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation, or that we will furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.
We may be a passive foreign investment company, which may result in adverse U.S. federal income tax consequences for U.S. holders of our ordinary shares.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets are held for the production of, or produce, passive income, including cash, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets and directly received its proportionate share of the income of such other corporation. Our status as a PFIC also may depend on how quickly we use the cash proceeds from our initial public offering in our business. Based on the nature of our income and the value and composition of our assets, we do not believe we were a PFIC during the taxable year ended December 31, 2021. However, we have not yet determined whether we expect to be a PFIC for the current taxable year. If we are characterized as a PFIC in a taxable year, our shareholders who are U.S. holders (as defined in “Material U.S. federal income taxation considerations for U.S. holders”) may suffer adverse tax consequences, regardless of whether we continue to be characterized as a PFIC in subsequent taxable years, including the treatment of gains realized on the sale of our ordinary shares as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders, the addition of interest charges to the tax on such gains and certain distributions, and additional reporting requirements. A U.S. shareholder of a PFIC generally may mitigate these adverse U.S. federal income tax consequences by making a “qualified electing fund” election, or, to a lesser extent, a “mark to market” election. However, we do not intend to provide the information necessary for U.S. holders to make qualified electing fund elections if we are classified as a PFIC.
General Risk Factors
Our international operations may subject us to potential adverse tax consequences.
As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate or are being taxed may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or the valuations applied for intercompany transfers of intellectual property between jurisdictions, or may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.
Our effective tax rate could increase due to several factors, including:
changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
changes in tax laws, tax treaties, and regulations or the interpretation of them;
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changes to our assessment about our ability to realize any deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
the outcome of current and future tax audits, examinations, or administrative appeals; and
limitations or adverse findings regarding our ability to do business in some jurisdictions.
Any of these developments could adversely affect our business, results of operations and financial condition.
As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase in the future, which could adversely affect our net income and cash flows.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. The tax laws applicable to our business activities, however, are subject to changes in interpretation. Our tax position could be adversely impacted by changes in tax rates, tax laws, tax practice, tax treaties or tax regulations or changes in the interpretation thereof by the tax authorities in jurisdictions in which we do business. Our effective income tax rate may be affected by changes in or interpretations of tax laws, treaties, rulings, regulations or agreements in any given jurisdiction, the resolution of issues arising from any future tax audits with various tax authorities, utilization of net operating loss and tax credit carryforwards, changes in geographical allocation of income and expense, and changes in management’s assessment of matters such as the realizability of deferred tax assets. In the past, we have experienced fluctuations in our effective income tax rate. Our actual tax rate may vary from our expectation and that variance may be material. Our effective income tax rate in a given fiscal year reflects a variety of factors that may not be present in the succeeding fiscal year or years. There is no assurance that our effective income tax rate will not change in future periods.
We file Swiss and non-Swiss tax returns. We are subject to tax audits, examinations and assessments in various jurisdictions. If any tax authority successfully challenges our operational structure, allocation of income by tax jurisdiction, or amounts paid between our affiliated companies pursuant to our intercompany arrangements or transfer pricing policies, if any tax authority successfully asserts that we are subject to income, withholding or other taxes in a jurisdiction by reason of our activities and operations or our other taxable presence in such jurisdiction, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective income tax rate could increase. A tax authority may take the position that material income or other tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, which could adversely affect our profitability. If our effective income tax rate increases in future periods, our net income and cash flows could be adversely affected, including in future tax years.
Due to the Swiss corporate tax law reform that took effect on January 1, 2020, all Swiss cantons, including the Canton of Basel-City, have abolished the cantonal tax privileges. Therefore, since January 1, 2020, we are subject to standard cantonal taxation. The standard effective corporate tax rate in Basel, Canton of Basel-City, can change from time to time. The standard combined (federal, cantonal, communal) effective corporate income tax rate, except for dividend income for which we could claim a participation relief, for 2021 in Basel will be approximately 13.04%.
We urge our shareholders to consult with their legal and tax advisors with respect to the potential tax consequences of investing in or holding our ordinary shares.
If we fail to implement and maintain effective internal controls over financial reporting, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to reporting obligations under U.S. securities laws and the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from
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management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F for the year ended December 31, 2022, which will be our second annual report on Form 20-F after our initial public offering. If we fail to remediate the material weakness identified below, our management may conclude that our internal control over financial reporting is not effective. This conclusion could adversely impact the market price of our ordinary shares due to a loss of investor confidence in the reliability of our reporting processes.
In the future, we will be required to perform system and process evaluations and testing of our internal controls over financial reporting, to allow our management and our independent public registered accounting firm to report on the effectiveness of our internal control over financial reporting. In addition, our compliance with Section 404 will require that we incur substantial accounting expense, expend significant management effort and we may need to hire additional accounting and financial staff with the appropriate experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal additional deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. If we are unable to conclude that our internal controls are effective or if we have material weaknesses, investors could lose confidence in the accuracy or completeness of our reported financial information, which could have a negative effect on the trading price of our ordinary shares.
For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging growth company” for up to five years from the date of our initial public offering. At the time when we are no longer an emerging growth company, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur remediation costs. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
We identified a material weakness in connection with our internal control over financial reporting. Although we are taking steps to remediate this material weakness, we may not be successful in doing so in a timely manner, or at all, and we may identify other material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements.
As a U.S. public company, we operate in an increasingly demanding regulatory environment that requires us to comply with, among other things, the Sarbanes-Oxley Act, and related rules and regulations of the SEC’s substantial disclosure and reporting requirements and complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.
We have limited accounting personnel and other resources to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in connection with the preparation of our consolidated and carve-out financial statements as of and for the year ended December 31, 2020, we identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis by our
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employees. The material weakness identified is related to a lack of sufficient internal accounting personnel and systems to support an efficient and structured financial statement close process and allow for the appropriate monitoring of financial reporting matters. We and our independent registered public accounting firm have concluded that the material weakness still existed as of December 31, 2021. If we fail to remediate our material weakness, we may not be able to report our financial results accurately or to prevent fraud.
We have taken several remedial actions to address this material weakness. In particular, in 2021, we have hired additional staff for the finance and legal departments. Also, we are in the process of implementing an ERP system, which we believe will enhance our internal control over financial reporting. Additionally, we are working to better define, formalize and upgrade (when the case may be) our internal controls and processes with the goal of being compliant with Section 404 by the end of 2022.
Furthermore, we believe it is possible that if we had performed a formal assessment of our internal control over financial reporting, or if our independent registered public accounting firm had performed an audit of our internal control over financial reporting, other material weaknesses may have been identified. This may increase the risk that deficiencies in our internal control over financial reporting will go undetected and may make it more difficult for investors and securities analysts to evaluate our company.
During the course of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, we may identify other material weaknesses in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could experience material misstatements in our consolidated financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ordinary shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the Nasdaq Global Market, or Nasdaq, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by us and our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our insurance coverage or resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.
If our information technology systems, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory
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investigations and actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse consequences.
In the ordinary course of our business, we may collect, store, use, transmit, disclose, or otherwise process proprietary, confidential, and sensitive information, including personal information (such as health-related information), intellectual property, and trade secrets. We may rely upon third-party service providers and technologies to operate critical business systems to process confidential and personal information in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, encryption and authentication technology, employee email, and other functions. Our ability to monitor these third parties’ cybersecurity practices is limited, and these third parties may not have adequate information security measures in place. We may share or receive sensitive information with or from third parties.
Cyberattacks, malicious internet-based activity, and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect. These threats come from a variety of sources. In addition to traditional computer “hackers,” threat actors, personnel (such as through theft or misuse), sophisticated nation-states, and nation-state-supported actors now engage in attacks. Despite the implementation of security measures, our internal computer systems and those of third parties upon whom we rely, are vulnerable to damage from cyberattacks, “phishing” attacks, computer viruses, unauthorized access, malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, natural disasters, terrorism, war and telecommunication, electrical failures and other similar threats. Ransomware attacks, including those perpetrated by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems or the third-party information technology systems that support us and our services. As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Additionally, due to Russia’s invasion of Ukraine, we may be subject to elevated cybersecurity risk.
Any of the previously identified or similar threats could cause a security breach or other interruption. A security breach or other interruption could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to data. A security breach or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our services. While we have implemented security measures designed to protect against security breaches, there can be no assurance that these measures will be effective. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. 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. We may expend significant resources or modify our business activities (including our clinical trial activities) in an effort to protect against security breaches. Certain data privacy and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security measures to protect our information technology systems and data. For example, the loss of clinical trial information from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the information.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security breaches. Such disclosures are costly, and the disclosures or the failure to comply with such requirements could lead to adverse consequences.
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If we (or a third party upon whom we rely) experience a security breach or are perceived to have experienced a security breach, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing information (including personal information); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of information); financial loss; the further development and commercialization of our product candidate could be delayed; and other similar harms. Security breaches and attendant consequences may cause customers to stop using our services, deter new customers from using our services, and negatively impact our ability to grow and operate our business. Likewise, we partially rely on our third-party research institution collaborators for research and development of our product candidate and other third parties for the manufacture of our product candidate and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our ordinary shares, our share price and trading volume could be negatively impacted.
The trading market for our ordinary shares could be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts, and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our ordinary shares, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
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Item 4. INFORMATION ON THE COMPANY
A. History and development of the company
We are a Swiss stock corporation incorporated on May 22, 2019, in Switzerland. We are subject to provisions of the articles of incorporation and to article 620 et seq. of the Swiss Code of Obligations, which describes the legal requirements for corporations, or Aktiengesellschaften.
From our inception on May 22, 2019 until June 30, 2019, we were fully owned by Therachon Holding AG, or THAG, and together with its subsidiaries, the Parent Group. We were created for the purpose of spinning off the Apraglutide Business (as defined below), following a corporate reorganization of the Parent Group in order to effectuate the separation. The separation, which has been considered as a reorganization under common control for the purpose of the preparation of these consolidated and carve-out financial statements, resulted in the transfer of certain assets (including 100% of the shares of GlyPharma (as defined below)), liabilities and contracts related to the Apraglutide Business (as defined below) at their historical book values from the Parent Group to VectivBio Holding AG and its subsidiaries prior to the spin-off date, which occurred on July 1, 2019. On July 1, 2019, THAG distributed by way of dividend in kind the shares of VectivBio Holding AG to the existing THAG shareholders, or the Spin-off, and VectivBio Holding AG and its subsidiaries began operating as a standalone entity.
On September 30, 2018, THAG, through its 100% owned subsidiary, Therachon AG, acquired 100% of the shares of GlyPharma Therapeutic Inc., or GlyPharma, from a third party. GlyPharma’s principal activity was to develop the GLP-2 analog, referred to as the “Apraglutide Business.” After the acquisition of GlyPharma, the Apraglutide Business was integrated into the Parent Group, with certain business functions carried out by multiple legal entities in the Parent Group. From September 30, 2018 until June 30, 2019, the Apraglutide Business was 100% owned by the Parent Group. During this period, the Apraglutide Business was managed from Switzerland, with operations in Canada.
In connection with our initial public offering, or IPO, on the Nasdaq Global Market on April 9, 2021 we effected the following transactions: on April 1, 2021, we effected a five-to-one reverse share split of our registered shares and immediately prior to such reverse share split we issued a total of 23 shares, comprising 8.8 ordinary shares, 5 Series A1 preferred shares and 9.2 Series A2 preferred shares, to balance fractional shares. Immediately prior to the completion of our IPO, the then outstanding 4,195,966 series A1 preferred shares and 9,557,646 series A2 preferred shares were converted on a 1:1 basis into ordinary shares.
Our registered office in Switzerland is located at Aeschenvorstadt 36, 4051 Basel, Switzerland and the telephone number of our registered office is +41 61 551 30 30. Our agent for service of process in the United States is VectivBio US, Inc., 60 Broad St. Suite 3502, New York, New York 10004.
Our actual capital expenditures for the years ended December 31, 2021, 2020 and 2019 amounted to $57 thousand, $93 thousand and $56 thousand, respectively. These capital expenditures primarily consisted of equipment purchases for our offices in Basel.
The SEC maintains an Internet site that contains reports, proxy information statements and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. Our website address is http://www.vectivbio.com. Information contained in, or that can be accessed through, our website is not a part of, and shall not be incorporated by reference into, this document. We have included our website address in this document solely as an inactive textual reference.
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B. Business overview
Overview
We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of life-transforming medicines for patients living with severe rare conditions for which there is a significant unmet medical need. We are led by an experienced management team with a strong track record in the biotechnology and pharmaceutical industry. Our goal is to become a leading, patient-centric, fully integrated global rare disease company. Our current product pipeline is focused on rare gastrointestinal, or GI, metabolic disorders, and we intend to in-license or acquire additional transformational, differentiated rare disease assets. Our lead product candidate, apraglutide, is a next generation, long-acting synthetic peptide analog of glucagon-like peptide-2, or GLP-2, which we are developing as a differentiated therapeutic for a wide range of rare diseases, with an initial focus on short bowel syndrome, or SBS. Based on our preclinical and clinical data to date, we believe that apraglutide has the potential to advance the treatment of SBS intestinal failure, or SBS-IF, through improved clinical outcomes and less frequent dosing than the only currently approved GLP-2 for SBS-IF. Apraglutide is currently being evaluated in a global Phase 3 clinical trial called STARS for the treatment of patients with SBS-IF, and a global Phase 2 clinical trial called Stargaze for the treatment of patients with gastrointestinal acute graft versus host disease. We also plan to evaluate apraglutide’s therapeutic potential in additional rare GI, liver, and other conditions that could benefit from GLP-2 activation. Our pipeline includes a platform of first-in-class preclinical small molecule assets known as Comet for the treatment of rare inherited metabolic diseases, or IMDs.
SBS is a malabsorption disorder caused by the loss of functional small intestine, with symptoms that include diarrhea, dehydration, malnutrition and weight loss. SBS typically occurs in adults as a consequence of irreparable GI damage caused by physical trauma, Crohn’s disease, ulcerative colitis, ischemia or cancer requiring surgeries that result in the removal of large portions of the small intestine or colon. In infants and children, SBS is typically a consequence of congenital defects or decreases in intestinal absorptive capacity secondary to surgical procedures. The symptoms and severity of SBS can vary depending upon the length and function of the remaining portion of the intestine. Patients suffer from SBS-IF when their gut function is reduced below the minimum function necessary for the absorption of macronutrients or water and electrolytes required to survive and, in the case of infants and children, to maintain health and growth.
In order to survive, patients with SBS-IF require parenteral support, or PS, which is the intravenous delivery of essential nutrients and fluids through a central line catheter. The frequent infusions of PS, which can last up to 10 to 15 hours per day, combined with the inability to sustain adequate oral nutrition, cause increased mortality and morbidity, a decrease in the quality of life of the patient, and a significant burden to the healthcare system. Reduction of the dependence on PS, with the ultimate goal of eliminating the central catheter and achieving enteral autonomy, is the most important goal for patients suffering from SBS-IF. The primary pharmacological treatment for adult patients with SBS-IF is teduglutide, a GLP-2 analog that is marketed as Gattex in the United States and Revestive in Europe. We believe that teduglutide has several limitations, such as a short half-life that requires patients to receive daily subcutaneous injections and a lengthy and complex administration procedure that requires the administrator to perform a multi-step reconstitution process, including calculating the exact dose for each patient based on the patient's individual body weight. Published trial reports done by third-party investigators who conducted a Phase 3 clinical trial have indicated that teduglutide demonstrated a suboptimal efficacy and tolerability profile, characterized by the frequent occurrence of adverse events such as injection site reactions and abdominal pain, no statistically significant impact on patients’ quality of life, and no demonstrated benefit in the subset of patients characterized by the colon-in-continuity anatomy, or CIC, which represents at least 55% of the overall SBS-IF population. Additionally, in real world utilization of teduglutide based on a study of U.S. insurance claims, a meaningful portion of patients are not persistent with therapy—approximately 25% of patients discontinue teduglutide by month three, 40% by month six, 50% by month twelve and 65% by month twenty-four. Collectively, we believe these factors demonstrate a need for improving treatments for SBS-IF patients.
Our lead product candidate, apraglutide, is a next generation, long-acting, synthetic GLP-2 analog that is designed to increase nutrient absorption in the intestine and reduce the burden of PS, thereby improving patient quality of life. Apraglutide has been rationally designed to have unique properties to address the known issues with native GLP-2 and teduglutide. In our preclinical studies and completed clinical trials, apraglutide has shown a
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significantly longer half-life and more consistent on-target drug exposure, potentially allowing for once-weekly dosing versus once-daily dosing for teduglutide, and enhanced trophic effects on the small intestine, when compared to other GLP-2 analogs. We believe that these properties have the potential to translate into increased pharmacological activity and improved patient adherence to treatment relative to other GLP-2 analogs, thereby allowing a subset of patients who currently receive PS to achieve enteral autonomy. In addition, we have designed a development strategy that will allow us to adapt the use of apraglutide to treat different SBS patient subtypes based on their GI anatomy.
The following table summarizes our clinical plans regarding apraglutide and Comet. We have retained global rights to commercialize our programs except in Japan where we have licensed development and commercialization of apraglutide to a partner.
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To date, we have conducted three randomized, double-blind, placebo-controlled clinical trials and one non-controlled, open label clinical trial and in which we administered apraglutide to a total of 66 healthy volunteers and 16 patients with SBS. Apraglutide is the only GLP-2 analog to-date which has demonstrated therapeutically relevant pharmacological activity in SBS patients after a once-weekly treatment regimen. In our Phase 2 open label, metabolic balance clinical trial in patients with SBS we observed that apraglutide significantly improved intestinal absorption of wet weight, urinary output and energy. To our knowledge, this is the first time that a GLP-2 analog demonstrated increased intestinal absorption in SBS patients after a once-weekly treatment regimen, an effect that is of therapeutic significance in SBS patients who present with severely impaired intestinal absorption capacity. Importantly, in this study we observed a statistically significant effect of apraglutide on improving energy absorption, an observation that was not previously reported with other GLP-2 analogs in Phase 2 studies. In each of our four clinical trials, we observed that once weekly administration of apraglutide was well tolerated, with safety results that are consistent with the safety profile observed with other GLP-2 analogs and reduced frequency of injection site reactions.
We have devised an innovative development approach for apraglutide, which capitalizes both on our proprietary know-how and our executive team’s previous clinical and regulatory experience with GLP-2 analogs. We initiated a Phase 3 clinical trial to assess the safety and efficacy of apraglutide for the treatment of SBS-IF in January 2021, expect to report topline results from the trial at the end of 2023. We initiated a Phase 2 clinical trial to evaluate the safety, tolerability and absorption parameters of apraglutide in SBS-IF subjects with CIC in the second quarter of 2021 and expect to report first readout in the second half of 2023.
We plan to assess the safety and efficacy of apraglutide in pediatric SBS-IF and in other conditions where we believe the mechanism of action of GLP-2 has the potential to provide therapeutic benefit due to its potential impact on intestinal GI growth, absorption, GI blood flow, barrier function and immunity. We are evaluating the potential of apraglutide in each of these areas with a focus on rare diseases with no approved therapies or with significant
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unmet needs that we believe would benefit from apraglutide’s unique pharmacology. A priority area of focus is the prevention and treatment of the serious gastrointestinal manifestations of acute graft versus host disease, or GvHD, a common and life-threatening consequence of allogenic hematopoietic stem cell transplants, or HSCT. Most approaches targeting GvHD today involve modulation or suppression of immune mechanisms. We believe GLP-2 activation offers a novel approach which directly targets intestinal mucosal biology, intestinal barrier function, and the gut microbiota with the potential to improve outcomes in GvHD. Expanding to additional indications could potentially be achieved through proof-of-concept studies or by leveraging our Phase 2 clinical trial data in the SBS population to initiate additional clinical trials in indications other than SBS-IF, such as for GvHD. A clinical proof of concept study of apraglutide in acute steroid refractory GvHD on top of best available therapy commenced in the first quarter of 2022, evaluating safety and standard measures of efficacy in this setting.
We expanded our pipeline to IMDs with the acquisition of CoMET Therapeutics in September 2021. This small molecule platform technology exploits the central role of CoEnzyme A, or CoA, in intermediary metabolism and the significant dysregulation of this essential cofactor across multiple disorders. While each IMD is rare, collectively these disorders affect 1:800 individuals and are a significant cause of morbidity and mortality.
The platform uses combinatorial chemistry to provide a precursor of CoA as well as up to three intermediary metabolite cargos and can be delivered systemically to key organs including the brain. We have selected two organic acidemias, methylmalonic and propionic acidemia (MMA and PA) as the initial indications to develop our lead compound VB-1197. MMA and PA are both high unmet need conditions with no approved therapeutics; we believe VB-1197 can impact both CNS and systemic manifestations of disease, regardless of the mutation(s) underlying the disorders. We plan on initiating clinical studies in the second half of 2023.
We were founded in 2019 through a spin-off of our apraglutide program from Therachon Holding AG, a rare disease focused company, following its acquisition by Pfizer for an upfront payment of $340 million and additional milestone payments of up to $470 million. To date, we have raised approximately $144 million in private financings from leading biotechnology investors, including OrbiMed Advisors, Versant Ventures, Novo Holdings, Bpifrance, Cowen Healthcare Investments, Tekla Capital Management, Surveyor Capital (a Citadel company), Cormorant Capital and Eventide Asset Management. We had a successful IPO on the Nasdaq Global Market on April 9, 2021 and raised approximately $154.1 million from leading biotechnology investors, including OrbiMed Advisors, Versant Ventures, Novo Holdings, Bpifrance, Cowen Healthcare Investments, Tekla Capital Management, Surveyor Capital (a Citadel company), Cormorant Capital and Eventide Asset Management.
Our expertise lies in rare disease research, development and commercialization, and our current clinical programs reflect our strategy of pursuing product candidates with a clear and understood mechanism of action that have a high probability of transforming the lives of patients. We believe this approach benefits from our ability to select objective clinical endpoints and to leverage validated regulatory pathways, and design our clinical trials to generate data that will enable us to include differentiated claims in our approved prescribing information.
We are led by Luca Santarelli, M.D., our founder, and CEO, who has more than 20 years of experience in research and development and business development. Dr. Santarelli previously served as the Senior Vice President and Head of Neuroscience, Ophthalmology, and Rare Diseases at Roche, where he advanced more than twenty new product candidates into clinical trials, resulting in multiple pivotal clinical trials and product approvals. Our leadership team includes our Chief Financial Officer, Claudia D’Augusta, Ph.D. (previously Chief Financial Officer at Therachon), Chief Medical Officer, Omar Khwaja, M.D., Ph.D (previously Chief Medical Officer and Head of R&D, Voyager Therapeutics), Chief Operating Officer, Christian Meyer, M.D., Ph.D. (previously Chief Development Officer at Therachon), Chief Commercial Officer, Kevin Harris (previously Group VP, Global Product Strategy at Incyte), Chief Technical Officer, Alain Bernard (previously VP Biopharma Process Sciences at UCB), Chief Business Officer, Sarah Holland, Ph.D. (previously VP, Global Head of Licensing at Lonza), and Chief Legal Officer, Scott Applebaum (previously SVP, Legal & Regulatory Affairs at Shire Pharmaceuticals).
Our Strategy
Our mission is to build a leading, fully integrated global rare disease company using our patient-centric approach to identify and develop life-transforming medicines for the treatment of severe rare diseases. We are
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focused on developing highly innovative therapies that target the physiological root causes of a disease to significantly improve the lives of patients. Our approach leverages our unique scientific and clinical insight into the design and development of treatments that specifically target the molecular and physiological processes associated with the disease. This approach has the potential to alter the natural course of diseases and overcome the limitations of available treatments.
The key elements of our strategy include:
Advance apraglutide through clinical development in patients with SBS-IF. Our lead product candidate, apraglutide, has shown the potential to have a differentiated product profile for the treatment of SBS-IF based on multiple clinical trials and preclinical studies conducted to date. We initiated a Phase 3 clinical trial to assess the safety and efficacy of apraglutide for the treatment of SBS-IF in January 2021, expect to report topline results from the trial at the end of 2023. Our Phase 3 clinical trial for apraglutide is informed by our expertise in understanding the patients’ characteristics and needs, anatomical heterogeneity, existing clinical practice and clinical trial methodology, with the goal of translating the unique pharmacological properties of apraglutide into best in disease solutions for patients. Our interactions with various regulatory authorities have corroborated our plan to evaluate dependence on PS as the primary endpoint and to address the anatomical heterogeneity of patients with SBS-IF by evaluating anatomy-specific endpoints. We believe our Phase 3 trial can produce data that leads to differentiated claims about our product and that can expand the number of SBS-IF patients who can meaningfully benefit from GLP-2 treatment.
Maximize the potential of apraglutide in additional indications where GLP-2 is central to the disease pathophysiology. We believe the mechanism of action of GLP-2 has broader application beyond SBS-IF. GLP-2-mediated signaling impacts intestinal growth, absorption, blood flow, barrier function, inflammation and immunity. We believe these pharmacological properties could have application in additional indications, including in GvHD, and other acute and chronic GI and liver conditions We are evaluating the potential of apraglutide in each of these areas with a focus on rare conditions with no approved therapies or patients with significant unmet needs that we believe could benefit from apraglutide’s unique pharmacology. We are evaluating our ability to leverage data from our prior studies, such as the preclinical data available in GvHD, to initiate late-stage clinical trials in additional indications. A clinical proof of concept study of apraglutide in acute steroid refractory GvHD on top of best available therapy will be initiated in the first quarter of 2022, evaluating safety, dosing and standard measures of efficacy in this setting.
Retain commercialization rights for our product candidates in the United States and Europe and opportunistically evaluate strategies to maximize the commercial potential of our product candidates outside these jurisdictions. Retaining substantial commercial rights to our product and product candidate pipeline is core to our strategy. We are in the early stages of establishing, with plans to further expand, our commercial infrastructure in the United States and Europe. We believe our focus and experience in rare diseases will allow us to build a targeted and efficient infrastructure that supports the patient journey from treatment decision to product access and ongoing therapy adherence. We also plan to leverage our significant expert and advocacy relationships and insights from the SBS market to inform our commercialization strategy. We intend to opportunistically evaluate partnerships to enable us to supplement our capabilities and maximize the potential commercial value of our programs outside of the United States and Europe, and have recently announced a partnership agreement with a leading Japanese pharmaceutical company to develop, register and market apraglutide in Japan.
Combine our accomplished business development team with our experienced rare disease research and development capabilities to expand our product portfolio. We are leveraging the significant rare disease expertise of our research and development and business development teams to acquire and develop additional pipeline programs. While our focus is to build on our expertise in rare diseases affecting the GI system, we will also explore rare diseases affecting other organ systems, including metabolic pathways and CNS conditions. In particular, we will focus on diseases where core metabolic pathways are affected—the vast majority of these disorders are inherited and account for a diverse set of more than 1,000 distinct
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indications and while each individual condition may be rare, they collectively affect over 1 in 800 individuals. The vast majority of these metabolic disorders manifest with significant morbidity and mortality and only represent a small proportion of all orphan drugs approved to date, underscoring the unmet need in this space. We will prioritize diseases with high unmet need where we can commercialize independently, have validated translational models, have the ability to achieve proof of concept efficiently in well-characterized patient populations and where there is a viable clinical and regulatory path. We will seek opportunities based on validated biological targets with differentiated potential, with a preference for clinical or IND-ready programs. The acquisition we made last year of Comet Therapeutics is demonstrative of this strategy, and we are committed to working with innovators to explore and develop new opportunities to drive our pipeline.
Continue to expand our strong collaborative relationships with key stakeholders to address the needs of patients in increasingly effective ways and shape the future standard-of-care for devastating rare diseases. We will continue to work with and seek input from key stakeholders in the rare disease communities, including patient advocacy groups, healthcare professionals, key opinion leaders, research institutions, regulators, and payors. We have actively engaged with the SBS and GvHD communities, including key opinion leaders in the field. These experts have helped inform the development strategies in SBS and GvHD as well as potential future studies of apraglutide. We are committed to working with a broad range of stakeholders that are involved in the management of patients with SBS and GvHD in order to provide such patients with effective and convenient pharmacological products and to support and address their unmet medical needs. This will allow us to remain guided by the needs of patients suffering from rare diseases and inform our development programs and strategies to bring transformational medicines to these communities.
Strengthen and expand our intellectual property to protect apraglutide. We have exclusive rights to apraglutide including issued composition of matter and method of use patents in the United States in lead indications. We aim to maintain a strong and broad estate of patents in the United States and other geographic areas. To this end, we have exclusively licensed 23 patents in the United States, Europe, Japan, China and other jurisdictions protecting apraglutide. We also own or exclusively license seven pending patent applications worldwide that cover apraglutide, including ultrapure compositions, methods of manufacture and methods of use in various diseases, and have recently filed a patent application covering the treatment of acute GvHD with apraglutide.
Overview of Short Bowel Syndrome
SBS is a complex disease that is characterized by a patient’s inability to adequately absorb the fluids and nutrients that are necessary to survive. SBS occurs as a result of the physical loss or the loss of function of a significant portion of the small intestine or colon. In adults, SBS typically occurs as a result of surgeries that require removal of large portions of the small intestine or colon due to irreparable damage. For adult SBS patients, this irreparable damage is typically caused by physical trauma or conditions such as Crohn’s disease, ulcerative colitis, ischemia or cancer. In infants and children, SBS is typically a consequence of congenital defects or decreases in intestinal absorptive capacity as a result of surgery.
SBS-intestinal failure, or SBS-IF, is defined as the reduction of gut function below the minimum function necessary for the absorption of macronutrients or water and electrolytes, such that intravenous supplementation is required to maintain health, growth and survival. As an organ failure condition, SBS-IF patients require parenteral support, or PS, which is the intravenous delivery of nutrition and fluids required for a patient’s survival through a central line catheter. When PS is administered at home, it can also be referred to as home parenteral nutrition, or HPN. The treatment burden associated with PS is significant, as it can require the most severe patients to be connected to a PS central line for up to 10 to 15 hours a day, seven days per week. Living a life dependent on PS can be very burdensome with challenges associated with catheter-related infections, sepsis, blood clots, liver damage, electrolyte imbalances, cholecystitis and glucose metabolism abnormalities in the form of hyperglycemia or hypoglycemia.

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As a result, SBS-IF is associated with significant mortality, morbidity, reduced quality of life and high health care costs. In an independent study of 268 non-malignant adult SBS patients, the actuarial survival probabilities over 5 years and 10 years are estimated to be only 70% and 52% respectively, which was observed to be driven by significant complications of the disease that also contribute to significant morbidity. SBS-IF can cause central venous access complications, significant organ damage and GI complications. These impacts compromise quality of life of both the people living with SBS-IF and the caregivers supporting them, including negative impacts on physical role, social function and the mental health of patients. There is also a significant burden to the healthcare system in terms of annual costs of chronic home parenteral nutrition, which can range from $185,000 to $594,000 per person per year, as well as indirect costs such as disability and lost work productivity of both patients and their caregivers. In the United States, annual reimbursement for HPN-related health services across clinical settings is approximately $2.3 billion.
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SBS-IF is an anatomically heterogenous condition with the presence or absence of a functional colon as the main determinant of the remaining fluid absorption capacity of the remnant bowel after surgery. SBS-IF patients can be classified according to the anatomy of the remnant intestine after surgery, into two anatomical subtypes: stoma
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with no colon-in-continuity, or stoma, and CIC. These two subtypes have different pathophysiology, which leads to distinct clinical presentations in patients with SBS-IF. Stoma patients’ larger PS volume requirement is due to greater hydration needs of these patients, as a consequence of an inability to absorb water because of a missing functional colon. Patients with a stoma require large amounts of supplementary fluids to maintain a lifesaving hydration status.
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Current Treatments and Limitations
There are limited treatment options available for patients with SBS-IF. The standard of care for SBS-IF patients is a combination of nutritional support, concomitant medications and PS. Achieving enteral autonomy, removal of the central catheter and the quality of life associated with eliminating the need for chronic PS is the ultimate goal for patients suffering from SBS-IF. Other meaningful treatment goals for SBS-IF patients include a reduction in the number of days per week of PS required by patients, a reduction in PS volume and the associated time required for PS, and general improvements in quality of life.
The primary pharmacological treatment approved for adult patients with SBS who are dependent on parenteral support is teduglutide, marketed as Gattex in the United States and Revestive in Europe. Teduglutide is an analog of GLP-2, which is a native, 33-amino acid peptide that is normally secreted by intestinal endocrine cells and released into the blood following nutrient ingestion. GLP-2 has been observed to stimulate the growth of intestinal villi, increasing their ability to absorb nutrients and improving intestinal nutrient transport, intestinal blood flow and gut-barrier function. However, native GLP-2 is unstable in blood serum with a half-life of only seven minutes. As a result, GLP-2 analogs have been developed to provide the benefits of native GLP-2 while overcoming its half-life limitations.
In spite of its demonstrated therapeutic benefits, teduglutide only partially addresses the treatment goals in SBS-IF patients and has the limitations listed below:
The prescribing information for teduglutide indicates that it has a half-life of 1.3 to 2 hours and is administered daily by subcutaneous injection. Due to its short half-life it requires daily injections and each injection is preceded by a lengthy and complex multi-step reconstitution process.
Even though teduglutide was observed in its Phase 3 pivotal clinical trial to reduce time on PS by over 20% in 63% of patients, compared to a similar reduction in 30% of patients receiving a placebo, it did not demonstrate a statistically significant impact on the quality of life of patients. In addition, in a retrospective analysis of these Phase 3 clinical trial results, although there was a significant reduction of PS volume in the stoma population, no difference was observed in the CIC patient population, which represents at least 55% of the overall SBS-IF population. The package insert for teduglutide does not provide any specific information on results by anatomy, and no patients achieved enteral autonomy during the course of the Phase 3 clinical trial.
Some patients who have been treated with teduglutide have reported abdominal pain and nausea, the most commonly occurring adverse events related to teduglutide, which we believe may be related to daily
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pharmacokinetic fluctuations above and below the active pharmacological exposure levels required for the effective treatment of SBS.
Teduglutide treatment persistency declined significantly across a 24-month period based on an analysis of U.S. insurance claims we commissioned. This study evaluated patients from December 2015 to January 2019 who initiated teduglutide with a diagnosis of SBS and had at least 180 days of parenteral nutrition prior to receiving teduglutide. Patients were followed for at least 24 months and were considered discontinued if they had a gap in therapy greater than 90 days. The analysis concluded that approximately 25% of patients discontinue teduglutide by month three, 40% by month six, 50% by month twelve and 65% by month twenty-four. In a separate market research study we commissioned, the primary reasons for discontinuation of teduglutide were lack of efficacy, patient preference, patient noncompliance, and tolerability.
https://cdn.kscope.io/11714ce6866480328efaf81c2952ba7c-vb-20211231_g5.jpg
We believe that these significant challenges present a barrier for both physicians and patients who may otherwise prescribe or seek treatment with teduglutide, resulting in limited adoption relative to the overall number of GLP-2 eligible patients. Those who initiate treatment also have challenges remaining persistent on therapy. Collectively, these challenges demonstrate a need for improved treatments for SBS-IF patients.
Market Opportunity
Based on market research we commissioned and our review of published literature, we estimate that there are approximately 16,000 SBS patients in the United States, with a combined approximately 16,000 patients in Germany, the United Kingdom, Italy, Spain and France, or collectively, the EU5. Based on our review of published literature, we estimate that almost half of these patients have SBS-IF, implying a prevalence of approximately 7,500 in the United States and 7,500 in the EU5. We estimate that there are up to 1,000 SBS-IF patients in Japan and a significant number of patients in other geographies, including China. Of these SBS-IF patients, we estimate that two-thirds of patients in the United States and one-third of patients in the EU5 will be amenable for treatment with a GLP-2 analog.
Despite the significant challenges and limitations of teduglutide, the worldwide sales of teduglutide are projected to be approximately $670 million in FY 2021 an increase of 10% when compared to FY 2020 sales. Market research we commissioned suggests that teduglutide is used in a minority of GLP-2 eligible patients who have the highest PS frequency requirements. As shown below, the report also estimates that in SBS patients in the United States requiring three or more PS administrations per week, teduglutide is used in less than 50% of the stoma patients and less than 25% of the CIC patients. We estimate that the addressable global market opportunity for
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apraglutide, if approved, in SBS-IF could exceed $2 billion per year through significant growth in the number of eligible patients receiving a GLP-2 analog, potentially improved compliance and persistence, and geographic expansion beyond where teduglutide is approved today.
PS Frequency and SBS Anatomy Predict Gattex Use
Estimated % of Patients Receiving Gattex by Predictive Variable
https://cdn.kscope.io/11714ce6866480328efaf81c2952ba7c-vb-20211231_g6.jpg
__________________
Source: Custom market research commissioned by VectivBio, Nov 2019.
(1) Does not account for market research overstatement.
Our Lead Product Candidate, Apraglutide
Apraglutide is a next-generation, long-acting synthetic GLP-2 analog that has been carefully engineered to improve the potency and selectivity, and provide a longer half-life and a more consistent on-target drug exposure than native GLP-2 and other GLP-2 analogs. Based on the half-life of 72 hours observed in our Phase 1 clinical trial, we believe apraglutide can address some of the limitations observed with teduglutide by providing weekly or less frequent dosing, consistent pharmacokinetics, and a durable pharmacodynamic effect in treated patients. Given the physiological benefit of GLP-2 on nutrient absorption, we believe longer-acting GLP-2 analogs have the potential to reduce the time SBS-IF patients are required to be on PS and address some of the malabsorption symptoms associated with SBS-IF. We believe these attributes will also simplify the administration for patients suffering from SBS-IF, leading to improved tolerability and treatment outcomes.
Apraglutide was originally designed and synthesized by Ferring Pharmaceuticals (from whom we have licensed the rights to apraglutide) using rational peptide engineering to extend its half-life. Based on clinical trials to date, we believe apraglutide’s unique amino acid sequence leads to its observed half-life of 72 hours. The table below illustrates the amino acid sequences of apraglutide, native GLP-2, teduglutide, and glepaglutide.
Sequence Alignment of GLP-2 Analogs Approved and in Development
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Apraglutide has unique substitutions that provide enhanced chemical stability and increase plasma protein binding resulting in markedly decreased total clearance and slowing of absorption from the subcutaneous injection site into the circulation to increase the terminal half-life. These alterations represent principal structural features of apraglutide that we believe confer differentiated properties relative to the GLP-2 analogs that are approved or in development.
Our Competitive Differentiation
We believe that apraglutide has several potential advantages when compared to native GLP-2 and other GLP-2 analogs that are approved or in development:
Improved Half-Life: In head-to-head preclinical studies comparing the pharmacokinetic profile of apraglutide, teduglutide, glepaglutide, and native human GLP-2 apraglutide has a notably longer half-life, suggesting enhanced pharmacokinetic properties. We believe that the stable exposure after once-weekly dosing of apraglutide observed in our Phase 1 and Phase 2 clinical trials may improve efficacy, tolerability, compliance, and treatment adherence.
Greater Intestinotrophic Activity: In preclinical studies, we observed that apraglutide resulted in dose-dependent growth of small and large intestines at doses of apraglutide as low as three nmol/kg, suggesting significant potency of apraglutide. In addition, head-to-head preclinical studies demonstrated that apraglutide treatment resulted in a greater increase in intestinal wet weight when compared to teduglutide and glepaglutide, suggesting that apraglutide’s longer half-life contributes to superior intestinotrophic effects in rats.
Once-weekly Effects Observed Across Key Clinical Parameters, Including Enhanced Energy Absorption: We believe apraglutide is the only GLP-2 analog to date that has demonstrated therapeutically relevant pharmacological effects with weekly dosing. In our Phase 2 metabolic balance study in SBS patients after four weeks of weekly dosing of apraglutide, we showed statistically significant increases in clinically relevant parameters such as urinary output (a measure of increased fluid absorption) (p=0.0374) and intestinal absorption of wet weight (p=0.0150). In addition, we demonstrated statistically significant increases in energy absorption (p=0.0236). This result is the first time a GLP-2 analog has shown a robust and statistically significant improvement in energy absorption in a Phase 2 clinical study. We believe that enhancing the energy absorption could result in better outcomes for patients through reduction of PS.
https://cdn.kscope.io/11714ce6866480328efaf81c2952ba7c-vb-20211231_g8.jpg
Administration Convenience: Apraglutide’s chemical structure, formulation, and presentation are designed to offer simple drug reconstitution and administration via a pre-filled, dual-chamber syringe, allowing for convenience and administration via self-injection, thereby potentially improving dosing accuracy, treatment compliance, and adherence for prescribers and patients. We have designed the Phase 3 trial to employ a bracketed dose method, where one of two doses would be administered to a patient based
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on a body weight threshold (5 mg for patients ≥50 kg and 2.5 mg for patients <50 kg) instead of an individualized calculation on a patient-by-patient basis. We believe our product candidate, if approved, will be commercialized using this bracketed dose method, and ultimately there will only be two doses available for the entire adult patient population.
Differentiated Clinical and Regulatory Strategy: Leveraging existing research and real-world experience with teduglutide, we were able to design a Phase 3 clinical trial that accounts for remnant bowel anatomy, individualizes assessment of caloric needs during weaning and allows to better assess the clinical relevance of the effects of apraglutide in SBS-IF. We believe that this approach will help us improve outcomes such as PS volume reduction, days off PS, achievement of full enteral autonomy and will enable us to assess the impact of apraglutide’s treatement on the quality of life of SBS-IF patients. We believe these outcomes, which we plan to assess across the full spectrum of SBS-IF patients, may more fully characterize the potential benefit of apraglutide in this heterogeneous condition.
Preclinical Development of Apraglutide
In vitro Pharmacology
In preclinical studies Ferring Pharmaceuticals tested potency, efficacy and selectivity vs. human GLP-1 receptor of various GLP-2 analogs at the human and rat GLP-2 receptors using cell-based functional assays of cAMP responsive activation.
Apraglutide was 2-fold more potent than native hGLP-2 and teduglutide for activation of the human GLP-2 receptor. Apraglutide, human GLP-2, and teduglutide had similar potency at the rat GLP-2 receptor. Glepaglutide was less potent at both the human GLP-2 and rat GLP-2 receptors relative to apraglutide. Apraglutide and teduglutide were highly selective for the hGLP-2 receptor versus the hGLP-1 receptor, with EC50 values >1000 nM (the highest concentration tested) at the hGLP-1 receptor. Similar selectivity was observed for the rat GLP-2 receptor versus the rat GLP-1 receptor.
https://cdn.kscope.io/11714ce6866480328efaf81c2952ba7c-vb-20211231_g9.jpg
Pharmacokinetics
In preclinical studies conducted by Ferring Pharmaceuticals, from whom we have licensed the rights to apraglutide, the pharmacokinetics of apraglutide were evaluated in adult Sprague Dawley rats after intravenous administration in a head-to-head study versus teduglutide, glepaglutide, and native human GLP-2 for comparison. Following single intravenous administration, apraglutide demonstrated a notably longer elimination half-life and lower clearance in adult rats than teduglutide, glepaglutide, and native human GLP-2. Similarly, apraglutide showed sustained exposure levels after subcutaneous dosing in rats, monkeys, and minipigs compared to teduglutide in these three species.
Pharmacodynamics and Intestinotrophic Activity
To assess the pharmacological effect of apraglutide, Ferring Pharmaceuticals tested the effect of apraglutide on intestinal growth in rats as determined by intestinal wet weight following once-daily subcutaneous bolus
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administration of apraglutide over five days, using teduglutide as a comparator. Ferring Pharmaceuticals observed significant increases in intestinal wet weight at a dose of apraglutide as low as three nmol/kg. At all doses tested, apraglutide led to larger increases in intestinal wet weight than equivalent doses of teduglutide. Ferring Pharmaceuticals also observed similar results in preclinical studies measuring the intestinotrophic effects of apraglutide in mice and mini-pigs. In these studies, it was observed that apraglutide resulted in dose-dependent growth of small and large intestines in rats.
Preclinical studies were also conducted to examine whether the improved pharmacology of apraglutide translated to increased pharmacodynamic effects that could offer the potential for greater efficacy and less frequent dosing. In a study conducted by Ferring Pharmaceuticals, apraglutide was directly compared to teduglutide and glepaglutide in head-to-head experiments at 30 and 300 nmol/kg doses, after either a single injection or 5 days of repeat daily dosing. In this study, apraglutide demonstrated a greater increase in intestinal wet weight when compared to teduglutide and glepaglutide, suggesting that apraglutide’s pharmacology contributed to the superior increase in intestinal wet weight in rats observed in this study.
https://cdn.kscope.io/11714ce6866480328efaf81c2952ba7c-vb-20211231_g10.jpg
We also studied the intestinotrophic effects of apraglutide as a potential therapeutic option for neonatal SBS. In an established neonatal piglet jejunostomy model of SBS, treatment with apraglutide led to both a significant increase in intestinal wet weight and an increase in intestinal length. In the same model, an increase in intestinal length has not been reported with either native GLP-2 or teduglutide. No increases in intestinal length were observed in animals receiving a placebo. Apraglutide-treated piglets also had lower fecal fat and energy losses than animals receiving placebo. Our preclinical studies conducted on healthy adult rats and minipigs supported these observations. In these preclinical studies, apraglutide produced a durable increase in intestinal growth with significant differences persisting four weeks after cessation of treatment.
In another series of experiments in the neonatal piglet jejunostomy model of SBS, the intestinotrophic effect of apraglutide was compared to teduglutide. Apraglutide administered at 5 mg/kg twice weekly for one week had a superior intestinotrophic result (small bowel length and weight, villi height) compared to teduglutide administered at 0.05 mg/kg once a day for seven consecutive days. Teduglutide reached the intestinotrophic results observed for apraglutide only when it was administered twice a day for seven successive days. These data highlight the importance of the duration and level of exposure for an optimal efficacy for GLP-2 analogs.
Toxicology Studies
We have completed 26-week repeated-dose GLP toxicology studies with apraglutide in rats and 39-week repeated-dose GLP toxicology studies in minipigs. In all repeated-dose GLP toxicity studies in rats and minipigs, the systemic no observed adverse effect level was the highest dose tested in each study. Exposure margins were greater
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than 100 times the maximum planned clinical dose. All systemic findings reported for apraglutide were due to the pharmacologic activity of apraglutide and generally non-adverse. We believe these studies support long-term dosing in patients with SBS. Carcinogenicity studies in rats and mice are ongoing. We reached a consensus with the FDA on the study designs and dose selection. We expect to complete the outstanding rat reproductive toxicology study before submitting any marketing applications. We will plan to perform a juvenile toxicity study after consultation with regulatory authorities and in parallel with the STARS trial.
Clinical Development of Apraglutide
Our clinical development program for apraglutide to date has consisted of three randomized, double-blind, placebo-controlled clinical trials and one non-controlled, open-label clinical trial, in which we administered apraglutide to a total of 66 healthy volunteers and 16 patients with SBS. We believe these data provide the first clinical proof of concept of a GLP-2 analog for the treatment of SBS administered once weekly and the dose rationale for our Phase 3 trial.
Key Results from Our Clinical Trials:
In the Phase 1 trial (TA799-002), a randomized, double-blind, placebo-controlled trial in 24 healthy volunteers testing three once-weekly dose levels of 1 mg, 5 mg, and 10 mg against placebo, we observed a dose-dependent elevation of plasma citrulline, a marker of intestinal mass, with the maximum effect reached at the 5 mg once-weekly dose.
In the Phase 2 (GLY-321) open-label, metabolic balance clinical trial in eight patients with SBS over four weeks, we observed that four 5 mg doses of apraglutide administered once weekly significantly improved intestinal absorption of wet weight (p=0.0150), urinary output (p=0.0374) and energy absorption (p=0.0236).
In the Phase 2 (GLY-311) randomized, double-blind, placebo-controlled, dose-ranging clinical trial in eight SBS-IF patients, we observed that 5 mg doses of apraglutide administered once weekly resulted in the largest increase in urinary output, which is the relevant clinical marker that predicts a reduction in PS.
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*SEM: Standard Error of the Mean

Key Safety Results from Our Clinical Trials
In each of our four clinical trials, we observed that once-weekly administration of apraglutide was well tolerated with a safety profile that we believe was consistent with other GLP-2 analogs.
Our Phase 1a clinical trial (GYM-P3-698) was a randomized, double-blind, placebo-controlled clinical trial in 64 healthy volunteers testing weekly doses of 11.4 mg, 28.4 mg, and 56.9 mg of apraglutide over three consecutive weeks. In this trial, we observed that apraglutide was well tolerated up to the highest tested dose of 56.9 mg, a dose that is ten times higher than the Phase 3 dose of 5 mg.
In the two Phase 2 clinical trials, a total of 12 serious adverse events, or SAEs, were reported. One SAE (abdominal pain in one patient that resolved within 24 hours) was related to apraglutide. This SAE is a side effect consistent with GLP-2 class analogs.
Summary Table: Key Data about our apraglutide clinical development program date
StudyNo. of subjectsDoseObjectiveTreatment
duration
GYM-P3-698
Phase 1a,
randomized,
double blind,
placebo-controlled SAD, MAD,
PK/Safety trial
64 healthy
volunteers (48 receiving
apraglutide)
SAD: 2.8, 5.7,
11.4, 28.4, and
56.9 mg/week
MAD: 11.4,
28.4 and 56.9
mg/week
Safety; PK/PD of
subcutaneous and
IV injection
SAD: 1 week
MAD: 3 weeks
TA799-002
Phase 1b,
randomized,
double blind,
placebo-controlled
PK/PD trial
24 healthy
volunteers (18 receiving
apraglutide)
1, 5, and 10
mg/week
Safety; PK/PD of subcutaneous
injection
6 weeks
GLY-321
Phase 2, open-label,
metabolic
balance trial
Eight patients with
SBS
5 mg/weekSafety; efficacy on
urinary output,
fecal wet weight
and energy
absorption
4 weeks
GLY-311
Phase 2,
randomized,
double blind,
placebo-controlled,
dose ranging trial
Eight patients with
SBS
5 and 10
mg/week
Safety; efficacy on
urinary output
Part A: 4 weeks
Part B: 4 weeks
Our Clinical and Regulatory Strategy
We believe that apraglutide has the opportunity to demonstrate significant improvements in efficacy over currently existing GLP-2 therapies. This is based on a) the enhanced pharmacology we have seen in our preclinical and clinical studies and b) an improved clinical and regulatory strategy:
a.Apraglutide enhanced pharmacology is a consequence of the rationally designed chemical optimizations engineered into the apraglutide molecule. In preclinical studies we have seen extended half-life and decreased clearance and in humans an extended half-life of 72 hours that supports weekly dosing. In our preclinical studies we
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have seen superior intestinotrophic effects as demonstrated by a greater enhancement of intestinal growth when compared to other GLP-2 analogs. In our clinical studies we have seen benefits on wet weight absorption and improved urinary output after weekly dosing with a supportive safety and tolerability profile. In addition, apraglutide is the only GLP2 analog to have demonstrated statistically significant improvements in energy absorption.
b.Our clinical and regulatory strategy capitalizes on the learnings from prior GLP-2 research and real-world experience with teduglutide by considering remnant bowel anatomy and individualizing assessments of caloric needs during weaning. We believe this may help us improve outcomes such as PS volume reduction, days off PS, and a likelihood of achieving full enteral autonomy in patients with CIC. These results may allow us to create more informative product labeling that considers the heterogeneous nature of SBS patients, ultimately resulting in a differentiated positioning of apraglutide in future commercialization efforts, if applicable regulatory authorities approve it. This approach was informed by a recently-published retrospective analysis of the Phase 3 pivotal clinical trial for teduglutide where stoma patients displayed a rapid and robust reduction in PS volume requirement whereas CIC patients showed more modest, non-significant effects on reducing this parameter. We believe that this difference in response can be explained by the method used to determine how to adjust PS volume, such as the monitoring of increases in diuresis. Changes in diuresis are considered a good marker of intestinal absorption improvements in patients with an altered fluid balance, such as stoma patients. They are less informative for individuals where fluid balance is preserved, such as CIC patients. We believe that a more appropriate way to assess GLP-2 responses in CIC patients should include monitoring additional parameters, including metabolic changes that reflect the increased absorption of solid caloric nutrients. In support of this hypothesis, recent data from a retrospective, multi-center, open-label observational cohort study of SBS patients demonstrated that CIC patients can achieve robust PS reductions and enteral autonomy in over 30% of studied patients in response to teduglutide when metabolic parameters are considered when adjusting PS volume.
Stoma, No Colon-in-continuity versus Colon-in-continuity Patient Populations
CharacteristicStoma, no colon-in-continuityColon-in-continuity
EtiologyMainly InflammatoryMainly Trauma/Vascular
Frequency~45%~55%
PS RequirementHigherLower
Response to GLP-2Rapid, Robust Effects on PS ReductionMetabolic with Slow Effect on PS Reduction
Based on the above learnings, we have implemented several design advancements in our trials to further demonstrated the clinical benefit of apraglutide and inform its use in all patients across the diversity of the SBS disease spectrum:
Demonstration of clinically-meaningful benefit of apraglutide: We believe that focusing exclusively on the reduction PS volume may not fully capture the therapeutic benefit of apraglutide. For this reason, our Phase 3 trial design aims to demonstrate broader and more meaningful treatment effects of apraglutide by evaluating the reduction in the number of days per week of PS required by patients, the time required for PS, improvements in quality of life, and elimination of the PS need (enteral autonomy).
Focus on remnant bowel-anatomy: Our approach considers a patient’s anatomy when adapting PS and when evaluating the clinical impact of apraglutide. This is to offer better information on how to use apraglutide in distinct patient subtypes and to fully harnessing its therapeutic potential across the diverse spectrum of SBS patients.
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Weaning Algorithm: Traditionally, diuresis has been used as the main monitoring parameter to adjust PS requirements, an approach that works well for stoma patients. In contrast, we believe that it is essential to assess not only fluid balance but also metabolic improvements in response to a GLP-2 analog therapy to improve the detection of GLP-2 responses in CIC patients. In treating patients with apraglutide, we intend to deploy an evolved algorithm to adjust the PS volume, encompassing both fluid and metabolic monitoring, with the goal of achieving the best therapeutic outcome for each patient.
Demonstration of patient-specific benefit of apraglutide:
We believe that patients will want to know how to use apraglutide and what to expect as a treatment goal based on their anatomy. For this reason, our clinical design encompasses a stratification based on anatomy - stoma and CIC – to enable us to establish the clinical benefit of apraglutide in these two subtypes of SBS, with the objective of informing treatment goals and apraglutide use for each patient subtype.
Spectrum of short bowel syndrome and treatment goals
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We believe our approach will thoroughly evaluate the therapeutic potential of apraglutide and thereby may address the limitations of current GLP-2 treatment.
Overview of Ongoing and Planned Clinical Trials
We initiated a Phase 3 clinical trial (the STARS trial) to evaluate the safety and efficacy of once-weekly administration of 2.5 mg or 5 mg of apraglutide.
The STARS trial is being conducted as a global trial. We have a differentiated operational strategy with the study active in 18 countries and 74 sites activated at the date of writing. As the trial was launched during the COVID-19 pandemic, we have integrated a number of operational elements to ensure recruitment and retention in the study. These include a decentralized, patient-centric trial design where subjects can have the majority of their study procedures and assessments in the home setting and minimize requirements to travel to clinical sites, for example home trial nursing, IMP delivery and remote assessments such as laboratory tests and e-diaries.
The STARS trial includes the following key design features:
Approximately 144 SBS-IF patients, each of which will be randomized by their SBS anatomy
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Two treatment arms administering placebo and apraglutide with a 1:2 randomization. The single active arm comprises doses of 2.5 mg or 5 mg once weekly, depending on the body weight of the patient
Utilization of an anatomy-specific PS reduction algorithm to adapt PS requirements based on the individual patient’s needs
Primary Endpoint:
Relative change from baseline in actual weekly PS volume at Week 24
Select Secondary Endpoints: