PRVB Provention Bio, Inc. - 10-K

ITEM 1A. RISK FACTORS

Certain factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its entirety, in addition to other information contained in this Annual Report on Form 10-K, as well as our other public filings with the SEC. The risks and uncertainties described below are those we currently believe to be material, but they are not the only ones we face. If any of the following risks, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business and financial condition could be materially and adversely affected.

Risks Related to our Pending Transaction with Sanofi

We may not be able to complete the pending transaction with Sanofi within the time frame we anticipate, or at all, which could have an adverse effect on our business, financial results and/or operations.

On March 12, 2023, we entered into the Merger Agreement with Sanofi and Sanofi’s indirect wholly owned acquisition subsidiary under which Sanofi is to acquire the Company in a cash transaction for an approximate total equity value of $2.9 billion. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Sanofi’s acquisition subsidiary will commence a tender offer to purchase all of our issued and outstanding shares of common stock in exchange for $25.00 per share, to the seller in cash, without interest and less applicable withholding of taxes. If certain conditions are satisfied and the tender offer closes, Sanofi would acquire any remaining shares of our common stock by a merger of Sanofi’s acquisition subsidiary with and into us.

The completion of the transaction is subject to the conditions set forth in the Merger Agreement, including (1) that there be validly tendered, and not properly withdrawn, prior to the expiration of the tender offer, that number of shares of our common stock that, together with the number of shares of our common stock, if any, then owned beneficially by Sanofi and its acquisition subsidiary (together with their wholly-owned subsidiaries), represents at least a majority of the shares of our common stock outstanding as of the consummation of the tender offer, (2) the expiration or early termination of the applicable waiting period (or any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (3) the accuracy of certain of our representations and warranties in the Merger Agreement, (4) our compliance with certain covenants contained in the Merger Agreement, subject to qualifications, (5) the absence of a “Company Material Adverse Effect” (as defined in the Merger Agreement), and (6) other customary conditions. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of our Board of Directors or a termination of the Merger Agreement by us to enter into an agreement for a Superior Proposal (as defined in the Merger Agreement). As a result, we cannot assure you that the transaction with Sanofi will be completed, or that, if completed, it will be on the terms set forth in the Merger Agreement or within the expected time frame.

If the transaction is not completed within the expected time frame or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices of our common stock reflect a market assumption that the transaction will be completed. We could be required to pay Sanofi a termination fee of $100.0 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. The failure to complete the transaction also may result in negative publicity and negatively affect our relationship with our stockholders, employees, collaborators, customers, CROs, CMOs, other vendors, regulators and other business partners. We may also be required to devote significant time and resources to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement.

The pendency of the proposed transaction with Sanofi could adversely affect our results of operations, financial results and/or business generally, including our ability to retain and hire key personnel and maintain our relationships with collaborators, customers, CROs, CMOs, other vendors and other business partners.

Our efforts to complete the transaction could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the transaction will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following consummation of the transaction. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with collaborators, customers, CROs, CMOs, other vendors, regulators and other business partners. Changes to or termination of existing business relationships could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the transaction could be exacerbated by any delays in completion of the transaction or termination of the Merger Agreement.

While the proposed transaction with Sanofi is pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business.

The Merger Agreement includes restrictions on the conduct of our business prior to the completion of the merger, generally requiring us to use commercially reasonable efforts to carry on our business in the ordinary course. Without limiting the generality of the foregoing, we are subject to a variety of specified restrictions, including that we may not, among other things and subject to certain exceptions and aggregate limitations, incur additional indebtedness, issue additional shares of our common stock outside of our equity incentive plans, repurchase our common stock, pay dividends, acquire assets, securities or property, dispose of businesses or assets, enter into material contracts or make certain additional capital expenditures. We may find that these and other contractual restrictions in the Merger Agreement delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management believes they may be advisable. If any of these effects were to occur, it could materially and adversely impact our operating results, financial position, cash flows and/or the price of our common stock.

The Merger Agreement requires us to pay a termination fee to Sanofi if certain circumstances occur, which could require us to use available cash that would have otherwise been available for general corporate purposes.

If the Merger Agreement is terminated under certain circumstances, including termination by us in order to accept and enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement), we will be required to pay Sanofi a termination fee of $100.0 million by wire transfer of immediately available funds. If the Merger Agreement is terminated under such circumstances, we may be required to pay such termination fee using available cash that would have otherwise been available for general corporate purposes and other uses. For these and other reasons, termination of the Merger Agreement could materially and adversely affect our business operations and financial condition, which in turn would materially and adversely affect the price of our common stock.

Shareholder litigation could prevent or delay the closing of the proposed transaction with Sanofi or otherwise negatively impact our business, operating results and/or financial condition.

We may incur costs in connection with the defense or settlement of any future shareholder litigation in connection with the proposed transaction with Sanofi. Future shareholder litigation may adversely affect our ability to complete the proposed transaction with Sanofi. We could incur significant costs in connection with any such litigation lawsuits, including costs associated with the indemnification of obligations to our directors. Furthermore, one of the conditions to the closing of the transaction is the absence of any governmental order or law preventing the transaction or making the consummation of the transaction illegal. Consequently, if a plaintiff were to secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the proposed transaction, then such injunctive or other relief may prevent the proposed transaction from becoming effective within the expected time frame or at all.

We have incurred, and will continue to incur, direct and indirect costs as a result of the proposed transaction with Sanofi.

We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the pending transaction with Sanofi. We must pay substantially all of these costs and expenses whether or not the transaction is completed. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.

Risks Related to Our Business

We are a commercial-stage biopharmaceutical company with a limited operating history, and we are dependent on the commercial success of TZIELD. We expect to incur substantial expenses and may never become profitable or be able to sustain profitability.

We are a commercial-stage biopharmaceutical company formed in October 2016 and have a limited operating history. We do not lease or own any laboratory space and we have historically had a remote work environment for our employees. We outsource most of our manufacturing and clinical trial operations as well as certain other functions.

We have acquired or in-licensed TZIELD, which was recently approved by the FDA for its first commercial indication and which we are studying in a Phase III trial for use in newly diagnosed T1D as well as our three clinical stage assets (PRV-3279, ordesekimab and PRV-101). We have obtained FDA approval for TZIELD to delay the onset of Stage 3 T1D in adults and pediatric patients aged 8 years and older with Stage 2 T1D. We have not obtained any other marketing approvals for TZIELD or our product candidates. We launched TZIELD in the U.S. after FDA approval on November 17, 2022 and therefore do not have a long history operating as a commercial company. We continue our process of transitioning from a company with a research and development focus to a company with commercial activities and we may not be successful in executing this transition. We have not yet demonstrated our ability to consistently and effectively manufacture at commercial scale, or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history.

The commercial success of TZIELD will depend on a number of factors, including our ability to:

maintain commercial manufacturing arrangements with CMOs and establish redundancies in our manufacturing arrangements to protect against any supply chain issues that may arise;

produce, through a validated process, sufficient quantities and inventory of TZIELD to meet commercial demand;

maintain and, if needed, expand our commercial infrastructure with internal sales, distribution and marketing capabilities sufficient to generate and support commercial sales of TZIELD;

leverage Sanofi’s expertise, capabilities and commercial resources under the Sanofi Co-Promotion Agreement;

secure widespread acceptance of our product from physicians, health care payors, patients and the medical community;

raise awareness and expand screening to identify patients with Stage 2 T1D;

obtain and maintain coverage and adequate reimbursement of TZIELD by governmental authorities, private health insurers, managed care organizations and other third-party payers;

maintain compliance with ongoing FDA labeling, packaging, storage, advertising, promotion, recordkeeping, and safety requirements and other laws and regulations that apply to us and our commercial activities;

successfully complete the post-marketing requirements specified in the FDA approval letter for TZIELD;

manage our growth and spending as costs and expenses increase due to commercialization; and

establish and maintain strategic partnerships for the commercialization of TZIELD in countries outside the United States, and such collaborators’ ability to obtain regulatory and reimbursement approvals in such countries.

If we cannot successfully execute any one of the foregoing, or our ongoing clinical trials for our product candidates do not read out positively or support regulatory approvals, our business may not succeed, and your investment will be adversely affected. Additionally, we will need to continue investing substantial financial and management resources to complete these tasks, and we expect to incur substantial losses for the foreseeable future, and these losses will be increasing. We are uncertain when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable may impair our ability to sustain operations and adversely affect our business and our ability to raise capital.

Marketing approval of TZIELD for additional indications or in other jurisdictions, as well as obtaining marketing approval of our product candidates, will require extensive clinical testing data to support safety and efficacy requirements, as well as pharmaceutical development, manufacturing and preclinical data, all of which are needed for regulatory approval, and the requirements may be different in different jurisdictions in which we intend to launch our products. If we obtain marketing approvals in the jurisdictions in which we intend to launch our products, we will then have to secure pricing and reimbursement approvals prior to product launch. The likelihood of success of our business plan must be considered in light of the challenges, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Biopharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk, and is a capital-intensive business.

TZIELD may cause undesirable side effects that could limit its commercial potential.

TZIELD is associated with adverse reactions, which may require patients to discontinue treatment. The labeling for TZIELD includes warnings and precautions for cytokine release syndrome, serious infections, lymphopenia, and hypersensitivity reactions. If we or others identify previously unknown side effects, in particular if they are severe, or if known side effects are more frequent or severe than in the past, then:

sales of TZIELD may be modest;

regulatory approvals for TZIELD may be restricted or withdrawn;

we may decide to, or be required to, send product warning letters or field alerts to physicians, pharmacists and hospitals;

additional non-clinical or clinical studies or changes to manufacturing processes, specifications and/or facilities may be required;

changes in labeling or changes to distribution processes, including the imposition of a Risk Evaluation and Mitigation Strategy (“REMS”), may be required;

our reputation in the marketplace may suffer; and

government investigations or lawsuits, including class action suits, may be brought against us.

Any of the above occurrences would harm or prevent sales, increase our expenses and impair our ability to successfully commercialize TZIELD. Furthermore, TZIELD may be commercially used in a wider population and in a less rigorously controlled environment than in clinical studies or may be prescribed by physicians for off-label uses, which could result in adverse reactions being reported that are different than what was observed in clinical trials. If this were to occur, regulatory authorities, healthcare practitioners, third-party payers or patients may perceive or conclude that the use of TZIELD is associated with previously unknown serious adverse effects, undermining our commercialization efforts.

We need to raise additional funding. If we are unable to raise sufficient capital when needed, we could be forced to delay, reduce or eliminate certain, or all of our product development programs or commercialization efforts.

We expect our operating costs to be substantial as we incur costs to support our commercialization efforts for TZIELD, including costs related to the continued buildout of an internal commercial infrastructure, and our ongoing and planned clinical trials for TZIELD and our product candidates. We will operate at a loss for the foreseeable future even as we continue to build TZIELD’s nascent market and pursue, obtain pricing and reimbursement approvals for, and work to execute a successful commercial launch of TZIELD. For the years ended December 31, 2022 and 2021, we had a net loss of $113.6 million and $114.4 million, respectively, and as of December 31, 2022, we had an accumulated deficit of $405.6 million. We had cash, cash equivalents and marketable securities of $165.0 million as of December 31, 2022. We expect to continue to incur significant expenses and increasing operating losses over the next several years and our net losses may fluctuate significantly from quarter to quarter and year to year. On February 2, 2023, we drew an additional $40.0 million from the second tranche of the Hercules LSA following FDA approval of TZIELD, for net proceeds of approximately $38.9 million. Also, on February 10, 2023, Sanofi, in accordance with the Sanofi Securities Purchase Agreement (defined below), purchased 2,712,497 shares of our common stock at a purchase price of approximately $12.90 per share, for a total investment of $35.0 million.

We believe, based on our current operating plans, which include commercialization of TZIELD and advancement of our clinical product candidates, and other factors described above, that our cash, cash equivalents and marketable securities on hand, will be sufficient to fund current operating requirements for at least the next 12 months from the issuance of the financial statements included within this Annual Report on Form 10-K. If we do not otherwise raise additional capital, we may encounter near-term liquidity needs. Factors that could impact our cash runway include, but are not limited to, the success and uptake of our commercial launch of TZIELD and expenses related to the continued commercialization of TZIELD, including costs to continue the build out the Company’s commercial infrastructure and commercial sales activities (including the Sanofi Co-Promotion Agreement), manufacturing activities for TZIELD and the milestone payments due to MacroGenics upon FDA approval of TZIELD.

We do not have any prospective credit facilities as a source of future funds apart from the available capacity under our 2021 ATM Program and the Hercules LSA and there can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. We may seek additional capital through a combination of private equity offerings, public equity offerings, debt financings and strategic collaborations. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, could increase our expenses and could require that our assets secure such debt. Moreover, any debt we incur must be repaid regardless of our operating results. If we choose to pursue additional indications and/or geographies for TZIELD or our product candidates, in-license or acquire additional development assets, or otherwise expand more rapidly than we presently anticipate, we may also need to raise additional capital sooner than expected.

If we are unable to raise additional capital when required or on acceptable terms, we may need to significantly delay, scale back or discontinue the development or commercialization of TZIELD or one or more of our product candidates or cease operations altogether, or relinquish or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize.

Our forecast of the period of time through which our financial resources will adequately support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this Risk Factors section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

Our debt agreement with Hercules contains milestones that must be achieved in order to draw down on our debt facility and operating and financial covenants that restrict our business and financing activities, and is subject to acceleration in specified circumstances, which may result in Hercules taking possession of any collateral.

The third tranche of term loans under the Hercules LSA (the “Third Tranche”), in an amount up to $10.0 million, may only be drawn if the Second Tranche has been borrowed, subject to the achievement of (i) at least $70.0 million in new net cash proceeds from various equity issuances (including convertible debt) and business development transactions on or prior to December 15, 2023 and (ii) achievement of specified cumulative net product revenue related to TZIELD on or prior to November 30, 2023, provided that certain customary borrowing conditions have been satisfied. The fourth tranche of term loans under the Hercules LSA (the “Fourth Tranche”), in an amount up to $35.0 million (less the actual funded amount, if any, of the Third Tranche), may be drawn, subject to the achievement of specified trailing six-month net product revenue for any six-month period following the Closing Date and on or prior to September 30, 2024 (the “Performance Milestone”), with the drawing of the Fourth Tranche to occur on or prior to the earlier of (x) December 15, 2024 and (y) ninety (90) days following the achievement of the Performance Milestone, provided that certain customary borrowing conditions have been satisfied. The fifth tranche of term loans under the Hercules LSA, in an amount up to $25.0 million, is available solely at the discretion of the Lenders. Each of the remaining tranches may be borrowed in multiple drawings.

The Hercules LSA requires that, commencing on January 1, 2023, the Company maintain, at all times, unrestricted cash, cash equivalents and liquid funds held in accounts subject to a control agreement in favor of Hercules (“Liquidity”) in an amount not less than 50.0% of the aggregate outstanding amount of the term loans plus the aggregate amount of the Company’s accounts payable that remain unpaid 120 days after their respective due dates; provided that, upon (x) achievement of an Approval Milestone, which occurred on November 17, 2022, and (y) the effectiveness of the Performance Covenant (as defined in the Hercules LSA), the minimum Liquidity required to be maintained by the Company will be an amount not less than the greater of (A) $20,000,000 and (B) 25% of the aggregate outstanding amount of the aggregate outstanding amount of the term loans plus the aggregate amount of the Company’s accounts payable that remain unpaid 120 days after their respective due dates. In addition, if the Company draws Tranche 2, Tranche 3 and Tranche 4 of term loans, the Company is required to maintain minimum 6-month trailing revenue amounts, measured monthly commencing with the delivery of financial statements for the period ending June 30, 2024, as set forth in the Hercules LSA, provided that such minimum revenue covenant will be waived at any time in which the Company maintains (a) at least $550.0 million of market capitalization and minimum Liquidity of not less than 50.0% of the aggregate outstanding amount of the term loans or (b) minimum Liquidity of not less than 85.0% of the aggregate outstanding amount of the term loans. In addition, the Hercules LSA includes customary representations and warranties and other covenants associated with a secured term loan facility for similarly situated companies.

We maintain our cash at financial institutions, often in balances that exceed federally insured limits.

We regularly maintain cash balances at multiple third-party financial institutions, including Silicon Valley Bank (“SVB”), in excess of the Federal Deposit Insurance Corporation (“FDIC”), insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations. For example, the FDIC took control of SVB, where we held certain of our cash and cash equivalents, on March 10, 2023. The Federal Reserve subsequently announced that account holders would be made whole, and we were able to move substantially all of our cash and cash equivalents to another financial institution. However, the FDIC may not make all account holders whole in the event of future bank failures. In addition, even if account holders are ultimately made whole with respect to a future bank failure, account holders’ access to their accounts and assets held in their accounts may be substantially delayed. Any material loss that we may experience in the future or inability for a material time period to access our cash and cash equivalents could have an adverse effect on our ability to pay our operational expenses or make other payments, which could adversely affect our business.

We may not be able to correctly estimate or control our future operating expenses, which could lead to cash shortfalls.

Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors include:

the success of our development and commercialization strategy;

the time, resources, and expense required to develop and conduct clinical trials and seek regulatory approvals (including supplemental approvals), and pricing and reimbursement approvals, for TZIELD and our product candidates;

the time, resources, and expense required to maintain compliance with ongoing regulatory requirements;

the cost of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation;

the cost of manufacturing and maintaining sufficient inventories of TZIELD and our product candidates to meet anticipated demand;

any product liability or other lawsuits related to TZIELD or our product candidates and the costs associated with defending them or the results of such lawsuits;

the cost of defending against securities litigation including stock-drop litigation and related derivative lawsuits;

the cost of growing our ongoing development operations and establishing commercialization operations, including sales, marketing and distribution capabilities;

the cost to attract and retain personnel with the skills required for effective operations;

the costs associated with being a public company; and

the costs associated with commercialization.

Any material increases in our operating expenses will have a material impact on our financial condition and business operations. In addition, if we are unable to correctly estimate or control our future operating expenses, we may need to raise additional capital, delay or cease development or commercialization of TZIELD or one or more of our product candidates, which could have a material adverse effect on our business, operating results and prospects.

Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization

Clinical drug development involves a risky, lengthy and expensive process with an uncertain outcome. Although prior pre-clinical and clinical studies, data and analysis may support our belief in the potential of our product candidates, the results of our ongoing clinical trials for them may not be positive or supportive of our beliefs. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of TZIELD in additional indications or any of our other product candidates, which could negatively and materially impact our business.

We are pursuing clinical development of TZIELD for use in newly diagnosed T1D patients and have plans for label expansion efforts and development in other indications, in addition to our ongoing clinical development of our other product candidates. It is impossible to predict if or when any of our product candidates will prove safe or effective in humans or will receive regulatory approval and pricing and reimbursement approval, and the risk of failure through the development process is high. Before obtaining marketing approval (or supplemental approvals) from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing.

We will be required to submit our clinical trial protocols and receive approvals from the regulatory authorities before we can commence additional studies with our product candidates. Nonclinical study results for our product candidates, including toxicology studies, may not support the filing of an IND or foreign equivalent for the product candidate.

Moreover, we may not be successful in obtaining acceptance from the regulatory authorities to start our clinical trials. Prior to commencing any clinical trials, we will also have to obtain approval from the IRB, or Ethics Committee (“EC”) in each of the countries in which we plan to conduct our clinical trials. If we do not obtain or maintain such acceptance, the time in which we expect to commence and conduct clinical programs for any product candidate will be extended and such extension will increase our expenses and increase our need for additional capital.

Further, there is no guarantee that our clinical trials will be successful or that we will continue clinical development in support of an approval from the regulatory authorities for our product candidates. Our clinical trial results may show our product candidates to be less effective than expected or have unacceptable side effects or toxicities. For example, our Phase 2a PRINCE trial did not achieve its primary endpoint of a change in Crohn’s Disease Activity Index Score at week 12 as compared to placebo. We note that most drug candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Further, product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through pre-clinical studies and initial clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Additionally, data submitted to regulators are subject to varying interpretations that could delay, limit or prevent agency approval. We cannot assure you that the FDA, EMA, MHRA or comparable foreign regulatory authorities will view the results as we do or that any future trials of any of TZIELD or our product candidates will achieve positive results or regulatory approvals, or be successfully commercialized.

The success of our current and future product candidates will depend on several factors, including the following:

successful completion of preclinical and clinical studies with positive results;

sufficiency of our financial and other resources to complete the necessary preclinical and clinical studies or trials;

entry into partnerships or collaborations to further the development of our product candidates;

investigational new drug or clinical trial authorization applications, being cleared such that our product candidates can commence clinical trials;

successful initiation of enrollment in and completion of clinical trials;

successful data from our clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of our product candidates in the intended populations;

receipt of regulatory, marketing and pricing and reimbursement approvals from applicable regulatory authorities;

establishment of arrangements with third-party manufacturers for clinical supply and commercial manufacturing and, where applicable, commercial manufacturing capabilities;

successful development of our internal manufacturing processes and transfer, where applicable, from our reliance on CMOs, to our own manufacturing facility or other CMOs, or from our own manufacturing facility to CMOs or the facilities of collaboration partners;

establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates;

commercial launch of our product candidates, if and when approved, whether alone or in collaboration with others, including our ability to recruit and retain commercial talent;

acceptance of our product candidates and their therapeutic uses, if and when approved, by patients, the medical community and third-party payers;

competition with other therapies and treatment options, including the impact of competition on enrollment of clinical trials;

establishment and maintenance of healthcare coverage and adequate reimbursement from third-party payers and national healthcare systems for any approved products;

enforcement and defense of intellectual property rights and claims;

maintenance of a continued acceptable safety profile of the product candidates following approval; and

achieving desirable medicinal properties for the intended indications.

If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates. We cannot assure you that our product candidates will be successfully developed or commercialized. If we are unable to develop, or obtain regulatory approval or pricing and reimbursement approval for, or, if approved, to successfully commercialize our product candidates, it could have a material adverse effect on our business, operating results and prospects.

The ongoing coronavirus 2019 (COVID-19) pandemic has caused delays to our clinical trials, and may continue to impact our clinical trial and other business plans and timelines. Another surge in cases may lead to restrictions that limit our ability to engage healthcare providers, and therefore impact our launch trajectory. In addition, the ongoing pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business, operations and ability to raise capital.

The COVID-19 pandemic has caused, and may continue to cause, delays to the development of certain of our product candidates. Delays in completing our clinical trials are expected to increase our costs, slow our development and approval process and could negatively impact our ability to commence product sales and generate revenues. We have experienced some level of disruption to each of our current trials. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory decisions or issues or other interruptions. We initiated the ordesekimab Phase 2b trial in gluten free diet NRCD in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. The ongoing effects of the COVID-19 pandemic have affected the PREVAIL-2 study enrollment, primarily due to resource constraints at the clinical site level and subdued patient interest in participating in clinical trials of immune modulatory agents. We now expect top-line results of the PREVAIL-2 study in the second half of 2024.

Timely enrollment in our clinical trials is dependent upon global clinical trial sites which may be adversely affected by global health matters, such as pandemics. We are currently conducting clinical trials for TZIELD and our product candidates in many countries, including the United States, the European Union, the United Kingdom and Canada and may expand to other geographies. Many of these regions in which we operate may continue to be affected by COVID-19, which may delay or otherwise adversely affect enrollment in the clinical trials of TZIELD and our product candidates, as well as adversely impact our supply chain or business operations generally.

The pandemic has caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could adversely impact our ability to raise additional funds through public offerings or private placements and may also impact the volatility of our stock price and trading in our stock. Moreover, it is possible the pandemic will continue to significantly impact economies worldwide, which could result in adverse effects on our business and operations. Additionally, the pandemic could negatively impact our ability to execute a successful launch of TZIELD, which could impact our revenue making potential and have other negative material adverse impacts on our business. The full extent of the impact and effects of COVID-19 on our business, operations, liquidity, financial condition and results of operations remain uncertain at this time.

We are completely dependent on third parties to manufacture TZIELD and our product candidates with no, to limited redundancies in our supply chain. The commercialization of TZIELD and the clinical trials of TZIELD and our product candidates could be halted, delayed or made less profitable if those third parties fail to provide us with sufficient quantities of TZIELD or fail to do so at acceptable quality levels or prices.

We do not currently have, nor do we plan to acquire, the capability or infrastructure to manufacture TZIELD and our product candidates. As a result, we are obligated to rely on contract manufacturers for commercial and clinical supply of TZIELD and clinical supplies of our product candidates.

The facilities used by our contract manufacturers to manufacture TZIELD and any future product candidates that may receive marketing approval must be approved by the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities as part of the NDA or BLA submitted to the FDA or equivalent applications to other relevant regulatory authorities. We are completely dependent on our contract manufacturers for compliance with GMPs for manufacture of both active drug substances and finished drug products. These GMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to TZIELD and our product candidates. If our contract manufacturers do not successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. If the FDA, the competent authorities of the European Union Member States, MHRA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of TZIELD or our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain, and maintain regulatory approval for or market TZIELD or any future product candidates that may receive marketing approval.

Our contract manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with GMPs and similar regulatory requirements. Although we are responsible for oversight of manufacturing of TZIELD and our product candidates, we do not have control over our contract manufacturers’ compliance with these regulations and standards. Failure by any of our contract manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market any of our product candidates, delays, suspensions or withdrawals of approvals, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business. In addition, although we have audit and certain other oversight rights under our contracts with our contract manufacturers, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain or maintain regulatory approval for or market TZIELD or our product candidates.

If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, to the extent applicable, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our drug substance or finished drug products or should cease doing business with us, we could experience significant interruptions in the supply of TZIELD or our product candidates or may not be able to create a supply of TZIELD or our product candidates at all. Were we to encounter manufacturing issues, our ability to produce a sufficient supply of any of TZIELD or our product candidates might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturers, or the lack of capacity available at our third-party manufacturers, could impair our ability to supply any of TZIELD or our product candidates at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new active drug substances or finished drug products manufacturer, if we face these or other difficulties with our current manufacturers, we could experience significant interruptions in the supply of TZIELD or our product candidates if we decided to transfer the manufacture of TZIELD or our product candidates to one or more alternative manufacturers in an effort to deal with the manufacturing issues. Additionally, failing to obtain sufficient supply of TZIELD or our product candidates, due to manufacturing or other issues, may lead to regulatory delays and other issues which may negatively affect our business.

Any manufacturing problem or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture TZIELD. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to a contract manufacturer caused by problems at suppliers could delay shipment of TZIELD, increase our cost of goods sold and result in lost sales.

We cannot guarantee that our future manufacturers and suppliers will be able to reduce the costs of commercial scale manufacturing of TZIELD or our product candidates over time. If the commercial-scale manufacturing costs of TZIELD or our product candidates are higher than expected, these costs may significantly impact our operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely fashion. We also cannot guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.

If the contract manufacturers we use fail to comply with their TZIELD contractual obligations to us, or they fail to comply with applicable FDA regulations and requirements, we may be required to enter into new statements of work or other agreements with CMOs and incur additional costs to increase our commercial supply of TZIELD and if we are not able to do so successfully, on commercially reasonable terms and in a timely manner our business may be negatively and materially impacted.

Each of our contract manufacturers for TZIELD is a single source supplier. If any of the contract manufacturers in the supply chain for TZIELD experiences a delay or is unable to deliver the products or components necessary to manufacture the subject product, our ability to produce the affected product would be materially impaired.

Although we believe we currently have adequate supply to support TZIELD clinical and commercial supply demands, and through existing contracts with our CMOs, we have the ability to enter into new statements of work to increase our existing supply as needed, we do not have pre-set ongoing commitments from AGC Biologics for commercial supply of TZIELD or with any other contract manufacturers of our product candidates. Our current agreement with AGC Biologics for the supply of TZIELD as well as agreements with other contract manufacturers operate on a statement of work basis. If we are unable to reach agreement with AGC Biologics on the production of TZIELD for commercial use, or if we are unable to maintain commercial relationships with contract manufacturers, we may not have sufficient supply of TZIELD to fulfill customer orders or sufficient supply for our clinical trials. Identifying, qualifying and transferring manufacturing to secondary sources is a time-consuming and expensive process and there is no guaranty that we would be able to reach an agreement with a secondary source on acceptable terms, which could have a material adverse effect on our sales, results or operations and financial condition.

Our experience manufacturing TZIELD and our other product candidates is limited, and if the FDA requires any changes to our manufacturing process for our products, we are dependent on our CMOs and service providers to timely and compliantly deliver on their contractual obligations. If they fail to do so, this can materially and adversely impact our commercial product supply, product development plans and timelines. Additionally, if we encounter any manufacturing issues, we may experience delays or disruptions to our commercialization of TZIELD or our ongoing product development efforts for our product candidates, including our ongoing and planned clinical trials.

We have limited experience manufacturing TZIELD and we currently rely on single-source, third-party manufacturers to supply us with drug substance and drug product. We historically relied upon an existing supply of TZIELD drug substance produced by Eli Lilly to manufacture drug product at our third-party manufacturer for use in our clinical trials of TZIELD. We have entered into agreements with our third-party manufacturers to manufacture TZIELD or for our commercial and clinical supply needs. We believe supplies of TZIELD sufficient to supply the PROTECT study and to fulfill our initial commercial launch needs in the United States, have already been manufactured by our third-party manufacturers and have the ability to enter into new statements of work with our manufacturers to increase our TZIELD supply.

The FDA has included CMC post-marketing requirements for TZIELD that relate to developing improved assays for release and/or stability testing and continuing to evaluate the root cause for quality differences that could account for ACG and Lilly PK differences. If our CMOs and vendors fail to support us in successfully executing our CMC and other post-marketing commitments or we are not able to comply with the FDA’s post-marketing commitments, including requirements for a pediatric stage 2 study, a registry for long term safety data and delivery of AGC and Eli Lilly safety data from the PROTECT study that is positive, the FDA could require us to conduct additional studies or require updates to our label, which would require additional time, expenses, and resources and negatively impact the supply of TZIELD for our clinical and commercial needs and our business.

Changes in product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates are developed through preclinical studies to late-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to optimize processes. During the course of a development program, sponsors may also change the contract manufacturers used to produce the product candidates. Also, if we, through third-parties, engage in the scale-up of manufacturing, we may encounter unexpected issues relating to the manufacturing process or the quality, purity and stability of the product, and we may be required to refine or alter our manufacturing processes to address these issues. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of clinical trials. Such changes may also require additional testing, notification or approval by the FDA, the competent authorities of the European Union Member States, MHRA or other regulatory authorities. This could delay completion of clinical trials; require the conduct of bridging clinical trials or studies, or the repetition of one or more clinical trials; increase clinical trial costs; delay approval of our product candidates and jeopardize our ability to commence product sales and generate revenue.

We may encounter substantial delays in completing our ongoing clinical trials or starting any new clinical trials, which in turn may require additional costs, which could negatively and materially impact our business.

Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

delays in reaching, or failing to reach, a consensus with regulatory agencies on study design;

delays in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

delays in obtaining required IRB, or EC, approval in the country where the clinical trial will be conducted;

delays in recruiting a sufficient number of suitable patients to participate in our clinical trials;

delays as a result of the impact of the COVID-19 pandemic on clinical trial recruitment or other clinical trial activities;

imposition of a clinical hold by regulatory agencies, IRBs, or ECs;

failure by our CROs, other third parties or us to adhere to contractual, clinical trial, regulatory or legal requirements;

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

delays in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical sites;

delays in having patients’ complete participation in a study or return for post-treatment follow-up;

subjects choosing an alternative treatment for the indications for which we are developing our product candidates, or participating in competing clinical trials;

clinical study sites or patients dropping out of a study;

delay or failure to address any patient safety concerns that arise during the course of a trial;

unanticipated costs or increases in costs of clinical trials of our product candidates;

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

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

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the countries in which such trials are being conducted, by an independent Safety Review Board for such trial or by the FDA, MHRA, the competent authorities of the European Union Member States, or other regulatory authorities. 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, MHRA, the competent authorities of the European Union Member States, 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 drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

Product development costs for any of our product candidates will increase if we have delays in testing or approval or if we need to perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory authorities, and IRBs/ECs for reexamination, which may impact the costs, timing or successful completion of that study. If we experience delays in completion of, or if we, the FDA or other regulatory authorities, the IRB, the ECs or other reviewing entities, or any of our clinical trial sites suspend or terminate any of our clinical trials of any of our product candidates, its commercial prospects may be materially harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval, or pricing and reimbursement approval, of our product candidates. In addition, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of any of our product candidates could be significantly reduced. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval, or pricing and reimbursement approval, of our product candidates.

We may not be successful in our efforts to develop and obtain FDA approval for TZIELD for additional indications.

The FDA approved TZIELD as a treatment indicated to delay the onset of Stage 3 T1D in adults and pediatric patients aged 8 years and older with Stage 2 T1D. We do not anticipate obtaining FDA approval for TZIELD in additional indications without additional clinical data. Additional clinical trials will require time and expense, and these trials may fail to generate results that demonstrate to the satisfaction of the FDA that TZIELD is safe and effective in additional indications. Even if we obtain FDA approval for additional indications, we may not be able to obtain pricing and reimbursement approval for these indications. If we are unable to expand the indications for use of TZIELD, our business and prospects could be adversely affected.

We may never receive approval to commercialize TZIELD outside of the United States

We have not received regulatory approval to commercialize TZIELD in the European Union, United Kingdom or in any other countries outside the United States. However, the regulatory framework in these countries provides a pathway for an unauthorized medicinal product to be supplied in response to a bona fide unsolicited request of a healthcare professional in order to fulfil the special needs of the patient(s) under his/her care, and this is commonly known as named patient supply. Given that no authorized methods of treatment are available for Stage 2 of T1D, we have relied on the regulatory framework for named-patient supply for early patient access to TZIELD. Obtaining and maintaining regulatory approval, or pricing and reimbursement approval, of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain equivalent approvals in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions.

For example, in the European Union, we have initiated the process of seeking scientific advice from the CHMP, with respect to the regulatory pathway for teplizumab. While the guidance provided in scientific advice procedures do not seek to pre-evaluate the results of studies, the initial scientific advice letter that we received from CHMP in December 2020 suggested that an additional confirmatory study would be necessary to support an MAA, for the use of teplizumab in at-risk individuals. We plan to engage with CHMP to further elucidate the disease-modifying effect of teplizumab supported by study data in the context of clinical management of T1D, specifically in at-risk individuals. If, however, the EMA determines that our current teplizumab data package is insufficient to support an MAA for at-risk individuals and requires additional studies or data, such determination would delay or prevent approval of teplizumab in the European Union and European Economic Area (“EEA”) for this indication. We have independently engaged with the MHRA to discuss a potential regulatory path for teplizumab in the United Kingdom. We filed for and received in July 2021 an Innovation Passport for teplizumab in the United Kingdom for the at-risk indication. The Innovation Passport is the mandated entry point to the ILAP in the United Kingdom to facilitate approval of and market access to an innovative medicine. Additionally, we have engaged the MHRA in a scientific advice procedure to discuss, among other topics, ILAP. The discussions with and feedback from the MHRA in the United Kingdom, ILAP partner agencies such as the NICE and the Scottish Medicines Consortium will help us evaluate the possible regulatory and market access paths forward in the United Kingdom for teplizumab. On April 20, 2021 we received a scientific advice letter from the MHRA on matters relating to the therapeutic position, non-clinical and clinical characterization of teplizumab. In addition, we have submitted a pediatric investigation plan (“PIP”) to the MHRA. There is no guarantee the MHRA will approve the PIP in a timely manner for regulatory approval. We have started a preliminary discussion with MHRA and its ILAP partners in the development of a TDP and identification of the relevant toolkits to support approval of and market access to teplizumab in the United Kingdom. Further engagement with the MHRA and its ILAP partners is planned in 2023. There is no guarantee that a similar position would be taken by the EMA in the European Union. The advice given by the MHRA makes clear that it is not legally binding with regard to any future MAA for teplizumab, nor can it be taken as indicative of any future agreed position. The MHRA indicated in its letter that it is of the view that there is an unmet medical need for a treatment that delays or prevents progression to T1D in at-risk patients. The MHRA did not request another confirmatory study to be carried out, acknowledging that the indication being sought is rare and that we may have difficulties recruiting sufficient numbers of subjects for such a study. However, the MHRA has considered that an MAA may benefit from additional supplementary information on patient preference. Such additional information would seek to strengthen the argument that teplizumab would benefit the at-risk patients according to the proposed label claim. The MHRA also considered that reliance on one pivotal study to obtain a marketing authorization ought to meet the criteria described in the EMA/CPMP guidance entitled “Points to consider on application with (i) meta-analyses and (ii) one pivotal study” (CPMP/EWP/2330/99), which for the time being, is still relevant to applications made in the United Kingdom. We also plan additional engagements with EMA and other European stakeholders, including the relevant European national regulatory authorities, in 2023; however, these stakeholders may not agree with our views on our teplizumab data package or our view of the relevant medical need in at-risk populations and our efforts may not lead to favorable positions or decisions relating to or an approval of teplizumab by the MHRA or a positive opinion by the EMA and a subsequent marketing authorization by the European Commission. Even if teplizumab is approved in United Kingdom and/or in the European Union, the MHRA or EMA/European Commission, may limit the indication for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of an approval, amongst other requirements which we may or may not be able to comply with. Even if teplizumab were to be granted a marketing authorization, we could not guarantee that the payers and health technology agencies in the United Kingdom and the Member States of the European Union would accept the therapeutic value and/or cost-effectiveness of teplizumab for it to be adopted for clinical use in the respective national health systems.

The process for obtaining approval of an MAA or any other filing for approval in a foreign country is an extensive, lengthy, expensive and uncertain process and the regulatory authority may reject a filing or delay, limit or deny marketing approval for many reasons. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale, Failure to obtain marketing approval in other countries or any delay or setback in obtaining such approval would impair our ability to develop foreign markets for TZIELD and could adversely affect our business and financial condition. Any such complications may reduce our target market and delay or limit the full commercial potential of TZIELD.

We have conducted and are conducting clinical trials outside the United States and anticipate conducting additional clinical trials outside the United States, and the FDA may not accept data from such trials.

We are currently conducting clinical trials for TZIELD and our product candidates in countries outside of the United States and we anticipate that we will conduct additional clinical trials in countries outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of such study data by the FDA is subject to certain conditions. For example, the clinical trial must be conducted in accordance with GCP requirements, and the FDA must be able to validate the data from the clinical trial through an onsite inspection if it deems such inspection necessary. Where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are considered applicable to the United States patient population and United States medical practice, the clinical trials were performed by clinical investigators of recognized competence, and the data is considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, such clinical trials would be subject to the applicable local laws of the foreign jurisdictions where the clinical trials are conducted. A description of any studies related to overdosage is also required, including information on dialysis, antidotes, or other treatments, if known. There can be no assurance the FDA will accept data from clinical trials conducted outside of the United States. If the FDA does not accept any such data, it would likely result in the need for additional clinical trials, which would be costly and time-consuming and delay aspects of our development plan.

Risks inherent in conducting international clinical trials include, but are not limited to:

foreign regulatory requirements that could burden or limit our ability to conduct our clinical trials;

administrative burdens of conducting clinical trials under multiple foreign regulatory schema;

foreign currency fluctuations which could negatively impact our financial condition since certain payments are paid in local currencies;

manufacturing, customs, shipment and storage requirements;

cultural differences in medical practice and clinical research; and

diminished protection of intellectual property in some countries.

Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.

The successful discovery, development, manufacturing and sale of biologics is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the development, manufacturing and sale of biologics is subject to regulations that are often more complex and extensive than the regulations applicable to other pharmaceutical products. Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically by a chemical process. In addition, after receiving product approval, the FDA and other regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA and other regulatory authorities may require that we not distribute a lot until the agency authorizes its release. Failure to successfully discover, develop, manufacture and sell biologics could adversely impact our business and results of operations.

If we are not able to obtain any required regulatory approvals for our product candidates, we will not be able to commercialize our product candidates and our ability to generate revenue from these products will be limited.

The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing, export, import and distribution of drug products are subject to extensive regulation by the FDA, EMA, MHRA and other regulatory authorities in the United States, European Union, United Kingdom and other countries, where regulations differ from country to country. We are not permitted to market our product candidates as prescription pharmaceutical products in the United States until we receive approval of an NDA, or BLA from the FDA, or in any foreign countries until we receive the requisite approval from such countries. In the United States, the FDA generally requires the completion of clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an NDA or a BLA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission of an NDA or a BLA to the FDA or other regulatory authorities and even fewer are eventually approved for commercialization. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an application. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and grant of manufacturing authorizations by the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. If our development efforts for our product candidates, including regulatory approval, are not successful for their planned indications, our business will be materially adversely affected. Our success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following:

the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, EMA/European Commission, MHRA or other regulatory agencies for marketing approval;

the dosing of our product candidates in a particular clinical trial may not be at an optimal level;

we may be required to provide additional analysis or data for already completed clinical studies, or conduct additional studies;

the FDA, EMA, MHRA or comparable foreign regulatory authorities may require us to obtain clearance, CE marking or approval of companion diagnostic tests;

the FDA, EMA, MHRA or comparable foreign regulatory authorities may disagree on the design or implementation of our clinical trials, including the methodology used in our studies, our chosen endpoints, our statistical analysis, or our proposed product indication;

our failure to demonstrate to the satisfaction of the FDA, EMA, MHRA or comparable regulatory authorities that a product candidate is safe and effective for its proposed indication;

we may fail to demonstrate that a product candidate’s clinical benefits outweigh its safety risks;

immunogenicity might affect a product candidate efficacy and/or safety;

the FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies or clinical trials;

the FDA, MHRA, the competent authorities of the European Union Member States or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with whom we contract for clinical and commercial supplies; or

there may be changes in the approval policies or regulations that render our nonclinical and clinical data insufficient for approval.

Additionally, even if we obtain regulatory approval for one indication, there is no guarantee we will be able to gain regulatory approval for additional indications. For example, we intend to initially seek regulatory approval for our CVB vaccine product candidate for the prevention of acute CVB infection. The results of longitudinal studies demonstrating the connection between CVB and T1D or celiac disease will be necessary to expand the indicated use of this vaccine to T1D. These studies must be completed and submitted to the FDA, MHRA or EMA prior to receiving approval in the United States, United Kingdom or European Union to market the CVB vaccine for additional indications such as prevention of T1D. Such studies will be costly and time consuming and may not demonstrate to the FDA’s, MHRA’s or EMA’s satisfaction the connection between the CVB virus and the onset of T1D or celiac disease. Failure or delay in obtaining regulatory approval for our product candidates for the foregoing, or any other reasons, will prevent or delay us from commercializing our product candidates, and our ability to generate revenue from these candidates will be materially impaired. We cannot guarantee that regulators will agree with our assessment of the results of the clinical trials we have conducted or intend to conduct in the future or that such future trials will be successful. The FDA, EMA, MHRA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional clinical trials, or pre-clinical or other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of our product candidates.

In addition, after receiving regulatory approval of our product candidates and/or any additional indications, prior to commercialization, payers and health technology agencies will assess the therapeutic value and/or cost-effectiveness for the product candidates and/or additional indications before such product candidates can be adopted for clinical use in the respective national health systems and this is referred to as pricing and reimbursement approval throughout this document. Without such pricing and reimbursement approvals, the commercialization and market access of the product candidates would be significantly impacted. We cannot guarantee that pricing and reimbursement approval would be obtained.

We are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. If we fail to comply with these requirements or if we experience unanticipated problems with TZIELD, the FDA could impose labeling and other restrictions or require TZIELD be withdrawn from the market and we may be subject to penalties.

TZIELD, and any other product candidate for which we obtain marketing approval, will be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include submissions of safety and other post marketing information and reports, registration and listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post marketing testing and surveillance to monitor the safety or efficacy of the product, including the imposition of a REMS.

With respect to TZIELD, the FDA has imposed CMC and clinical post-marketing requirements, including requirements to conduct an open-label study to assess safety and pharmacokinetics of TZIELD in pediatric patients ages 0 to 8 years of age, conduct an observational registry study to assess the long-term safety of TZIELD in patients with Stage 2 TID, and provide comparative safety data on the commercial formulation of TZIELD versus the clinical trial product form the PROTECT and PROTECT Extension studies. If we face challenges or are unable to comply with post-marketing requirements, we may not be able to maintain marketing approval, or we may decide to abandon the program.

If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured or product quality, or we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions:

restrictions on the marketing or manufacturing of the product;

withdrawal of the product from the market;

voluntary or mandatory product recalls;

restrictions of the labeling of a product;

restrictions on product distribution or use

requirements to conduct post-marketing studies or clinical trials;

issuance of warning letters or untitled letters;

injunctions or the imposition of civil or criminal penalties or monetary fines, restitution, or disgorgement of profit or revenues;

suspension, withdrawal, variation or revocation of regulatory approval;

suspension or termination of any ongoing clinical trials;

refusal to approve pending applications or supplements to approved applications filed by us;

suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or

product seizure or detention or refusal to permit the import or export of product.

With respect to sales and marketing activities by us or any future licensor, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. See “Risk Factors - Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization.”

If we market any of our product candidates or commercial products, in a manner that violates healthcare laws, we may be subject to civil or criminal penalties.

The occurrence of any event or penalty described above may inhibit our ability to commercialize TZIELD, or any other product candidates for which we obtain marketing approval, and generate revenue. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.

Even though we may apply for orphan drug designation for TZIELD in additional indications or for our other product candidates, we may not be able to obtain such designation or obtain orphan drug marketing exclusivity. Even if we obtain orphan drug marketing exclusivity, it may not effectively protect the product from competition.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States or for which there is no reasonable expectation that the cost of developing and making a drug available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan drug designation must be requested before submitting an NDA or a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of regulatory review and approval process. In addition to the potential period of exclusivity, orphan designation makes a company eligible for grant funding to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product. If a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity. There can be no assurance that we will receive orphan drug designation for any of our product candidates in the indications for which we think they might qualify, if we elect to seek such applications.

We have obtained orphan drug designation from the FDA for TZIELD for the treatment of newly diagnosed T1D, however, there is no guarantee that the FDA, the European Commission or comparable foreign regulatory authorities will grant any future application for orphan drug designation for any of our other product candidates, which would make us ineligible for the additional exclusivity and other benefits of orphan drug designation, and may also impact our ability to obtain benefits under other incentive programs, such as the rare pediatric disease priority review voucher program. For example, we applied for, but did not receive, orphan drug designation or exclusivity for TZIELD for the use in individuals with Stage 2 T1D.

Even if we obtain orphan drug exclusivity for TZIELD for the treatment of newly diagnosed T1D in the United States, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan drug exclusivity if we are unable to manufacture sufficient supply of TZIELD or if the FDA finds that a subsequent applicant for newly diagnosed T1D demonstrates clinical superiority to TZIELD. Accordingly, orphan drug exclusivity for a product may not effectively protect the product from competition.

Although we may apply for rare pediatric disease designation for our product candidates, we may not be able to obtain such designation, and rare pediatric disease designation does not guarantee that the NDA or BLA for the product will qualify for a priority review voucher upon approval.

Under the Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying BLA or NDA for the treatment of a rare pediatric disease, the sponsor of such an application would be awarded a rare pediatric disease priority review voucher that can be used to obtain priority review for a subsequent BLA or NDA. On December 27, 2020, the Creating Hope Reauthorization Act extended the Rare Pediatric Disease Priority Review Voucher Program, and after September 30, 2024, the FDA may only award a voucher for an approved rare pediatric disease product application if the sponsor has rare pediatric disease designation for the drug, and that designation was granted by September 30, 2024. After September 30, 2026, the FDA may not award any rare pediatric disease priority review vouchers.

We submitted a request for, but did not receive, rare pediatric disease designation for TZIELD for the use in individuals with Stage 2 T1D. Because we received FDA approval for our BLA for TZIELD, any future applications for TZIELD as a monotherapy will be ineligible for rare pediatric disease designation or a rare pediatric disease priority review voucher.

There is no guarantee that the FDA will grant any future requests for rare pediatric disease designation for any of our product candidates. Moreover, even if we obtain rare pediatric disease designation, there is no guarantee that we will qualify for a rare pediatric disease priority review voucher upon FDA approval of the NDA or BLA for a rare pediatric disease. Rare pediatric disease designation does not lead to faster development or regulatory review of the product, or increase the likelihood that it will receive marketing approval or pricing and reimbursement approval.

Although we may pursue expedited regulatory approval pathways for TZIELD in additional indications or for our product candidates, they may not qualify for expedited development or, if they do qualify for expedited development, it may not actually lead to a faster development or regulatory review or approval process.

Although we believe there may be an opportunity to accelerate the development of TZIELD in additional indications or certain of our product candidates through one or more of the FDA’s or EMA’s expedited programs, such as fast track, breakthrough therapy, accelerated approval or priority review, we cannot be assured that any of our products will qualify for such programs.

For example, in the United States, a drug may be eligible for designation as a breakthrough therapy if the drug is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Although breakthrough designation or access to any other expedited program may expedite the development or approval process, it does not change the standards for approval. If we apply for breakthrough therapy designation or any other expedited program for TZIELD in additional indications or our product candidates, the FDA may determine that our proposed target indication or other aspects of our clinical development plans do not qualify for such expedited program. Even if we are successful in obtaining a breakthrough therapy designation or access to any other expedited program, we may not experience faster development timelines or achieve faster review or approval compared to conventional FDA procedures. For example, the time required to identify and resolve issues relating to chemistry, manufacturing and controls, the acquisition of a sufficient supply of our product for clinical trial purposes or the need to conduct additional preclinical or clinical studies may delay approval by the FDA, even if the product qualifies for a breakthrough therapy designation or access to any other expedited program. Access to an expedited program may also be withdrawn by the FDA if it believes that the designation is no longer supported by data from our clinical development program. Additionally, qualification for any expedited review procedure does not ensure that we will ultimately obtain regulatory approval for such product.

Current and future changes related to regulation of TZIELD or our product candidates by the FDA or similar foreign regulatory authority may increase the difficulty and cost for us to obtain marketing approval of or commercialize our products.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell TZIELD and any other product candidates for which we obtain marketing approval.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approval of TZIELD, if any, may be. In addition, increased scrutiny by the United States Congress (“Congress”) of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

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. We also cannot predict the likelihood, nature, or extent of adverse government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad. For example, on March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic. Among other provisions, the CARES Act made a number of changes to the FDCA aimed at preventing drug shortages. Similarly, the FDA has issued a number of guidance documents describing the agency’s expectations for how drug manufacturers should comply with various FDA requirements during the pandemic, including with respect to conducting clinical trials, distributing drug samples, and reporting post-marketing adverse events. Moreover, as a result of the COVID-19 pandemic, there has been increasing political and regulatory scrutiny of drug supply chains, resulting in proposed and enacted legislative and executive actions, including Executive Orders, to incentivize or compel drug manufacturing operations to relocate to the United States. It is not clear how these changes and proposals could impact our business. 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.

Healthcare reform and other governmental and private payor initiatives may have an adverse effect upon, and could prevent, commercial success of TZIELD and any other product candidates for which we obtain marketing approval.

The United States government and individual states have been aggressively pursuing healthcare reform that would impact the delivery of, and/or payment for, healthcare, which include initiatives intended to reduce the cost of healthcare generally and drug specifically.

For example, in March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act (the “ACA”), which, among other things, expanded healthcare coverage through Medicaid expansion and the implementation of the individual health insurance mandate; included changes to the coverage and reimbursement of drug products under government healthcare programs; required manufacturers to provide discounts on Medicare Part D brand name prescription drugs sold to Medicare beneficiaries in the Medicare Part D coverage gap (i.e., the so-called “donut hole”); imposed an annual fee on manufacturers of branded drugs; and expanded government enforcement authority. Since its enactment, there have been and likely will be judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. For example, tax reform legislation was enacted at the end of 2017 that eliminates the tax penalty for individuals who do not maintain sufficient health insurance coverage beginning in 2019 (the so-called “individual mandate”). More recently, in June 2021, the U.S. Supreme Court dismissed the latest judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Changes resulting from any successful challenges or other future modifications may have a material impact on our business.

Beyond the ACA, there have been ongoing legislative and administrative reform efforts that affect pricing or payment for drug products or the healthcare industry more generally. Drug pricing and payment reform was a focus of the Trump Administration and has been a focus of the Biden Administration. For example, federal legislation enacted in 2021 eliminates a statutory cap on Medicaid drug rebate program rebates effective January 1, 2024. As another example, in 2022, the Inflation Reduction Act (“IRA”) of 2022 contains various drug pricing and payment provisions. Among other provisions, the IRA imposes a yearly cap ($2,000 in 2025) on out-of-pocket prescription drug costs in Medicare Part D, implements a new Medicare Part D manufacturer discount drug program in 2025; requires manufacturers to pay a rebate to the federal government if prices for single-source drugs and biologicals covered under Medicare Part B and nearly all covered drugs under Part D increase faster than the rate of inflation and, starting in 2026, creates a drug price negotiation program under which the prices for certain high Medicare spend drugs and biologicals without generic or biosimilar competition will be limited by a cap that is defined by reference to, among other things, a specified non-federal average manufacturer price. Such legislative changes or other changes could affect the market conditions for our products. We expect continued scrutiny on drug pricing and government price reporting from Congress, agencies, and other bodies. Other federal and state health care initiatives responded to the COVID-19 pandemic, increasing funding for certain services or providing enhanced flexibility in coverage for certain services. Certain initiatives were implemented only for the duration of the public health emergency, which the Biden administration has announced will expire on May 11, 2023. The expiration of the initiatives may adversely affect demand or payment for our product. For example, increased federal Medicaid funding will be phased out on 2023 and state Medicaid programs will resume eligibility redeterminations for individuals receiving Medicaid benefits which could result in a loss of eligibility for a portion of the current Medicaid population.

Some of the health care reform changes have been and may continue to be subject to legal challenge. For example, courts temporarily enjoined regulations that would implement a new “most favored nation” payment model for select drugs covered under Medicare Part B that was to take effect on January 1, 2021 and would limit payment based on international drug price and CMS subsequently issued a notice of proposed rulemaking to rescind and remove the regulations. As another example, revisions to regulations under the federal anti-kickback statute would remove protection for traditional Medicare Part D discounts offered by pharmaceutical manufacturers to pharmacy benefit managers and health plans. Pursuant to court order, the removal was delayed, and the IRA further delayed implementation of the rule until January 1, 2032. As another example, there are ongoing challenges by manufacturers under the 340B Drug Discount Program to the application of 340B discounted pricing to products dispensed by pharmacies under contract with health care providers participating in the program as well as the implementation of the 340B Drug Discount Program administrative dispute resolution process for disputes between manufacturers and 340B health care providers. The resolution of these challenges may have a material adverse impact on our revenue as a participant in the 340B Drug Discount Program.

Adoption of new healthcare reform legislation at the federal or state level could affect demand for, or pricing of, TZIELD and any other product candidates for which we obtain marketing approval. We cannot predict, however, the ultimate content, timing or effect of any healthcare reform legislation or action, or its impact on us, and healthcare reform could increase compliance costs and may adversely affect our future business and financial results.

In addition, other legislative changes have been adopted that could have an adverse effect upon, and could prevent, the commercial success of TZIELD and any other product candidates for which we obtain marketing approval. More broadly, the Budget Control Act of 2011, as amended, or the Budget Control Act, includes provisions intended to reduce the federal deficit, including reductions in Medicare payments to providers through 2031. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs, or any significant taxes or fees imposed as part of any broader deficit reduction effort or legislative replacement to the Budget Control Act, or otherwise, could have an adverse impact on our anticipated product revenues.

In addition to governmental efforts in the United States, foreign jurisdictions as well as private health insurers and managed care plans are likely to continue challenging manufacturers’ ability to obtain reimbursement, as well as the level of reimbursement, for pharmaceuticals and other healthcare-related products and services. These cost-control initiatives could significantly decrease the available coverage and the price we might establish for our products, which would have an adverse effect on our financial results. The pricing and reimbursement of medicinal products in the European Union and the United Kingdom is subject to strict governmental control. Pricing and reimbursement negotiations with governmental authorities are complex and may take significant amounts of time. To obtain reimbursement and/or pricing approval in the European Union Member States and/or the UK, we may be required to conduct studies or otherwise provide data demonstrating the cost effectiveness of our products compared with other available established therapies. The conduct of such studies could also result in delays in the commercialization of our products. Additionally, cost-control initiatives, increasingly based on affordability and accessibility, as well as post-marketing assessment of the product’s added value as compared to existing treatments, could decrease the price of our products or the indications for which we are able to obtain reimbursement, which would result in lower revenues to us. New legislative and policy initiatives in the European Union, aimed at increasing accessibility and affordability of medicinal products, and the increased cooperation between the European Union Member States may further impact the price and reimbursement status of our products in the future. On December 15, 2021, European Union legislatures adopted Regulation (EU) 2021/2282 of the European Parliament and of the Council on health technology assessment and amending Directive 2011/24/EU. The new Regulation will apply starting in January 2025, and will facilitate the greater coordination and cooperation within the European Union of an assessment of the relative clinical effectiveness and relative clinical safety of a new health technology as compared with existing technologies in a health technology assessment.

If we fail to successfully commercialize TZIELD or develop and commercialize any of our product candidates, we may need to acquire additional product candidates and our business will be adversely affected.

We have a limited product pipeline and do not have any other compounds in pre-clinical testing, lead optimization or lead identification stages beyond TZIELD and our product candidates. We cannot be certain that any of our product candidates will prove to be sufficiently effective and safe to meet applicable regulatory standards for any indication. If we fail to successfully commercialize TZIELD or successfully obtain regulatory approval, pricing and reimbursement approval, or commercialize any of our product candidates, whether as stand-alone therapies or in combination with other therapeutic agents, and if we are unable to acquire additional product candidates in the future, our business will be adversely affected.

We may not be able to successfully commercialize TZIELD or any other product candidates for which we obtain marketing approval and the revenue that we generate from its sales, if any, may be limited.

The commercial success of TZIELD and any other product candidates for which we obtain marketing approval depends upon each product’s acceptance by the medical community, including physicians, patients and payers. The degree of market acceptance for TZIELD depends on a number of factors, including:

demonstration of clinical safety and efficacy;

relative convenience, dosing burden and ease of administration;

the prevalence and severity of any adverse events and the overall safety profile;

the clinical indications for which our products are approved;

the acceptance of physicians to include T1D screening in routine patient medical care;

the willingness of physicians to prescribe our products, and the target patient population to try new therapies;

the willingness of physicians and patients to accept 14 consecutive days of IV therapy;

efficacy of our products compared to future competing products or therapies;

the introduction of any new products that may in the future become available targeting indications for which our products are approved;

new procedures or therapies that may reduce the incidences of any of the indications in which our products may show utility;

pricing and cost-effectiveness;

the inclusion or omission of our products in applicable therapeutic and vaccine guidelines;

the effectiveness of our own or any future collaborators’ sales and marketing strategies;

limitations or warnings contained in approved labeling from regulatory authorities, including any interactions of our products with other medicines patients are taking;

our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payers or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and

the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals.

If TZIELD or any of our product candidates for which we obtain marketing approval do not achieve an adequate level of acceptance by physicians, health care payors, and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payers on the benefits of TZIELD or any other product candidates for which we obtain marketing approval may require significant resources and may never be successful.

In addition, even with regulatory approvals and pricing and reimbursement approvals, the timing or scope of any approvals may prohibit or reduce our ability to successfully commercialize TZIELD or any other product candidates for which we obtain marketing approval. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render TZIELD or our product candidates not commercially viable. For example, regulatory authorities may approve TZIELD or our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve our product with a label that does not include the labeling claims necessary or desirable for the successful commercialization for that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require risk management plans or a REMS, to assure the safe use of the drug. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of TZIELD or our product candidates. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of TZIELD or our product candidates.

We currently have hired a commercial organization to support the commercialization of TZIELD. If we are unable to establish and maintain satisfactory sales, commercial support and marketing capabilities, we may not successfully commercialize TZIELD or any other product candidates for which we obtain marketing approval.

We have hired a commercial organization to support the commercialization of TZIELD, including through the support provided by Sanofi under our Co-Promotion Agreement. In order to commercialize additional indications or products that are approved for commercial sales, we may need to expand our commercial infrastructure. If we are not successful recruiting sales personnel or in building our sales and marketing infrastructure in the United States, we will have difficulty successfully commercializing our product candidates for which we obtain marketing approval, which would adversely affect our business, operating results and financial condition.

If we are unable to establish and maintain a satisfactory and successful commercial infrastructure, we may not realize a positive return on this investment. In addition, we will have to compete with established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales personnel. Factors that may inhibit our efforts to commercialize TZIELD, or any other product candidates for which we obtain marketing approval, without strategic partners or licensees include:

our inability to recruit and retain adequate numbers of effective sales, market access, patient services, medical affairs and other key commercial personnel;

the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;

the inability to secure reimbursement through third-party payers;

the inability to catalyze adequate screening to identify appropriate patients;

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

unforeseen costs and expenses associated with creating an independent commercial organization.

We have entered into collaborations with third parties, and in the future may enter into additional collaborations with third parties, for the research, development, and commercialization of TZIELD and certain other product candidates we may develop. If any such collaborations are not successful, we may not be able to capitalize on the market potential of those product candidates.

We may seek additional third-party collaborators for the research, development, and commercialization of TZIELD and certain other product candidates we may develop. For example, in October 2022, we and Genzyme Corporation entered into the Sanofi Co-Promotion Agreement, pursuant to which we appointed Sanofi to co-promote and conduct certain commercialization activities with respect to TZIELD in the United States on a co-exclusive basis for the treatment of the approved indication. In any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of TZIELD or any other product candidates we may seek to develop with them. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into.

Collaborations pose numerous risks to us, including the following:

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

collaborators may not pursue development and commercialization of any product candidates we may develop or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates we may develop if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;

collaborators may not properly obtain, maintain, enforce, or defend our intellectual property or proprietary rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

disputes may arise between the collaborators and us that result in the delay or termination of the research, development, or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources;

we may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control;

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product or product candidates we may develop;

collaboration partners may engage in fraudulent or illegal activity that violate the regulations of the FDA and other regulators, including those laws requiring the reporting of true, complete and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws and regulations in the United States and internationally or laws that require the true, complete and accurate reporting of financial information or data; and

collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished, or terminated.

If our collaborations, including the Sanofi Co-Promotion Agreement, do not result in the successful development and commercialization of our products, or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of product candidates could be delayed, and we may need additional resources to develop product candidates. In addition, if one of our collaborators terminates its agreement with us, we may find it more difficult to find a suitable replacement collaborator or attract new collaborators, and our development programs may be delayed or the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization described in this report apply to the activities of our collaborators.

These relationships, or those like them, may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we could face significant competition in seeking appropriate collaborators, and the negotiation process is time-consuming and complex. Our ability to reach a definitive collaboration agreement 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 several factors. If we license rights to any product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture.

If our Co-Promotion Agreement with Sanofi is terminated, or Sanofi materially breaches its obligations thereunder, our business, prospects, operating results, and financial condition, and our ability to commercialize TZIELD in the time expected, or at all, could be materially harmed.

We are relying on support from Sanofi to commercialize TZIELD. Under the Sanofi Co-Promotion Agreement, Sanofi has committed to making field resources representing more than 100 FTEs available for co-promotion and commercialization activities of TZIELD. As a result, we will rely in part on Sanofi’s sales and marketing organization for TZIELD. If the Sanofi-Co Promotion Agreement were terminated or breached, and we no longer had access to Sanofi’s field resources, we would be required to expend substantially more resources than we have anticipated to support our commercialization efforts. This could require us to either seek additional funding that might not be available on favorable terms or at all, or materially cut back on such activities. Termination of the Sanofi Co-Promotion Agreement would create substantial new and additional risks to the successful commercialization of TZIELD and could materially harm such commercialization.

Amgen has the right to assume control over the activities of our anti-IL-15 mAb product candidate.

Pursuant to the Amgen Agreement, Amgen reserves the right, at any time until 120 days after the delivery of the final data package relating to the Phase 2b PROACTIVE study which we initiated in August 2020, to assume control over all activities with respect to our anti-IL-15 mAb, product candidate, including pricing and marketing decisions, after the payment of a $150.0 million milestone. There can be no assurance that Amgen’s strategic direction will be in line with ours should it assume control of activities, or that their decisions will have a positive impact on our results of operations. Moreover, we may not realize the full economic benefit of this agreement.

We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have existing competitors and will have potential new competitors in a number of jurisdictions, many of which have or will have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Established competitors may invest heavily to quickly discover and develop novel compounds that could make TZIELD or our product candidates obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to TZIELD or our product candidates. If we are not able to compete effectively against our current and future competitors, our business will not grow, and our financial condition and operations will suffer.

Our potential competitors both in the United States and throughout the world include companies developing and/or marketing drugs and therapeutic solutions for immune-mediated diseases, including oncological, autoimmune and inflammatory diseases, as well as companies working in our specific fields, including T1D, enteroviral and emerging viral diseases, lupus, and inflammatory bowel diseases, such as CD.

There can be no assurance that TZIELD or our product candidates will be more effective or achieve greater market acceptance than competitive products, or that our competitors will not succeed in developing products and technologies that are more effective than those being developed by us or that would render our products and technologies less competitive or obsolete. Additionally, there can be no assurance that the development by others of new or improved products will not make TZIELD or our product candidates superfluous or obsolete.

TZIELD and our product candidates may face competition sooner than expected.

We have obtained data exclusivity for TZIELD and intend to seek data exclusivity or market exclusivity for our product candidates. In the United States, we believe that these products will qualify for 12 years of data exclusivity under the BPCIA, which was enacted as part of the ACA. Under the BPCIA, an application for a biosimilar product or BLA cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after the original brand product identified as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. The law is complex and the processes the FDA establishes to implement the law could have a material adverse effect on the future commercial prospects for our biological products. There is also a risk that Congress could repeal or amend the BPCIA to shorten this exclusivity period, potentially creating the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection. Moreover, the extent to which a biosimilar, once approved, will be substituted for any reference product in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

Our product candidates that are not, or are not considered, biologics that would qualify for exclusivity under the BPCIA may be eligible for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. The Ensuring Innovation Act, enacted on April 23, 2021, amended the FDA’s statutory authority for granting such exclusivity to reflect the agency’s existing regulations and longstanding interpretation that award exclusivity based on a drug’s active moiety, as opposed to its active ingredient, which is intended to limit the applicability of this exclusivity, thereby potentially facilitating generic competition. During the exclusivity period, the FDA may not accept for review an ANDA, or a 505(b)(2) NDA, submitted by another company for another version of such drug. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving 505(b)(2) NDAs or ANDAs for drugs containing the original active agent.

We may seek FDA pediatric exclusivity for some of our products. For a biologic, pediatric exclusivity adds 6 months of marketing exclusivity to any existing exclusivity to include all formulations, dosage forms, and indications for the active moiety. Pediatric exclusivity may be awarded when a company completes pediatric studies described in an FDA Written Request letter. Even though the Company seeks pediatric exclusivity, the FDA may not agree to issue a Written Request, or the Company may not complete the studies as described in the FDA Written Request.

Even if TZIELD or our product candidates are considered to be reference products eligible for 12 years of exclusivity under the BPCIA or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full BLA or full NDA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the products. Moreover, an amendment or repeal of the BPCIA could result in a shorter exclusivity period for TZIELD or our product candidates, which would have a material adverse effect on our business.

In addition, the Further Consolidated Appropriations Act, 2020, which incorporated the framework from the Creating and Restoring Equal Access To Equivalent Samples (“CREATES”) legislation, was signed into law as part of the 2019 year-end federal spending package. The legislation purports to promote competition in the market for drugs and biological products by facilitating the timely entry of lower-cost generic and biosimilar versions of those drugs and biological products, including by allowing ANDA, 505(b)(2) NDA or biosimilar developers to obtain access to branded drug and biological product samples. While the full impact of these provisions is unclear at this time and initial litigation brought under this law is pending, its provisions do have the potential to facilitate the development and future approval of biosimilar or generic versions of our products if approved, introducing biosimilar or generic competition that could have a material adverse impact on our business, financial condition and results of operations.

Our future growth depends, in part, on our ability to penetrate international markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability will depend, in part, on our ability to commercialize TZIELD and our product candidates in international markets for which we intend to rely on collaborations with third parties. If we commercialize TZIELD or our product candidates in international markets, we would be subject to additional risks and uncertainties, including:

our customers’ ability to obtain reimbursement for our products in international markets;

our inability to directly control commercial activities because we are relying on third parties;

the burden of complying with complex and changing international regulatory, tax, accounting and legal requirements;

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

import or export licensing requirements;

longer accounts receivable collection times;

longer lead times for shipping;

language barriers for technical training;

reduced protection of intellectual property rights in some foreign countries;

foreign currency exchange rate fluctuations; and

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

International sales of our products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.

If we market TZIELD or any of our product candidates in a manner that violates healthcare laws, including government price reporting laws, we may be subject to civil or criminal penalties.

The marketing and sale of pharmaceutical products are subject to comprehensive governmental regulation within the United States, with similar requirements in other jurisdictions. Numerous federal, state and local authorities have jurisdiction over, or enforce laws related to, such activities, including the FDA, United States Drug Enforcement Agency, Centers for Medicare & Medicaid Services, the United States Department of Health and Human Services Office of Inspector General, the United States Department of Justice, state Attorneys General, state departments of health and state pharmacy boards. See the section entitled “Business-Government Regulation” in this Annual Report on Form 10-K.

The FDA enforces laws and regulations which require that the promotion of pharmaceutical products be consistent with the approved prescribing information. While physicians may prescribe an approved product for a so-called “off label” use, it is unlawful for a pharmaceutical company to promote its products in a manner that is inconsistent with its approved label and any company which engages in such conduct can subject that company to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and false or misleading claims, and the federal government has levied large civil and criminal fines and/or other penalties against companies for alleged improper promotion and has investigated and/or prosecuted several companies in relation to off-label promotion. The FDA has also requested that certain companies enter consent decrees or permanent injunctions under which specified promotional conduct is changed, curtailed or prohibited. Similarly, industry codes in the European Union and other foreign jurisdictions prohibit companies from engaging in off-label promotion and regulatory agencies in various countries enforce violations of the code with civil penalties. While we intend to ensure that our promotional materials are consistent with our label, regulatory agencies may disagree with our assessment and may issue untitled letters, warning letters or may institute other civil or criminal enforcement proceedings.

We are also subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws, false claims laws and transparency laws, for activities related to sales of TZIELD or any other product candidates for which we obtain marketing approval. Anti-kickback laws generally prohibit persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid and, in some instances, private third party payors. Although the specific provisions of these laws vary, their scope is generally broad and there may not be regulations, guidance or court decisions that apply the laws to particular industry practices. False claims laws prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, information or claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent. The so-called “federal sunshine” law requires pharmaceutical companies to monitor and report certain financial interactions with physicians, certain non-physician practitioners and teaching hospitals to the federal government for re-disclosure to the public.

A number of state laws require pharmaceutical companies to comply with the federal government’s and/or pharmaceutical industry’s voluntary compliance guidelines; impose specific restrictions on interactions between pharmaceutical companies and healthcare providers or require pharmaceutical companies to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Other state laws may require pharmaceutical companies to file reports relating to pricing and marketing information and state and local laws that require the registration of pharmaceutical sales representatives.

These laws and regulations, among other things, constrain our current and future business, marketing and other promotional and research activities by limiting the kinds of financial arrangements we may have with health care providers, third party payors and patients or other others in a position to influence the purchase, prescription or use of our products. In particular, 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, as well as interactions with healthcare professionals through consultant arrangements, product training, sponsorships, or other activities.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulatory guidance. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies, healthcare providers and other third parties, including charitable foundations, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Numerous pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged improper promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Drug Rebate Program to reduce liability for Medicaid rebates; and providing kickbacks to patients in the form of indirect copay support through charitable foundations.

Efforts to ensure that our activities comply with applicable healthcare laws and regulations will involve substantial costs. Given the breadth of the laws and regulations, limited guidance for certain laws and regulations and evolving government interpretations of the laws and regulations, governmental authorities may possibly conclude that our business practices may not comply with healthcare laws and regulations. It is not always possible to identify and deter misconduct by employees 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 comply with such laws or government regulations.

Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Any such investigation, even if unsuccessful, or settlement could increase our costs, result in negative publicity or otherwise have an adverse effect on our business. If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to sanctions, including substantial civil monetary penalties, exclusion of our products from reimbursement under government programs, integrity oversight and reporting obligations, substantial criminal fines and imprisonment, any of which could adversely affect our business, financial condition, results of operations, prospects and reputation. Additionally, as a result of an investigation, we may have to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity agreement.

With the recent approval of TZIELD, we executed the agreement for participation in the Medicaid Drug Rebate Program, Medicare Part B average sales price reporting and a number of other federal and state government pricing programs in the United States in order to obtain coverage for the product by certain government healthcare programs. These programs generally require us to pay rebates or provide discounts to certain private purchasers or government payers in connection with our products when dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations that we report on a monthly and/or quarterly basis to the government agencies that administer the programs. The reporting requirements are complex and new to us and we may have reimbursement obligations or be subject to penalties if we fail to provide timely and accurate information to the government, pay the correct rebates or offer the correct discounted pricing.

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

We rely on third-party CROs and vendors to conduct and manage our clinical programs including contracting with clinical sites to perform our clinical trials. We plan to rely heavily on these parties for execution of clinical trials for TZIELD and our product candidates and will control only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs and clinical sites will not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCPs, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable foreign regulatory authorities for any products in clinical development. The FDA and its foreign equivalents enforce these GCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA 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, the FDA or other regulatory authorities will determine that any of our clinical trials comply with GCPs. In addition, our clinical trials must be conducted with products produced under GMP regulations and will require a large number of test subjects. Our failure or the failure of our CROs or clinical sites to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process or the pricing and reimbursement approval process and could also subject us to enforcement action up to and including civil and criminal penalties.

Although we design the clinical trials for TZIELD and our product candidates in consultation with CROs, we expect that the CROs will manage all of the clinical trials conducted at contracted clinical sites. As a result, many important aspects of our drug development programs are delegated to third-parties. In addition, the CROs and clinical sites may not perform all of their obligations under arrangements with us or in compliance with regulatory requirements. If the CROs or clinical sites do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development and commercialization TZIELD or our product candidates for the subject indication may be delayed or our development program materially and irreversibly harmed. We cannot fully control the amount and timing of resources these CROs and clinical sites will devote to our program or any of our products. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization and require significantly greater expenditures.

If any of our relationships with these third-party CROs or clinical sites terminate, we may not be able to enter into arrangements with alternative CROs or clinical sites. 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 clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize TZIELD for additional indications or our product candidates. As a result, our financial results and the commercial prospects for any of our products would be harmed, our costs could increase and our ability to generate revenue could be delayed.

The outcome of pre-clinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities.

Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any future collaborators may decide, or regulators may require us, to conduct additional clinical trials or pre-clinical studies. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek marketing approvals for their commercial sale. Success in pre-clinical studies and early-stage clinical trials does not mean that future larger registration clinical trials will be successful. This is because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable foreign regulatory authorities despite having progressed through pre-clinical studies and early-stage clinical trials.

From time to time, we may publish or report interim or preliminary data from our clinical trials. Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial and 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. Interim or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim or preliminary data. As a result, interim or preliminary data should be viewed with caution until the final data are available.

In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product or product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval, or pricing and reimbursement approval, to commercialize our product candidates.

Third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues.

Our ability to successfully market TZIELD and any other product candidates for which we obtain marketing approval will depend in part on the availability of coverage and adequacy of reimbursement provided for our products and related services by third-party payers such as government agencies or health care programs and private health insurers. For example, the ending of the COVID-19 Public Health Emergency and the Families First Coronavirus Response Act could lead to a significant change or loss of coverage for many individuals and families in the United States. Countries in which any of our products are sold through reimbursement schemes under national health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of initial prices. In certain countries, including the United States, government-funded health care programs and private health insurers can exert significant indirect pressure on prices. We may not be able to sell our products profitably if adequate prices are not approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party payers attempt to contain health care costs in ways that are likely to impact our development of products including:

failing to approve or challenging the prices charged for our products;

limiting both coverage and the amount of reimbursement for new therapeutic products;

limiting both coverage and the amount of reimbursement for treatment administration;

limiting reimbursement strictly to inclusion criteria from clinical trials;

denying or limiting coverage for products that are approved by the regulatory agencies but are considered to be experimental or investigational by third-party payers;

limiting coverage for certain sites of care, including home-based infusions;

limiting access and coverage to products only when prescribed by certain physician specialties; and

refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing approval.

There is significant uncertainty related to third-party payer coverage and reimbursement of newly approved products. Third-party payers are increasingly challenging the price and examining the cost-effectiveness of new products and services in addition to their safety and efficacy. Factors considered by these payors in determining whether to cover drug products and what reimbursement to provide include product efficacy, cost effectiveness, budget impact, and safety, as well as the availability of other treatments including generic prescription drugs. To obtain or maintain coverage and reimbursement for any current or future product, we may need to conduct real world evidence, pharmacoeconomic studies and quality of life studies to demonstrate the medical necessity and cost-effectiveness of our product. These studies will be in addition to the studies required to obtain or maintain regulatory approvals. If third-party payers do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. We cannot predict what third-party payers will decide with respect to the coverage and reimbursement for TZIELD or any other product candidates for which we obtain marketing approval.

In the United States, third-party payers, including private health insurance and government health care programs, such as the Medicare and Medicaid programs, may limit coverage or otherwise seek to control the utilization and cost of drug products. Third-party payers may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Some third-party payers may impose coverage restrictions through medical policies or manage utilization of a particular product by requiring pre-approval (known as “prior authorization”) for coverage of particular prescriptions (to allow the payor to assess medical necessity). A third-party payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain net price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payer to payer. One third-party payer’s decision to cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service or will provide coverage at an adequate reimbursement rate. Further, in order to obtain and maintain acceptable reimbursement levels and access for patients at copay levels that are reasonable and customary, we may be expected to offer, discounts and rebates to third party payers. Thus, obtaining and maintaining reimbursement status is complex and costly.

Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their commercial products. There have been a number of Congressional inquiries and proposed and federal and state efforts designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies for drugs. At the federal level, for example, the Inflation Reduction Act of 2022 included a number of reforms related to drug pricing and the Centers for Medicare & Medicaid Services has promulgated revisions to the Medicaid Drug Rebate Program. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological 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, measures designed to encourage importation from other countries and bulk purchasing. See “ Healthcare reform and other governmental and private payor initiatives may have an adverse effect upon, and could prevent, commercial success of TZIELD and any other product candidates for which we obtain marketing approval. ”

Risks Relating to Our Intellectual Property Rights

We depend on rights to certain pharmaceutical compounds that are licensed to us. We do not control these pharmaceutical compounds and any loss of our rights to them could prevent us from selling our products.

We are dependent on licenses from third parties for all but one of our pharmaceutical compounds. We do not own the patents that underlie these licenses. Our rights to use the pharmaceutical compounds we license are subject to the continuation of and compliance with the terms of those licenses. Thus, the patents and patent applications applicable to our products were not written by us or our attorneys, and we did not have control over the drafting and prosecution. The former patent owners and our licensors might not have given the same attention to the drafting and prosecution of these patents and applications as we would have if we had been the owners of the patents and applications and had control over the drafting. Moreover, under certain of our licenses, patent prosecution activities remain under the control of the licensor. We cannot be certain that drafting of the licensed patents and patent applications, or patent prosecution, by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.

Our rights to develop and commercialize the products we license are subject to the validity of the owner’s intellectual property rights. Enforcement of our licensed patents or defense or any claims asserting the invalidity of these patents is often subject to the control or cooperation of our licensors. Legal action could be initiated against the owners of the intellectual property that we license and an adverse outcome in such legal action could harm our business because it might prevent such companies or institutions from continuing to license intellectual property that we may need to operate our business. In addition, such licensors may resolve such litigation in a way that benefits them but adversely affects our ability to develop and commercialize our products.

In addition, our rights to practice the inventions claimed in the licensed patents and patent applications are subject to our licensors abiding by the terms of those licenses and not terminating them. Our licenses may be terminated by the licensor if we are in material breach of certain terms or conditions of the license agreement or in certain other circumstances. Certain of our licenses contained in our license agreements contain provisions that allow the licensor to terminate the license if (i) we breach any payment obligation or other material provision under the agreement and fail to cure the breach within a fixed time following written notice of termination, (ii) we or any of our affiliates, licensees or sublicensees directly or indirectly challenge the validity, enforceability, or extension of any of the licensed patents, (iii) we declare bankruptcy or dissolve, (iv) we fail to maintain a licensed product in active development or fail to use commercially reasonable efforts to develop or commercialize a licensed product. Our rights under the licenses are subject to our continued compliance with the terms of the license, including the payment of royalties due under the license. Termination of these licenses could prevent us from marketing some or all of our products. Because of the complexity of our products and the patents we have licensed, determining the scope of the license and related royalty obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor might attempt to revoke the license. If such an attempt were successful, we might be barred from producing and selling some or all of our products.

It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights.

Our commercial success will depend, in part, on obtaining and maintaining patent protection for our technologies, products and processes, successfully defending these patents against third-party challenges and successfully enforcing these patents against third party competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowable or enforceable in our patents. The existing patents and patent applications relating to our product candidates and related technologies may be challenged, invalidated or circumvented by third parties and might not protect us against competitors with similar products or technologies.

The degree of future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage at all. For example, others have filed, and in the future are likely to file, patent applications covering products and technologies that are similar, identical or competitive to any of our products, or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed by us, or that we will not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices. Additionally, the composition of matter patents for teplizumab have expired, and although we have filed method of use patents for teplizumab, these may not provide adequate protection from competitors.

In the future we may rely on know-how and trade secrets to protect technology, especially in cases when we believe patent protection is not appropriate or obtainable. However, know-how and trade secrets are difficult to protect. While we intend to require employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which we may have rights. If we cannot maintain the confidentiality of our proprietary technology and other confidential information, our ability to receive patent protection and our ability to protect valuable information owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

If we fail to obtain or maintain patent protection or trade secret protection for our products or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.

We may also rely on the trademarks we may develop to distinguish our products from the products of our competitors. We cannot guarantee that any trademark applications filed by us, or our licensors will be approved. Third parties may also oppose such trademark applications, or otherwise challenge our use of the trademarks. In the event that the trademarks we use are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot provide assurance that competitors will not infringe the trademarks we use, or that we will have adequate resources to enforce these trademarks.

Our products may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.

Our success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of TZIELD, any of our product candidates or any future product candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop or commercialize any of our products, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may:

result in costly litigation;

divert the time and attention of our technical personnel and management;

prevent us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court of law;

require us to cease or modify our use of the technology and/or develop non-infringing technology; or

require us to enter into royalty or licensing agreements.

Third parties may hold proprietary rights that could prevent TZIELD or any of our product candidates from being marketed. Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to TZIELD or any of our product candidates or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market TZIELD, any of our product candidates or any future product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign TZIELD, any of our product candidates or any future product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing and commercializing TZIELD, any of our product candidates or a future product candidate, which could harm our business, financial condition and operating results.

A number of companies, including several major pharmaceutical companies, have conducted, or are conducting, research in immune-mediated diseases within the therapeutic fields in which we intend to operate, which has resulted, or may result, in the filing of many patent applications related to this research. If we were to challenge the validity of these or any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims. If we were to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the United States Patent and Trademark Office, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability.

We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.

As is commonplace in our industry, we will employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential competitors. We may be subject in the future to claims that our employees or prospective employees are subject to a continuing obligation to their former employers (such as non-competition or non-solicitation obligations) and that such obligations have been breached or claims that our employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to Ownership of our Common Stock

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for stockholders.

The market price of our common stock has been volatile and can be subject to wide fluctuations in response to various factors, some of which are beyond our control, including, the reporting of results of our clinical trials or partner-sponsored clinical trials involving our programs. Other factors may include those discussed in this “Risk Factors” section of this Annual Report on Form 10-K:

our commercialization, marketing and manufacturing prospects;

our intentions and our ability to establish collaborations and/or partnerships;

the timing or likelihood of regulatory filings and approvals;

our development, commercialization, marketing and manufacturing capabilities;

our expectations regarding the potential market size and the size of the patient populations for TZIELD and our product candidates;

the implementation of our business model and strategic plans for our business and technology;

the scope of protection we are able to establish and maintain for intellectual property rights covering TZIELD and our product candidates, along with any product modifications and improvements;

estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;

our financial performance; and

developments and projections relating to our competitors and our industry, including competing therapies and procedures.

In addition, the stock markets in general, and the markets for biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the market price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer.

On August 8, 2022, a shareholder derivative complaint (the “Complaint”) was filed in the Court of Chancery of the State of Delaware naming Chief Executive Officer Ashleigh Palmer, retired and former Chief Financial Officer Andrew Drechsler, former directors Jeffrey Bluestone and Sean Doherty, and directors Avery Catlin, John Jenkins, Wayne Pisano, and Nancy Wysenski as defendants (the “Individual Defendants”) (the “Delaware Derivative Action”). The Company is named as a nominal defendant.

The Complaint alleges: (1) breaches of fiduciary duty against all Individual Defendants in connection with disclosures made regarding the TZIELD BLA and TZIELD’s commercialization timeline; and (2) unjust enrichment. The Delaware Derivative Action seeks unspecified damages from the Individual Defendants in favor of the Company and an order directing the Company to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures, among other forms of relief.

On October 28, 2022, the Company and the Individual Defendants filed a motion to dismiss the Complaint. On January 20, 2023, in response to the motion to dismiss, the shareholder plaintiff filed an amended complaint (the “Amended Complaint”) alleging substantially similar claims and seeking the same relief. The Company’s and the Individual Defendants’ response to the Amended Complaint was filed on March 17, 2023.

This lawsuit could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation.

An active, liquid and orderly market for our common stock may not develop, which could result in substantial losses for stockholders.

Prior to our IPO, there was no public market for shares of our common stock. Although our common stock is listed on The Nasdaq Global Select Market (“Nasdaq”), the market for our shares has demonstrated varying levels of trading activity and an active public market for our shares may not be sustained. The lack of an active market may impair the ability to sell shares at the time a shareholder wishes to sell them or at a price that a shareholder may consider reasonable. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications, or technologies using our shares as consideration.

We have incurred increased costs as a result of operating as a public company, and our management is now required to devote substantial time to additional compliance initiatives and corporate governance practices.

As a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming and costly.

Future capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.

If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced, and these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or products, or to grant licenses on terms that are not favorable to us.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 34% of our voting stock as of December 31, 2022. Therefore, these stockholders may have the ability to influence us through this ownership position. For example, if these stockholders were to choose to act together, they may be able to significantly influence all matters submitted to our stockholders for approval, including elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to decline.

Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to decline. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline.

In accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, a number of our employees, including executive officers, have adopted and may continue to adopt stock trading plans pursuant to which they have arranged to sell shares of our common stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require public filings. Sales by such persons could be viewed negatively by holders and potential purchasers of our common stock, resulting in a decline in the market price of our common stock.

In addition, as of December 31, 2022, approximately 32.5 million shares of common stock were subject to outstanding options, reserved for future issuance under our equity incentive plans or subject to outstanding warrants. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.

If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decrease.

Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on our internal control over financial reporting

If we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or if we are unable to provide an attestation report from our independent registered public accounting firm, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease.

Provisions in our organizational documents and provisions under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our amended and restated certificate of incorporation and bylaws contains provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions include the following:

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

the ability of our board of directors to amend our bylaws without obtaining stockholder approval;

the required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;

the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, or at the request of holders of record of at least 20% of our outstanding shares of common stock, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws became effective immediately prior to the completion of the IPO and our indemnification agreements that we have entered into with our directors and officers provide that:

we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;

we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;

we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;

we will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification;

the rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and

we may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Securities Act or any other claim for which the federal and state courts have concurrent jurisdiction.

The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

We do not intend to pay dividends on our common stock, and, consequently, the ability to achieve a return on investment will depend on appreciation in the price of our common stock.

We do not intend to pay any cash dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth. Therefore, shareholders are not likely to receive any dividends on their common stock for the foreseeable future. Since we do not intend to pay dividends, the ability to receive a return on investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.

General Risk Factors

We will need to grow the size of our organization, and we may experience difficulties in managing this growth.

As our development and commercialization plans and strategies continue to develop, we intend to expand the size of our employee and consultant/contractor base. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, our management may have to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial performance and our ability to develop and commercialize TZIELD and our current and future product candidates and our ability to compete effectively will depend, in part, on our ability to effectively manage our future growth.

If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. In addition, the loss of the services of our co-founders would adversely impact our business prospects.

Our management team has expertise in many different aspects of drug development and commercialization. However, our ability to compete in the highly competitive pharmaceuticals industry depends in large part upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We will need to hire additional personnel as we further develop and commercialize TZIELD and our product candidates. Competition for skilled personnel in our market is intense and competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. Despite our efforts to retain valuable employees, members of our management, scientific and medical teams may terminate their employment with us on short notice. We have entered into employment agreements with certain of our executive officers. However, these employment arrangements will provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. Moreover, there can be no assurance that anyone we expect to employ in a key management position will be available to join our team when we expect them to, if at all. The loss of the services of any of our executive officers or other key employees, or our inability to hire targeted executives, could potentially harm our business, operating results or financial condition. In particular, we believe that the loss of the services of our co-founders would have a material adverse effect on our business. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.

Other pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can develop and commercialize TZIELD and our product candidates would be limited.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of TZIELD or our product candidates.

We face a potential risk of product liability as a result of the clinical testing of TZIELD and our product candidates and will face an even greater risk as we scale up commercialization of TZIELD and any product candidates for which we obtain marketing approval. For example, we may be sued if any product we develop, including TZIELD or any of our product candidates, or any materials that we use in our products allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. In the United States, claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of TZIELD or any other product candidates for which we obtain marketing approval. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

decreased demand for TZIELD, any of our product candidates or any future products that we may develop;

injury to our reputation;

withdrawal of clinical trial participants;

costs to defend the related litigation;

a diversion of management’s time and our resources;

substantial monetary awards to trial participants or patients;

product recalls, withdrawals or labeling, marketing or promotional restrictions;

the inability to commercialize some or all of our products; and

a decline in the value of our stock.

Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We maintain product liability insurance covering our clinical trials. Although we will maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.

We are generally a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.

We are a virtual company and may be unable to adequately protect our information technology systems from cyber-attacks, which could result in the disclosure of confidential information, damage our reputation, and subject us to significant financial and legal exposure.

Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include wrongful conduct by hostile foreign governments, industrial espionage, deployment of harmful malware, denial-of-service, and other means to threaten data confidentiality, integrity and availability. A successful cyber-attack could cause serious negative consequences for our company, including the disruption of operations, the misappropriation of confidential business information and trade secrets, and the disclosure of corporate strategic plans. To date, we have not experienced threats to our data and information technology systems. However, although we devote resources to protect our information technology systems, we realize that cyber-attacks are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business, legal or reputational harm to us, or would have a material adverse effect on our operating results and financial condition.

We rely on the proper function, availability and security of our information technology systems to operate our business and a cyber-attack or other breach or disruption of these systems could have a material adverse effect on our business and results of operations.

We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The form and function of such systems may change over time as our business needs change. The nature of our business involves the receipt and storage of personal and financial information regarding our customers. We use our information technology systems to manage or support a variety of business processes and activities, including sales, procurement and supply chain, manufacturing and accounts payable. In addition, we use enterprise information technology systems to record, process, and summarize transactions and other financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information technology systems may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors or catastrophic events. Any failure by us to maintain or protect our information technology systems and data integrity, including from cyber-attacks, intrusions, disruptions or shutdowns, could result in the unauthorized access to personally identifiable information, theft of intellectual property or other misappropriation of assets or the loss of key data and information, or otherwise compromise our confidential or proprietary information and disrupt our operations. If our information technology systems are breached or suffer severe damage, disruption or shutdown and we are unable to effectively resolve the issues in a timely manner, our business and operating results may be materially and adversely affected.

If our efforts to maintain the privacy and security of our patient, employee, supplier or Company information are not successful, we could incur substantial additional costs and become subject to litigation, enforcement actions and reputational damage.

Our business, like that of most biopharmaceutical companies, involves the receipt, storage and transmission of patient information, as well as confidential information about our employees, our suppliers and our Company. Our information systems are vulnerable to an increasing threat of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to our systems or information through fraud or other means of deceiving our employees or third-party service providers. Hardware, software or applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information and device security. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods of time. The ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and our efforts may not be adequate to safeguard against all data security breaches, misuse of data or sabotage of our systems. Any future significant compromise or breach of our data security, whether external or internal, or misuse of patient, employee, supplier or Company data, could result in additional significant costs, lost sales, fines, lawsuits and damage to our reputation. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.

We are subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies and contractual obligations could adversely affect our business.

We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally-identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information, including comprehensive regulatory systems in the United States, United Kingdom and European Union. The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. Failure to comply with any of these laws and regulations could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.

There are numerous United States federal and state laws and regulations related to the privacy and security of personal information. For example, HIPAA, as amended, and its implementing regulations establish privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. While we have determined that we are neither a “covered entity” nor a “business associate” directly subject to HIPAA, many of the United States health care providers, including United States clinical trial sites, with which we interact are subject to HIPAA, and we have assumed contractual obligations related to protecting the privacy of personal information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation. If we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts and we could face civil and criminal penalties. In addition, our operations have been affected by the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020. The CCPA gives California consumers (defined to include all California residents) certain rights, including the right to ask covered companies to disclose the types of personal information collected, the categories of sources from which such information was collected, the business purpose for collecting or selling the consumer’s personal information, the categories of third parties with whom a covered company shares personal information, and specific pieces of information collected by a covered company. The CCPA imposes several obligations on covered companies to provide notice to California consumers regarding their data processing activities. The CCPA also gives California consumers the right to ask covered companies to delete a consumer’s personal information and it places limitations on a covered company’s ability to sell personal information, including providing consumers a right to opt out of sales of their personal information.

In addition, we may be subject to privacy and security laws in the various jurisdictions in which we operate, obtain or store personally identifiable information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. For example, the processing of personal data in the EEA and the UK, is subject to the General Data Protection Regulation (the “GDPR”), which took effect in May 2018. The GDPR increases obligations with respect to clinical trials conducted in the EEA, such as in relation to the provision of fair processing notices, responding to data subjects who exercise their rights and reporting certain data breaches to regulators and affected individuals. The GDPR also requires us to enter certain contractual arrangements with third parties that process GDPR-covered personal data on our behalf. The GDPR also increases the scrutiny applied to transfers of personal data from the EEA (including from clinical trial sites in the EEA) to countries that are considered by the European Commission to lack an adequate level of data protection, such as the United States. The July 2020 invalidation by the Court of Justice of the European Union of the EU-United States Privacy Shield framework, one of the mechanisms used to legitimize the transfer of personal data from the EEA to the United States, and the imposition of restrictions on the use of other transfer mechanisms made such transfer more complex and challenging and have also led to increased scrutiny on data transfers from the EEA to the United States generally and may increase our costs of compliance with data privacy legislation. In June 2021, the Court of Justice of the European Union issued a ruling that expanded the scope of the “one stop shop” under the GDPR. According to the ruling, the competent authorities of European Union Member States may, under certain strict conditions, bring claims to their national courts against a company for breaches of the GDPR, including unlawful cross-border processing activities, even such company does not have an establishment in the European Union member state in question and the competent authority bringing the claim is not the lead supervisory authority. If our or our partners’ or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.

Data privacy remains an evolving landscape at both the domestic and international level, with new regulations coming into effect and continued legal challenges, and our ongoing efforts to comply with evolving laws and regulations may be costly and require ongoing modifications to our policies, procedures and systems. Our efforts to comply may also be unsuccessful. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. Failure to comply with laws regarding data protection would expose us to risk of enforcement actions taken by data protection authorities in the European Union, the UK, and elsewhere and carries with it the potential for significant penalties if we are found to be non-compliant. Similarly, failure to comply with federal and state laws in the United States regarding privacy and security of personal information could expose us to penalties under such laws. Any such failure to comply with data protection and privacy laws could result in government-imposed fines or orders requiring that we change our practices, claims for damages by data subjects, regulatory investigations and enforcement action, litigation and significant costs for remediation, any of which could adversely affect our business. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business, financial condition, results of operations or prospects.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We only recently obtained research coverage by securities and industry analysts. If there are insufficient securities or industry analysts covering us, the market price for our stock would be negatively impacted. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

OVERVIEW

We are a commercial-stage biopharmaceutical company dedicated to intercepting and preventing immune-mediated diseases. Since our inception, we have devoted substantially all our efforts to business planning, research and development, commercialization activities, recruiting management and technical staff, acquiring operating assets, partnering and raising capital. We do not have any positive cash flows from operations, and we will need to raise additional capital to finance our operations.

On November 17, 2022, the FDA approved TZIELD to delay the onset of Stage 3 T1D in adult and pediatric patients aged eight years and older with Stage 2 T1D. In December 2022 we began shipping TZIELD to our distributors in the United States, which include a specialty distributor and two specialty pharmacies. The full commercial launch of TZIELD began in mid-January 2023.

As of December 31, 2022, we had an accumulated deficit of $405.6 million. Since our inception in October 2016, we have financed our operations primarily through equity and debt financings. Through equity offerings, we have raised aggregate net proceeds of approximately $468.8 million as of December 31, 2022, net of underwriting discounts, commissions and other offering expenses. This includes completed underwritten public offerings in June 2020, which raised net proceeds of $103.3 million and in January 2021, which when combined with the partial exercise by the underwriters to purchase additional shares in February 2021, raised net proceeds of $102.3 million, as well as a private placement of common stock and warrants in July 2022 which raised net proceeds of $57.2 million. As of December 31, 2022, we have also raised $57.3 million in net proceeds from the sale of shares of common stock under our ATM stock sale programs. In addition, we have received $23.7 million in net proceeds from the Hercules LSA, which provides for up to $125.0 million of term loans in the aggregate.

We expect that over the next several years we will continue to incur losses from operations as we increase our expenditures in research and development in connection with our regulatory submissions, clinical trials and other development activities, as well as costs to support the commercialization of TZIELD. If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay certain development activities and certain commercial efforts.

Merger Agreement with Sanofi

On March 12, 2023, we entered into the Merger Agreement with Sanofi and its indirect wholly owned acquisition subsidiary. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Sanofi’s acquisition subsidiary will commence a tender offer to purchase all of the issued and outstanding shares of our common stock at a price of $25.00 per share, to the seller in cash, without interest, but subject to any applicable withholding of taxes. If certain conditions are satisfied and the tender offer closes, Sanofi would acquire any remaining shares of our common stock by a merger of Sanofi’s acquisition subsidiary with and into the Company.

The Merger Agreement contemplates that the merger will be effected pursuant to Section 251(h) of the Delaware General Corporation Law, which permits completion of the merger without a shareholder vote promptly following consummation of the tender offer. The obligation of Sanofi and its acquisition subsidiary to consummate the tender offer is subject to the condition that there be validly tendered, and not properly withdrawn, prior to the expiration of the tender offer, that number of shares of our common stock that, together with the number of shares of our common stock, if any, then owned beneficially by Sanofi and its acquisition subsidiary (together with their wholly-owned subsidiaries), represents at least a majority of the shares of our common stock outstanding as of the consummation of the tender offer. The obligation of Sanofi’s acquisition subsidiary to consummate the tender offer is also subject to the expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary conditions. Consummation of the tender offer is not subject to a financing condition.

Following the consummation of the tender offer and subject to the terms and conditions of the Merger Agreement, Sanofi’s acquisition subsidiary will merge with and into the Company pursuant to the provisions of Section 251(h) of the Delaware General Corporation Law as provided in the Merger Agreement, with the Company being the surviving corporation. At the effective time of the merger, each share of our common stock (other than shares of common stock (i) held in our treasury or owned by us or any of our direct or indirect wholly owned subsidiaries, (ii) owned by Sanofi, us or any of Sanofi’s or our respective direct or indirect wholly owned subsidiaries (other than Sanofi’s acquisition subsidiary), (iii) irrevocably accepted for purchase in the tender offer, and (iv) held by stockholders who have properly demanded appraisal of their shares of common stock in accordance with the Delaware General Corporation Law) will be cancelled and converted into the right to receive an amount in cash equal to the same $25.00 per share price payable in the tender offer, less applicable withholding of taxes.

The Merger Agreement includes customary representations, warranties and covenants. We have agreed to use commercially reasonable efforts to carry on our business in the ordinary course until the effective time of the merger. We have also agreed not to solicit or initiate discussions with third parties regarding other proposals for a strategic transaction involving the Company. Sanofi and its acquisition subsidiary have agreed to use reasonable best efforts to take actions that may be required in order to obtain antitrust approval of the proposed transaction, subject to certain limitations. The Merger Agreement also includes customary termination provisions for each of us and Sanofi, subject, in certain circumstances, to the payment by us of a termination fee of $100.0 million and the payment by Sanofi of a reverse termination fee of $158.0 million.

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

Product Revenues, Net

Product revenues, net, consists of net sales of TZIELD. In December 2022 we began shipping TZIELD to our distributors in the United States, which include a specialty distributor and two specialty pharmacies. The full commercial launch of TZIELD began in mid-January 2023. Revenues from product sales are recorded at the net sales price, or transaction price, which includes estimates of variable consideration that result from (a) invoice discounts for prompt payment and distribution fees, (b) government rebates, such as Medicaid and Tricare, (c) estimated chargebacks, including the Public Health Service 340B drug pricing program chargebacks, and (d) costs of co-pay assistance programs for patients. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. If actual results in the future vary from estimates, we may adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

Collaboration Revenues

Collaboration revenues consists of revenue recognized under our License Agreement with Huadong and Co-Promotion Agreement with Sanofi. We recognize revenue for the Sanofi Co-Promotion Agreement using a time elapsed output method and are recognizing the upfront, non-refundable ROFN payment on a straight-line basis over the Initial ROFN period from October 4, 2022 through June 30, 2023. We recognize revenue under the Huadong License Agreement, which relates to payments received or to be received from Huadong for the granting of licenses and the performance of research, development and manufacturing activities, using a cost-based input method according to costs incurred to date compared to estimated total costs of the clinical research activities over the period which the activities are performed under the agreement, which began in mid-2021 and are currently expected to occur through the second half of 2024. We expect that revenue will fluctuate from period to period as a result of the timing of expenses incurred in conjunction with the related research and development activities.

Cost of Product Revenues (Excluding Amortization of Intangible Assets)

Cost of product revenues (excluding amortization of intangible assets) consists primarily of direct and indirect costs related to the manufacturing of TZEILD sold, including third-party manufacturing costs, packaging services, freight, inventory reserves, allocation of overhead costs, as well as royalty expenses. We began capitalizing inventory costs for TZEILD following FDA approval in November 2022. Prior to regulatory approval, we recorded all costs related to manufacturing and material costs of TZIELD as research and development expenses when incurred, and therefore are not included in cost of product revenues.

Research and Development Expenses

Research and development expenses consist primarily of clinical studies, the cost of manufacturing our drug candidates for clinical study, regulatory costs, other internal operating expenses, and the cost of conducting preclinical activities. Expenses also include the cost of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions. In addition, our research and development expenses include payments to third parties, as well as the fair value of equity issuances to third parties for the license rights to products in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities at CROs and other consultants that design, obtain regulatory and ethics committee approval, and conduct clinical trials on our behalf. Our expenses related to the production of drug substance or drug product for our clinical trials and development programs are primarily related to activities performed by licensors, strategic partners or CMOs and other consultants on our behalf. Our development efforts from inception have been principally related to the acquisition and development of our clinical programs, as well as the build out of our medical affairs infrastructure, medical education programs and grants to support the screening of potential T1D patients.

All research and development expenses are charged to operations as incurred in accordance with ASC 730 , Research and Development . We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for our personnel serving in our executive, business development, commercial, legal, finance and accounting and other administrative functions. Selling, general and administrative expenses also include professional fees for marketing and other commercial activities, legal, including patent-related expenses, consulting, insurance, board of director fees, tax and accounting services. We expect that our selling, general and administrative expenses will increase significantly in the future as we continue the commercial launch of TZIELD, including due to expenses to be incurred under the Sanofi Co-Promotion Agreement.

Amortization of Intangible Assets

Upon FDA approval of TZIELD in November 2022, our definite-lived intangible assets began to be amortized over their estimated useful lives. Our definite-lived intangibles assets consist solely of milestone payments, primarily relating to our agreement with MacroGenics, for in-licensed product rights which have an alternative future use. We are amortizing the TZIELD milestone intangible assets over TZIELD’s initial regulatory exclusivity period of 12 years. Certain events or circumstances may occur that require us to review the assets for impairment.

Interest Income, net

Interest income, net, consists of interest income earned on our cash, cash equivalents and marketable securities offset by amortization of premiums and accretion of discounts to maturity on our marketable securities.

Interest Expense

Interest expense consists of the accretion of debt discount, contractual interest costs and the amortization of debt issuance costs related to our debt. Debt discount is accreted, and debt issuance costs are amortized, to interest expense using the effective interest rate method over the term of the debt. Our consolidated balance sheets reflect debt, net of the debt discount, debt issuance costs paid to the lender and other third-party costs.

RESULTS OF OPERATIONS

Comparison of years ended December 31, 2022 and 2021

Years Ended December 31,

Increase

(Decrease)

(in thousands, except per share data)

Statement of Comprehensive Loss Data:

Product revenues, net

Collaboration revenues

Total revenues

Operating expenses:

Cost of product revenues (excluding amortization of intangible assets)

Research and development

Selling, general and administrative

Amortization of intangible assets

Total operating expenses

Loss from operations

Interest income, net

Interest expense

Loss before income tax benefit

Income tax benefit

Net loss

Net loss per common share, basic and diluted

Weighted average common shares outstanding, basic and diluted

Product Revenues, Net

Product revenues, net, were $1.2 million for the year ended December 31, 2022. Following receipt of FDA approval for TZIELD in November 2022, we began shipping TZIELD to our distributors in the United States in December 2022. We did not recognize any product revenues during the year ended December 31, 2021.

Collaboration Revenues

Collaboration revenues were $11.7 million for the year ended December 31, 2022, an increase of $10.3 million, compared to $1.4 million for the year ended December 31, 2021. The increase in collaboration revenues is driven by $6.6 million recognized under the Sanofi Co-Promotion Agreement, which was executed in October 2022, as well as an increase of $3.7 million of revenue recognized under the Huadong License Agreement due to an increase in the related clinical research and manufacturing activities performed as a result of the initiation of the PREVAIL-2 Phase 2a study in January 2022.

Cost of Product Revenues (Excluding Amortization of Intangible Assets)

Cost of product revenues (excluding amortization of intangible assets) was $0.5 million for the year ended December 31, 2022. Cost of product revenues related primarily to the manufacturing costs of units of TZIELD sold during the year ended December 31, 2022, as well as royalty expenses, overhead costs, initial product validation charges and the establishment of inventory reserves recorded for excess inventory. We did not record any cost of product revenues for the year ended December 31, 2021.

Research and Development Expenses

Research and development expenses were $75.8 million for the year ended December 31, 2022, an increase of $6.2 million, compared to $69.6 million for the year ended December 31, 2021. This increase related primarily to manufacturing costs for additional clinical drug supply of PRV-3279, costs for the PREVAIL-2 Phase 2a study (PRV-3279), which was initiated in January 2022, as well as increased costs for the PROACTIVE Phase 2b study (ordesekimab). These increases in research and development expenses were partially offset by lower costs for our TZIELD program, including the PROTECT study, as we completed target enrollment in August 2021, and lower costs for regulatory activities, compared to the prior year period, which included costs related to the initial TZIELD BLA submission. Also contributing to the decrease were costs related to the PROVENT Phase 1 study (PRV-101), for which we announced interim results from in October 2021, including $0.5 million in expense related to a milestone payment to Vactech for the first subject dosed in the PROVENT study during the first quarter of 2021. We also incurred $1.1 million in expenses related to the Company’s grant of certain rights of PRV-3279 to Huadong under the Huadong License Agreement during the first quarter of 2021.

Research and development expenses for the years ended December 31, 2022 and 2021 also included personnel costs of $26.1 million and $16.3 million, respectively, including stock-based compensation of $7.8 million and $4.4 million in each respective year. The increase in personnel costs relates to an increase in headcount as well as an increase in stock-based compensation due to the vesting of certain performance-based metrics related primarily to the receipt of FDA approval for, and commercial launch of, TZIELD.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $64. 1 million for the year ended December 31, 2022, an increase of $16. 8 million, compared to $47.3 million for the year ended December 31, 2021. Selling, general and administrative expenses for the years ended December 31, 2022 and 2021 were comprised of the following:

Years Ended December 31,

Increase

(Decrease)

(in thousands)

Selling and other commercial expenses

General and administrative expenses

Total selling, general and administrative expenses

Selling and other commercial expenses were $35.8 million for the year ended December 31, 2022 and primarily consisted of $15.8 million in external costs for our pre-commercial and commercial activities for TZIELD, such as marketing, market access and commercial launch related costs, $18.4 million in personnel costs, including stock-based compensation of $4.8 million and $1.4 million of other commercial expenses. Selling and other commercial expenses were $23.3 million for the year ended December 31, 2021 and primarily consisted of $12.2 million in external costs for our pre-commercial activities, such as marketing and market access costs, and $11.1 million in personnel costs, including stock-based compensation of $2.0 million. The increase in selling and other commercial expenses related primarily to an increase in headcount for the buildout of our commercial infrastructure and other activities to support the commercial launch of TZIELD.

General and administrative expenses were $28.3 million for the year ended December 31, 2022 and primarily consisted of $14.3 million in personnel costs, including stock-based compensation of $6.4 million, $7.9 million in professional fees and legal expenses, $2.7 million in insurance and other public company costs, as well as $3.1 million in other internal expenses. Other general and administrative expenses were $24.1 million for the year ended December 31, 2021 and primarily consisted of $10.7 million in personnel costs, including stock-based compensation of $5.5 million, $8.4 million in professional fees and legal expenses, and approximately $2.6 million in insurance and other public company costs.

The increase selling, general and administrative stock-based compensation expense in 2022 relates to the increase in headcount as well as the vesting of certain performance-based metrics related primarily to the receipt of FDA approval for, and commercial launch of, TZIELD.

Amortization of Intangible Assets

Amortization of intangible assets was $0.6 million for the year ended December 31, 2022. Amortization of intangible assets is comprised of amortization of milestone payments, primarily related to our agreement with MacroGenics, for in-licensed product rights which have an alternative future use. We did not record any amortization expense for the year ended December 31, 2021.

Interest Income, net

Interest income, net, was $2.2 million for the year ended December 31, 2022, compared to $0.1 million during the year ended December 31, 2021. The increase in interest income, net, primarily related higher yields from our investment portfolio during the year ended December 31, 2022.

Interest Expense

Interest expense was $1.0 million for the year ended December 31, 2022, and consisted of contractual interest, accretion of debt discount and amortization of debt issuance costs for our debt. We did not have any outstanding debt during the year ended December 31, 2021.

Income Tax Benefit

We recorded an income tax benefit of $13.4 million for the year ended December 31, 2022, compared to $1.0 million for the year ended December 31, 2021. Both benefits recognized related to proceeds from the sale of certain of our prior years New Jersey net operating losses. The increase in income tax benefit related to an overall increase in the amount of net operating losses (“NOLs”) sold year over year.

Comparison of years ended December 31, 2021 and 2020

Years Ended December 31,

Increase

(Decrease)

(in thousands, except per share data)

Statement of Comprehensive Loss Data:

Collaboration revenues

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Interest income, net

Loss before income tax benefit

Income tax benefit

Net loss

Net loss per common share, basic and diluted

Weighted average common shares outstanding, basic and diluted

Collaboration Revenues

Collaboration revenue was $1.4 million for the year ended December 31, 2021, recognized from the Huadong License Agreement. We did not recognize any collaboration revenue during the year ended December 31, 2020.

Research and Development Expenses

Research and development expenses were $69.6 million for the year ended December 31, 2021, an increase of $3.2 million, compared to $66.4 million for the year ended December 31, 2020. The increase related primarily to increased costs for our TZIELD program, including the PROTECT study and the PROTECT Extension study, as well as the build out of our medical affairs infrastructure, medical education programs and grants to support the screening of potential T1D patients. Also contributing to the increase were costs for the PROACTIVE study (ordesekimab), which was initiated in August 2020, and the PREVAIL Phase 2a study (PRV-3279), for start-up costs incurred in the second half of 2021. We also incurred $1.1 million in expense, which was paid to MacroGenics in May 2021, in connection with the Company’s grant of certain rights of PRV-3279 to Huadong under the Huadong License Agreement and $0.5 million in expense related to a milestone payment to Vactech for the first subject dosed in the PROVENT study during the first quarter of 2021. These increases were offset by a decrease in TZIELD manufacturing costs, including costs for GMP and process performance qualification (“PPQ”) batches of drug supply and drug product, which were produced in 2020, drug supply manufacturing costs for PRV-101 and regulatory activities for the initial teplizumab BLA submission incurred in the prior year period.

Research and development expenses for the years ended December 31, 2021 and 2020 also included personnel costs of $16.3 million and $11.7 million, respectively, including stock-based compensation of $4.4 million and $5.6 million in each respective year. The increase in personnel costs relates to an increase in headcount and was partially offset by a decrease in stock-based compensation due to the vesting of certain performance-based metrics related primarily to the completion of CMC activities and submission of the BLA for TZIELD that occurred in the prior year period.

General and Administrative Expenses

General and administrative expenses were $47.3 million for the year ended December 31, 2021, an increase of $14.0 million, compared to $33.3 million for the year ended December 31, 2020. General and administrative expenses for the years ended December 31, 2021 and 2020 were comprised of the following:

Years Ended December 31,

Increase

(Decrease)

(in thousands)

Pre-commercial expenses

Other general and administrative expenses

Total general and administrative expenses

Pre-commercial expenses were $23.3 million for the year ended December 31, 2021 and primarily consisted of $12.2 million in external costs for our pre-commercial activities, such as marketing and market access costs, and $11.1 million in personnel costs, including stock-based compensation of $2.0 million. Pre-commercial expenses were $16.3 million for the year ended December 31, 2020 and primarily consisted of $11.7 million in external costs of pre-commercial activities for TZIELD and $4.6 million in personnel costs, including stock-based compensation of $1.7 million. The increase in pre-commercial expenses related primarily to an increase in headcount, as we continued to buildout out our infrastructure to support the commercial launch of TZIELD.

General and administrative expenses were $24.1 million for the year ended December 31, 2021 and primarily consisted of $10.7 million in personnel costs, including stock-based compensation of $5.5 million, $8.4 million in professional fees and legal expenses, and approximately $2.6 million in insurance and other public company costs. Other general and administrative expenses were $17.0 million for the year ended December 31, 2020 and were primarily comprised of $9.0 million in personnel costs, including stock-based compensation of $5.9 million, $5.0 million in professional fees and legal expenses, and approximately $2.0 million in insurance and other public company costs.

Interest Income, net

Interest income, net was $0.1 million for the year ended December 31, 2021, compared to $0.6 million for the year ended December 31, 2020. The decrease in interest income, net during the year ended December 31, 2021 primarily related to a reduction in interest rates since the COVID-19 pandemic began in early 2020.

Income Tax Benefit

We recorded an income tax benefit of $1.0 million during the year ended December 31, 2021, compared to $0.5 million during the year ended December 31, 2020. Both benefits recognized related to proceeds from the sale of certain of our prior years New Jersey net operating losses. The increase in income tax benefit related to an overall increase in the amount of NOLs sold year over year.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. We commenced commercial shipments of TZIELD in December 2022. We expect to continue to incur operating losses as we conduct our commercial launch of TZIELD and fund related development and regulatory activities for TZIELD and our product candidates.

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $165.0 million. We currently have invested our cash, cash equivalents and marketable securities primarily in money market funds, U.S. Treasury securities, U.S Government agency securities and investment-grade corporate debt securities. Since our inception in October 2016, we have financed our operations primarily through equity and debt financings. Through equity offerings, we have raised aggregate net proceeds of approximately $468.8 million as of December 31, 2022, net of underwriting discounts, commissions and other offering expenses.

On February 10, 2023, Sanofi, in accordance with the Sanofi Securities Purchase Agreement (defined below), purchased 2,712,497 shares of our common stock at a purchase price of approximately $12.90 per share, which was equal to 140% of the daily volume-weighted average price per share of our common stock for the five consecutive trading days prior to the closing date, for a total investment of $35.0 million.

In July 2022, we entered into a Securities Purchase Agreement with certain institutional purchasers, pursuant to which we sold, in a private placement, 13,318,535 shares of common stock and 13,318,535 warrants to acquire additional shares of common stock for aggregate gross proceeds of approximately $60.0 million, based on an offering price of $4.505 for each share plus one warrant. The warrants will expire five years from the closing date of the transaction, have an exercise price of $6.00 per share and are immediately exercisable upon issuance, subject to other limitations on exercise as described in the warrants. Net proceeds from the transaction were $57.2 million after deducting fees for the placement agent of $2.4 million and other offering expenses of $0.4 million.

We established the 2021 ATM Program through which the Company may sell, from time to time at its sole discretion, up to $150.0 million of shares of its common stock. During the year ended December 31, 2022, the Company sold 10,306,780 shares of its common stock for aggregate net proceeds of $47.4 million, net of $1.7 million in sales commissions and other offering expenses, under the 2021 ATM Program all of which occurred during the quarters ended June 30, 2022 and September 30, 2022. We have approximately $100.9 million of available capacity under the 2021 ATM Program.

In January 2021, we completed an underwritten public offering in which we sold 6,250,000 shares of common stock at a public offering price of $16.00 per share. In February 2021, the underwriters partially exercised their option to purchase an additional 587,500 shares at a price of $16.00 per share. In the aggregate, total net proceeds from the underwritten public offering were $102.3 million, after deducting underwriting discounts and commissions of $6.6 million and other offering expenses of $0.5 million.

In June 2020, we completed an underwritten public offering in which we sold 7,590,000 shares of common stock at a public offering price of $14.50 per share. The 7,590,000 shares sold included the full exercise of the underwriters’ option to purchase 990,000 shares at a price of $14.50 per share. We received net proceeds from the underwritten public offering of $103.3 million, after deducting underwriting discounts and commissions of approximately $6.6 million and other offering expenses of $0.2 million.

In August 2019, we established an at-the-market program (“2019 ATM Program”) through which we may sell, from time to time at our sole discretion, up to $50.0 million of shares of our common stock. In February 2021, we established the “2021 ATM Program”. In connection with the establishment of the 2021 ATM Program, we terminated the 2019 ATM Program, and no additional stock may be issued thereunder. Prior to its termination, we sold 725,495 shares of its common stock for aggregate net proceeds of approximately $9.9 million, net of $0.3 million in sales commissions, under the 2019 ATM Program, all of which occurred during the quarter ended June 30, 2020.

In addition, in August 2022, we entered into the Hercules LSA with Hercules Capital, Inc. The Hercules LSA provides for up to $125.0 million of term loans in the aggregate, available to be funded in up to five tranches. The first tranche in an amount equal to $25.0 million was drawn on August 31, 2022, the Closing Date, for net proceeds of $23.7 million. On February 2, 2023, an additional $40.0 million was drawn from the second tranche following FDA approval of TZIELD, for net proceeds of approximately $38.9 million. The third and fourth tranches will be available to us in an aggregate amount of up to $35.0 million, subject to satisfaction of certain conditions, including achievement of certain milestones. The availability of the fifth tranche of up to $25.0 million is subject to the approval of Hercules Capital, Inc.

If the Merger Agreement is terminated under certain circumstances, including termination by us in order to accept and enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or termination due to a change in recommendation by our Board, we will be required to pay Sanofi a termination fee of $100.0 million by wire transfer of immediately available funds. The Merger Agreement also provides that Sanofi must pay us a $158.0 million termination fee if the merger is not consummated due to the failure of certain conditions to be satisfied as a result of failure to obtain antitrust clearance.

We will need to raise additional capital to fund our operations, execute our strategy and continue as a going concern. We currently plan to raise additional capital, subject to any applicable restrictions in the Merger Agreement, through public or private equity or debt financings, or potential out-licensing transactions. Such additional funding will be necessary to continue to develop our product candidates, to pursue the license or purchase of other technologies, to commercialize TZIELD or our product candidates, or to purchase other products. We may seek to sell common or preferred equity or convertible debt securities, enter into other credit facilities or another form of third-party funding, or seek other debt financing. In addition, we may consider raising additional capital to fund operating activities, expand our business, pursue strategic investments, take advantage of financing opportunities, or for other reasons. The sale of equity and convertible debt securities may result in dilution to our stockholders and those securities may have rights senior to those of our common stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond its currently anticipated needs. Additional capital may not be available on reasonable terms, or at all. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our development programs, halt commercial sales activities for TZIELD, dispose of assets or technology or cease operations.

Our cash requirements for 2023 and into 2024 will be impacted by a number of factors, the most significant of which are the success of our commercial launch of TZIELD and expenses related to the continued commercialization of TZIELD, including costs to continue the build out the Company’s commercial infrastructure and commercial sales activities (including the Sanofi Co-Promotion Agreement), the milestone payments due to MacroGenics, the PROTECT clinical trial and manufacturing activities for TZIELD. Other factors include costs related to the Company’s other ongoing clinical trials, such as the Phase 2b PROACTIVE clinical study of ordesekimab in celiac disease and the Phase 2a PREVAIL-2 clinical study of PRV-3279 in lupus, which was initiated in January 2022.

Based on our current business plans, management believes that our cash, cash equivalents and marketable securities on hand at December 31, 2022 are sufficient to meet our operating requirements for at least the next 12 months from the issuance of the financial statements included in this report.

Cash Flows

The following table shows a summary of our cash flows for the years ended December 31, 2022, 2021 and 2020:

Years Ended December 31,

(in thousands)

Net cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Net change in cash and cash equivalents

Cash Flows from Operating Activities

Net cash used in operating activities was $75.4 million for the year ended December 31, 2022, and primarily related to cash used to fund manufacturing, pre-commercial and commercial activities for TZIELD, clinical development activities for ordesekimab, clinical development and manufacturing expenses for PRV-3279, as well as increased personnel costs to support our clinical programs and our corporate and commercial infrastructures. Cash expenses were offset by $11.6 million received from the sale of certain of our New Jersey net operating losses, as well as the $20.0 million upfront ROFN payment received in connection with the Sanofi Co-Promotion Agreement and $3.0 million received from Huadong in connection with the Huadong License Agreement. Under these two agreements, there was $18.4 million currently recorded as deferred revenue as of December 31, 2022. Our working capital was $84.3 million as of December 31, 2022.

Net cash used in operating activities was $95.4 million for the year ended December 31, 2021, and primarily related to cash used to fund clinical development, manufacturing, regulatory activities and pre-commercial activities for TZIELD, clinical development activities for ordesekimab, PRV-3279 and PRV-101, and increased personnel costs to support our clinical programs and the build out of our corporate and commercial infrastructure. Cash expenses were offset by $8.5 million received from Huadong in connection with the Huadong License Agreement, of which $7.1 million was recorded as deferred revenue as of December 31, 2021.

Net cash used in operating activities was $76.3 million for the year ended December 31, 2020 and primarily related to cash used to fund clinical development, manufacturing, and pre-commercial activities for TZIELD, clinical development activities for ordesekimab, development activities for PRV-101, and increased personnel costs to support our clinical programs and the build out of our corporate and commercial infrastructure.

Cash Flows from Investing Activities

Net cash used in investing activities was $88.1 million for the year ended December 31, 2022, and primarily related to the purchase of marketable securities totaling $103.1 million, $15.0 million paid to MacroGenics for the first product milestone tranche payable upon FDA approval of TZIELD and capital expenditures associated with data information systems of $0.1 million, partially offset by proceeds received from the maturity of marketable securities totaling $30.8 million.

Net cash used in investing activities was $31.1 million for the year ended December 31, 2021, and primarily related to the purchase of marketable securities totaling $55.3 million and capital expenditures associated with data information systems of $1.0 million, partially offset by proceeds received from the maturity of marketable securities totaling $25.2 million.

Net cash provided by investing activities was $25.2 million for the year ended December 31, 2020 and primarily related to the proceeds received from the maturity of marketable securities totaling $55.0 million, partially offset by purchases of marketable securities totaling $28.7 million and net capital expenditures associated with the build out of our new corporate headquarters and information systems infrastructure of $1.1 million.

Cash Flows from Financing Activities

Net cash provided by financing activities was $129.4 million for the year ended December 31, 2022, and primarily related to aggregate net proceeds received from the July 2022 Private Placement of $57.2 million, $47.4 million from the sale of common stock under our 2021 ATM program, $23.7 million from the issuance of debt under the Hercules LSA as well as $1.0 million in proceeds received from stock option exercises during the period.

Net cash provided by financing activities was $102.4 million for the year ended December 31, 2021, and primarily related to aggregate net proceeds of $102.3 million received from our underwritten public offering in January 2021, including the subsequent partial exercise of the underwriters’ option to purchase additional shares in February 2021, as well as approximately $0.1 million in proceeds from stock option exercises during the period.

Net cash provided by financing activities was $114.3 million for the year ended December 31, 2020 and primarily related to net proceeds received from our underwritten public offering in June 2020 of $103.3 million, net proceeds received from the sale of our common stock under our ATM program of $9.9 million and $1.1 million received from stock option exercises during the period.

Commitments and Contractual Obligations

We have entered into a number of license, collaboration, acquisition and other agreements with third parties. For further details regarding our significant contracts, and the commitments and contractual obligations contained within each contract, please refer to Note 6 - Commitments and Contingencies, and Note 12 - Debt, to our consolidated financial statements included in this report, which is incorporated herein by reference.

In July 2020, we entered into an agreement to lease approximately 7,000 square feet of office space in Red Bank, NJ, for which the initial lease term expires approximately 64 months from the lease commencement date, which occurred in October 2020, with base annual lease payments of approximately $0.2 million.

In addition, in the course of normal business operations, we have agreements with contract service providers to assist in the performance of our research and development and manufacturing activities. Expenditures to CROs, CMOs and other clinical development related vendors represent significant costs in clinical development. Subject to required notice periods and our obligations under binding purchase orders, we can elect to discontinue the work under these agreements at any time. We could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and even long-term commitments of cash. As of December 31, 2022, we had $0.3 million of contracted purchase obligations which represents our commitments under binding forecasts, and purchase orders (inclusive of cancellation fees), including those provided under our agreements with our CMOs. The actual amounts incurred will be determined based on the amount of goods purchased and the pricing then in effect under the applicable arrangement. These committed purchase obligations are expected to be incurred within one year from the issuance of these financial statements.

We also have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.

TRENDS AFFECTING OUR BUSINESS

COVID-19

The COVID-19 pandemic continues to adversely affect global economies, financial markets and the overall environment. We have experienced some level of disruption to each of our current trials. We completed target enrollment in the PROTECT study in August 2021 and expect to report top-line results in the second half of 2023, subject to change for any potential interruptions related to COVID-19, regulatory decisions or issues or other interruptions. We initiated the ordesekimab Phase 2b trial in gluten free diet NRCD in August 2020 and the pandemic has caused difficulties and delays in recruitment. As a result of these delays, we now expect to report top-line results from the PROACTIVE study by the end of 2023. The ongoing effects of the COVID-19 pandemic have affected the PREVAIL-2 study enrollment, primarily due to resource constraints at the clinical site level and subdued patient interest in participating in clinical trials of immune modulatory agents. We now expect top-line results of the PREVAIL-2 study in the second half of 2024.

Inflation and Interest Rates

Inflation and interest rates have both increased during the periods covered by this report, and these increases are expected to continue to impact the economy for the near future. Inflation and higher interest rates have had a negative impact on the broader equity markets, leading to declines in equity valuations, especially in the biopharmaceutical sector, and may continue to result in higher borrowing costs, reduced liquidity and ability to raise capital, and could potentially increase the interest payments on our variable rate debt. Other factors that may be impacted by inflation include manufacturing, research and development, selling, general and administrative, and personnel related expenses. We have not been affected materially by inflation during the periods covered by this report, however, inflationary increases in the future may adversely impact our business and corresponding financial position.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following disclosure supplements the descriptions of our accounting policies contained in Note 3 to our consolidated financial statements regarding significant areas of judgement. Management made certain estimates and assumptions during the preparation of the consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) . These estimates and assumptions affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities in the consolidated financial statements. These estimates involve a significant level of estimation uncertainty and have had a material impact on our results of operations. Actual results could differ from our estimates.

Management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors. A discussion of some of our more significant accounting policies and estimates follows.

Revenue Recognition

Product Revenues, Net

Product revenues, net consists of net sales of TZIELD. In accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”), we recognize revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration we expect to receive in exchange for the goods or services provided. The only performance obligation in our contracts with customers is to timely deliver TZIELD to the customer’s designated location. We have not incurred or capitalized any incremental costs associated with obtaining contracts with customers.

Revenues from product sales are recorded at the net sales price, or transaction price, which includes estimates of variable consideration that result from (a) invoice discounts for prompt payment and distribution fees, (b) government rebates, such as Medicaid and Tricare, (c) estimated chargebacks, including the Public Health Service 340B drug pricing program chargebacks, and (d) costs of co-pay assistance programs for patients. These reserves are based on the amounts earned or to be claimed on the related sales. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the applicable contract. The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. The critical estimates that affect the net sales price recorded for sales of TZIELD are as follows:

Rebates : We contract with government agencies (our “Third-party Payers”) so that TZIELD will be eligible for purchase by, or partial reimbursement from, such Third-party Payers. We estimate the rebates we will provide to Third-Party Payers and deducts these estimated amounts from total gross product revenues at the time the revenues are recognized. We estimate the rebates that we will provide to Third-Party Payers based upon (i) our contracts with these Third-Party Payers, (ii) the government mandated discounts applicable to government-funded programs, (iii) a range of possible outcomes that are probability-weighted for the estimated payor mix, and (iv) historical experience.

Collaboration Revenues

From time to time, we enter into licensing agreements that are within the scope of ASC 606 and ASC 808, Collaborative Arrangements (“ASC 808”), under which we may license rights to research, develop and commercialize our product candidates to third parties. The terms of these collaborative research and development agreements typically include non-refundable, upfront license fees; reimbursement for research and development activities; development, regulatory and commercial milestone payments; and royalties on net sales of commercialized products. We may also enter into development and manufacturing service agreements with our collaborators.

Generally, as part of the accounting for these agreements under ASC 606, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among each identified performance obligation within the agreement. If observable standalone selling prices are not available, we estimate the applicable standalone selling price, which may include the use of forecasted revenues or costs, development timelines, discount rates and probabilities of technical and regulatory success . However, we currently do not have any agreements that contain more than one performance obligation, and as such we allocate the entire transaction price to the single performance obligation.

Revenue is then recognized over time using an appropriate method of measuring progress towards fulfilling our performance obligation for the respective out-licensing agreement. Determining the measure of progress that consistently depicts our satisfaction of the performance obligations requires judgement as well as estimates, and the effect of any changes made to an estimated input, therefore impacting revenue or expenses recognized, would be recorded as a change in estimate.

For certain milestone payments included in these agreements, at the inception of each agreement, we evaluate whether the milestones are considered probable of occurring and estimate the amount to be included in the transaction price using either the expected value or most likely amount method, depending on the facts and circumstances relative to the agreement. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our, or our collaborative partner’s control, such as non-operational developmental and regulatory approvals, are generally not considered probable of being achieved until those approvals are received, and as such are constrained. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our, or our collaborative partner’s control, and if necessary, adjust our estimate of the overall transaction price.

There have been no material changes in estimates used in accounting for any of our collaborative agreements accounted for under ASC 606 and ASC 808, since the inception of each agreement.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to expenses incurred with respect to CROs, CMOs and other vendors in connection with research and development and manufacturing activities.

We base our expenses related to CROs and CMOs on our estimates of the services received and efforts expended pursuant to quotations and contracts with such vendors that conduct research and development and manufacturing activities on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented within this Annual Report on Form 10-K.

Stock-Based Compensation

We recognize stock-based compensation expense for awards of equity instruments based on the grant-date fair value of those awards. The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award. We also grant performance-based stock options. The grant-date fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will be achieved. We record actual forfeitures in the period the forfeiture occurs.

We used the Black-Scholes option-pricing model to estimate the fair value of option awards with the following weighted-average assumptions for the period indicated:

Years Ended December 31,

Exercise price

Expected volatility

Expected dividends

Expected term (in years)

Risk-free interest rate

The weighted-average valuation assumptions were determined as follows:

Risk-free interest rate: we base the risk-free interest rate on the interest rate payable on United States Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term .

Expected annual dividends: the estimate for annual dividends is 0%, because we have not historically paid, and do not expect for the foreseeable future to pay, a dividend .

Expected stock price volatility: the expected volatility used is based on historical volatilities of similar entities within our industry which were commensurate with our expected term assumption. We also utilize our limited available historical volatility, to a lesser weight, in our expected volatility calculation.

Expected term of options: the expected term of options represents the period of time options are expected to be outstanding. The expected term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting Bulletin 107 relating to stock-based compensation, whereby the expected term is an average between the vesting period and contractual period due to our limited operating history . For non-employee stock option grants, we have the option to utilize either the expected term or the contractual term, determined on an award-by-award basis.

Stock-based compensation expense is included in both research and development expenses and selling, general and administrative expenses in the consolidated statements of comprehensive loss. There have been no material changes in estimates, or our estimation methods, for the periods presented within this Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 3 - Significant Accounting Policies, in the accompanying notes to consolidated financial statements, which is incorporated herein by reference.