Item 1. Business
ITEM 1. BUSINESS
Company Overview
Capricor
Therapeutics, Inc. is a biotechnology company focused on the development of transformative cell- and
exosome-based therapeutics for the treatment and prevention of a broad spectrum of diseases.
Cell Therapy (CAP-1002) Program
CAP-1002 - Duchenne Muscular Dystrophy
Program
We
have completed HOPE-2, a Phase II clinical trial in the United States with our product candidate, CAP-1002, a cardiac cell derived
therapy which was used to treat patients with late-stage Duchenne muscular dystrophy, or DMD. The 12-month final top-line
data showed improvements in multiple measures of upper limb, cardiac and respiratory functions. Following receipt of the 12-month
data, we discussed this program with the FDA in a Type B meeting focusing on the data, next steps and a pathway to approval of
a Biologics License Application, or BLA, for CAP-1002 in DMD. The FDA has continued to encourage us to conduct a Phase III study;
at this time, however, we are still discussing the pathway forward for this program with the FDA and have not initiated a Phase
III study. Additionally, we are actively seeking partners for this program.
CAP-1002 - COVID-19 Program
In 2020, under an Expanded
Access (or Compassionate Use) program, seven patients hospitalized with severe COVID-19 (also referred to sometimes as SARS-CoV-2)
symptoms, six of whom were ventilated, were treated with CAP-1002. Four of the seven patients were fully discharged and three died
between one- and two-months post-treatment. Previously published data has shown that COVID-19 patients on ventilators experience
higher mortality rates. While we are unable to definitively ascertain whether CAP-1002 improved patient outcomes, by analyzing
blood samples and other tests, it was determined that CAP-1002 was associated with identifiable improvements in certain patients
such as a decrease in white blood cell count, a decrease in IL-6, a decrease in C-reactive protein, and/or reduced reliance on
supplemental oxygen. However, the efficacy of CAP-1002 in treating COVID-19 was not demonstrated due to the small sample size,
the fact that seven patients were contemporaneously on other experimental medications, and the lack of an established control group,
among other factors.
In August 2020,
we received FDA acceptance of our IND application for a clinical study of CAP-1002 in patients with severe or critical COVID-19.
The INSPIRE trial is a Phase II, randomized, double-blind, placebo-controlled study that is enrolling up to 60 patients from several
trial sites in the United States. The study is enrolling patients who have a diagnosis of SARS-CoV-2 and require supplemental
oxygen. Various outcome measures will be analyzed including, but not limited to, safety, cytokine biomarkers, all-cause mortality,
cardiac biomarkers and hospitalization length. We expect to have top-line data available in the third quarter of 2021. Following
receipt of this data, we will discuss next steps for the program with FDA. Additionally, we are actively seeking partners for this
program.
Exosomes Program
Exosome-Based Vaccines
We
are currently engaged in the development of two vaccine candidates for the potential prevention of COVID-19. The first vaccine
candidate is a tripartite exosome-mRNA vaccine which is designed to elicit a protective, long-lasting immune response to SARS-CoV-2
by targeting multiple structural proteins of the virus. In December 2020, we announced positive preclinical data from
a study using our exosome-mRNA vaccine approach We recently met with the FDA in a pre-IND meeting and are planning on filing an
IND by the third quarter of 2021, subject to regulatory approval, for this vaccine for SARS-CoV-2. We have also been investigating
an exosomal antigen vaccine which is a vesicle-based, nucleic acid-free formulation carrying multiple structural proteins of SARS-CoV-2.
3
Exosome-Based Therapeutics
We are also developing
our exosomes platform technology as a next-generation therapeutic platform. Our current focus is on the development of exosomes
loaded with nucleic acids, including mRNA, to treat a variety of diseases. mRNA medicines are not small molecules, like traditional
pharmaceutical drugs and they are not traditional biologics (such as recombinant proteins and monoclonal antibodies) – which
were the origins of the biotech industry. Instead, mRNA medicines are sets of instructions. And these instructions direct cells
in the body to make all the proteins required for life as well as to prevent or fight disease.
Our platform builds
on advances in fundamental RNA science, targeting technology and manufacturing, providing us the opportunity to build a broad pipeline
of potential new therapeutic candidates. At this time, we are developing therapeutics and vaccines for infectious diseases,
monogenic diseases and other indications.
CDC-Derived Exosomes (CAP-2003)
In April 2020,
we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD. At this time, the FDA has requested more
information related to manufacturing and we are evaluating the next steps for this program. We need to submit further information
to FDA to support the potential acceptance of this IND.
Additionally, in July 2018,
we entered into a Cooperative Research and Development Agreement with the U.S. Army Institute of Surgical Research, or USAISR,
pursuant to which we agreed to cooperate in research and development on the evaluation of our CAP-2003 for the treatment of trauma
related injuries and conditions.
Aspects of our exosomes
pipeline have been supported through collaborations and alliances. We have entered into a Sponsored Research Agreement with Johns
Hopkins University, or JHU, pursuant to which researchers in the lab of Dr. Stephen Gould will perform certain research activities
in connection with our exosomes program and the further development of the platform. Additional collaborations include the Department
of Defense, the National Institutes of Health and Cedars-Sinai Medical Center, or CSMC.
Our
executive offices are located at 8840 Wilshire Blvd., 2 nd Floor, Beverly Hills, California 90211. Our telephone number
is (310) 358-3200 and our Internet address is www.capricor.com .
Our Technologies
Cardiosphere-Derived Cells (CAP-1002)
Our core cell therapy
technology is based on cardiosphere-derived cells, or CDCs, a cardiac-derived cell therapy that was first identified in the academic
laboratory of Capricor’s scientific founder, Dr. Eduardo Marbán. Since the initial publication in 2007, CDCs
have been the subject of over 100 peer-reviewed scientific publications and have been administered to over 200 human subjects across
several clinical trials. CDCs have been shown to exert potent immunomodulatory activity and to alter the immune system’s
activity to encourage cellular regeneration. We have been developing allogeneic CDCs (CAP-1002) as a product candidate for the
treatment of DMD and investigating their effects on skeletal and cardiac function. Preclinical and clinical data support the therapeutic
concept of administering CDCs as a means to address conditions in which the heart or skeletal muscle has been damaged.
In a variety of preclinical
experimental models of heart injury, CDCs have been shown to stimulate cell proliferation and blood vessel growth and to inhibit
programmed cell death and scar formation. Published data by CSMC, which tested the effectiveness of CDCs in a mouse model of DMD,
showed for the first time that the skeletal and cardiac improvements could be directly attributed to treatment with CDCs. The data
also provide further evidence of the potential of CDCs to stimulate tissue repair and regeneration by first reducing inflammation,
which then enables new healthy muscle to form, as was shown in the mouse model of DMD.
CDCs are derived from
cardiospheres, or CSps, which are self-adherent multicellular clusters derived from the heart. CDCs are sufficiently small that,
within acceptable dose limits, they can be infused into a coronary artery or into the peripheral vasculature. Capricor has performed
clinical studies to establish the range of CDC dose levels that appear to be safe via intracoronary administration and peripheral
venous access.
While CDCs originate
from either a deceased human donor (allogeneic source) or from heart tissue taken directly from recipient patients themselves (autologous
source), the methods for manufacturing CDCs from either source are similar.
Capricor’s proprietary
manufacturing methods are focused on producing therapeutic doses of CDCs to boost the regenerative capacity of the heart and skeletal
muscles, with the goal of improving cardiac and skeletal muscle function. Capricor has exclusively licensed intellectual property
covering CDCs and CSps from three academic institutions and is also pursuing its own intellectual property rights relating to CDCs
as a product candidate.
4
Exosomes
Extracellular vesicles,
including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which are secreted by most cells and contain characteristic
lipids, proteins and nucleic acids such as mRNA and microRNAs. They can signal through the binding and activation of membrane receptors
or through the delivery of their cargo into the cytosol of target cells. Our preclinical data has shown that CDCs mediate most
of their therapeutic activities through the secretion of extracellular vesicles.
Exosomes act as messengers
to regulate the functions of neighboring or distant cells and have been shown to regulate functions such as cell survival, proliferation,
inflammation and tissue regeneration. Furthermore, preclinical research has shown that exogenously-administered exosomes can modify
cellular activities, thereby supporting their therapeutic potential. Their size, low or null immunogenicity and ability to communicate
in native cellular language potentially makes them an exciting new class of therapeutic agents with the potential to expand our
ability to address complex biological responses. Because exosomes are a cell-free substance, they can be stored, handled, reconstituted
and administered in similar fashion to common biopharmaceutical products such as antibodies.
The following table summarizes our active
product development programs:
Product
Indication/Population
Development Stage
CAP-1002
Duchenne Muscular Dystrophy*
HOPE-3
Phase III – in planning stages
HOPE-2
Phase II completed***
HOPE-Duchenne
Phase I/II completed**
CAP-1002
SARS-CoV-2
INSPIRE
Phase II enrolling
Exosome-mRNA vaccine
SARS-CoV-2
Preclinical
Engineered Exosomes (RNA delivery)
Monogenic Diseases
Discovery
CDC-Exosomes (CAP-2003)
Duchenne Muscular Dystrophy
IND submitted
Exosome-VLP vaccine
SARS-CoV-2
Preclinical
Engineered Exosomes (biologics delivery)
Evaluating
Discovery
*
The U.S. Food and Drug Administration, or FDA, has granted Orphan Drug, Regenerative Medicine Advanced Therapies, or RMAT, and
Rare Pediatric Disease designations to CAP-1002 for the treatment of DMD.
**We completed an Open Label Extension, or OLE, for the usual
care only comparator arm of the HOPE-Duchenne trial.
***We are currently conducting an OLE of the HOPE-2 trial.
Background on Duchenne Muscular Dystrophy
DMD is a rare form
of muscular dystrophy which results in muscle degeneration and premature death. DMD affects approximately 1 in 3,600 male infants
worldwide, and it is estimated that approximately 15,000 to 20,000 boys and young men are living with the disease in the United
States. DMD results from the lack of functional dystrophin protein caused by a gene mutation. The lack of dystrophin, an important
structural component of muscle cells, causes them to have increased susceptibility to damage and to progressively die. Additionally,
the absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic
replacement. In DMD patients, heart muscle cells progressively die and are replaced with scar tissue. This cardiomyopathy eventually
leads to heart failure, which is currently the leading cause of death among those with DMD.
5
Patients with DMD experience
progressive muscle weakness and degeneration starting at an early age. Generally, a loss of ambulation occurs after the first decade
of life and eventually the patients suffer respiratory and cardiac failure. Their lifespan is abbreviated and averages less than
three decades. The annual cost of care for patients with DMD is very high and increases with disease progression. We therefore
believe that DMD represents a significant market opportunity for our product candidate, CAP-1002.
CAP-1002 for the Treatment of Duchenne
Muscular Dystrophy
Based on our understanding
of the mechanism of action of CAP-1002 which has been seen in preclinical models of DMD, we believe that CAP-1002 has the potential
to decrease inflammation and slow muscle degeneration while exerting positive effects on muscle regeneration, all of which may
translate into patients retaining muscle function for a longer period of time. Data supporting peripheral intravenous route of
administration of CAP-1002 in the DMD setting has been provided by preclinical mouse studies where CDCs, the active ingredient
in CAP-1002, have been shown to increase exercise capacity and diaphragmatic function.
We
are currently developing CAP-1002 for the treatment of DMD. We completed the positive HOPE-Duchenne Phase I/II trial in 2017 and
then subsequently began the HOPE-2 Phase II trial in 2018. We reported positive interim 6-month results from HOPE-2 in 2019 and
we reported final top-line 12-month results in May 2020. Our further plans with respect to the clinical development of CAP-1002
in DMD, including our decision to conduct a Phase III trial, will be based on the final guidance received from the FDA, our ability
to secure funding necessary to conduct the trial should we decide to pursue that path, our ability to partner with another company
to advance the development of CAP-1002 for DMD, and/or our ability to manufacture the product through a contract manufacturer,
as well as other factors, some of which are not known at this time . Further, we have submitted a proposed Phase III protocol
to the FDA. The size of the proposed Phase III trial is estimated to be approximately 60 patients and in our continuing discussions,
FDA has indicated its acceptance of this potential study design.
Phase II HOPE-2 Clinical Trial
HOPE-2 is a randomized,
double-blind, placebo-controlled clinical trial which was conducted at multiple sites located in the United States. We randomized
20 patients in our HOPE-2 clinical trial. Approximately 80% of the patients were non-ambulant and all patients were on a stable
regimen of steroids. Demographic and baseline characteristics were similar between the two treatment groups. The clinical trial
was designed to evaluate the safety and efficacy of repeat, intravenous, or IV, doses of CAP-1002, in boys and young men with evidence
of skeletal muscle impairment regardless of ambulatory status and who are on a stable regimen of systemic glucocorticoids.
While there are many
clinical initiatives in DMD, HOPE-2 is one of the very few to focus on non-ambulant patients. These boys and young men are looking
to maintain what function they have in their arms and hands, and Capricor’s previous study of a single intracoronary dose
of CAP-1002 provided preliminary evidence of efficacy that CAP-1002 may be able to help DMD patients retain or slow the loss of
upper limb function.
The primary efficacy
endpoint of the HOPE-2 trial is the relative change in patients’ abilities to perform manual tasks that relate to activities
of daily living and are important to their quality of life. These abilities were measured through the Performance of the Upper
Limb, or PUL, test. In the HOPE-2 study we have evaluated these through both the PUL 1.2 and 2.0 versions. Although the PUL 1.2
version for the mid-level was the primary endpoint established for the trial, we also conducted an analysis using the PUL 2.0 version
as the FDA suggested the use of the updated PUL 2.0 version as the primary efficacy endpoint in support of a Biologics License
Application, or BLA. HOPE-2 assessed the mid-level dimension of the PUL which evaluates one’s ability to use muscles extending
from the elbow to the hand, which muscles are essential for operating wheelchairs and performing other daily functions. In HOPE-2,
additional secondary and exploratory endpoints such as cardiac function, pulmonary function, quality of life and additional measures
were included.
In July 2019,
we reported interim top-line results from a pre-specified interim analysis of 6-month data from the HOPE-2 trial, which showed
meaningful results across several independent clinical measures.
6
In May 2020, we
reported final top-line 12-month results. The data showed improvements in upper limb, cardiac and respiratory functions with
p-values of less than p=0.05 in multiple measures. The 12-month data showed statistically meaningful improvements in the PUL 2.0
in CAP-1002 treated patients (p=0.05) with a mean change of 2.4 points over placebo patients. We also came very close to significance
with the PUL 1.2 mid-level with all the data (p=0.08) with a mean change of 2.8 points over placebo patients. With the exception
of steroids, preservation of function in DMD is uncommon. The placebo patients declined consistent with natural history, but in
the treated group, most patients were stable or improved throughout the one-year treatment period.
The data also showed
global improvements in cardiac function as measured by ejection fraction (p=0.004) and indexed volumes (LVESV, p=0.01, LVEDV p=0.07).
These are surrogate measures of cardiac function and are considered significant in terms of relevance to long term outcomes. Additionally,
there was also a reduction in the biomarker CK-MB, an enzyme that is only released when there is cardiac muscle cell damage. In
normal human subjects, there is typically no CK-MB measurable in the blood. It is well accepted that continuous muscle cell damage
in DMD leads to pathologically high enzyme levels associated with cardiac muscle cell loss. In HOPE-2 treatment with CAP-1002 was
associated with a reduction in CK-MB levels as compared to placebo (p=0.006). This is the first ever study in DMD that correlates
cardiac functional stabilization with reduction of a biomarker of cell damage.
Study Results
12-month Top-Line Efficacy Data:
12-month Time-point
CAP-1002
n=8
Placebo
n=12
p-value
Upper Limb Function
Mid-level PUL (version 1.2)
-2.1 (3.63)
-4.9 (2.57)
p=0.08
Shoulder + Mid + Distal PUL (version 1.2)
-2.3 (3.86)
-6.4 (3.84)
p=0.03
Shoulder + Mid + Distal PUL (version 2.0)
-1.3 (2.14)
-3.7 (1.50)
p=0.05
Cardiac
LV Ejection Fraction %
-0.33 (2.01)
-1.89 (2.23)
p=0.004
LV End-Diastolic Volume, Indexed mL/m 2
-7.35 (6.10)
0.00 (7.34)
p=0.07
LV End-Systolic Volume, Indexed mL/m 2
-3.10 (1.68)
1.70 (5.02)
p=0.01
Creatine Kinase-MB (% of total CK)
-0.50 (0.55)
2.00 (1.00)
p=0.006
Mean Change from baseline to 12 months (standard deviation)
shown.
ITT (intent to treat) population shown
P-values are nominal values unadjusted for multiple testing
Mixed model repeated measures analysis
Additionally, we are
conducting an open-label extension available to all patients who participated in the HOPE-2 study which includes those patients
who received placebo.
Safety
CAP-1002 was generally
safe and well tolerated throughout the study. With the exception of hypersensitivity reactions which were mitigated with a common
pre-medication regimen, no safety signals were identified in the HOPE-2 trial.
Regulatory Developments
In June 2017,
we had a meeting with the FDA to discuss potential clinical endpoints that could be used for registration strategies for CAP-1002
in the DMD indication. The minutes of the meeting indicated the FDA's willingness to accept Capricor's proposal to use the PUL
test as the basis for the primary efficacy endpoint for clinical studies in support of a BLA. The PUL test is an outcome instrument
that was specifically designed to assess upper limb function in ambulant and non-ambulant patients with DMD.
In December 2018,
we met with the FDA as part of the expedited review afforded under the RMAT designation. The agency stated that the trial would
need to provide evidence of clinically meaningful changes in the PUL, as well as other evidence supportive of CAP-1002 efficacy
for patients with advanced Duchenne muscular dystrophy, in order to potentially serve as a registration trial.
7
In October 2019,
we had a meeting with the FDA to discuss, among other things, the results of the 6-month interim analysis of the HOPE-2 trial and
our path forward with our DMD program. During the meeting, we proposed the possibility of accelerated approval. The FDA was
not supportive of an accelerated approval pathway at that time and noted that the HOPE-2 trial was designed as an exploratory trial
and that the 6-month data from the HOPE-2 trial did not provide substantial evidence of effectiveness to support a future BLA.
The FDA did, however, indicate its support for conducting a Phase III trial of CAP-1002 for the treatment of DMD. In addition,
the FDA reiterated that as part of our RMAT designation, they are willing to work with us to further the clinical development of
the therapy.
In a follow-up to the
October 2019 meeting, Capricor requested an additional meeting to clarify endpoints for future clinical trials. In a written
response, FDA supported the use of the full PUL 2.0 from baseline to twelve months as a primary efficacy endpoint as long as clinical
meaningfulness can be demonstrated. They suggested that a 1.0 point difference appears suitable to demonstrate product efficacy
to support a BLA.
In a Type B meeting
with the FDA in 2020, we focused on the 12-month results from the HOPE-2 trial and discussed next steps and a pathway to approval
of a BLA for CAP-1002 in DMD. The FDA has continued to encourage us to conduct a Phase III study; at this time, however, we are
still discussing the pathway forward for this program with the FDA and have not initiated a Phase III study.
Phase I/II HOPE-Duchenne Clinical Trial
We
have completed the randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate
the safety and exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with Duchenne muscular dystrophy, or
DMD. Twenty-five patients were randomized in a 1:1 ratio to receive either CAP-1002 on top of usual care or usual care only. In
patients receiving CAP-1002, 25 million cells were infused into each of their three main coronary arteries for a total dose of
75 million cells. It was a one-time treatment, and the last patient was infused in September 2016. Patients were observed
over the course of 12 months. Efficacy was evaluated according to several exploratory outcome measures. This study was funded in
part through a grant award from the California Institute for Regenerative Medicine, or CIRM. In January 2019, this
study was published in the online issue of Neurology , the medical journal of the American Academy of Neurology.
We
reported our 12-month data from the HOPE-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific
Sessions 2017. As shoulder function had already been lost in most of the HOPE-Duchenne participants, investigators used
the combined mid-distal PUL subscales to assess changes in skeletal muscle function and found significant improvement in those
treated with CAP-1002 in a defined post-hoc analysis. Among the lower-functioning patients, defined as patients with a baseline
mid-distal PUL score < 55 out of 58, investigators reported sustained or improved motor function at 12 months in 8 of 9 (89%)
patients treated with CAP-1002 as compared to none (0%) of the usual care participants (p=0.007). Additionally, we reported significant
improvements in systolic thickening of the left ventricular wall as well as reduction in scarring of the heart muscle among those
treated with CAP-1002 decreased relative to the control group.
CAP-1002 was generally
safe and well-tolerated in the HOPE-Duchenne trial. There was no significant difference in the incidences of treatment-emergent
adverse events in either group. There were no early study discontinuations due to adverse events.
Regulatory Designations for CAP-1002
for the treatment of DMD
In April 2015,
the FDA granted Orphan Drug Designation to CAP-1002 for the treatment of DMD. Orphan Drug Designation is granted by the FDA’s
Office of Orphan Drug Products to drugs intended to treat a rare disease or condition affecting fewer than 200,000 people in the
United States or a disease or condition that affects more than 200,000 people in the United States and for which there is no reasonable
expectation that the cost of developing and making available in the United States a drug for this type of disease or condition
will be recovered from sales in the United States for that drug. This designation confers special incentives to the drug developer,
including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a seven-year period
of market exclusivity in the United States upon FDA approval.
8
In July 2017,
the FDA granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD. The FDA defines a “rare pediatric
disease” as a serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect
individuals aged from birth to 18 years and that affects fewer than 200,000 individuals in the United States, or a disease or condition
that affects more than 200,000 people in the United States and for which there is no reasonable expectation that the cost of developing
and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United
States for that drug. Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying
New Drug Application, or NDA, or BLA for the treatment of a rare pediatric disease, the sponsor of such application would be eligible
for a Rare Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent NDA or BLA. The
Priority Review Voucher may be sold or transferred an unlimited number of times.
In February 2018,
we were notified by the FDA Office of Tissues and Advanced Therapies, that we were granted the Regenerative Medicine Advanced Therapy,
or RMAT, designation for CAP-1002 for the treatment of DMD. The FDA grants the RMAT designation to regenerative medicine therapies
intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and for which preliminary clinical
evidence indicates a potential to address unmet medical needs for that condition. The RMAT designation makes therapies eligible
for the same actions to expedite the development and review of a marketing application that are available to drugs that receive
fast track or breakthrough therapy designation – including increased meeting opportunities, early interactions to discuss
any potential surrogate or intermediate endpoints and the potential to support accelerated approval. CAP-1002 is one of the few
therapies currently in development to help non-ambulant patients with DMD. To receive the RMAT designation, we submitted data from
the HOPE-Duchenne Trial.
CAP-1002 for the Treatment of SARS-CoV-2
Within the framework
of SARS-CoV-2 pathogenesis, multiple pathways known to be CAP-1002 sensitive may serve as therapeutic targets. These targets include
pro-inflammatory pathways (TNF-α, interferon γ, IL-1, and IL-6) and anti-inflammatory pathways (regulatory T cells
and IL-10) that have been explored with CAP-1002 in preclinical models of myocardial ischemia, myocarditis, heart failure, Duchenne
muscular dystrophy and pulmonary hypertension. Given that CAP-1002 polarizes macrophages to an anti-inflammatory (healing) immunomodulatory
phenotype, CAP-1002 may subsequently attenuate cytokine storm associated with SARS-CoV-2. Furthermore, as CAP-1002 directly targets
cardiac dysfunction, CAP-1002 potentially may also be an important tool in the treatment of the cardiac complications of SARS-CoV-2.
We are currently conducting the INSPIRE Phase II clinical trial in patients with a diagnosis of SARS-CoV-2.
CAP-1002 for the Treatment of Cardiac
Conditions:
In previous years,
we completed several trials investigating the use of CAP-1002 for the treatment of various cardiac conditions, including heart
failure (the DYNAMIC Trial) and post myocardial infarction (MI) with cardiac dysfunction (the ALLSTAR trial). Because of our decision
to focus our efforts on DMD, we have decided not to pursue those indications at this time, nor do we have any plans to continue
with the development of these programs although we are continuing to evaluate certain cardiac measures in our HOPE-2 trial. We
expect no further material expenses in connection with these programs.
CAP-1002 - Investigator Sponsored
Clinical Trials:
Capricor has agreed
to provide cells for investigational purposes in two clinical trials sponsored by CSMC. These cells were developed as part of the
Company’s past research and development efforts. The first trial is known as “Regression of Fibrosis and Reversal of
Diastolic Dysfunction in HFpEF Patients Treated with Allogeneic CDCs, or the REGRESS trial. Dr. Eduardo Marbán is the
named principal investigator under the study. The second trial is known as “Pulmonary Arterial Hypertension treated with
Cardiosphere-derived Allogeneic Stem Cells, or the ALPHA trial. In this trial, the investigational product is infused into the
venous system via catheter into the right atrium. This trial is currently ongoing. In both studies, Capricor is providing the necessary
number of doses of cells and will receive a negotiated amount of monetary compensation which was estimated to be approximately
$2.1 million over several years. Due to the current COVID-19 pandemic, additional testing in each of the ALPHA and REGRESS trials
has been delayed and as a result, purchases of additional doses of CAP-1002 have been delayed.
Exosomes Program
Our exosomes program
consists of exosome-based vaccines, engineered exosomes and exosomes derived from CDCs (CAP-2003), all of which are in various
stages of development. We have explored the use of our CDC-exosomes in preclinical studies of inflammation and intense immune activation
such as DMD, sepsis, Graft versus-host disease (GVHD) and trauma. While CDC-exosomes are the initial technology we have used in
preclinical development, we have expanded Capricor’s pipeline to include additional exosome technologies.
9
We are now focused
on developing a precision-engineered exosome platform technology that has the ability to deliver defined sets of effector molecules
which exert their effects through defined mechanisms of action. We have begun work on our planned expansion of our exosome platform
technology that potentially may be used for vaccine development, vesicle mediated protein therapies and treatment of monogenic
diseases.
In conjunction with
these expansion efforts, we have entered into a Sponsored Research Agreement with JHU pursuant to which researchers in the lab
of Dr. Stephen Gould will perform certain research activities in connection with our exosomes program and the further development
of the platform.
Exosome-Based Vaccine Platform
We are now working
on developing exosome-based vaccines for COVID-19. The exosome-based vaccine platform technology will aim to combine the improved
protection that comes from immunizing individuals with multiple antigens in a manner that mimics the advantages of conventional
virus vaccines, with the superior safety profile of virus-free vaccines. We are currently designing exosome-based vaccines to elicit
strong humoral and cellular immune responses due to the simultaneous expression of antigens.
We
are developing two exosome vaccine candidates. The first vaccine candidate is a tripartite exosome-mRNA vaccine which is designed
to elicit a protective, long-lasting immune response to SARS-CoV-2 by targeting multiple structural proteins of the virus.
Recently, in collaboration with researchers at JHU, we announced positive data from a preclinical study in mice using our
exosome-based mRNA vaccine. The key findings of the data include the development of a safe exosome formulation capable of delivering
functional mRNA in vitro and in vivo. Furthermore, the potential vaccine induced both antibody responses and cellular
immunity to multiple proteins of SARS-CoV-2.
We recently met with
the FDA in a pre-IND meeting and are planning on filing an IND by the third quarter of 2021, subject to regulatory approval, for
this vaccine for SARS-CoV-2.
The second candidate
is an exosomal antigen vaccine which is a vesicle-based, nucleic acid-free formulation carrying multiple structural proteins of
SARS-CoV-2. We continue to assess this technology for potential uses within infectious diseases and potentially other uses.
Furthermore, we recently
entered into a non-exclusive license to intellectual property, know-how and data with JHU related to a new imaging-based serology
test platform for COVID-19. This platform, which is amenable to a vast array of serology applications, has been applied to the
analysis of patient antibodies to multiple SARS-CoV-2 proteins, including spike, nucleocapsid, and membrane. The development of
this companion diagnostic allows us to accurately evaluate the effects of our vaccines and therapeutics and we intend to explore
the potential for partnership opportunities for this technology.
Engineered Exosomes Platform
Building upon the natural
ability of exosomes for intercellular communication, we are focused on engineering exosomes to load them with different macromolecules.
We are actively developing an engineered exosomes platform for the delivery of nucleic acids (including mRNA) for a variety of
different diseases. In collaboration with researchers at JHU, we recently published data demonstrating exosome-mediated delivery
of mRNAs with enhanced expression and lower toxicity compared to lipid nanoparticles. Additionally, we showed functional enzyme
expression and real-time imaging of mRNA expression in live animals. Building on this platform, we have promising data for enhanced
targeting of exosomes. Our plan is to actively develop this platform for a broad spectrum of diseases.
CDC-Exosomes (CAP-2003)
We have promising preclinical
data in several indications from studies done in our labs as well as in collaboration with other companies and academic institutions.
Additionally, in July 2018, we entered into a Cooperative Research and Development Agreement with the USAISR pursuant to which
we agreed to cooperate in research and development on the evaluation of our CDC-Exosomes for the treatment of trauma related injuries
and conditions which are one of the leading causes of death in the U.S.
In April 2020,
we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD. At this time, the FDA has requested more
information related to manufacturing and we are evaluating the next steps for this program. We need to submit further information
to FDA to support the potential acceptance of this IND.
10
These programs represent
our core technology and products.
Intellectual Property and Proprietary
Know-How
Our goal is to obtain,
maintain and enforce patent rights for our products, formulations, processes, methods of use and other proprietary technologies,
preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States
and abroad. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible
for our current product candidates and any future product candidates, proprietary information and proprietary technology through
a combination of contractual arrangements and patents, both in the United States and abroad. Even patent protection, however, may
not always afford us with complete protection against competitors who seek to circumvent our patents. If we fail to adequately
protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property
rights would diminish. To this end, we require all of our employees, consultants, advisors and other contractors to enter into
confidentiality agreements that prohibit the disclosure and use of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions relevant to our technologies and important to our business.
The development of
complex biotechnology products such as ours typically includes the early discovery of a technology platform – often in an
academic institution – followed by increasingly focused development around a product opportunity, including identification
and definition of a specific product candidate and development of scalable manufacturing processes, formulations, delivery and
dosage regimens. As a result, biotechnology products are often protected by several families of patent filings that are made at
different times in the development cycle and cover different aspects of the product. Earlier filed broad patent applications directed
to the discovery of the platform technology thus usually expire ahead of patents covering later developments such as scalable manufacturing
processes and dosing regimens. Patent expirations on products may therefore span several years and vary from country to country
based on the scope of available coverage. Our patents, or patent applications, if issued and upon payment of patent maintenance
fees, would expire as early as 2024 and as late as 2041. There are also limited opportunities to obtain extensions of patent terms
in certain countries.
Capricor’s Technology - CAP-1002
and Exosomes
Capricor has entered
into exclusive license agreements for intellectual property rights related to certain cardiac-derived cells with Università
Degli Studi Di Roma La Sapienza, or the University of Rome, JHU and CSMC. Capricor has also entered into an exclusive license agreement
for intellectual property rights related to exosomes with CSMC and a non-exclusive license agreement with JHU related to the imaging-based
serology technology for COVID-19. In addition, Capricor has filed patent applications related to the technology developed by its
own scientists.
University of Rome
License Agreement
Capricor and the University
of Rome entered into a License Agreement, dated June 21, 2006, or the Rome License Agreement, which provides for the grant
of an exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop
and commercialize licensed products under the licensed patent rights in all fields. Capricor has a right of first negotiation,
for a certain period of time, to obtain a license to any new and separate patent applications owned by the University of Rome utilizing
cardiac stem cells in cardiac care.
Pursuant to the Rome
License Agreement, Capricor paid the University of Rome a license issue fee, is currently paying minimum annual royalties in the
amount of 20,000 Euros per year, and is obligated to pay a lower-end of a mid-range double-digit percentage on all royalties received
as a result of sublicenses granted, which are net of any royalties paid to third parties under a license agreement from such third
party to Capricor. The minimum annual royalties are creditable against future royalty payments.
The Rome License Agreement
will, unless extended or sooner terminated, remain in effect until the later of the last claim of any patent or until any patent
application comprising licensed patent rights has expired or been abandoned. Under the terms of the Rome License Agreement, either
party may terminate the agreement should the other party become insolvent or file a petition in bankruptcy. Either party may terminate
the agreement upon the other party’s material breach, provided that the breaching party will have up to 90 days to cure its
material breach. Capricor may also terminate for any reason upon 90 days’ written notice to the University of Rome.
The Johns Hopkins University License
Agreements
11
License Agreement
for CDCs
Capricor and JHU entered
into an Exclusive License Agreement, effective June 22, 2006, or the JHU License Agreement, which provides for the grant of
an exclusive, world-wide, royalty-bearing license by JHU to Capricor (with the right to sublicense) to develop and commercialize
licensed products and licensed services under the licensed patent rights in all fields and a nonexclusive right to the know-how.
In May 2009, the JHU License Agreement was amended to add additional patent rights to the JHU License Agreement in consideration
of a payment to JHU and reimbursement of patent costs. Capricor and JHU executed a Second Amendment to the JHU License Agreement,
effective as of December 20, 2013, pursuant to which, among other things, certain definitions were added or amended, the timing
of certain obligations was revised and other obligations of the parties were clarified. Under the JHU License Agreement, Capricor
is required to exercise commercially reasonable and diligent efforts to develop and commercialize licensed products covered by
the licenses from JHU.
Pursuant
to the JHU License Agreement, JHU was paid an initial license fee and, thereafter, Capricor is required to pay minimum annual royalties
on the anniversary dates of the JHU License Agreement. The minimum annual royalties are creditable against a low single-digit running
royalty on net sales of products and net service revenues, which Capricor is also required to pay under the JHU License Agreement,
which running royalty may be subject to further reduction in the event that Capricor is required to pay royalties on any patent
rights to third parties in order to make or sell a licensed product. In addition, Capricor is required to pay a low double-digit
percentage of the consideration received by it from sublicenses granted, and is required to pay JHU certain defined development
milestone payments upon the successful completion of certain phases of its clinical studies and upon receiving approval from
the U.S. Food and Drug Administration, or the FDA. The development milestones range from $100,000 upon successful completion of
a full Phase I clinical study to $1,000,000 upon full FDA market approval and are fully creditable against payments owed by Capricor
to JHU on account of sublicense consideration attributable to milestone payments received from a sublicensee. The maximum aggregate
amount of milestone payments payable under the JHU License Agreement, as amended, is $1,850,000. In May 2015, Capricor paid
the development milestone related to Phase I that was owed to JHU pursuant to the terms of the JHU License Agreement. The next
milestone is triggered upon successful completion of a full Phase II study for which a payment of $250,000 will be due. At this
time, it is uncertain as to whether the $250,000 milestone payment will become due.
The JHU License Agreement
will, unless sooner terminated, continue in effect in each applicable country until the date of expiration of the last to expire
patent within the patent rights, or, if no patents are issued, then for twenty years from the effective date. Under the terms of
the JHU License Agreement, either party may terminate the agreement should the other party become insolvent or file a petition
in bankruptcy, or fail to cure a material breach within 30 days after notice. In addition, Capricor may terminate for any reason
upon 60 days’ written notice.
License Agreement
for Serology Diagnostic
Capricor and JHU entered
into a Nonexclusive License Agreement, effective January 6, 2021, or the JHU Serology License Agreement, which provides for
the grant of a non-exclusive, world-wide, non-royalty-bearing license by JHU to Capricor to develop and commercialize licensed
products under the licensed patent rights for COVID-19.
Cedars-Sinai Medical Center License Agreements
License Agreement for CDCs
On January 4,
2010, Capricor entered into an Exclusive License Agreement with CSMC, or the Original CSMC License Agreement, for certain intellectual
property related to its CDC technology. In 2013, the Original CSMC License Agreement was amended twice resulting in, among other
things, a reduction in the percentage of sublicense fees which would have been payable to CSMC. Effective December 30, 2013,
Capricor entered into an Amended and Restated Exclusive License Agreement with CSMC, or the Amended CSMC License Agreement, which
amended, restated, and superseded the Original CSMC License Agreement, pursuant to which, among other things, certain definitions
were added or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.
The Amended CSMC License
Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor (with the right to sublicense)
to conduct research using the patent rights and know-how and develop and commercialize products in the field using the patent rights
and know-how. In addition, Capricor has the exclusive right to negotiate for an exclusive license to any future rights arising
from related work conducted by or under the direction of Dr. Eduardo Marbán on behalf of CSMC. In the event the parties
fail to agree upon the terms of an exclusive license for any future rights, Capricor will have a non-exclusive license to such
future rights, subject to royalty obligations.
12
Pursuant to the Original
CSMC License Agreement, CSMC was paid a license fee and Capricor was obligated to reimburse CSMC for certain fees and costs incurred
in connection with the prosecution of certain patent rights. Additionally, Capricor is required to meet certain spending and development
milestones.
Pursuant to the Amended
CSMC License Agreement, Capricor remains obligated to pay low single-digit royalties on sales of royalty-bearing products as well
as a low double-digit percentage of the consideration received from any sublicenses or other grant of rights. The above-mentioned
royalties are subject to reduction in the event Capricor becomes obligated to obtain a license from a third party for patent rights
in connection with the royalty-bearing product. In 2010, Capricor discontinued its research under some of the patents.
The Amended CSMC License
Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the patents
covering the patent rights or future patent rights. Under the terms of the Amended CSMC License Agreement, unless waived by CSMC,
the agreement shall automatically terminate: (i) if Capricor ceases, dissolves or winds up its business operations; (ii) in
the event of the insolvency or bankruptcy of Capricor or if Capricor makes an assignment for the benefit of its creditors; (iii) if
performance by either party jeopardizes the licensure, accreditation or tax exempt status of CSMC or the agreement is deemed illegal
by a governmental body; (iv) within 30 days for non-payment of royalties; (v) after 90 days’ notice from CSMC if
Capricor fails to undertake commercially reasonable efforts to exploit the patent rights or future patent rights; (vi) if
a material breach has not been cured within 90 days; or (vii) if Capricor challenges any of the CSMC patent rights. If Capricor
fails to undertake commercially reasonable efforts to exploit the patent rights or future patent rights, and fails to cure that
breach after 90 days’ notice from CSMC, instead of terminating the license, CSMC has the option to convert any exclusive
license to Capricor to a non-exclusive or co-exclusive license. Capricor may terminate the agreement if CSMC fails to cure any
material breach within 90 days after notice.
On March 20, 2015,
August 5, 2016, December 26, 2017, and June 20, 2018, Capricor and CSMC entered into a number of amendments to the
Amended CSMC License Agreement, pursuant to which the parties agreed to add and delete certain patent applications from the list
of scheduled patents. Capricor reimbursed CSMC for certain attorneys’ fees and filing fees incurred in connection with the
additional patent applications.
License Agreement for Exosomes
On May 5, 2014,
Capricor entered into an Exclusive License Agreement with CSMC, or the Exosomes License Agreement, for certain intellectual property
rights related to exosomes technology. The Exosomes License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing
license by CSMC to Capricor (with the right to sublicense) in order to conduct research using the patent rights and know-how and
to develop and commercialize products in the field using the patent rights and know-how. In addition, Capricor has the exclusive
right to negotiate for an exclusive license to any future rights arising from related work conducted by or under the direction
of Dr. Eduardo Marbán on behalf of CSMC. In the event the parties fail to agree upon the terms of an exclusive license,
Capricor shall have a non-exclusive license to such future rights, subject to royalty obligations.
Pursuant to the Exosomes
License Agreement, CSMC was paid a license fee and Capricor reimbursed CSMC for certain fees and costs incurred in connection with
the preparation and prosecution of certain patent applications. Additionally, Capricor is required to meet certain non-monetary
development milestones and is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a single-digit
percentage of the consideration received from any sublicenses or other grant of rights. The above-mentioned royalties are subject
to reduction in the event Capricor becomes obligated to obtain a license from a third party for patent rights in connection with
the royalty bearing product.
The Exosomes License
Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the patents
covering the patent rights or future patent rights. Under the terms of the Exosomes License Agreement, unless waived by CSMC, the
agreement shall automatically terminate: (i) if Capricor ceases, dissolves or winds up its business operations; (ii) in
the event of the insolvency or bankruptcy of Capricor or if Capricor makes an assignment for the benefit of its creditors; (iii) if
performance by either party jeopardizes the licensure, accreditation or tax exempt status of CSMC or the agreement is deemed illegal
by a governmental body; (iv) within 30 days for non-payment of royalties; (v) after 90 days if Capricor fails to undertake
commercially reasonable efforts to exploit the patent rights or future patent rights; (vi) if a material breach has not been
cured within 90 days; or (vii) if Capricor challenges any of the CSMC patent rights. If Capricor fails to undertake commercially
reasonable efforts to exploit the patent rights or future patent rights, and fails to cure that breach after 90 days’ notice
from CSMC, instead of terminating the license, CSMC has the option to convert any exclusive license to Capricor to a non-exclusive
or co-exclusive license. Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.
13
On
February 27, 2015, June 10, 2015, August 5, 2016, December 26, 2017, June 20, 2018, September 25,
2018, August 19, 2020, and August 28, 2020 Capricor and CSMC entered into a number of amendments to the Exosomes License
Agreement. These amendments added additional patent applications and patent families to the Exosomes License Agreement, added certain
defined product development milestone payments, modified certain milestone deadlines, and added certain performance milestones
with respect to product candidates covered by certain future patent rights in order to maintain an exclusive license to
those future patent rights; failure to meet those milestones would cause CSMC to have the right to convert the license from exclusive
to non-exclusive or co-exclusive, or to terminate the license, subject to Capricor’s right to license such patent rights
for internal research purposes on a non-exclusive basis. These amendments also obligated Capricor to reimburse CSMC for certain
attorneys’ fees and filing fees in connection with the additional patent applications and patent families.
Sponsored Research Agreement with
Johns Hopkins University
On April 1, 2020
we entered into a Sponsored Research Agreement, or the SRA, with JHU pursuant to which researchers in the lab of Dr. Stephen
Gould will perform certain research activities in connection with our exosomes program. Pursuant to the SRA, we have agreed to
fund certain research activities and will have the right to negotiate for exclusive or non-exclusive rights to intellectual property
that may result from such research activities.
Manufacturing
Capricor presently
maintains its laboratory, research and manufacturing facilities in leased premises located at CSMC, or the Facilities Lease. In
that portion of the leased premises where we manufacture CAP-1002 and plan to manufacture our exosome products, including our exosome-mRNA
vaccine for potential clinical use, we believe that we follow good manufacturing practices to the extent that they are applicable
to our clinical programs, but our premises are not approved as a current Good Manufacturing Practices, or cGMP, facility, for the
manufacture of commercial product. Capricor manufactured CAP-1002 in this facility for our previous studies.
In addition to manufacturing
CAP-1002 and our exosome technologies for its own clinical trials, Capricor has agreed to provide CAP-1002 for investigational
purposes in two clinical trials sponsored by CSMC. If we are unable to extend the term of our Facilities Lease, Capricor would
have to secure alternative facilities in which to manufacture its products, which would involve a significant monetary investment
and would negatively impact the progress of our planned clinical trials and regulatory approvals. In addition, we would have to
establish a collaboration agreement with a third party or build out our own manufacturing facility for any commercial scale manufacturing
of our exosome products.
We have initiated a
technology transfer with Lonza Houston, Inc., a leading global contract manufacturing organization to prepare for commercial
or possibly for late-stage clinical manufacturing of CAP-1002. The current activities are focused on process development services
for the manufacturing processes and related other activities necessary for potential cGMP readiness.
Manufacturing Process
for CAP-1002
The manufacturing process
for CAP-1002 begins with material from an entire heart received from a donor that was collected from an organ procurement organization,
or OPO. This tissue is then taken to the lab where the cells are isolated, expanded, and processed through a series of proprietary
unit operations. After expanding, processing, release testing and quality review, the CAP-1002 product becomes available for administration
to patients participating in clinical trials. CAP-1002 is cryo-preserved, enabling us to produce large lots that can be frozen
and then administered to patients as needed.
Manufacturing Process for CDC-Exosomes
(CAP-2003)
The process for manufacturing
CAP-2003 starts with the proprietary process of creating a cell bank from donor heart tissue through the expansion of CDCs. Afterwards,
exosomes are isolated from the expanded CDCs. After these exosomes are prepared, formulated, filled, tested, and validated, the
exosomes product becomes available for clinical investigation. We believe that the allogeneic, acellular nature of exosomes would
potentially enable us to create a scalable cell-derived product.
14
Manufacturing Processes
for Other Exosome Technologies
We have also made significant
progress planning the next steps for the manufacturing process for our exosome product candidates, including our exosome-mRNA vaccine.
We believe these developments will enable us to scale up our manufacturing capabilities and allow us to manufacture enough material
for early-stage clinical development. We are exploring the use of various cell sources to generate our exosomes for preclinical
and potential clinical use.
Research and Development
Capricor’s research
and development program has been advanced in part through federal and state grants and loan awards totaling approximately $28 million
to date. Our ongoing research and development activities primarily concern CDCs and exosomes, and are focused on the characterization
of their composition and actions, the evaluation of their therapeutic potential in selected disease settings, the development of
next generation product candidates, and the identification of new technologies and indications.
Competition
We are engaged in fields
that are characterized by extensive worldwide research and competition by pharmaceutical companies, medical device companies, specialized
biotechnology companies, hospitals, physicians and academic institutions, both in the United States and abroad. This competition
is particularly intense and advanced with respect to the development of vaccines for SARS-CoV-2. The pharmaceutical industry is
highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies. Many of the
organizations competing with us have substantially greater financial resources, larger research and development staffs and facilities,
longer drug development history in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we
do. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies, and
research organizations actively engaged in research and development of products which may target the same indications as our product
candidates. We expect any future products and product candidates we develop to compete on the basis of, among other things, product
efficacy and safety, time to market, price, extent of adverse side effects, and convenience of treatment procedures. The biotechnology
and pharmaceutical industries are subject to rapid and significant technological change. The drugs that we are attempting to develop
will have to compete with existing and future therapies. Our future success will depend in part on our ability to maintain a competitive
position with respect to evolving cell therapy and exosome technologies. There can be no assurance that existing or future therapies
developed by others will not render our potential products obsolete or noncompetitive. In addition, companies pursuing different
but related fields represent substantial competition. These organizations also compete with us to attract patients for clinical
trials, qualified personnel and parties for acquisitions, joint ventures, or other collaborations.
Government Regulation
The research, development,
testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, serialization and tracking, promotion,
advertising, distribution and marketing, post-approval monitoring and reporting, and export and import, among other things, of
our product candidates are extensively regulated by governmental authorities in the United States and other countries. In the United
States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations.
Failure to comply with the applicable U.S. requirements may subject us to administrative or judicial sanctions, such as the FDA’s
refusal to approve a pending NDA or a pending BLA, warning letters, product recalls, product seizures, total or partial suspension
of production or distribution, injunctions and/or criminal prosecution.
FDA Approval Process for Drugs and Biologics
Pharmaceutical products,
including biological products such as ours may not be commercially marketed without prior approval from the FDA and comparable
regulatory agencies in other countries. In the United States, the process for receiving such approval is long, expensive and risky,
and includes the following steps:
·
preclinical laboratory tests, animal studies, and formulation studies;
·
submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin;
·
approval by an IRB at each clinical site before each trial may be initiated;
·
adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for each indication;
15
·
submission to the FDA of an NDA, for a drug, or BLA, for a biological product;
·
satisfactory completion of an FDA advisory committee review, if applicable;
·
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP;
·
a potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA or BLA;
·
the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all;
·
FDA review and approval of the NDA or BLA prior to any commercial marketing or sale of the drug in the United States; and
·
compliance with any post-approval requirements, including the potential requirement to implement a REMS, and the potential requirement to conduct post-approval studies.
Sponsors submit NDAs
in order to obtain marketing approval for drugs. Sponsors submit BLAs in order to obtain marketing approval for biologics, which
include, among other product classes, vaccines.
Regulation by U.S.
and foreign governmental authorities is a significant factor affecting our ability to commercialize any of our products, as well
as the timing of such commercialization and our ongoing research and development activities. The commercialization of drug products
requires regulatory approval by governmental agencies prior to commercialization. Various laws and regulations govern or influence
the research and development, non-clinical and clinical testing, manufacturing, processing, packaging, validation, safety, labeling,
storage, record keeping, registration, listing, distribution, advertising, sale, marketing and post-marketing commitments of our
products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable laws and regulations, require
expending substantial resources.
The results of preclinical
testing, which include laboratory evaluation of product chemistry, formulation, toxicity and carcinogenicity animal studies to
assess the potential safety and efficacy of the product and its formulations, details concerning the drug manufacturing process
and its controls, and a proposed clinical trial protocol and other information must be submitted to the FDA as part of an IND that
must be reviewed and become effective before clinical testing can begin. The study protocol and informed consent information for
patients in clinical trials must also be submitted to an independent Institutional Review Board, or IRB, for approval covering
each institution at which the clinical trial will be conducted. Once a sponsor submits an IND, the sponsor must wait 30 calendar
days before initiating any clinical trials. If the FDA has comments or questions within this 30-day period, the issue(s) must
be resolved to the satisfaction of the FDA before a clinical trial can begin. In addition, the FDA or IRB may impose a clinical
hold on ongoing clinical trials if, among other things, it believes that a clinical trial either is not being conducted in accordance
with FDA requirements or presents an unacceptable and significant risk to clinical trial patients. If the FDA imposes a clinical
hold, clinical trials can only proceed under terms authorized by the FDA. If applicable, our preclinical and clinical studies must
conform to the FDA’s Good Laboratory Practice, or GLP, and Good Clinical Practice, or GCP, requirements, respectively, which
are designed to ensure the quality and integrity of submitted data and protect the rights and well-being of study patients. Information
for certain clinical trials also must be publicly disclosed within certain time limits on the clinical trial registry and results
databank maintained by the NIH.
Typically, clinical
testing involves a three-phase process; however, the phases may overlap or be combined:
·
Phase I clinical trials typically are conducted in a small number of volunteers or patients to assess the early tolerability and safety profile, the pattern of drug absorption, distribution and metabolism, the mechanism of action in humans, and may include studies where investigational drugs are used as research to explore biological phenomena or disease processes;
·
Phase II clinical trials typically are conducted in a limited patient population with a specific disease in order to assess appropriate dosages and dose regimens, expand evidence of the safety profile and evaluate preliminary efficacy; and
·
Phase III clinical trials typically are larger scale, multicenter, well-controlled trials conducted on patients with a specific disease to generate enough data to statistically evaluate the efficacy and safety of the product, to establish the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug.
A therapeutic product
candidate being studied in clinical trials may be made available for treatment of individual patients, intermediate-size patient
populations, or for widespread treatment use under an expanded access protocol, under certain circumstances. Pursuant to the 21st
Century Cures Act (Cures Act), which was signed into law in December 2016, the manufacturer of one or more investigational
products for the diagnosis, monitoring, or treatment of one or more serious diseases or conditions is required to make available,
such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational
product.
16
Additionally, on May 30,
2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 was signed into law. The
law, among other things, provides a federal framework for certain patients to access certain investigational new drug products
that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances,
eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA authorization under an FDA
expanded access program; however, manufacturers are not obligated to provide investigational new drug products under the current
federal right to try law.
The results of the
preclinical and clinical testing, chemistry, manufacturing and control information, proposed labeling and other information are
then submitted to the FDA in the form of either an NDA or BLA for review and potential approval to begin commercial sales. In responding
to an NDA or BLA, the FDA may grant marketing approval, or issue a Complete Response Letter, or CRL. A CRL generally contains a
statement of specific conditions that must be met in order to secure final approval of an NDA or BLA and may require substantial
additional testing or information. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically
issue an approval letter, which authorizes commercial marketing of the product with specific prescribing information for specific
indications, and sometimes with specified post-marketing commitments and/or distribution and use restrictions imposed under a Risk
Evaluation and Mitigation Strategy program. Any approval required from the FDA might not be obtained on a timely basis, if at all.
Disclosure of Clinical
Trial Information
Sponsors of certain
clinical trials of FDA-regulated products are required to register and disclose certain clinical trial information. Information
related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical
trial are then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials
after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the
date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress
of development programs.
Orphan Drugs
Under the Orphan Drug
Act, the FDA may grant orphan drug designation to therapeutic candidates intended to treat a rare disease or condition, which is
a disease or condition that affects fewer than 200,000 individuals in the U.S. or more than 200,000 individuals in the U.S. and
for which there is no reasonable expectation that the cost of developing and making available in the U.S. a therapeutic candidate
for this type of disease or condition will be recovered from sales in the U.S. for that therapeutic candidate. Orphan drug designation
must be requested before submitting a marketing application for the therapeutic candidate for that particular disease or condition.
After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review
and approval process. Among the other benefits of orphan drug designation are tax credits for certain research and an exemption
from the NDA or BLA application fee. The FDA may revoke orphan drug designation, and if it does, it will publicize that the drug
is no longer designated as an orphan drug.
If a therapeutic candidate
with orphan drug designation subsequently receives the first FDA approval for such drug for the disease for which it has such designation,
the therapeutic candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications
to market the same therapeutic candidate for the same indication, for seven years, unless the sponsor of the subsequent application
demonstrates clinical superiority, in the form of a greater efficacy, greater safety, or a major contribution to patient care.
Orphan drug exclusivity, however, could also block the approval of one of our therapeutic candidates for seven years if a competitor
obtains orphan drug designation and FDA approval of the same therapeutic candidate for the same condition or disease as our orphan-designated
drug. For macromolecules, FDA considers a drug to be the same drug as an orphan-designated macromolecule if it contains the same
principal molecular structural features, but not necessarily all of the same structural features.
17
In addition, as the
FDA has interpreted the Orphan Drug Act, even if a previously approved same drug does not have unexpired orphan exclusivity, a
demonstration of clinical superiority is required for a subsequent marketing application for the same orphan-designated drug for
the same disease or condition to be awarded a 7-year period of orphan exclusivity upon marketing approval. In recent years, there
have been multiple legal challenges to this FDA interpretation, and in August 2017, Congress amended the orphan drug provisions
of the FDCA through enactment of the FDA Reauthorization Act of 2017 to codify FDA’s longstanding interpretation. Section 527
of the FDCA now expressly provides that if a sponsor of an orphan-designated drug that is otherwise the same as an already approved
drug for the same rare disease or condition is seeking orphan exclusivity, FDA shall require such sponsor to demonstrate that such
drug is clinically superior to any already approved or licensed drug that is the same drug in order to obtain orphan drug exclusivity.
Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same
drug for a different disease or condition.
Expedited Development
and Review Programs
The FDA has a Fast
Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet
certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended
to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition.
Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The
sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during
the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing
application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission
of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable,
and the sponsor pays any required user fees upon submission of the first section of the application FDA may revoke the Fast Track
designation if it believes that the designation is no longer supported by data emerging in the clinical trial process.
Products may also be
eligible for other types of FDA programs intended to expedite development and review, such as Breakthrough Therapy designation,
priority review and accelerated approval. Under the Breakthrough Therapy program, products intended to treat a serious or life-threatening
disease or condition may be eligible for the benefits of the Fast Track program when preliminary clinical evidence demonstrates
that such product may have substantial improvement on one or more clinically significant endpoints over existing therapies. Additionally,
FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice and interactive communications to
help the sponsor design and conduct a development program as efficiently as possible.
A product is eligible
for priority review if it is intended to treat a serious condition and, if approved, it would provide a significant improvement
in safety or effectiveness. FDA intends to take action on a priority review marketing application within 6 months of receipt, compared
to 10 months of receipt for regular review submissions.
Additionally, a product
may be eligible for accelerated approval if it is intended to treat a serious or life-threatening disease or condition and would
provide meaningful therapeutic benefit over existing treatments. Eligible products may receive accelerated approval on the basis
of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably
likely to predict a clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality
and is reasonably likely to predict an effect on irreversible morbidity, mortality, or other clinical benefit. As a condition of
approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval diligently perform
adequate and well-controlled post-marketing clinical studies demonstrating clinical benefit. In addition, the FDA requires as a
condition for accelerated approval the submission of promotional materials, which could adversely impact the timing of the commercial
launch of the product. Fast Track designation, Breakthrough Therapy designation, priority review and accelerated approval do not
change the standards for full approval but may expedite the development or approval process.
Regenerative Medicine
Advanced Therapies (RMAT) Designation
The FDA has established
a Regenerative Medicine Advanced Therapy (RMAT) designation as part of its implementation of the 21st Century Cures Act, or Cures
Act. The RMAT designation program is intended to fulfill the Cures Act requirement that the FDA facilitate an efficient development
program for, and expedite review of, any drug that meets the following criteria: (1) it qualifies as a RMAT, which is defined
as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such
therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening
disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical
needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation provides potential benefits that
include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling
review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate
or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful
number of sites, including through expansion to additional sites. RMAT-designated products that receive accelerated approval may,
as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient
registries, or other sources of real-world evidence (such as electronic health records); through the collection of larger confirmatory
data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.
18
Rare Pediatric Disease
Priority Review Voucher
The FDA generally defines
a “rare pediatric disease” as a serious or life-threatening disease that affects fewer than 200,000 individuals in
the U.S. primarily under the age of 18 years old. Under the FDA's Rare Pediatric Disease Priority Review Voucher (PRV) program,
upon the approval of an application for a product for the treatment of a rare pediatric disease, the sponsor of such application
is eligible for a Rare Pediatric Disease Priority Review Voucher. Currently, the Priority Review Voucher can be used to obtain
priority review for any subsequent application and may be sold or transferred an unlimited number of times. Under the Cures Act,
Congress extended the PRV program for rare pediatric diseases through 2020. A drug designated as a drug for a rare pediatric disease
by December 18, 2020, and approved by December 18, 2022, may receive a voucher.
FDA Emergency Use
Authorization
Section 564 of
the FDCA allows the FDA to authorize the shipment of drugs, biological products (including vaccines), or medical devices that either
lack required approval, licensure, or clearance (unapproved products), or are approved but are to be used for unapproved ways to
diagnose, treat, or prevent serious diseases or conditions in the event of an emergency declaration by the HHS Secretary.
On February 4,
2020, HHS Secretary Alex M. Azar II declared a public health emergency for COVID-19, under 21 U.S.C. § 360bbb-3(b)(1), justifying
the authorization of emergency use of IVDs for detection and/or diagnosis of COVID-19. This determination was published in the
Federal Register on February 7, 2020.
While this emergency
declaration is effective, the FDA may authorize the use of an unapproved product or an unapproved use of an approved product if
it concludes that:
·
an agent referred to in the emergency declaration could cause a serious or life-threatening disease or condition;
·
it is reasonable to believe that the authorized product may be effective in diagnosing, treating, or preventing that disease or condition or a serious or life-threatening disease or condition caused by an approved product or a product marketed under an EUA;
·
the known and potential benefits of the authorized product, when used for that disease or condition, outweigh known and potential risks, taking into consideration the material threat of agents identified in the emergency declaration;
·
there is no adequate, approved, and available alternative to the authorized product for diagnosing, preventing, or treating the relevant disease or condition; or
·
any other criteria prescribed by the FDA is satisfied.
To date, FDA has submitted
all EUAs it has received for vaccine candidates to treat COVID-19 for advisory committee review prior to issuing an EUA.
Medical products that
are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization.
The FDCA authorizes FDA to impose such conditions on an EUA as may be necessary to protect the public health. Consequently, postmarketing
requirements will vary across EUAs. In addition, FDA has, on occasion, waived requirements for drugs marketed under an EUA.
Generally, EUAs for
unapproved products or unapproved uses of approved products require that manufacturers distribute factsheets for healthcare providers,
addressing significant known and potential benefits and risk, and the extent to which benefits and risks are unknown, and the fact
that FDA has authorized emergency use; and, distribution of factsheets for recipients of the product, addressing significant known
and potential benefits and risk, and the extent to which benefits and risks are unknown, the option to accept or refuse the product,
the consequences of refusing, available alternatives, and the fact that FDA has authorized emergency use.
19
Generally, EUAs for
unapproved products and, per FDA’s discretion, EUAs for unapproved uses of approved products, include requirements for adverse
event monitoring and reporting, and other recordkeeping and reporting requirements. Note, however, that approved products are already
subject to equivalent requirements.
In addition, FDA may
include various requirements in an EUA as a matter of discretion as deemed necessary to protect the public health, including restrictions
on which entities may distribute the product, and how to perform distribution (including requiring that distribution be limited
to government entities), restrictions on who may administer the product, requirements for collection and analysis of safety and
effectiveness data, waivers of cGMP, and restrictions applicable to prescription drugs or restricted devices (including advertising
and promotion restrictions).
The FDA may revoke
an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions
for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health
or safety.
FDA Approval and
Regulation of Companion Diagnostics
A therapeutic product
may rely upon an in vitro companion diagnostic for use in selecting the patients that will be more likely to respond to
that therapy. If safe and effective use of a therapeutic depends on an in vitro diagnostic, then the FDA generally will
require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic
product. In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic
products and in vitro companion diagnostics. According to the guidance, for novel drugs, a companion diagnostic device and
its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic
product’s labeling. In July 2016, the FDA issued a draft guidance intended to assist sponsors of the drug therapeutic
and in vitro companion diagnostic device on issues related to co-development of the products.
If FDA determines that
a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, FDA generally
will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic device is not approved
or cleared for that indication. Approval or clearance of the companion diagnostic device will ensure that the device has been adequately
evaluated and has adequate performance characteristics in the intended population. The review of any in vitro companion
diagnostics developed for use with any of our therapeutic products will, therefore, likely involve coordination of review by the
FDA’s Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research, as applicable, and the FDA’s
Center for Devices and Radiological Health Office of In Vitro Diagnostics Device Evaluation and Safety.
Under the FDCA, in
vitro diagnostics, including companion diagnostics, are regulated as medical devices. In the United States, the FDCA and its
implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design
and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling,
storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. Unless an exemption
applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution. The two primary
types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance,
and premarket approval, or PMA. The FDA has generally required PMAs for in vitro companion diagnostics.
The PMA process, including
the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer. It
involves a rigorous premarket review during which the applicant must prepare and provide the FDA with reasonable assurance of the
device’s safety and effectiveness and information about the device and its components regarding, among other things, device
design, manufacturing and labeling. PMA applications are subject to an application fee of $365,657 for most PMAs for fiscal year
2021. In addition, PMAs for certain devices must generally include the results from extensive preclinical and adequate and well-controlled
clinical trials to establish the safety and effectiveness of the device for each indication for which FDA approval is sought. In
particular, for a diagnostic, a PMA application typically requires data regarding analytical and clinical validation studies. As
part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with the Quality System
Regulation, or QSR, which imposes elaborate testing, control, documentation and other quality assurance requirements.
20
PMA approval is not
guaranteed, and the FDA may ultimately respond to a PMA submission with a not approvable determination based on deficiencies in
the application and require additional clinical trial or other data that may be expensive and time-consuming to generate and that
can substantially delay approval. If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an
approvable letter requiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additional
information, such as submission of final labeling, in order to secure final approval of the PMA. If the FDA’s evaluation
of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter.
A not approvable letter will outline the deficiencies in the application and, where practical, will identify what is necessary
to make the PMA approvable. The FDA may also determine that additional clinical trials are necessary, in which case the PMA approval
may be delayed for several months or years while the trials are conducted and then the data submitted in an amendment to the PMA.
If the FDA concludes that the applicable criteria have been met, the FDA will issue a PMA for the approved indications, which can
be more limited than those originally sought by the applicant. The PMA can include post-approval conditions that the FDA believes
necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion,
sale and distribution. Once granted, PMA approval may be withdrawn by the FDA if compliance with post approval requirements, conditions
of approval or other regulatory standards are not maintained or problems are identified following initial marketing.
After a device is placed
on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only for the uses and
indications for which they are cleared or approved. Device manufacturers must also establish registration and device listings with
the FDA. A medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the
applicable portions of the QSR, which cover the methods and documentation of the design, testing, production, processes, controls,
quality assurance, labeling, packaging and shipping of medical devices. Domestic facility records and manufacturing processes are
subject to periodic unscheduled inspections by the FDA. The FDA also may inspect foreign facilities that export products to the
U.S.
Post-Approval Requirements
FDA Requirements
Drugs manufactured
or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other
things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion
with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims,
are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products
and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with
clinical data.
Oftentimes, even after
a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied, including
the conduct of additional clinical studies. If such post-approval requirements are not satisfied, the FDA may withdraw its approval
of the drug. In addition, holders of an approved NDA or BLA are required to report certain adverse reactions to the FDA, comply
with certain requirements concerning advertising and promotional labeling for their products, and continue to have quality control
and manufacturing procedures conform to cGMP after approval. In addition, drug manufacturers and other entities involved in the
manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and
are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes
to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations
also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon
the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend
time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Among the conditions
for an NDA or BLA approval is the requirement that the manufacturing operations conform on an ongoing basis with cGMP. In complying
with cGMP, we must expend time, money and effort in the areas of training, production and quality control within our own organization
and at our contract manufacturing facilities. A successful inspection of the manufacturing facility by the FDA is usually a prerequisite
for final approval of a pharmaceutical product. Following approval of the NDA or BLA, we and our manufacturers will remain subject
to periodic inspections by the FDA to assess compliance with cGMP requirements and the conditions of approval. We will also face
similar inspections coordinated by foreign regulatory authorities. The FDA periodically inspects the sponsor’s records related
to safety reporting and/or manufacturing facilities; this latter effort includes assessment of compliance with cGMP. Accordingly,
manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
21
Once an approval is
granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events
of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may
result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials
to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences
include, among other things:
·
restrictions on the marketing or manufacturing of the product, including total or partial suspension of production, complete withdrawal of the product from the market or product recalls;
·
fines, warning letters or holds on post-approval clinical trials;
·
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
·
product seizure or detention, or refusal to permit the import or export of products; or
·
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates
marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved
indications and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws
and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promoted off label
uses may be subject to significant liability.
In addition, the distribution
of prescription drug products is subject to the Prescription Drug Marketing Act (the PDMA) which regulates the distribution of
drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors
by the states. Both the PDMA and state laws limit the distribution of prescription drug product samples and impose requirements
to ensure accountability in distribution.
Pricing, Coverage
and Reimbursement
Significant uncertainty
exists as to the coverage and reimbursement status of any of our products, if any when approved. Sales of pharmaceutical products
depend, in part, on the availability of sufficient coverage and adequate reimbursement from third-party payors, which include government
health programs, such as Medicare, Medicaid, TRICARE, and the Veterans Administration, as well as commercial insurance, and managed
healthcare organizations. Prices at which we or our customers seek reimbursement for our therapeutic product candidates can be
subject to challenge, reduction, or denial by payors. Third-party payors may limit coverage to specific products on an approved
list or formulary, which might not include all of the FDA-approved products for a particular indication. Also, third-party payors
may refuse to include a particular branded drug on their formularies or otherwise restrict patient access to a branded drug when
a less costly generic equivalent or another alternative is available. Third-party payors are increasingly challenging the prices
charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and
state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign
governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on
reimbursement and requirements for substitution of generic products.
The process for determining
whether a payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate that
the payor will pay for the product. A payor’s decision to provide coverage for a product does not imply that an adequate
reimbursement rate will be available. Additionally, in the United States there is no uniform policy among payors for determining
coverage or reimbursement. Many third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own coverage and reimbursement policies, but also have their own methods and approval processes. Therefore, coverage and
reimbursement for products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular
medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or
will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide
scientific and clinical support for the use of our products to each payor separately and will likely be a time-consuming process.
If coverage and adequate reimbursement are not available, or are available only at limited levels, successful commercialization
of, and obtaining a satisfactory financial return on, any product we develop may not be possible.
Third-party payors
are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services,
in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product that might be approved
for marketing, we may need to conduct expensive studies in order to demonstrate the medical necessity and cost-effectiveness of
any products, which would be in addition to the costs expended to obtain regulatory approvals. Third-party payors may not consider
our product candidates to be medically necessary or cost-effective compared to other available therapies, or payor negotiations
may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development. If
these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our
products once approved as a benefit under their plans or, if they do, the level of reimbursement may not be sufficient to allow
us to sell our products on a profitable basis. Decreases in third-party reimbursement for our products once approved or a decision
by a third-party payor to not cover our products could reduce or eliminate utilization of our products and have an adverse effect
on our sales, results of operations, and financial condition.
22
Additionally, efforts
to contain healthcare costs (including drug prices) has become a priority of federal and state governments. The U.S. government,
state legislatures, and foreign governments have shown significant interest in implementing cost-containment programs, including
price controls, restrictions on reimbursement, and requirements for substitution by generic products. There has also been heightened
governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted
in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing,
review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies
for drug products. We anticipate additional state and federal healthcare reform measures will be adopted in the future. These may
include price controls and cost-containment measures, or more restrictive policies in jurisdictions with existing controls and
measures, any of which could limit the amounts that federal and state governments will pay for healthcare products and services,
and potentially could reduce demand for our products once approved, create additional pricing pressures, or ultimately limit our
net revenue and results.
In addition, in some
non-U.S. jurisdictions, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict
the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices
of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt
a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There
can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow
favorable reimbursement and pricing arrangements for any of our product candidates. Historically, product candidates launched in
the EU do not follow price structures of the U.S. and generally tend to have price structures that are significantly lower.
Coverage and reimbursement
of our COVID-19 vaccine candidate, which has not yet been granted EUA status, may be subject to unique regulatory policies. Under
the ACA preventive care mandate, non-grandfathered group health plans and health insurance coverage offered in the individual or
group market typically have at least one year before it must provide first-dollar coverage for a newly issued preventive care requirement
or guideline. However, pursuant to the CARES Act, non-grandfathered group health plans and health insurance coverage offered in
the individual or group market must cover any qualifying coronavirus preventive service 15 business days after the United States
Preventive Services Task Force, or Advisory Committee on Immunization Practices (ACIP) designates such service as preventive. Third-party
reimbursement for providers administering any approved COVID-19 vaccine may affect market acceptance of the product. Currently,
the CARES Act and its implementing regulations state (i) providers that participate in the CDC COVID-19 Vaccination Program
must administer a COVID-19 immunization regardless of an individual’s ability to pay or health insurance coverage status,
(ii) providers may not seek any reimbursement, including through balance billing, from an immunization recipient, (iii) that
coverage is required, without cost-sharing, for the administration of the immunization even if a third party, such as the federal
government, pays for the cost of the immunization, and (iv) that private health insurance plans must cover COVID-19 immunizations
and their administration even when provided by out-of-network providers for the duration of the public health emergency for COVID-19.
There is no guarantee payors will provide coverage and reimbursement for our COVID-19 vaccine, if approved, during or after the
termination of the public health emergency, nor can we guarantee that even if coverage is provided, the approved reimbursement
amount will be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment.
Under the CARES Act
and an accompanying interim final rule, Medicare beneficiaries are expected to have coverage for COVID-19 vaccines through Medicare
Part B with no cost sharing. Coverage is further expected to apply whether the vaccine receives FDA authorization through
an EUA or is licensed under a BLA and will likely extend to employer-sponsored and individual health plans subject to the ACA’s
preventive services standards. The outcome of current and future clinical trials, as well as the market demand for COVID-19 vaccines
may impact patient eligibility and future coverage determinations. It is unclear whether the FDA will approve the administration
of our COVID-19 vaccine, and if so if approval will extend to children and adolescents, or if the vaccine will be required to be
administered once (i.e. one-time, double dose), annually, or if future booster shots will be required. We cannot predict continued
prevalence of COVID-19, whether herd immunity will be achieved which would affect the need for future administration of the vaccine,
or whether the vaccine would be effective against future mutations or variants of the SARS-CoV-2 virus. Such factors may impact
whether our vaccine, if approved, would be reimbursable under Medicare Part D rather than Part B and if our vaccine,
if approved would be excluded from participating in certain federal entitlement programs such as the Vaccines for Children Program.
23
Other Healthcare
Fraud and Abuse Laws
Although we currently
do not have any products on the market, our activities, including current and future arrangements with investigators, healthcare
professionals, consultants, third-party payors and customers, may be subject to additional healthcare laws, regulations and enforcement
by the federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. Such laws
include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy and security, price reporting,
and physician sunshine laws. Some of our pre-commercial activities also may be subject to some of these laws.
The federal Anti-Kickback
Statute prohibits, among other things, any person or entity, including a prescription drug manufacturer or a party acting on its
behalf, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly
or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease
or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs.
The term “remuneration” has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been
interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers, and formulary
managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities
from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged
to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception
or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor
does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated
on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Several courts have interpreted the
statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals
of federal healthcare covered business, the Anti-Kickback Statute has been violated. Additionally, the intent standard under the
Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified
case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal False Claims Act, or FCA. Violations of the federal Anti-Kickback Statute
may result in civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved. Civil
penalties for such conduct can further be assessed under the federal False Claims Act. Violations can also result in criminal penalties,
including criminal fines of up to $100,000 and imprisonment of up to 10 years. Similarly, violations can result in exclusion from
participation in federal and state healthcare programs, including Medicare and Medicaid.
On November 20,
2020, OIG issued two final regulations implementing significant modifications to regulatory safe harbors to the federal Anti-Kickback
Statute. The first rule finalized new safe harbors and modified existing safe harbors to promote certain value-based and coordinated
care arrangements and reduce regulatory burden, which are scheduled to become effective January 19, 2021. The second rule (the
Rebate Rule) created new safe harbor protection, scheduled to become effective January 29, 2021, for certain (i) point-of-sale
discounts from pharmaceutical manufacturers to Medicare Part D plans, Medicaid managed care organizations, and their contracted
pharmacy benefit managers (PBMs), and (ii) fees for certain services that PBMs provide to pharmaceutical manufacturers. In
addition, the Rebate Rule revised the discount safe harbor to exclude from protection price reductions (e.g., rebates) for
pharmaceutical products from manufacturers to Part D plans when made directly or indirectly through a PBM, a change that is
scheduled to become effective January 1, 2022. The Rebate Rule is intended to create incentives for manufacturers, covered
plans, and PBMs to shift from retrospective rebates to point-of-sale discounts, potentially lowering list prices of, and reducing
consumers’ out-of-pocket costs for, prescription drugs. In a court order filed on January 30, 2021, the Biden Administration
agreed to delay the implementation of provisions of the rule that were scheduled to take effect on January 1, 2022 by
one year until January 1, 2023 in response to a suit brought by the Pharmaceutical Care Management Association (PCMA) challenging
the rule. The postponement does not affect provisions of the rule that were scheduled to take effect prior to January 1,
2022. PMCA’s case will be held in abeyance pending the duration of HHS’s review of the rule, subject to the continued
consent of the parties. We cannot predict the outcome of the Biden Administration’s review of the Rebate Rule or the
outcome of any subsequent litigation by PMCA. The federal civil False Claims Act, prohibits, among other things, any person or
entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare
and Medicaid, claims for items or services, including drugs, that are false or fraudulent or not provided as claimed. Persons and
entities can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims
by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition,
certain of our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting
of prices used to calculate Medicaid rebate information, and other information affecting federal, state, and third-party reimbursement
for our products, and the sale and marketing of our products, are subject to scrutiny under this law. Penalties for federal civil
False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil
penalties of between $11,665 and $23,331 for each separate false claim per false claim or statement for penalties assessed after
June 19, 2020 with respect to violations occurring after November 2, 2015 (and penalties of between $5,500 and $11,000
per claim or statement with respect to violations occurring before that date). Other penalties include the potential for exclusion
from participation in federal healthcare programs. Additionally, although the federal False Claims Act is a civil statute, False
Claims Act violations may also implicate various federal criminal statutes.
24
There is also the federal
criminal False Claims Act, which is similar to the federal civil False Claims Act and imposes criminal liability on those that
make or present a false, fictitious or fraudulent claim to the federal government. The Federal Criminal Statute on False Statements
Relating to Health Care Matters makes it a crime to knowingly and willfully falsify, conceal, or cover up a material fact, make
any materially false, fictitious, or fraudulent statements or representations, or make or use any materially false writing or document
knowing the same to contain any materially false, fictitious, or fraudulent statement or entry in connection with the delivery
of or payment for healthcare benefits, items, or services.
The Federal Civil Monetary
Penalties Law, or the CMPL, authorizes the imposition of substantial monetary penalties against an entity, such as a pharmaceutical
manufacturer, that engaged in activities including, among others (1) knowingly presenting, or causing to be presented, a
claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (2) arranging for or contracting
with an individual or entity that is excluded from participation in federal health care programs to provide items or services reimbursable
by a federal health care program; (3) violations of the federal Anti-Kickback Statute; or (4) failing to report and return
a known overpayment.
HIPAA created additional
federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme
to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by,
or under the control or custody of, any healthcare benefit program, including private third-party payors, willfully obstructing
a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme
or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of
or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the ACA amended the intent standard for
certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation.
We may be subject to
data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as
amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations,
imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Among
other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent
contractors, or agents of covered entities that receive or obtain protected health information in connection with providing a service
on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and
criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions
for damages or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing
federal civil actions. Regulatory guidance and obligations continue to evolve. For example, on December 10, 2020, the Office
for Civil Rights issued a proposed rule aimed at reducing regulatory burdens that may exist in discouraging coordination of
care, among other changes. As HIPAA requirements evolve, we may be required to update our compliance strategies or modify our business
processes to comply.
In
addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ
from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus
complicating compliance efforts. For instance, the California Consumer Privacy Act (CCPA) became effective on January 1,
2020, giving California residents expanded privacy rights, and requiring businesses provide detailed information about their data
practices. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is
expected to increase data breach litigation. Although there are limited exemptions for PHI and certain clinical trial data, the
CCPA’s implementation standards and enforcement practices may increase our compliance costs and legal risks. Additionally,
the California Privacy Rights Act (CPRA) was passed in November 2020, and will amend the CCPA beginning in 2023. The CPRA
will impose additional data protection obligations on companies doing business in California, including additional consumer rights
processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.
It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased
privacy and information security enforcement. Additional state laws are being proposed, and new obligations may continue to arise.
Additional compliance investment and potential business process changes may be required to respond to these rapidly changing privacy
law landscape. If we fail to comply with existing or new privacy laws and regulations, we could face legal liability from regulatory
actions or litigation, as well as reputational damage.
25
Additionally, the federal
Physician Payments Sunshine Act, or the Sunshine Act, created under the ACA, and its implementing regulations, require that certain
manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments
or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request
of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests
held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information
for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate
of $176,495 per year and up to an aggregate of $1,176,638 per year for “knowing failures.” Covered manufacturers are
required to submit reports on aggregate payment data to the Secretary of the U.S. Department of Health and Human Services on an
annual basis. In addition, many states also govern the reporting of payments or other transfers of value, many of which differ
from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus
further complicating compliance efforts. Many states have similar statutes or regulations to the above federal laws that may be
broader in scope and may apply regardless of payor. We may also be subject to state laws that require pharmaceutical companies
to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government, and/or state laws that require drug manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers, drug pricing or marketing expenditures. These laws may differ
from each other in significant ways and may not have the same effect, further complicating compliance efforts. Additionally, to
the extent that we have business operations in foreign countries or sell any of our products in foreign countries and jurisdictions,
including Japan or the European Union, we may be subject to additional regulation.
Although we do not
currently have any products on the market, once our product candidates or clinical trials are covered by federal health care programs,
we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal and state governments
of the jurisdictions in which we conduct our business. Because we intend to commercialize products that could be reimbursed under
a federal healthcare program and other governmental healthcare programs, we intend to develop a comprehensive compliance program
that establishes internal controls to facilitate adherence to the rules and program requirements to which we will or may become
subject. Although the development and implementation of compliance programs designed to establish internal control and facilitate
compliance can mitigate the risk of violating these laws, and the subsequent investigation, prosecution, and penalties assessed
for violations of these laws, the risks cannot be entirely eliminated.
If our operations are
found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject, without
limitation, to significant civil, criminal and administrative penalties, damages, fines, individual imprisonment, disgorgement,
exclusion from participation in federal and state healthcare programs, reputational harm, diminished profits and future earnings,
additional oversight and reporting obligations pursuant to a corporate integrity agreement or similar agreement to resolve allegations
of non-compliance with applicable laws and regulations, and the curtailment or restructuring of our operations, any of which could
adversely affect our ability to operate our business and our financial results.
Additionally, we expect
our products, if and when approved, may be eligible for coverage under Medicare, the federal health care program that provides
health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products,
that are medically necessary to treat a beneficiary’s health condition. In addition, our products may be covered and reimbursed
under other government programs, such as Medicaid and the 340B Drug Pricing Program. The Medicaid Drug Rebate Program requires
pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department
of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient
drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that
participate in the program. As part of the requirements to participate in certain government programs, many pharmaceutical manufacturers
must calculate and report certain price reporting metrics to the government, such as average manufacturer price, or AMP, and best
price. Penalties may apply in some cases when such metrics are not submitted accurately and timely.
26
Healthcare Reform
In the United States
and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes
to healthcare systems that could affect our future results of operations. There have been, and we expect there will continue to
be, a number of initiatives at the United States federal and state levels that seek to promote changes in the healthcare system
with the stated goals of reducing healthcare costs, improving quality of care, and expanding access.
In the United States,
the pharmaceutical industry has been a particular focus of healthcare reform efforts and has been significantly affected by major
legislative and regulatory initiatives, including the ACA, which has had, and is expected to continue to have, a significant impact
on the healthcare industry. This law was designed to expand access to health insurance coverage for uninsured and underinsured
individuals while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things,
the ACA contains provisions that may potentially affect the profitability of our products, including, for example, increased rebates
for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain
products under Medicare Part D, expansion of entities eligible for discounts under the Public Health Service’s pharmaceutical
pricing program, and a significant annual fee on companies that manufacture or import certain branded prescription drug products.
Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare
providers and entities. The framework of the ACA and other healthcare reforms continues to evolve as a result of executive, legislative,
regulatory, and administrative developments; in addition, healthcare-related litigation and judicial proceedings contribute to
regulatory uncertainty. While Congress has not passed legislation to comprehensively repeal the ACA, the Tax Cuts and Jobs Act
included a provision that, effective January 1, 2019, changed to $0 the tax-based shared responsibility payment imposed by
ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred
to as the “individual mandate.” In December 2018, a federal district court in Texas ruled that the individual
mandate, with the penalty that was changed to $0 effective January 1, 2019, was unconstitutional and, further, could not be
severed from the other provisions of the ACA. As a result, the court ruled that all of the provisions of the ACA were invalid.
The Fifth Circuit Court of Appeals affirmed the district court’s ruling that the individual mandate was unconstitutional
as a result of the amendment changing the penalty amount to $0, but it remanded the case back to the district court for further
analysis of whether the individual mandate could be severed from the ACA. The Fifth Circuit’s decision was appealed to the
Supreme Court of the United States, which granted certiorari on these issues and conducted oral argument in November 2020.
The U.S. Supreme Court is expected to issue its decision in 2021. We cannot predict the full impact of this forthcoming decision
or other efforts to challenge, repeal, replace, or alter the implementation of the ACA or other healthcare laws, regulations, or
reforms.
Other legislative changes
have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011 included reductions to Medicare
payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation,
will stay in effect through 2030 unless additional Congressional action is taken, with the exception of a temporary suspension
of the payment reduction from May 1, 2020 through December 31, 2020 enacted as part of the Coronavirus Aid, Relief, and
Economic Security Act, or the CARES Act. Additionally, the American Taxpayer Relief Act of 2012, among other things, further reduced
Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments
to providers from three to five years. Further, effective January 1, 2019, the Bipartisan Budget Act of 2018, among other
things, further amended portions of the Social Security Act implemented as part of the ACA to increase from 50% to 70% the point-of-sale
discount that pharmaceutical manufacturers participating in the Coverage Gap Discount Program must provide to eligible Medicare
Part D beneficiaries during the coverage gap phase of the Part D benefit, commonly referred to as the “donut hole,”
and to reduce standard beneficiary cost sharing in the coverage gap from 30% to 25% in most Medicare Part D plans. In the
future, there may be additional challenges and/or amendments to the ACA. It remains to be seen precisely what any new legislation
will provide, when or if it will be enacted, and what impact it may have on the availability and cost of healthcare items and services,
including drug products.
In addition, in recent
years the pricing and costs of prescription pharmaceuticals has been the subject of considerable discussion in the United States.
A number of federal reports and inquiries have focused on these issues, and various legislative and regulatory provisions have
been proposed and enacted at the federal and state level that seek to, among other things, bring more transparency to drug pricing,
review the relationship between pricing and manufacturer patient programs, reduce the out-of-pocket cost of prescription drugs,
and reform government program reimbursement methodologies for drugs. Additionally, on December 21, 2020, Congress passed a
$900 billion U.S. coronavirus relief and government appropriations legislation, or the Act, which contains several important new
drug price reporting and transparency measures that could result in additional transparency with respect to manufacturers’
prescription drug prices. Among other things, the Act includes provisions requiring Medicare Part D prescription drug plan,
or the PDP, sponsors and Medicare Advantage organizations, or MAOs, to implement tools to display Medicare Part D prescription
drug benefit information in real time and provisions requiring group and health insurance issuers offering health insurance coverage
to report information on certain pharmacy benefit and drug costs to the Secretaries of HHS, Labor, and the Treasury.
27
Further, the incoming
Biden Administration and the new Congress may pursue additional and potentially significant changes to the current healthcare laws,
regulations, and related guidance. The Biden Administration issued a memorandum on January 20, 2021 (President Biden’s
inauguration day) that, like similar memoranda issued by prior incoming Administrations, directed federal agencies to take steps
to halt, delay, or conduct further review of certain regulatory actions taken by the Trump Administration, such as those that had
not taken effect by inauguration day. We cannot predict what regulatory actions the Biden Administration will take as a result
of its review. We also cannot predict what other healthcare reforms will ultimately be implemented at the federal or state level
or the effect of any future legislation or regulation. Accordingly, we face uncertainties that might result from additional reforms.
From time to time,
legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the
testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations
and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our products.
It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies
or interpretations will be changed or what the effect of such changes, if any, may be.
Corporate Information
Our
corporate headquarters are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211. Our telephone number is
(310) 358-3200 and our internet address is www.capricor.com . The information on, or accessible through, our
website is not part of this Annual Report on Form 10-K. We have included our website address in this Annual Report on Form 10-K
solely as an inactive textual reference.
Employees
Currently, we have
26 full-time employees. None of our employees are covered by a collective bargaining agreement. We believe that our relations with
our employees are satisfactory. We have also retained several consultants to perform various operational and administrative functions.
Certain officers of Capricor are also serving as officers of the Company.
Description of Property
We do not own any real
property. Our principal offices are located at 8840 Wilshire Blvd., 2nd Floor, Beverly Hills, California 90211. Capricor leases
space for its corporate offices from The Bubble Real Estate Company, LLC pursuant to a lease that was originally effective for
a two-year period beginning July 1, 2013 with an option to extend the lease for an additional twelve months. Capricor subsequently
entered into several amendments extending the term of the lease and modifying its terms. Effective January 1, 2021, we entered
into an amendment with the Bubble Real Estate Company, LLC pursuant to which we extended our lease for an additional year ending
December 31, 2021. The lease is terminable by either party upon 90 days’ written notice to the other party. The monthly
rental payment is $13,073 for this annual period.
Capricor leases facilities
from CSMC pursuant to a lease, or the Facilities Lease, that was originally effective for a three-year period beginning June 1,
2014. Capricor has subsequently entered into several amendments extending the term of the lease and modifying its terms. In July 2020,
Capricor exercised its option to extend the term of the Facilities Lease for an additional 12-month period through July 31,
2021 with a monthly lease payment of $15,805. The Company has a further option to extend the Facilities Lease with respect to a
portion of the leased premises through July 31, 2022 and a monthly lease payment of $10,707. The premises leased from CSMC
are located at 8700 Beverly Blvd., Los Angeles, California 90048. At this time, we are actively considering new facilities for
our research, development and/or manufacturing activities or the possible extension of our current lease.
28
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.