Item 1. Business
ITEM
1. BUSINESS .
History
Our
legal and commercial name is BiondVax Pharmaceuticals Ltd. We are a company limited by shares organized under the laws of Israel. We
were incorporated in Israel in 2003 as a privately held company. In February 2007, we completed an initial public offering of our ordinary
shares on the Tel Aviv Stock Exchange (TASE), and we voluntarily delisted from the TASE in January 2018. In May 2015 we completed an
initial public offering of ADSs and ADSs warrants (which have since expired) on the Nasdaq Capital Market.
Our
principal executive offices are located at Jerusalem BioPark, 2 nd floor, Hadassah Ein Kerem Campus, Jerusalem, Israel, and
our telephone number is +972-8-930-2529. Our website is www.biondvax.com. Information contained on, or accessible through, our website
is not incorporated by reference herein and shall not be considered part of this annual report. Our agent for service of process in the
United States is Puglisi & Associates, whose address is 850 Library Avenue, Suite 204, Newark, Delaware, and whose telephone number
is (302) 738-6680.
Our
capital expenditures for 2022 and 2021 amounted to $836, and $139 thousand, respectively. These expenditures were primarily for factory
leasehold improvements, computers and laboratory equipment.
Our
Company
BiondVax
Pharmaceuticals Ltd. (Nasdaq: BVXV) is a biopharmaceutical company focused on developing, manufacturing and commercializing innovative
immunotherapeutic products primarily for the treatment of infectious and autoimmune diseases. Since its inception, the Company has
executed eight clinical trials including a seven country, 12,400 participant phase 3 trial of its prior lead drug candidate, a universal
influenza vaccine candidate (“M-001”), and has built a GMP biologics manufacturing facility for biopharmaceutical products.
While M-001 did not meet its clinical endpoints and is no longer under development, the Company has developed a highly experienced pharmaceutical
industry leadership team and built its own fully equipped biotechnology drug manufacturing site. After receiving the phase 3 trial results
in Q3 2020, the Company performed a turnaround process, raised capital, hired new talent (including a new CEO) and in-licensed new intellectual
property, and is in the process of developing a pipeline of diversified and commercially viable products built around an innovative nanosized
antibody (NanoAb) platform collaboration. NanoAbs are nanosized antibodies derived from camelid animals and are also known as VHH-antibodies
or Nanobodies. “Nanobody” is a trademark registered by ABLYNX N.V., a wholly owned subsidiary of Sanofi. BiondVax has no
affiliation with and is not endorsed by Sanofi.
As
part of the abovementioned turnaround, on December 22, 2021, the Company signed a definitive exclusive, worldwide, License Agreement
(“LA”) with the Max Planck Society (“MPG”), the parent organization of the Max Planck Institute for Multidisciplinary
Sciences, and the University Medical Center Göttingen (“UMG”), both in Gottingen, Germany, for the development and commercialization
of innovative NanoAbs for the treatment of COVID-19. The agreement provides for an upfront payment, development and sales milestones
and royalties based on sales and sharing of sublicense revenues. In addition, the Company signed an accompanying Research Collaboration
Agreement (“aRCA”) with MPG and UMG in support of the abovementioned development of a COVID-19 NanoAb. The aRCA provides
for monthly payments to MPG and UMG and has a term until the earlier of two years or the date the Company enters into first in-human
clinical trials with the COVID-19 NanoAb.
1
On
March 23, 2022, we signed a five-year Research Collaboration Agreement (“RCA”; collectively, with the LA and aRCA, the “MPG/UMG
Agreements”) with MPG and UMG covering the discovery, selection and characterization of NanoAbs for up to nine molecular targets
that have the potential to be further developed into drug candidates for the treatment of disease indications such as psoriasis, psoriatic
arthritis, asthma and wet macular degeneration. These are all large and growing markets with underserved medical needs. In each case,
the molecular target has been validated as an appropriate target for therapeutic intervention through inhibition by an antibody, thereby
significantly reducing the discovery work that typically entails many years of research, high cost and high risk of failure. We believe
that we can leverage our NanoAbs’ unique and strong binding affinity, stability at high temperatures, and potential for more effective
and convenient routes of administration towards competitive commercial viability. We believe that since these are clinical validated
targets, we can develop NanoAb treatments with reduced risk and cost, and accelerate the time from NanoAb selection to initiation of
clinical development. Each NanoAb candidate is therefore positioned as a “biobetter” piggybacking on prior discoveries of
others to mitigate risk but with significant potential advantages over existing therapeutics. In addition, each NanoAb constitutes a
novel molecule for which we file patent applications thereby creating a proprietary position. BiondVax has the exclusive option for an
exclusive, pre-negotiated worldwide license agreement for the development and commercialization of each of the NanoAbs covered by the
RCA with MPG and UMG.
Our
Strategy
Beginning
with the MPG/UMG Agreements, the Company intends to implement a strategy that will build a diversified pipeline of assets along several
axes, as follows:
● a
pipeline of products for prevention and/or treatment of illnesses with large market opportunities for more effective treatments
● Each
product candidate originated through the MPG/UMG Agreements would be designed to interact with a target previously validated as an appropriate
target for therapeutic intervention by an antibody already on the market.
● Each
therapeutic indication nevertheless is underserved by existing antibody treatments and a large market opportunity exists for a proprietary
NanoAb with improved attributes.
● a
pipeline that would take advantage of the unique physicochemical attributes of our NanoAbs, including:
● Nano
size and physical stability – our NanoAbs are approximately 1/10 th the size
of regular antibodies and have a durable molecular structure. This allows them to be delivered
through routes of administration (e.g., intra-dermal, nasal, inhalation, etc.) not particularly
amenable to regular antibodies, which are too large and/or easily break down under pressure,
opening new or enlarged market opportunities for our NanoAbs.
● Ultra
high thermo-stability – our NanoAbs retain biological activity even at high temperatures. This provides extended shelf life and
reduces the need for cold chain shipping and storage.
● Extremely
high binding affinity to the target with effective neutralization. Binding affinity is the likelihood that a drug molecule (e.g., a single
NanoAb) will find, and attach to its designated target (e.g., a single COVID-19 virus) thereby contributing to therapeutically relevant
neutralization of the target. Our COVID-19 NanoAb, for example, has demonstrated binding affinity and neutralization at doses anywhere
from 100 to 1000 times lower than the publicly reported doses of other antibodies. This could translate to faster onset of medical efficacy
or in some cases it may translate to lower required human dosage compared to other antibodies. That said, this should be demonstrated
in clinical trials.
● High
specificity - Our NanoAbs have high specificity to their intended target, and therefore fewer
of them are expected to bind to targets other than the designated target, resulting in fewer
side effects, . Furthermore, and because of their relatively short half-life, any NanoAbs,
that do not bind to a target are expected to be quickly degraded or excreted from the body,
thus also limiting future adverse effects.
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● a
pipeline of products that can progress through the discovery stage and enter the clinic relatively quickly compared to traditional monoclonal
antibody drug discovery.
● Traditional
monoclonal antibody drug discovery entails years of research identifying and validating a
target, identifying the appropriate type of molecule to interact with that target, validating
that the mechanism of action can produce a therapeutically relevant benefit with a satisfactory
safety profile and that the drug can be produced at an acceptable cost of goods.
● Together
with an international management consulting firm, we have triaged through more than 800 potential
molecular targets for our NanoAbs and selected those that had already been validated as targets
for commercially available monoclonal antibodies. Furthermore, we filtered for targets for
disease treatments that still leave a large unmet need or a large, underserved patient population.
We then selected those targets that we believe have the highest commercial value but lowest
clinical development costs (small sized clinical trials with fastest timeline to in human
proof of concept).
● Our
collaborators at MPG/UMG have been able to generate large libraries of NanoAbs against most
of our pre-validated targets within the first 12 months of the collaboration and in many
cases have selected from those libraries a small portfolio of candidates that meet or are
close to meetinga set of pre-agreed Compound Acceptance Criteria, which we have agreed make
them potentially appropriate for further development.
● As
a consequence, over the next 12 to 24 months, subject to having sufficient capital, we believe
we will be in a position to execute our exclusive option for exclusive license for development
and commercialization of several of the abovementioned nanoAbs and advance them, in addition
to our COVID-19 NanoAb, through remaining pre-clinical development and , subject to available
capital resources, an updated analysis of market opportunities, partner interest and other
relevant factors determined at the time, potentially initiate first in human clinical trials,
all in a time frame we believe to be much quicker, at a cost much lower, and with fewer unknowns/less
risk than traditional monoclonal antibodies drug discovery at the same stage of development.
● A
pipeline of products that can be developed through the various Chemistry, Manufacturing and Controls steps (CMC) and then be produced
for clinical development and potentially initial commercial volumes required for product launch at a low cost of goods at our existing
manufacturing facility in Jerusalem, built to GMP specifications.
● Our
NanoAbs are produced in yeast, a relatively low cost and rapid production system compared to the manufacture of regular antibodies. Regular
antibodies are produced in mammalian cell lines that take considerable time to establish, require a much more sophisticated production
facility, have lower yields and involve more expensive processing to harvest and purify the ultimate drug substance.
● Our
facility in Jerusalem is equipped to take the candidates generated by MPG/UMG and immediately begin development of NanoAbs for pre-clinical
testing and ultimately produce clinical grade NanoAbs.
● By
conducting these activities in-house, we will be in a position to avoid the delays and high costs typically associated with third party
contract manufacturers and have more direct control over the process.
If
successfully implemented, this strategy would provide BiondVax with a diverse multi-dimensional pipeline that we believe has been substantially
de-risked without necessarily limiting the upside potential. We would also expect to have considerable flexibility regarding partnering
with other companies in the pharmaceutical industry, out-licensing, joint ventures and the like. The Company is currently actively engaged
in identifying and evaluating many of these opportunities. Notwithstanding the Company’s efforts to mitigate the risk associated
with the development of our NanoAbs, there remains significant risk of failure, as described below under “Risks Related to Our
Business”, associated with product development, manufacturing, regulatory matters, capital availability, commercialization, and
other factors relevant to small companies, such as the Company, engaged in early stage pharmaceutical development activities.
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Our
Competitive Strengths
We
believe that our people, process and technology give us distinct advantages over our competitors, as follows:
● People :
Our leadership team has deep biotech and pharmaceutical industry experience, including our Chairman of the Board Mark Germain ( former
Co-Chairman of Pluri (previously Pluristem Therapeutics), and a co-founder and former director of a number of other biotechnology companies
including, without limitation, Alexion, Neurocrine, ChromaDex Inc., Stem Cell Innovations Inc., Omnimmune Corp. and Collexis Holdings
Inc.), Board director Samuel Moed (former Senior VP Corporate Strategy at Bristol Myers Squibb), Board director Jay Green (former Senior
VP Finance and CFO of GSK’s global vaccines business) and COO Elad Mark (formerly employed by Novartis). Our CEO, Amir Reichman,
has extensive vaccines R&D, supply chain, manufacturing, and engineering experience from Novartis in the U.S. and GSK in Europe.
Furthermore, our Chief Science Officer, Dr. Tamar Ben-Yedidia, oversaw M-001 development from early research at the Weizmann Institute
through the pivotal Phase 3 clinical trial. Dr. Ben-Yedidia conducted her preliminary research in the 1990’s under the guidance
of Professor Ruth Arnon. Professor Arnon continues to serve as head of BiondVax’s Scientific Advisory Board.
● Process :
After years of experience, BiondVax has developed a mature set of business processes including pre-clinical and clinical development,
regulatory, quality and GMP manufacturing processes. These processes can help us accelerate time to market for future in-licensed assets
and hence provide us with a competitive value proposition versus other companies our size. In the past, we conducted a pivotal Phase
3 trial in over 100 clinical trial sites in seven Eastern European countries, subject to, among others, the regulation of the European
Medicines Agency (EMA). The trial was completed on time and on budget. Our Phase 3 clinical trial was initiated after we completed two
Phase 1/2 clinical trials and three Phase 2 clinical trials in Israel pursuant to clinical trial protocols approved by the Israeli Ministry
of Health, a Phase 2b clinical trial in Europe, and a Phase 2 clinical trial sponsored and conducted by the NIH/NIAID in the USA.
● Technology :
Our existing and advanced GMP manufacturing facility in Jerusalem uses an agile and modular ‘Single Use’ infrastructure that
can be used for a wide variety of applications and technologies, such as the production of recombinant proteins, nanobodies and other
vaccines and treatments. In addition, we have advanced automation, data management and IT systems necessary for regulatory compliant
clinical development, clinical supplies and commercial supplies.
Marketing
and Sales
We
do not currently have any pharmaceutical product marketing or sales capabilities. We intend to license to, or enter into strategic alliances,
with third parties in the pharmaceutical business, which are equipped to market and/or sell any products that we acquire or develop in
the future. We may seek to establish such capabilities internally in the future, if and when appropriate, in addition to any such licensing
arrangements or strategic alliances.
Competition
Generally,
our competitors include large, fully integrated pharmaceutical companies as well as companies and academic research institutes in various
developmental stages attempting to develop (i) COVID-19 antibody therapeutics (such as Invivyd (formerly Adagio Therapeutics), Vir Biotechnology,
and ExeVir) as well as (ii) other products for the prevention and treatment of disease targets that are the subject of our broader agreement
with MPG and UMG, including MoonLake Immunotherapeutics AG for the development of antibodies against psoriasis
Manufacturing
We
built, own, and operate a biologics manufacturing facility in Jerusalem, which is capable of manufacturing GMP-compliant product candidates
for use in either clinical trials or for small to medium scale commercial supply. We have manufactured the COVID-19 NanoAbs for our preclinical
in vivo study in our facility, and although we currently anticipate using our facility for future manufacturing of product candidates,
we may also rely on a third party CMO.
4
Finance
Contract with European Investment Bank
We
borrowed 24 million Euro under a finance contract (the “Finance Contract”) with the European Investment Bank (the “EIB”),
to finance a portion of the cost of developing our previous leading drug candidate M-001and our GMP biologics manufacturing facility.
As part of the Finance Contract, we also entered into a security agreement (the “Security Agreement”), whereby we created
a first ranking floating charge in favor of EIB over substantially all of our assets (other than certain licensed intellectual property
related to our former M-001 program).
On
August 10, 2022, we announced the successful conclusion of negotiations and formal approval by the EIB of new terms of its outstanding
€24 million loan (the “Loan”) to BiondVax, including:
● Loan
extension: An extension of the maturity dates from 2023 (€20 million) and 2024 (€4 million) until December 2027.
●
Interest
accrual: Although the Loan has been outstanding since 2018, interest on the Loan will only begin to accrue starting January
1, 2022, at an annual rate of 7%. The interest payments will be deferred until the new maturity date and will be added to the principal
balance at the end of each year during the Loan period.
●
Principal
repayment: $900,000 was paid by BiondVax shortly after the execution of the relevant amendment letter with the EIB and was
applied to reduce the outstanding Loan. An additional approximately $725,000 was paid during February, 2023 in connection with the
financing completed in December 2022 and going forward 10% of any capital raises until maturity will be used to further repay the
Loan principal including any outstanding accrued interest.
●
Variable
remuneration to the EIB: Once BiondVax’s commercial sales exceed €5 million, 3% of BiondVax’s topline revenues will
be paid to the EIB as royalties until the EIB receives (from the Loan repayment, inter alia the interest and the
royalties) the higher of (i) a total of 2.8 times the original €24 million principal (as provided in the original Loan agreement)
and (ii) 20% IRR on the principal calculated from January 1, 2022.
●
Prepayment
indemnity: In case BiondVax decides to discharge all liabilities under the Finance Contract, inter alia, payments
of the variable remuneration, BiondVax would need to repay to the EIB an indemnity amount in addition to the Loan principal and the
accrued interest. The indemnity will be calculated such that the EIB receives an additional payment equal to the greater of (i) the
prepayment amount (i.e. twice the prepayment amount in the aggregate) and (ii) the amount required to realize 20% IRR on the prepayment
amount at the time of prepayment.
Recent
Developments
On
September 20, 2022, we announced that MPG and UMG have successfully generated, identified and isolated NanoAbs addressing a number
of additional biological target molecules as specified in the RCA. Based on these promising results, the BiondVax-MPG-UMG Joint
Steering Committee, established to guide the RCA programs, decided to focus further development beginning with the following NanoAbs,
targeting immune system cytokines:
● NanoAbs
targeting IL-17A, IL-17F and IL-17A/F complex as drug candidates for the potential treatment
of psoriasis and psoriatic arthritis.
● NanoAbs
targeting IL-13 and NanoAbs targeting TSLP as drug candidates for the potential treatment
of asthma.
These
new NanoAbs are in addition to our NanoAb program for the treatment and prophylactic prevention of COVID-19
5
In
our NanoAb program for COVID-19:
● Technology
transfer of several COVID19 potential lead drug candidates has been conducted and included
manufacturing process development and analytical methods development, and initial manufacturing
has been commenced.
● We
have partnered with two world-renowned institutes to conduct a preclinical proof-of-concept in
vivo study of the COVID-19 NanoAb targeting the Wuhan strain as a proof-of-concept study
of a NanoAb as an inhaled therapy in COVID-19 infected animals: The Fraunhofer Institute
for Toxicology and Experimental Medicine (ITEM) and The University of Veterinary Medicine
Hannover (TiHo), Germany. The trial commenced in Q4 2022 and used an industry-standard animal
model that correlates severity of disease with weight loss. The trial we conducted compared
weight loss, among other vitality and illness parameters in four groups of hamsters after
infection with SARS-COV-2. The experimental groups were treated with our anti-COVID-19 NanoAb,
as an inhaled therapy, in descending doses, starting one day after being infected, while
the control group was treated in the same manner but with saline serving as a placebo. On
November 29, 2022, we reported results from our high dose experimental group in comparison
to the control group and showed that, compared to their weight immediately prior to infection,
the control group’s weight declined on average 12.01%, considered to be indicative
of severe disease, while the weight of the high dose experimental group, which was administered
BiondVax’s NanoAb through inhalation, declined on average only 3.80%, a highly statistically
significant result (p<0.001). The successful result was further supported by eight
other tracked parameters, including heart rate and social behaviors, that indicated the group
treated with inhaled NanoAbs experienced a milder and shorter illness. The results from the
two lower doses of our inhaled anti COVID19 NanoAb were not different than those demonstrated
by the high dose. On January 6, 2023, we announced additional results from the preclinical
in vivo proof-of-concept study, namely that six days after infection, compared to the placebo
group, hamsters treated with BiondVax’s inhaled NanoAb not only had over 30 times lower
SARS-COV-2 viral titers in their lungs as measured by median tissue culture infectious dose
(TCID50) but also those levels were at the border of detection, suggesting potential virtual
elimination of the virus from their lungs. These results were corroborated also by PCR.
● On
January 23, 2023, we announced additional results from the preclinical in vivo proof-of-concept
study, this time testing a prophylactic use of our anti-COVID19 NanoAbs in prevention of
COVID19 disease. The study compared weight loss in two groups of hamsters. Hamsters administered
a mid-sized dose of the NanoAb three hours prior to infection experienced no significant
weight loss over the six-day trial, whereas the untreated control group’s weight declined
12% on average, a highly statistically significant difference (p<0.0005). Data from our
trial indicate that our NanoAb may effectively serve as both a therapeutic and protective
prophylactic drug. A pilot quantity of the NanoAb was manufactured in-house and sent
to our consulting partner supporting us with the development of a formulation and selection
of an inhalation device for human use.
We received supportive
Scientific Advice for our COVID-19 NanoAb development plans from the Paul Ehrlich Institute (PEI), an agency of the German Federal
Ministry of Health whose research and control activities promote the quality, efficacy and safety of biological medicinal products. PEI
supported BiondVax’s plan for first-in-human clinical trial to be conducted directly in sick patients as a combined Phase 1/2a,
testing both safety and efficacy, thereby shortening our potential clinical development timelines. BiondVax is currently evaluating plans
to commence this trial while it monitors the ongoing evolution of the COVID-19 virus and variants of concern (“VoC”) around
the world. In the past few months major shifts in predominant VoC have occurred rapidly and continuation of this pace could make it difficult
to utilize the results of the Phase 1/2a trial in a subsequent pivotal trial in case the predominant VoC is different than the VoC predominant
during the Phase 1/2a trial. Although, as previously communicated, BiondVax holds NanoAbs that cover all known VoCs, MPI and UMG are working
as part of the accompanying Research Collaboration on discovery and selection of a single NanoAb, aimed at neutralizing all current VoCs.
As mentioned above, as
part of the five-year Research Collaboration Agreement, MPI and UMG have been able to discover and characterize additional NanoAbs aimed
at molecular targets pre-defined by BiondVax with first being an anti-IL-17 NanoAb that is planned for treatment of psoriasis (but not
limited to) additional NanoAbs targeting IL-13 and TSLP, for the treatment of asthma, might reach their acceptance criteria to trigger
our exclusive option for exclusive license for development and commercialization worldwide. Given the limited resources of the Company
and the availability of additional NanoAbs targeting different indications to license from MPG and UMG, the Company deems it prudent to
advance its pipeline while continuing to monitor the evolution of the COVID-19 virus.
On
December 20, 2022, we announced the closing of an $8 million underwritten public offering.
6
Government
Regulation and Incentives
Regulation
United
States
FDA
Regulations
In
the United States, the FDA regulates pharmaceuticals and biologics under the Food, Drug & Cosmetics Act, and the Public Health Service
Act, and their implementing regulations. These products are also subject to other federal, state, and local statutes and regulations,
including federal and state consumer protection laws, laws protecting the privacy of health-related information, and laws prohibiting
unfair and deceptive acts and trade practices.
The
process required by the FDA before a new drug product may be marketed in the United States generally involves the following: completion
of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the FDA’s Good Laboratory
Practice, or GLP, regulations; submission to the FDA of an IND application, which must allow become effective before human clinical trials
may begin and must be updated annually; performance of adequate and well-controlled human clinical trials to establish the safety and
efficacy of the product candidate for each proposed indication; and submission to the FDA of a “new drug application (“NDA”)
for a drug, and Biologic License Application (BLA) for biological product, after completion of all pivotal clinical trials.
An
IND application, while technically a request for a Federal approval to transport or distribute a drug across state lines, is, in effect,
a request for authorization from the FDA to administer an investigational drug product to humans. In the future, we may consider submitting
an IND application to the FDA for initiating clinical trials or, if required, to conduct a bridging clinical study to allow licensure
of a vaccine or other Company product candidate in the U.S.
Clinical
trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators in accordance
with current Good Clinical Practices, or GCP, which include the requirement that all research subjects provide their informed consent
for their participation in any clinical trial. A protocol for each clinical trial and any subsequent protocol amendments must be submitted
to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site’s IRB, before the trials
may be initiated, and the IRB must monitor the trial until completed. There are also requirements governing the reporting of ongoing
clinical trials and clinical trial results to public registries.
Generally,
three phases of clinical trials are conducted prior to receiving regulatory marketing approval: Phase 1 clinical trials are normally
conducted in small groups of healthy volunteers to assess safety and find the potential dosing range. After a safe dose has been established,
the drug is administered to small populations of eligible participants (Phase 2) to look for initial signs of efficacy in treating the
targeted disease or condition and to continue to assess safety. In the case of vaccines, the participants are healthy, and the signs
of efficacy can be obtained in early Phase 1, therefore this Phase is defined as Phase 1/2. Phase 3 clinical trials are usually multi-center,
double-blind controlled trials in hundreds or even thousands of subjects at various sites to assess as fully as possible both the safety
and effectiveness of the drug.
The
FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding
that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent
group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group
reviews unblinded data from clinical trials and provides authorization for whether or not a trial may move forward at designated check
points based on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives
and/or the competitive climate.
7
Assuming
successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational drug
product information is submitted to the FDA in the form of a BLA as compared to an NDA for generally traditional small molecule drugs
requesting approval to market the product for one or more indications. The application includes all relevant data available from pertinent
preclinical and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information
relating to the product’s chemistry, manufacturing, and controls and proposed labeling, among other things. Given the complexities
of manufacturing biological products that are processed from living material, BLA content must also demonstrate purity specifically in
terms of showing that the final product does not contain extra material.
Once
the BLA submission has been accepted for filing, the FDA’s goal is to review applications within 10 months of filing. However,
the review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the
application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The
FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations.
After
the FDA evaluates the BLA and conducts inspections of manufacturing facilities where the drug product will be formulated and where the
drug will be produced, it may issue an approval letter or, instead, a Complete Response Letter. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review
cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may require additional
clinical data and/or an additional Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related
to clinical trials, preclinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide
that the BLA does not satisfy the criteria for approval. The FDA could also approve the BLA with a risk evaluation and mitigation strategy
to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted
distribution methods, participant registries and other risk minimization tools. The FDA also may condition approval on, among other things,
changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market
studies or clinical trials. Such post-market testing may include Phase 4 clinical trials and surveillance to further assess and monitor
the product’s safety and effectiveness after commercialization.
After
regulatory approval of a drug product is obtained, the drug producer is required to comply with a number of post-approval regulations.
As a holder of an approved BLA, we would be required to report, among other things, certain adverse reactions and production problems
to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning advertising and promotional
labeling for any of our products. These promotion and advertising requirements include, among others, standards for direct-to-consumer
advertising, prohibitions against promoting drugs for uses in participant populations that are not described in the drug’s approved
labeling (known as “off-label use”), rules for conducting industry-sponsored scientific and educational activities and other
promotional activities, Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or
promote such off-label uses. Failure to comply with FDA requirements can have negative consequences, including the immediate discontinuation
of marketing activities and noncomplying materials, adverse publicity, enforcement letters from the FDA, mandated corrective advertising
or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other
government and regulatory bodies.
Also,
quality control and manufacturing procedures must continue to conform to cGMP after approval to ensure and preserve the long-term stability
of the drug product. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural,
substantive, and record keeping requirements. In addition, changes to the manufacturing process are strictly regulated and, depending
on the significance of the change, may 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 us and any third-party manufacturers
that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality
control to maintain compliance with cGMP and other aspects of regulatory compliance.
8
Future
FDA and state inspections may identify compliance issues at our facilities or at the facilities of our CMOs or licensees that may disrupt
production or distribution or require substantial resources to correct. In addition, discovery of previously unknown problems with a
product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved
BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay
or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved
labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management
measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies
may change, which could delay or prevent regulatory approval of any Company product candidates we may develop in the future.
The
FDA also may require post-marketing testing, or Phase 4 testing, as well as risk minimization action plans and surveillance to monitor
the effects of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of the product.
Expedited
Development and Review Programs
The
FDA has a number of programs intended to expedite the development and review of product candidates. For example, Fast Track designation
is intended to expedite or facilitate the process for reviewing new biological products that meet certain criteria. Specifically, new
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 biological product may request the FDA to designate
the biological product 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.
Under
the Breakthrough Therapy program, products intended to treat a serious or life-threatening disease or condition may be eligible for Breakthrough
Therapy designation, which includes eligibility 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 or licensed, it would provide
a significant improvement in safety or effectiveness. FDA intends to take action on a priority review marketing application within six
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. Accelerated approval may be granted 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 biological product receiving accelerated approval diligently perform adequate and well-controlled postmarketing
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 licensure but may expedite the review process.
9
Pediatric
Studies and Exclusivity
Under
the Pediatric Research Equity Act of 2003, a BLA or supplement thereto must contain data that are adequate to assess the safety and effectiveness
of the biological product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration Safety
and Innovation Act of 2012, or FDASIA, sponsors must also submit pediatric study plans prior to the assessment data.
Those
pediatric study plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study
objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA and the
FDA’s internal review committee must then review the information submitted, consult with each other and agree upon a final plan.
The FDA or the applicant may request an amendment to the plan at any time.
The
FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until
after licensure of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements
and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required
by regulation, the pediatric data requirements do not apply to products with orphan designation.
Pediatric
exclusivity is a type of non-patent marketing exclusivity in the U.S. and, if granted, provides for the attachment of an additional six
months of marketing protection to the term of any existing regulatory exclusivity. This six-month exclusivity may be granted if a BLA
sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the
product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s
request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within
the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended
by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve
another application.
FDA
Review of BLAs
After
completion of the required clinical testing, a BLA is prepared and submitted to the FDA. FDA approval of the BLA is required before marketing
of the product may begin in the U.S. The BLA must include the results of all preclinical, clinical and other testing and a compilation
of data relating to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting a BLA
is substantial. The submission of most BLAs is additionally subject to a substantial application user fee, currently $3,242,026 for BLAs
requiring clinical data for fiscal year 2023, and the manufacturer and sponsor under an approved BLA are also subject to annual program
fees, currently $393,933 for each prescription product. These fees are typically increased annually. Sponsors of applications for drugs
granted Orphan Drug Designation are exempt from these user fees.
The
FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s
threshold determination that it is sufficiently complete to permit substantive review. The FDA may request additional information rather
than accept a BLA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application
is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth
review. The FDA has agreed to certain performance goals in the review of BLAs to encourage timeliness. Applications for standard review
drug products are meant to be reviewed within ten months; applications for priority review drugs are meant to be reviewed in six. Priority
review can be applied to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy
exists. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain
late-submitted information, or information intended to clarify information already provided in the submission.
10
The
FDA is required to refer an application for a novel biological product to an advisory committee or explain why such referral was not
made. An advisory committee is typically a panel that includes clinicians and other experts-for review, evaluation and a recommendation
as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally
follows such recommendations.
Before
approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will
inspect the facility or the facilities at which the drug is manufactured. The FDA will not license the product unless compliance with
cGMPs is satisfactory, and the application meets the appropriate standard. A BLA must include data that demonstrate that the biological
product is safe, pure, and potent.
After
the FDA evaluates the BLA and accompanying information and the manufacturing facilities, it issues either an approval letter or a complete
response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific
indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional
testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the
FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such
resubmissions in two or six months depending on the type of information included. Even with submission of this additional information,
the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
An
approval or licensure letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
As a condition of BLA licensure, the FDA may require a REMS, to help ensure that the benefits of the biological product outweigh the
potential risks. REMS can include medication guides, communication plans for healthcare professionals and ETASU. ETASU can include, but
are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special
monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability
of the drug. Moreover, product licensure may require substantial post-approval testing and surveillance to monitor the drug’s safety
or efficacy. Once granted, product licenses may be withdrawn if compliance with regulatory standards is not maintained or problems are
identified following initial marketing.
If
the FDA approves a product, it may limit the approved indications for use for the product; require that contraindications, warnings or
precautions be included in the product labeling; require that postmarketing studies, including Phase 4 clinical trials, be conducted
to further assess the drug’s safety after licensure; require testing and surveillance programs to monitor the product after commercialization;
or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially
affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the
results of post-market studies or surveillance programs. Changes to some of the conditions established in an approved application, including
changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval, as applicable, of a
new BLA or supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar
to that in the original application, and the FDA uses the same procedures and actions in reviewing supplements as it does in reviewing
BLAs.
Post-Licensure
FDA Requirements
Biological
products manufactured or distributed pursuant to FDA licenses 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 licensure, most changes to the approved product, such as adding new indications or other labeling claims, are
subject to prior FDA review and licensure. 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.
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Often
times, even after a biological product has been licensed by the FDA for sale, the FDA may require that certain post-licensure requirements
be satisfied, including the conduct of additional clinical studies. If such post-approval requirements are not satisfied, the FDA may
withdraw its licensure of the biological product. In addition, holders of a biological product license 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, biological product manufacturers
and their subcontractors 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 and other aspects of regulatory compliance. 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 BLA licensure 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 licensure of a biological product. Following licensure of the BLA, we and our manufacturers will remain subject to periodic
inspections by the FDA to assess continued compliance with cGMP requirements and the conditions of licensure. 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.
Once
licensure is granted, the FDA may withdraw licensure 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-licensure clinical trials;
● refusal
of the FDA to license pending BLAs or supplements, or suspension or revocation of product licensure;
● product
seizure or detention, or refusal to permit the import or export of products;
● consent
decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;
● mandated
modification of promotional materials and labeling and the issuance of corrective information;
● the
issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety
information about the product; or
● injunctions
or the imposition of civil or criminal penalties.
The
FDA closely regulates marketing, labeling, advertising and promotion of products that are placed on the market. Biological products may
be promoted only for the licensed 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. Failure to comply with these requirements can result in, among other
things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe
legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and
approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the
best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments.
The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.
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In
addition, the distribution of prescription drug products, including most biological products that require a prescription, is subject
to the Prescription Drug Marketing Act, or the PDMA, which regulates the distribution of 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.
Other
U.S. Healthcare Laws and Compliance Requirements
Among
others, the FDA, HHS, Office of Inspector General, the CMS and comparable regulatory authorities in state and local jurisdictions and
in other countries impose substantial and burdensome requirements upon companies involved in the preclinical and clinical development,
manufacture, marketing, and distribution of drugs such as those we are developing. These agencies and other federal, state, and local
entities regulate, among other activities, the research and development, testing, manufacture, quality control, safety, effectiveness,
labeling, storage, record keeping, approval, sales, commercialization, marketing, advertising and promotion, distribution, post-approval
monitoring and reporting, sampling, and export and import of our product candidates. Any drug candidates that we develop must be approved
by the FDA before they may be legally marketed in the U.S. and by the appropriate foreign regulatory agency before they may be legally
marketed in those foreign countries. Generally, our activities in other countries will be subject to regulation that is similar in nature
and scope as that imposed in the U.S., although there can be important differences. Additionally, some significant aspects of regulation
in the EU are addressed in a centralized way, but country-specific regulation remains essential in many respects.
Although
we do not currently have any products on the market, in addition to FDA restrictions on marketing of pharmaceutical products, we are
also subject to healthcare statutory and regulatory requirements and enforcement by the U.S. federal and state governments. Pharmaceutical
companies like us are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the
states and foreign jurisdictions in which they conduct their business. Such regulation and may constrain the financial arrangements and
relationships through which we research, develop, and, ultimately, sell, market, and distribute any products for which we obtain marketing
approval. Such laws include, without limitation:
● The
federal Anti-Kickback Statute, an intent-based criminal statute that prohibits, among other activities, persons and entities from knowingly
and willfully soliciting, offering, paying, receiving, or providing any remuneration (including any kickback, bride, or rebate), directly
or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for,
or the purchase, lease, order, or recommendation of, any item or service for which payment may be made, in whole or in part, under a
federal healthcare program, such as Medicare or Medicaid. A person or entity does not need to have actual knowledge of the statute or
specific intent to violate it in order to have committed a violation.
● The
federal civil and criminal false claims laws, including the civil FCA, which prohibit individuals or entities from, among other activities,
knowingly presenting, or causing to be presented, to the federal government claims for payment or approval that are false, fictitious,
or fraudulent; knowingly making, using, or causing to be made or used, a false statement or record material to a false or fraudulent
claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly
avoiding or decreasing an obligation to pay money to the federal government. In addition, the government may assert that a claim that
includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the FCA. The FCA also permits a private individual acting as a “whistleblower” to bring qui tam actions
on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery or settlement.
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● The
federal civil monetary penalties laws, which prohibit, among other activities (1) arranging for or contracting with an individual or
entity that is excluded from participation in federal healthcare programs to provide items or services reimbursable by a federal healthcare
program, (2) failing to report and return a known overpayment, or (3) offering or transferring any remuneration to a Medicare or Medicaid
beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider,
practitioner, or supplier of items or services reimbursable by Medicare or Medicaid, unless an exception applies.
● The
federal criminal statutes enacted under HIPAA which impose criminal liability for knowingly and willfully executing, or attempting to
execute, a scheme to defraud any healthcare benefit program, including private third-party payors, or obtain, by means of false or fraudulent
pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit
program; knowingly and willfully embezzling or stealing from a healthcare benefit program; willfully preventing, obstructing, misleading,
or delaying a criminal investigation of a healthcare offense; and knowingly and willfully falsifying, concealing, or covering up a material
fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items, or services.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent
to violate it in order to have committed a violation.
● The
federal Physician Payment Sunshine Act, enacted as part of the ACA, which imposes annual reporting requirements for certain manufacturers
of drugs, devices, biological products, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s
Health Insurance Program, for certain payments and “transfers of value” provided to “covered recipients,” which
include U.S.-licensed physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals,
as well as ownership and investment interests held by such physicians and their immediate family members. For reports submitted to CMS
on or after January 1, 2022, such obligations will include the reporting of payments and other transfers of value provided in the previous
year to certain other healthcare professionals, including physician assistants, nurse practitioners, clinical nurse specialists, certified
registered nurse anesthetists, anesthesiologist assistants and certified nurse midwives.
● The
FDCA and PHSA, which regulate licensure of biological products and prohibit the misbranding and adulteration of biological products.
● Analogous
state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply with respect to healthcare
items or services reimbursed by non-governmental third party-payors and may be broader than their federal equivalents; state and foreign
laws requiring pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and/or the
relevant compliance guidance promulgated by the federal government or otherwise restricting payments that may be made to healthcare providers;
state laws and regulations requiring drug manufacturer disclosures to state agencies and/or commercial purchasers with respect to certain
price increases; state and foreign laws requiring drug manufacturers to report information related to payments and other transfers of
value to physicians and other healthcare providers and restricting marketing practices or requiring disclosure of marketing expenditures
and pricing information; and state and local laws that requiring registration of pharmaceutical sales representatives.
We
are also subject to the Foreign Corrupt Practices Act, or FCPA, which prohibits improper payments or offers of payments to foreign governments
and their officials for the purpose of obtaining or retaining business.
Safeguards
we implement to discourage improper payments or offers of payments by our employees, consultants, and others may be ineffective, and
violations of the FCPA and similar state laws may result in severe criminal or civil sanctions, or other liabilities or proceedings against
us, any of which would likely harm our reputation, business, financial condition and results of operations.
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Violations
of any of these laws or any other applicable laws or regulations may result in significant penalties, including, without limitation,
administrative, civil, and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity
oversight and reporting obligations to resolve allegations of noncompliance, exclusion from participation in federal and state healthcare
programs, such as Medicare and Medicaid, and imprisonment. Ensuring business arrangements comply with applicable healthcare laws, as
well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company’s
attention from its business.
Coverage
and Reimbursement
Sales
of any pharmaceutical product depend, in part, on the extent to which such product will be covered by third-party payors, such as federal,
state, and foreign government healthcare programs, commercial insurance, and managed healthcare organizations, and the level of reimbursement
for such product by third-party payors. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made
on a payor-by-payor basis. These third-party payors are increasingly reducing coverage and reimbursement for healthcare items (including
drugs) and services. Moreover, for products administered under the supervision of a physician, obtaining coverage and adequate reimbursement
may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for
the product itself may or may not be available. Instead, the hospital or administering physician may be reimbursed only for providing
the treatment or procedure in which our product is used.
In
addition, the U.S. government, states, and foreign governments have continued implementing cost-containment programs, including price
controls, restrictions on coverage and reimbursement, and requirements for substitution of lower-cost or generic products. Adoption of
price controls and cost-containment measures and adoption of more restrictive policies in jurisdictions with existing controls and measures
could further limit sales of any drug product. Decreases in third-party reimbursement for any drug product or a decision by a third-party
payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect
on sales.
Moreover,
as a condition of participating in, and having products covered under, certain federal healthcare programs, such as Medicare and Medicaid,
we may become subject to federal laws and regulations that require pharmaceutical manufacturers to calculate and report certain pricing
metrics to the government, including the Average Manufacturer Price, or AMP, and Best Price under the MDRP, the Medicare Average Sales
Price, the 340B Ceiling Price, and Non-Federal AMP reported to the Department of Veteran Affairs, and with respect to Medicaid, pay statutory
rebates on utilization of manufacturers’ products by Medicaid beneficiaries. Compliance with these laws and regulations will require
significant resources and may have a material adverse effect on our revenues.
Healthcare
Reform
In
the U.S., in March 2010, the ACA was enacted, which substantially changed the way healthcare is financed by both governmental and private
payors, and significantly affected the pharmaceutical industry. The ACA contained a number of provisions, including those governing the
federal healthcare programs, provider reimbursement, and healthcare fraud and abuse laws. For example, the ACA:
● increased
the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the AMP;
● required
collection of rebates for drugs paid by Medicaid managed care organizations;
● expanded
beneficiary eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain
individuals with income at or below 138% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate
liability;
● extended
manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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● expanded
the types of entities eligible for the 340B Drug Pricing Program;
● established
a new methodology by which rebates owed by manufacturers under MDRP are calculated for drugs that are inhaled, infused, instilled, implanted
or injected;
● required
manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts
off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the
manufacturer’s outpatient drugs to be covered under Medicare Part D;
● imposed
a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” and biologic
agents apportioned among these entities according to their market share in certain federal government programs;
● established
the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and
Medicaid spending, potentially including prescription drug spending;
● created
the Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research;
● required
reporting of certain financial arrangements between manufacturers of drugs, biologics, devices, and medical supplies and physicians and
teaching hospitals under the federal Physician Payments Sunshine Act; and
● required
annual reporting of certain information regarding drug samples that manufacturers and distributors provide to licensed practitioners.
Since
its enactment, there have been executive, judicial, and legislative branch challenges to certain aspects of the ACA, and, on June 17,
2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling
on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden had issued an executive order to initiate
a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through
the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies
and rules that limit access to healthcare, including among others, policies that create barriers to obtaining access to health insurance
coverage through the ACA marketplaces. It is unclear how healthcare reform measures enacted by Congress or implemented by the Biden administration
or other efforts to challenge, repeal or replace the ACA, if any, will impact the ACA.
Other
legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. These changes include the Budget Control Act
of 2011, which, among other changes, led to aggregate reductions in Medicare payments to providers of up to 2% per fiscal year that started
in April 2013 and, due to subsequent legislation, will continue into 2031, with the exception of a temporary suspension of the payment
reduction from May 1, 2020 through December 31, 2021 due to the COVID-19 pandemic, unless additional Congressional action is taken. Most
recently, the American Rescue Plan Act of 2021 eliminates the statutory cap on drug manufacturers’ MDRP rebate liability effective
January 1, 2024. Under current law enacted as part of the ACA, drug manufacturers’ MDRP rebate liability is capped at 100% of AMP
for a covered outpatient drug.
The
cost of prescription drugs has been the subject of considerable policy discussion and debate in the U.S. Congress has considered and
passed legislation, and the former Trump administration pursued several regulatory reforms to further increase transparency around prices
and price increases, lower out-of-pocket costs for consumers, and decrease spending on prescription drugs by government programs. Congress
has also continued to conduct inquiries into the prescription drug industry’s pricing practices. While several proposed reform
measures will require Congress to pass legislation to become effective, Congress and the Biden administration have expressed support
for legislative and/or administrative measures to address prescription drug costs. The Biden administration has also taken several executive
actions that signal changes in policy from the prior administration, including with respect to executive actions by the Trump administration
related to prescription drug costs. At the state level, legislatures are increasingly passing legislation and states are implementing
regulations designed to control spending on, and patient out-of-pocket costs for, drug products.
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We
expect that additional state and federal healthcare reform and/or drug pricing measures will be adopted in the future, any of which could
affect the pricing and/or availability of drug products, the amounts that federal and state governments and other third-party payors
will pay for healthcare products and services, and/or our ability to generate revenue, attain or maintain profitability, or commercialize
products for which we may receive regulatory approval in the future.
Other
U.S. Healthcare Laws and Compliance Requirements
For
products distributed in the United States, we will also be subject to additional healthcare regulation and enforcement by the federal
government and the states in which we conduct our business.
Efforts
to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. Although
we believe our business practices are structured to be compliant with applicable laws, it is possible that governmental authorities will
conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud
and abuse or other healthcare laws and regulations. If our future operations are found to be in violation of any of these laws or any
other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages,
fines, exclusion from third party payor programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.
If any of the physicians, providers or entities with whom we may do business with will be found to be not in compliance with applicable
laws, they may be subject to criminal, civil or administrative sanctions, including exclusion from government funded healthcare programs.
Many
aspects of these laws have not been definitively interpreted by the regulatory authorities or the courts, and their provisions are open
to a variety of subjective interpretations which increases the risk of potential violations. In addition, these laws and their interpretations
are subject to change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to
incur significant legal expenses, divert our management’s attention from the operation of our business, and damage our reputation.
In
addition, from time to time in the future, we may become subject to additional laws or regulations administered by the FDA, the Federal
Trade Commission, or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that we generally
consider favorable, or to more stringent interpretations of current laws or regulations. We are not able to predict the nature of such
future laws, regulations, repeals or interpretations, and we cannot predict what effect additional governmental regulation, if and when
it occurs, would have on our business in the future. Such developments could, however, require reformulation of certain products to meet
new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased
documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, additional
personnel, or other new requirements. Any such developments could have a material adverse effect on our business.
Israel
Before
an entity or person can conduct clinical testing on humans in Israel, such entity or person must receive special authorization from the
ethics committee (also known as a “Helsinki Committee”) and general manager of the institution in which such entity or person
intends to conduct its study, as required under the Guidelines for Clinical Trials in Human Subjects implemented pursuant to the Israeli
Public Health Regulations (Clinical Trials in Human Subjects), as amended from time to time, and other applicable legislation. These
regulations also require authorization from the Israeli Ministry of Health, except in certain circumstances, and in the case of genetic
trials, special fertility trials and similar trials, an additional authorization of the overseeing institutional ethics committee. The
institutional ethics committee must, among other things, evaluate the anticipated benefits that are likely to be derived from the project
to determine if it justifies the risks and inconvenience to be inflicted on the human subjects, and the committee must ensure that adequate
protection exists for the rights and safety of the participants as well as the accuracy of the information gathered in the course of
the clinical testing. If we perform future clinical studies in Israel, we will be required to obtain authorization from the ethics committee
and general manager of each institution in which we intend to conduct our clinical trials, and in most cases, from the Israeli Ministry
of Health.
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Europe
and Other Territories
Whether
or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign
countries before we can commence clinical trials or marketing of the product in those countries. For example, in the European Union,
a clinical trial application, or CTA, must be submitted to each member state’s national health authority and an independent ethics
committee. The CTA must be approved by both the national health authority and the independent ethics committee prior to the commencement
of a clinical trial in the member state. The approval process varies from country to country and the time frame may be longer or shorter
than that required for FDA approval. In addition, the requirements governing the conduct of clinical trials, product licensing, pricing
and reimbursement vary greatly from country to country. In all cases, clinical trials are conducted in accordance with GCP and the applicable
regulatory requirements and the ethical principles that have their origin in the Helsinki Declaration.
To
obtain marketing approval of a drug under European Union regulatory systems, we may submit marketing authorization applications under
a centralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European
Union member states. The centralized procedure is compulsory for medicines produced by certain biotechnological processes, products designated
as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases, including M-00.1
It is optional for products with other new active substance (which has not been developed for the diseases named in the Annex of the
relevant EU-Regulation on the authorization of medicinal products for human use and the EMA), those products that are highly innovative,
or for which a centralized process is in the interest of participants. M-001 falls under the compulsory centralized procedure category.
Under the centralized procedure category in the European Union, the maximum time frame for the evaluation of a marketing authorization
application by the Committee of Medicinal Products for Human Use (CHMP) is 210 days after receipt of a valid application (excluding clock
stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP). Accelerated
evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest,
for which there is no single definition, but which needs to be justified by the applicant and assessed by the CHMP on a case-by-case
basis. Relevant criteria can be: the seriousness of the disease, such as seriously disabling or life-threatening diseases, to be treated;
the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this
circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days. On the basis of the CHMP opinion, the European Commission
will decide on the marketing authorization within 67 days after receipt of the CHMP opinion.
The
decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed
by one member state, known as the reference member state. Under this procedure, an applicant submits an application, or dossier, and
related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member
state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within
120 days after receipt of a valid application (Assessment Step I). Within 90 days of receiving the reference member state’s assessment
report, each concerned member state must decide whether to approve the assessment report and related materials (Assessment Step II).
If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health,
the matter will be referred to the Coordination Group for Mutual Recognition Procedures and Decentralized Procedures (CMDh) at the EMA.
If within 60 days of the referral a consensus is not reached, the matter and the disputed points will eventually be referred to the CHMP
with EMA. The decision on whether the product can be approved is then taken by the European Commission on the basis of the opinion of
the CHMP. The decision of the European Commission is binding on all member states. After the close of the procedure and review of the
national translations of the texts for the labelling of the labelling, the package leaflet and the summary of product characteristics
the reference member state and the concerned member states issue national marketing authorization within a further 30 days (National
Step).
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For
other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical
trials are conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their origin
in the Helsinki Declaration.
If
we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal
of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Incentives
Israeli
Innovation Authority
Since
2006, we have owe approximately $5.8 millions in grants to the Israeli Innovation Authority (IIA), formerly known as the Office of the
Chief Scientist. The grants were for research and development of M-001. In light of the Phase 3 clinical trial results, we do not currently
expect any future revenues from M-001 and therefore do not currently expect to make any royalty payments to the IIA. The Company is subject
to various other restrictions pursuant to the grants, including limitations on transferring IP developed with grant funds. In light of
the Company’s new strategy, we do not expect these restrictions to be material to our ongoing operations.
Grant
for the Construction of a Manufacturing Facility in Jerusalem
In
2017, we were awarded a grant of up to NIS 4 million for the construction of our facility in Jerusalem to support Phase 3 trials and
commercial production of M-001. However, the grant money has not yet been disbursed due to the failure of M-001 in phase 3 clinical trials.
BiondVax has reapplied in 2022 for disbursement in light of its new agreements with MPI and UMG, and pursuant to a request from the Israeli
Investment Authority, the IIA has appointed an external assessor to evaluate the viability and innovativeness of the technology licensed
from MPI and UMG. The IIA has submitted its report to the Investment Authority, which did not approve the disbursement of the grant.
Employees
We
currently have 33 employees, six of whom were employed in finance and administration and 27 of whom were employed in research and development.
All Company employees are in Israel.
Israeli
labor laws principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees,
determination of severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination
laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon the retirement,
death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar
to the U.S. Social Security Administration. Our employees have defined benefit pension plans that comply with applicable Israeli legal
requirements, which also include the mandatory pension payments required by applicable law and allocations for severance pay.
While
none of our employees are party to any collective bargaining agreements, certain provisions of the collective bargaining agreements between
the Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’
Associations) are applicable to our employees by extension orders issued by the Israel Ministry of Economy (previously the Israeli Ministry
of Trade, Industry and Labor). These provisions primarily concern the length of the workweek, pension fund benefits for all employees
and for employees in the industry section, insurance for work-related accidents, travel expenses reimbursement, holiday leave, convalescent
payments and entitlement for vacation days. We generally provide our employees with benefits and working conditions beyond the required
minimums. We have never experienced any employment-related work stoppages and believe our relationship with our employees is good.
Intellectual
Property
We
license the core intellectual property for our NanoAbs program from MPG under an exclusive license agreement, pursuant to which we received
an exclusive worldwide license for the development and commercialization of NanoAbs based on certain patents and intellectual property
owned by MPG and related thereto. Pursuant to the terms of the license agreement, unless earlier terminated in accordance with the provisions
thereof, the license agreement will expire on a product-by-product and country-by-country basis upon the later of (i) the expiration
or abandonment of the patent rights that relate to such product in such country and (ii) ten years from the date of first commercial
sale of such product in such country. We have the right to license nanobodies against certain other molecular targets on the same terms
described above.
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Environmental
Matters
We
are subject to various environmental, health and safety laws and regulations, including those governing the use, management and disposal
of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. We believe that our business, operations
and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and
regulations. Our laboratory personnel have ongoing communication with the Israeli Ministry of Environmental Protection in order to verify
compliance with relevant instructions and regulations. In addition, all of our laboratory personnel participate in instruction on the
proper handling of chemicals, including hazardous substances before commencing employment, and during the course of their employment,
with us. In addition, all information with respect to any chemical substance that we use is filed and stored as a Material Safety Data
Sheet, as required by applicable environmental regulations. Based on information currently available to us, we do not expect environmental
costs and contingencies to have a material adverse effect on us. The operation of our facilities, however, entails risks in these areas.
Significant expenditures could be required in the future if we are required to comply with new or more stringent environmental or health
and safety laws, regulations or requirements.