10-K

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10-K 1 d134420d10k.htm 10-K 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36577

ContraFect Corporation

(Exact name of registrant as specified in its charter)


Delaware		39-2072586
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

28 Wells Avenue, 3^rd Floor Yonkers, NY		10701
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(914) 207-2300

Securities registered pursuant to Section 12(b) of the Act:


Title of Class	Trading Symbol(s)	Name of Exchange on Which Registered
Common Stock, Par Value $0.0001 per share	CFRX	Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $176.8 million, based on the closing price of the registrant’s common stock on the Nasdaq Capital Market on June 30, 2020 of $6.39 per share.

As of March 24, 2021, there were 39,332,145 shares of common stock, $0.0001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement relating to its 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission are incorporated by reference into Part III of this Annual Report on Form 10-K.

Table of Contents


		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		38
Item 1B.	Unresolved Staff Comments		74
Item 2.	Properties		74
Item 3.	Legal Proceedings		74
Item 4.	Mine Safety Disclosures		74

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		75
Item 6.	Selected Financial Data		75
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		75
Item 8.	Financial Statements and Supplementary Data		87
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		87
Item 9A.	Controls and Procedures		87
Item 9B.	Other Information		88

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		89
Item 11.	Executive Compensation		94
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		94
Item 13.	Certain Relationships and Related Transactions, and Director Independence		94
Item 14.	Principal Accountant Fees and Services		94

PART IV
Item 15.	Exhibits and Financial Statement Schedules		95
Item 16.	Form 10-K Summary		98

REFERENCES TO CONTRAFECT

Throughout this Annual Report on Form 10-K, the “Company,” “ContraFect,” “we,” “us,” and “our,” except where the context requires otherwise, refer to ContraFect Corporation, and “our board of directors” refers to the board of directors of ContraFect Corporation.

All brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective holders.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

The information in this Annual Report on Form 10-K contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements involve significant risks and uncertainties, including, but not limited to, statements regarding:

•

the success, cost, timing and potential indications of our product development activities and clinical trials;

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our ability to advance into and through clinical development and ultimately obtain FDA approval for our product candidates;

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our research and development plans and ability to bring forward additional product candidates into preclinical and clinical development;

•

our expectations regarding the impact of COVID-19 on our business, operations and financial performance and position;

•

our contract with the Biomedical Advanced Research and Development Authority (“BARDA”) (the “BARDA Contract”) and any exercise of BARDA’s options to extend the BARDA Contract;

•

our grant awards from the Combating Antibiotic-Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”) and the Military Infectious Diseases Research Program, United States Army Medical Research and Development Command (“USAMRDC”) and the respective options in each award for continued funding;

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the rate and degree of market acceptance of our product candidates and our expectations regarding the size of the commercial markets for our product candidates;

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our future marketing and sales programs;

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the effect of competition and proprietary rights of third parties;

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the availability of and our ability to obtain additional financing;

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the effects of existing and future federal, state and foreign regulations;

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the seeking of joint development, licensing or distribution and collaboration and marketing arrangements with third parties; and

•

the period of time for which our existing cash and cash equivalents will enable us to fund our operations.

As more fully described under the heading “Risk Factors” contained elsewhere in this Annual Report on Form 10-K, many important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks and uncertainties set forth in our filings with the SEC. You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

RISK FACTOR SUMMARY

Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in this Annual Report on Form 10-K. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

•

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

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We currently have no source of product revenue and have not yet generated any revenues from product sales.

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We have a need for substantial additional funding. If we are unable to raise capital when needed or if we are unable to receive the maximum potential funding from BARDA, CARB-X or USAMRDC, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

•

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

•

The timing of the milestone and royalty payments we are required to make to The Rockefeller University (“Rockefeller”) under certain agreements is uncertain and could adversely affect our cash flows and results of operations.

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Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

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The outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

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We are heavily dependent on the success of our leading product candidate, exebacase. If we are ultimately unable to obtain regulatory approval for exebacase or any other product candidate our business will be substantially harmed.

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If clinical trials of exebacase or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the Food and Drug Administration (“FDA”) or similar international regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of exebacase or any other product candidate.

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We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude approval of exebacase or any other product candidates.

iii

•

Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.

•

We are significantly dependent on our license agreements with Rockefeller that relate to exebacase.

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We rely on CROs to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of exebacase or any other product candidates.

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Even if the FDA approves exebacase or any other product candidate, adverse effects discovered after approval could adversely affect our markets.

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Any Breakthrough Therapy Designation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

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Risks associated with the manufacture of our product candidates could include cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes, equipment failures, and lack of timely availability of raw materials.

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Developments by competitors may render our products or technologies obsolete or non-competitive.

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The level of commercial success of exebacase or any other product candidates that we develop will depend upon significant market acceptance of these products among physicians and payors.

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Coverage and reimbursement may not be available for exebacase or any other product candidates that we develop.

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If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.

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Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

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Risks related to regulatory approval of our product candidates and other legal and compliance matters.

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Risks related to employee matters and managing growth.

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Risks related to our intellectual property.

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Risks related to our securities and organizational documents.

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Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

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Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the European Union (“EU”) and European Economic Area (“E.E.A”).

Item 1.

Business

We are a late clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. Our lead DLA, exebacase, was granted Breakthrough Therapy designation by the U.S. Food and Drug Administration (“FDA”) in February 2020 and is currently being studied in an ongoing Phase 3 superiority design study. Antibiotic-resistant infections account for 2,000,000 illnesses in the United States and 700,000 deaths worldwide each year. We intend to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. We believe DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections.

Lysins are recombinantly-produced enzymes, that when applied to bacteria cleave a key component of the target bacteria’s peptidoglycan cell wall, resulting in rapid bacterial cell death. In addition to the speed of action and potent cidality, we believe lysins are differentiated by their other hallmark features, which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models. Our lead lysin exebacase has a “targeted” spectrum of activity, meaning that it kills specific species of Staphylococci or closely related bacteria. Our next IND candidate, CF-370, targets a range of resistant gram-negative bacteria including Pseudomonas aeruginosa (“P. aeruginosa”). Amurin peptides are a new class of DLAs, discovered in our laboratories, which disrupt the outer membrane of gram-negative bacteria, resulting in rapid bacterial cell death, offering a distinct mechanism of action from lysins. Amurins have potent “broad spectrum” in vitro activity against a wide range of gram-negative pathogens, including deadly, drug-resistant P. aeruginosa, Klebsiella pneumoniae, Escherichia coli, Acinetobacter baumannii and Enterobacter cloacae bacteria species as well as difficult to treat pathogens such as Stenotrophomonas, Achromobacter and some Burkholderia species. The highly differentiated properties of DLAs have shown these agents to be complementary to and synergistic with conventional antibiotics enabling their potential use in addition to antibiotics with the goal of improving clinical outcomes compared to antibiotics alone. The development of DLAs involves a novel clinical and regulatory strategy, using superiority design clinical trials with the goal of delivering significantly improved clinical outcomes for patients with serious, antibiotic-resistant bacterial infections, including biofilm-associated infections. We believe this approach affords potential clinical benefits to patients as well as the potential ability to mitigate against further development of antibiotic resistance.

Our most advanced clinical candidate, exebacase, is an investigational novel lysin that targets Staphylococcus aureus (“Staph aureus”), including methicillin-resistant (“MRSA”) strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis. Staph aureus is also a common cause of biofilm-associated infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite currently available antibiotic therapies.

In December 2019, we initiated the Phase 3 DISRUPT (Direct Lysis of Staph aureus Resistant Pathogen Trial) superiority design study of exebacase. The DISRUPT study is a randomized, double-blind, placebo-controlled Phase 3 clinical trial conducted in the U.S. alone to assess the efficacy and safety of exebacase in approximately 350 adult and adolescent patients with complicated Staph aureus bacteremia, including right-sided endocarditis. Patients entering the study will be randomized 2:1 to either exebacase or placebo, with all patients receiving standard-of-care (“SOC”) antistaphylococcal antibiotics. The primary efficacy endpoint of the study is clinical response at Day 14 in patients with MRSA bacteremia, including right-sided endocarditis. Secondary endpoints will include clinical response at Day 14 in the All Staph aureus patient group (MRSA and methicillin-sensitive Staph aureus (“MSSA”)), 30-day all-cause mortality in MRSA patients, and clinical response at later timepoints. We will also evaluate the impact of treatment with exebacase on health resource utilization, including hospital length of stay, ICU length of stay and 30-day readmission rates. We plan to conduct an interim futility analysis following the enrollment of approximately 60% of the study population. We obtained feedback from the U.S. Food and Drug Administration (“FDA”) regarding the Phase 3 study protocol at an End-of-Phase 2 meeting with the FDA in September 2019, including the key design features of the study population, the endpoints and the size of the safety database that would be needed to support submission of a Biologics License Application (“BLA”) for approval of exebacase.

We completed a Phase 2 superiority study of exebacase that evaluated its safety, tolerability, efficacy and pharmacokinetics (“PK”) when used in addition to background SOC antibiotics compared to SOC antibiotics alone for the treatment of Staph aureus bacteremia, including endocarditis in adult patients. The results from this study showed clinically meaningful improvement in clinical responder rates among patients treated with exebacase in addition to SOC antibiotics compared to SOC antibiotics alone. In the primary efficacy analysis population of 116 patients with documented Staph aureus bacteremia, including endocarditis, who received a single intravenous (“IV”) infusion of blinded study drug, the clinical responder rate at Day 14 was 70.4% for patients treated with exebacase and 60.0% for patients dosed with SOC antibiotics alone (p=0.314).

In a pre-specified analysis of MRSA-infected patients, the clinical responder rate at Day 14 in patients treated with exebacase was nearly 43-percentage points higher than in patients treated with SOC antibiotics alone (74.1% for patients treated with exebacase compared to 31.3% for patients treated with SOC antibiotics alone (p=0.010)). In addition to the higher rate of clinical response, MRSA-infected patients treated with exebacase showed a 21-percentage point reduction in 30-day all-cause mortality (p=0.056), a four day lower mean length of hospital stay and meaningful reductions in hospital readmission rates. Additional pre-specified analyses showed a clinical responder rate at Day 14 in the subset of patients with bacteremia including right-sided endocarditis of 80.0% for patients treated with exebacase compared to 59.5% for patients treated with SOC antibiotics alone, an increase of 20.5% (p=0.028). In the subset of patients with bacteremia alone, the clinical responder rate at Day 14 was 81.8% for patients treated with exebacase compared to 61.5% for patients treated with SOC antibiotics alone, an increase of 20.3% (p=0.035).

Exebacase was well-tolerated and treatment emergent adverse events, including serious treatment-emergent serious adverse events (“SAEs”) were balanced between the treatment groups. There were no SAEs that we determined to be related to exebacase, there were no reports of hypersensitivity related to exebacase and no patients discontinued treatment with study drug in either treatment group.

We also performed a post-hoc Phase 3 simulation analysis using the Phase 2 data to evaluate the clinical outcomes for the Phase 2 patient population that would meet the Phase 3 inclusion criteria. In this simulated Phase 3 analysis population of 84 U.S. patients with documented Staph aureus bacteremia, including right-sided endocarditis, who received a single IV infusion of blinded study drug, the clinical responder rate at Day 14 was 83.7% for patients treated with exebacase and 54.3% for patients dosed with SOC antibiotics alone, an improvement in the responder rate of over 29-percentage points. The clinical responder rate at Day 14 in the subset of patients with MRSA bacteremia including right-sided endocarditis was 82.6% for patients treated with exebacase compared to 33.3% for patients treated with SOC antibiotics alone, an improvement in the responder rate of over 49-percentage points. In the subset of patients with MSSA bacteremia including right-sided endocarditis, the clinical responder rate at Day 14 was 84.6% for patients treated with exebacase compared to 66.7% for patients treated with SOC antibiotics alone, an increase of nearly 18-percentage points.

We believe these data established proof of concept for exebacase and for DLAs as therapeutic agents. In particular, the data for MRSA-infected patients treated with exebacase, which, in the Phase 2 superiority study, demonstrated superior outcomes in clinical response at Day 14 and in 30-day all-cause mortality as well as health economics benefits, provided the basis for the FDA to grant Breakthrough Therapy designation to exebacase for the treatment of MRSA bloodstream infections (bacteremia), including right-sided endocarditis, when used in addition to SOC anti-staphylococcal antibiotics in adult patients. Breakthrough Therapy designation is a program designed by the FDA to expedite the development and review of medicines for serious or life-threatening diseases where preliminary clinical evidence suggests that the investigational therapy may demonstrate substantial improvement on at least one clinically significant endpoint over available therapies. The Breakthrough Therapy designation provides additional benefits, such as expedited interactions with the FDA and the potential for priority review, in addition to the Fast Track designation granted to exebacase in August 2015.

On March 10, 2021, we entered into a cost-share contract (the “BARDA Contract”) with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for

Preparedness and Response. Under the BARDA Contract, we will receive funding of up to an estimated $86.8 million to advance the development of exebacase. The base period for the BARDA Contract includes government funding of up to $9.8 million to reimburse expenses for approximately one year to support the conduct of the ongoing Phase 3 clinical trial and futility analysis. Following successful completion of the base period, the BARDA Contract provides for approximately $77.0 million of additional BARDA funding for five option stages in support of the completion of the Phase 3 clinical trial of exebacase, further clinical and non-clinical studies, manufacturing, supply chain, clinical, regulatory and administrative activities. The contract period-of-performance (base period plus option exercises) is up to approximately six years. The BARDA Contract contains terms and conditions that are customary for contracts with BARDA of this nature, including provisions giving the government the right to terminate the contract at any time for its convenience.

Our Portfolio

We intend to develop and commercialize novel therapeutic agents to treat life-threatening infections, including those caused by antibiotic-resistant pathogens. The increasing prevalence of antibiotic resistance among bacterial pathogens has been widely recognized as an urgent public health threat by the U.S. Center for Disease Control (“CDC”), the World Health Organization (“WHO”) and the Infectious Disease Society of America (“IDSA”). According to the IDSA, as of 2010 the estimated cost to the U.S. healthcare system of antibiotic-resistant infections was approximately $21 billion to $34 billion annually, a substantial portion of which is due to increased length of hospital stays necessary to treat these patients. Antibiotic resistance has limited the effectiveness of many conventional antibiotics and the discovery and development of new therapeutics to address resistance has not kept pace with the increasing incidence of these difficult-to-treat microbial infections. As Dr. Tedros Adhanom Ghebreyesus, Director-General of WHO, has accordingly stated “never has the threat of antimicrobial resistance been more immediate and the need for solutions more urgent. Numerous initiatives are underway to reduce resistance, but we also need countries and the pharmaceutical industry to step up and contribute with sustainable funding and innovative new medicines.”

We take this mandate very seriously and have focused our research and discovery efforts on those pathogens that are considered to be urgent or serious threats to global health by the CDC or considered critical priority by the WHO. In particular, species of bacteria that are part of the ESKAPE pathogens (Enterococcus faecium, Staphylococcus aureus, Klebsiella pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, and Enterobacter species) are urgent or serious threats, and are also the leading causes of hospital acquired infections throughout the world. We believe that DLAs will be highly complementary to conventional antibiotics in addressing these infections. We aim to improve outcomes in patient with these life-threatening bacterial infections through use of our DLA candidates developed from our novel lysin and amurin platforms.

We have made further advancements with our novel lytic agents across our portfolio. In addition to the ongoing Phase 3 DISRUPT study of exebacase, we initiated an expanded access program to provide exebacase for the treatment of persistent bacteremia caused by MRSA in patients with COVID-19. We have also continued the investigator-initiated access program for compassionate use of exebacase for individual named patients with chronic prosthetic joint infections (“PJIs”) under Temporary Authorizations for Use from the French National Agency for Medicines and Health Products Safety in collaboration with Dr. Tristan Ferry at the Hôpital de la Croix Rousse in Lyon, France. We have developed a novel, engineered variant of exebacase, known as CF-296, which we believe provides an additional opportunity to advance a potential targeted therapy for deep-seated, invasive biofilm-associated Staph aureus infections. We are conducting further in vitro and in vivo characterization of CF-296 to evaluate the full profile of this compound. In 2019, we were awarded up to $7.2 million of funding from USAMRDC over the course of three years to advance CF-296 through Investigational New Drug application (“IND”)-enabling studies.

We have discovered and engineered a new lysin product candidate, CF-370, which in preclinical studies has demonstrated potent activity against antibiotic-resistant P. aeruginosa bacteria, a major cause of morbidity and mortality in patients with hospital acquired pneumonia and a major medical challenge for patients with cystic

fibrosis. In July 2020, we were granted an award of up to $18.9 million in funding from CARB-X, including initial funding of $4.9 million, in support of the advancement of CF-370 through IND-enabling activities. Any additional funding beyond the $4.9 million is at the discretion of CARB-X and based on factors such as available funding, achievement of project milestones and mutual agreement on future milestones. We expect CF-370 to be our next DLA to enter clinical studies.

Beyond our lysin programs, we continue our research to advance potential product candidates from our amurin peptide platform. We are evaluating our most promising amurins in preclinical animal studies with the goal of determining our next product candidate and moving this program towards clinical studies as soon as possible. In March 2019, we were granted an award of up to $6.9 million in funding from CARB-X, including initial funding of $1.75 million to support the amurin peptide program. Any additional funding beyond the $1.75 million is at the discretion of CARB-X and based on factors such as available funding, achievement of project milestones and mutual agreement on future milestones.

In addition, we have entered into a funding agreement with the Cystic Fibrosis Foundation to investigate the potential utility of DLAs against resistant gram-negative pathogens which afflict Cystic Fibrosis (“CF”) patients. The first stage of the agreement will provide funding for the in vitro activity of CF-370 and amurin peptides against bacterial specimens obtained from CF patients at different stages of disease. With supportive data, we plan to evaluate future clinical development of DLAs as therapeutic candidates for the treatment of exacerbations in CF lung disease.

In summary, we now have three modalities within the DLA therapeutic umbrella, including (i) native lysins for gram-positive pathogens (ii) engineered lysins for gram-negative pathogens and (iii) amurins for a wide spectrum of gram-negative pathogens. Our current portfolio of programs is reflected below:

LOGO

Our Strategy

Our strategy is to use our novel, highly differentiated therapeutic DLAs, if approved, to achieve a leading market position in the treatment of life-threatening infectious diseases, including those caused by antibiotic-resistant pathogens. We plan to pursue commercialization of therapeutic products through discovery, acquisition and development as follows:

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Advance exebacase through Phase 3 clinical development and demonstrate superiority of our therapeutic candidate used in addition to SOC antibiotics over SOC antibiotics alone for the treatment of Staph aureus bacteremia, including right-sided endocarditis. If our Phase 3 clinical program confirms the results of the Phase 2 study, demonstrating the superiority of exebacase, used in addition to SOC antibiotics as compared to antibiotics alone, we would seek marketing authorization with a

superiority claim which, if exebacase is approved, we believe would be highly differentiated from conventional antibiotics and would lead to rapid uptake by providers, favorable reimbursements from payors and potential reductions in health care utilization and the overall cost of treatment per patient;

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Evaluate exebacase for efficacy in additional indications, including as a treatment for chronic PJIs;

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Advance additional product candidates from our portfolio, including CF-370 and other direct lytic agents targeting gram-negative bacteria, to clinical development as rapidly as possible;

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Acquire additional technologies that enable the efficient discovery of anti-infective agents;

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Acquire clinical stage therapies that treat infectious diseases through unique mechanisms of action; and

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Establish collaborations to further develop and commercialize our product candidates.

Our Lead Program: Exebacase (CF-301)

Medical Opportunity

Staph aureus bacteremia is a serious bacterial infection associated with high morbidity and mortality. In the U.S. alone, there are approximately 200,000 hospitalizations for Staph aureus bacteremia annually. Mortality rates from this bloodstream infection have been reported as ranging from 20-40% despite conventional antibiotics. The last new agent for Staph aureus bacteremia and right-sided endocarditis, daptomycin, was approved over 13 years ago based on non-inferiority to vancomycin (approved in 1958) with clinical cure rates of less than 50% in the Phase 3 study that led to its approval.

Staph aureus bacteremia can lead to infectious endocarditis, a serious infection affecting the heart valves. The incidence of infective endocarditis in the U.S. has increased over the past decade, with over 47,000 cases in 2011, and is likely due to the growth of the at-risk populations, such as older, diabetic and hemodialysis patients. Staph aureus endocarditis remains difficult to treat with current standard of care antibiotics. One reason for this is biofilm formation which prevents antibiotics from eradicating the bacteria, leading to the need for long courses of antibiotic therapy, which are often unsuccessful and necessitate surgery to eradicate bacteria from infected heart valves. Mortality attributed to Staph aureus bacteremia is higher when the infection is caused by MRSA as compared to methicillin-susceptible (“MSSA”) Staph aureus. MRSA is considered a serious threat to global health by the CDC and a high priority threat by the WHO. Emerging resistance to conventional antibiotics such as vancomycin and daptomycin, which are used to treat MSSA and MRSA, represents an additional serious threat which may have serious consequences in terms of increasing morbidity, mortality and health care utilization.

Exebacase Development

Exebacase is the first lysin to enter U.S. clinical trials and represents a first-in-class anti-bacterial therapeutic candidate. Exebacase has been granted both Breakthrough Therapy and Fast Track designations by the FDA for the treatment of MRSA bloodstream infections (bacteremia), including right-sided endocarditis, when used in addition to SOC anti-staphylococcal antibiotics in adult patients. If we are able to obtain regulatory approval of exebacase for this initial indication, we believe exebacase, and/or engineered variants, may be further developed for the treatment of other serious diseases caused by Staph aureus including biofilm-related infections in prosthetic joints and indwelling devices, as well as pneumonia and osteomyelitis.

Clinical Studies

Phase 3 DISRUPT Clinical Study

We are conducting a multi-center Phase 3 clinical study of exebacase for the treatment of Staph aureus bacteremia, including right-sided endocarditis, caused by MRSA or MSSA. This randomized, double-blind, placebo-controlled study compares the efficacy, safety and tolerability of exebacase used in addition to SOC antibiotics to SOC antibiotics alone. The study is targeting enrollment of approximately 350 patients randomized

2:1 to receive either a single dose of exebacase administered as a 2-hour IV infusion in addition to SOC antibiotics or placebo plus SOC antibiotics. The primary efficacy endpoint is clinical response at Day 14 in patients with MRSA bacteremia, including right-sided endocarditis. Secondary endpoints include clinical response at Day 14 in the All Staph aureus patient group (MRSA and MSSA), 30-day all-cause mortality in MRSA patients, and clinical response at Day 30 and Day 60 in both the MRSA and the All Staph aureus patient groups. A summary of the statistical parameters of the key efficacy endpoints is shown in Table 1 below.

Table 1


	Primary Efficacy Endpoint: Clinical Response at Day 14 (MRSA Patients)	Secondary Efficacy Endpoint: Clinical Response at Day 14 (All *Staph aureus* Patients)	Secondary Efficacy Endpoint: Mortality (MRSA Patients)
Target difference	28% increase over SOC antibiotics alone	16% increase over SOC antibiotics alone	17% decrease from SOC antibiotics alone
Power	86%	83%	80%
Sample size	135 patients	339 patients	135 patients

Clinical response is defined by objective clinical response criteria including (1) resolution of signs and symptoms attributable to Staph aureus bacteremia/right-sided endocarditis (“SAB/RIE”) that were present at baseline, (2) no new signs and symptoms attributable to SAB/RIE, (3) no new complications of SAB/RIE (e.g. no development of a new foci of Staph aureus infection after Day 7 and no septic emboli), (4) no changes in anti-staphylococcal antibiotics after treatment with study drug due to persistence, worsening or recurrence of signs or symptoms of SAB/RIE, (5) Blood culture(s) negative for Staph aureus by Day 14 and (6) the patient is alive. Clinical response will be determined by an independent, blinded clinical adjudication committee.

We will evaluate the impact of treatment with exebacase on health resource utilization, including length of hospital stay, length of stay in the intensive care unit and 30-day readmission rates for both all-cause and Staph aureus infection readmissions. The independent Data Safety Monitoring Board (“DSMB”) will review data from an interim futility analysis after 60% of the study population completes the Day 14 primary endpoint study visit.

Based on feedback from our End-of-Phase 2 meeting with the FDA, including the advancement of exebacase under the streamlined development pathway, we believe that this single confirmatory Phase 3 clinical trial evaluating the superiority of exebacase used in addition to SOC antibiotics compared to SOC antibiotics alone for the treatment of Staph aureus bacteremia, including right-sided endocarditis, if the results are positive, together with the full package of Phase 1 and Phase 2 clinical data, along with a robust non-clinical and PK/PD data package, will be sufficient to support the biologics license application (“BLA”) submission. If the Phase 3 study demonstrates superiority of exebacase, used in addition to SOC antibiotics as compared to antibiotics alone, we would seek inclusion of a superiority claim in the product labeling, which we believe would be highly differentiated from conventional antibiotics and would lead to rapid uptake by providers and favorable reimbursements from payors.

Phase 2 Clinical Study

We completed a multi-national Phase 2 clinical study of exebacase for the treatment of Staph aureus bacteremia, including endocarditis, caused by MRSA or MSSA. This randomized, double-blind, placebo-controlled study compared the efficacy, safety and tolerability of exebacase used in addition to SOC antibiotics to SOC antibiotics alone. The study enrolled 121 patients randomized 3:2 to receive either a single dose of exebacase administered as a 2-hour IV infusion in addition to SOC antibiotics or placebo plus SOC antibiotics. The primary efficacy analysis population (also known as the microbiological intent-to-treat population, or “mITT”) consisted of 116 patients with confirmed Staph aureus infection based on blood culture who received study drug, of which 71 patients received exebacase and 45 patients received placebo. All patients were treated with SOC antibiotics as prescribed by the study investigators, consisting of vancomycin or daptomycin for MRSA and a semi-synthetic penicillin or first-generation cephalosporin for MSSA, prescribed in accordance

with treatment guidelines, accepted medical practice and the study protocol. The majority of patients were enrolled in the U.S. (79.3%) with the remainder of patient enrolled from sites in Europe, Latin America, Russia and Israel. A total of 38.8% of exebacase-treated and 35.5% of placebo patients, respectively, had a MRSA infection. The majority of patients in both treatment groups had bacteremia, 77.5% of the exebacase-treated group and 86.7% of the placebo group. Final diagnosis was determined by an independent, blinded clinical adjudication committee.

Topline efficacy results from the core study demonstrated the clinical responder rate was 70.4% for patients treated with exebacase and 60.0% for patients treated with SOC antibiotics alone (p=0.314). In a pre-specified analysis of MRSA-infected patients, the clinical responder rate was nearly 43-percentage points higher in the exebacase group compared to the SOC antibiotics alone group (74.1% for patients treated with exebacase compared to 31.3% for patients dosed with SOC antibiotics alone (p=0.010)). In addition to the higher rate of clinical response, MRSA-infected patients treated with exebacase showed a 21-percentage point reduction in 30-day all-cause mortality (p=0.056), a four day lower mean length of hospital stay and meaningful reductions in hospital readmission rates.

The clinical responder rate in the subset of patients with bacteremia, including right-sided endocarditis was 80.0% for patients treated with exebacase compared to 59.5% for patients treated with SOC antibiotics alone, an increase of 20.5% (p=0.028). Similarly, in the subset of patients with bacteremia alone, the clinical responder rate was 81.8% for patients treated with exebacase compared to 61.5% for patients treated with SOC antibiotics alone, an increase of 20.3% (p=0.035).

Based on these efficacy data, summarized in Table 2 below, treatment with exebacase in addition to SOC antibiotics resulted in clinically meaningful improvements in outcomes compared to antibiotic therapy alone.

Table 2


Clinical response at Day 14	Exebacase*	Antibiotics alone	p-value
Overall mITT population	70.4%	60.0%	0.314

MRSA infection	74.1%	31.3%	0.010

Bacteremia + right-sided endocarditis	80.0%	59.5%	0.028

Bacteremia only	81.8%	61.5%	0.035

Mortality
30-day all-cause mortality in MRSA patients	3.7%	25.0%	0.056

used in addition to antibiotics

Another primary objective of the study was to describe the safety and tolerability of exebacase used in addition to SOC antibacterial therapy compared to SOC antibiotics alone in hospitalized patients with Staph aureus bacteremia, including endocarditis. An independent DSMB reviewed unblinded safety and pharmacokinetic data during the study. Treatment emergent adverse events (“TEAEs”) were defined as an untoward medical event reported from the study drug administration until 28 days after last dose of standard of care antibiotics, regardless of whether or not the event was considered related to study drug. The incidence of TEAEs was balanced between the treatment groups (88.9% and 85.1% of the exebacase and SOC antibiotics alone groups, respectively), with incidence rates as expected for this population, given the severity of the disease under study and that patients had multiple co-morbidities. The incidence rates of TEAEs reported within approximately one week after administration of the single dose of study drug were also balanced between the treatment groups (66.7% and 66.0% in the exebacase and SOC antibiotics alone groups, respectively). The overall rate of SAEs through day 180 was also similar between the treatment groups (62.5% for the exebacase

group and 59.5% for the SOC antibiotics alone group). Among all patients who received study drug, 23.6% of exebacase patients and 19.1% of placebo patients died through day 180. There were no SAEs, including deaths, that we determined to be related to exebacase. Exebacase was well-tolerated and there were no reports of hypersensitivity related to exebacase and no patients prematurely discontinued study drug in either treatment group.

Based on these safety and tolerability data, summarized in Table 3 below, we concluded that exebacase was well-tolerated in this study.

Table 3


	Exebacase*	Antibiotics alone
	N=72 n (%)	N=47 n (%)
TEAE	64 (88.9)	40 (85.1)

TEAE through day 7	48 (66.7)	31 (66.0)

TEAE leading to study drug withdrawal	0	0

SAEs through day 180	45 (62.5)	28 (59.5)

SAEs determined to be related to exebacase	0	0

Total deaths through day 180	17 (23.6)	9 (19.1)

used in addition to antibiotics

The Phase 2 Clinical Study Report, as well as PK/PD modeling and any additional in vitro or in vivo studies were submitted and an End-of-Phase 2 Meeting with FDA was conducted prior to advancing into Phase 3.

Phase 1 Clinical Study

In 2015, we concluded a Phase 1 single ascending dose study in healthy volunteers. This trial was a randomized, double-blind, placebo-controlled trial designed to evaluate the safety, tolerability and PK of four different intravenous doses of exebacase. Healthy normal subjects were randomized to receive a single IV dose of exebacase or placebo, each administered as a 2-hour IV infusion.

In this Phase 1 study, exebacase was generally well tolerated and there were no clinical adverse safety signals. No SAEs or hypersensitivity adverse events (“AEs”) related to exebacase were reported, and no study stopping rules were met. A total of five non-serious AEs were reporting during the study as follows: two subjects who received exebacase reported a total of three non-serious AEs (headache, contact dermatitis, and allergic rhinitis); two subjects who received placebo reported a total of two non-serious AEs (viral upper respiratory tract infection and viral infection). All of these events were mild in intensity and resolved. No patients withdrew from the study due to an AE. There were no clinically relevant changes in inflammatory markers (e.g., erythrocyte sedimentation rate, high sensitivity c-reactive protein, or complement factors including total hemolytic complement (CH50) associated with exebacase dosing.

Nine out of 13 subjects dosed with exebacase developed anti-drug antibodies (“ADAs”) in the study. These ADAs were waning or absent by day 180, and were not correlated with mediators of allergic immune response. Exposure was generally linear, dose dependent and intra-subject variability was low. A pharmacometric analysis of the relationship between exebacase exposure and heart rate (“HR”), blood pressure and QT interval parameters showed no significant changes in systolic or diastolic blood pressure, HR or HR-corrected QT intervals with increases in exebacase plasma concentration at the doses tested in the Phase 1 study.

Estimated effective exposure of exebacase, based on in vivo pharmacology, PK/PD exposure target attainment analysis and PK/PD modeling was attained at the 0.25mg/kg dose in healthy subjects. The Phase 1 Clinical Study Report, as well as reports of the animal studies, PK/PD modeling and in vitro clinical microbiology studies were submitted to the regulatory authorities and an End-of-Phase 1 Meeting with FDA was conducted prior to advancing into Phase 2.

In vitro Microbiologic Studies and Animal Models Demonstrate the Therapeutic Potential of Exebacase

We believe exebacase is well differentiated from conventional antibiotics by its spectrum of activity, including:

•

Eradication of biofilms. Exebacase has been shown to clear biofilms in vitro studies and in animal models. Biofilm matrices associated with serious Staph aureus infections form on human tissues (e.g., valve in endocarditis or bone in osteomyelitis) and/or on the abiotic surfaces (e.g., prosthetic joints, catheters and other devices) and protect bacteria from immune defenses. Biofilms pose significant therapeutic challenges by increasing antibiotic tolerance up to 1,000-fold because conventional antibiotics are generally unable to clear or penetrate biofilms and kill dormant Staph aureus bacteria harbored within the biofilms. Hence, surgical removal of infected tissue, catheters, prosthetic joints and other indwelling devices containing Staph aureus biofilms is generally required to eradicate the infections.

•

Rapid, potent and selective bactericidal activity. In vitro, exebacase kills Staph aureus bacteria within seconds, thereby exerting a bactericidal effect, defined as a 3-log (99.9%) drop in colony forming units (“CFU”) per mL, within about 30 minutes. Exebacase has exhibited potent antibacterial activity against Staph aureus strains that are sensitive to methicillin as well as strains resistant to methicillin, vancomycin, daptomycin, or linezolid. Exebacase is highly targeted against staphylococcal and some streptococcal species, with no demonstrable activity against gram negative organisms. We believe that this targeted effect will reduce the possible negative effects of exebacase on normal, healthy human bacterial flora, known as the microbiome, in the GI tract, in contrast to broad spectrum antibiotics which are widely known to have deleterious effects on the human GI microbiome.

•

Potentiation of the efficacy of conventional anti-staphylococcal antibiotics. We have demonstrated strong synergy between exebacase and a wide range of antibiotics in preclinical studies, which we believe may enable exebacase to potentiate the efficacy of current standards of care for the treatment of Staph aureus bacteremia, including daptomycin, vancomycin and oxacillin. Because of this and the aforementioned features of exebacase which are also complementary to antibiotics, we believe the use of exebacase, in addition to conventional anti-staphylococcal antibiotics will provide significantly improved clinical cure rates, compared to antibiotics alone.

•

Low propensity for the development of resistance. In vitro models designed to induce the emergence of antibiotic resistance, such as 26-day serial passage studies, have shown a low propensity for bacteria to develop resistance to exebacase. In comparison, resistance to standard of care antibiotics such as daptomycin can readily be induced in the same model. Importantly, the addition of exebacase to daptomycin or other antibiotics in the same model was observed to suppress the emergence of resistance to conventional antibiotics.

We believe exebacase has other competitive advantages as well, including:

•

No direct competition. Vancomycin and daptomycin are the only two antibiotics with label indications in the U.S. for the treatment of MRSA bacteremia, including right-sided endocarditis. Daptomycin, the most recently FDA approved drug for this indication, was approved in 2005. Clinical cure rates at the test of cure visit in the Phase 3 non-inferiority study which led to daptomycin’s approval were less than 50% for both daptomycin and the standard of care comparator. Exebacase has been shown to act synergistically with both daptomycin and vancomycin to improve eradication of Staph aureus in

animal studies of Staph aureus endocarditis conducted in different species. As such exebacase is intended to be used in addition to, not as a replacement for, SOC antibiotics. No other agents have been shown to provide improved outcomes over SOC antibiotics.

•

Patent protection. Our issued patent with composition of matter claims and issued patent with method claims for killing Staph aureus stains both provide protection through 2032, our issued patent with method claims for disrupting or treating biofilm provides protection until 2033 and additional patents, if issued as we expect, could provide further protection beyond 2033.

Eradication of Antibiotic-Resistant Biofilms

Biofilm formation is a common characteristic of certain pathogenic bacteria such as Staph aureus and P. aeruginosa and represents a major therapeutic challenge. Biofilms are characterized by densely packed bacterial cells that grow in communities and are enclosed within a complex matrix of dead bacteria and excess cell wall components. Bacteria harbored within biofilms exhibit significant tolerance to conventional antibiotics, and can be up to 1,000-fold less susceptible than planktonic (or, free-floating) bacteria. Infected human tissues, such as the heart valve in endocarditis or bone in osteomyelitis, and the abiotic surfaces of indwelling medical devices, such as central venous catheters, prosthetic joints and cardiac devices are common sites for biofilm formation in the setting of systemic Staph aureus infections. Because conventional antibiotics are relatively ineffective at penetrating biofilms, long courses of antibiotics are generally required and are often unsuccessful, necessitating surgery (e.g., heart valve or prosthetic joint removal and replacement to eradicate the infection). There is a significant unmet medical need for novel treatment strategies to eradicate biofilms, as there are no medical products currently indicated for, or effective in, the eradication of biofilms.

Because exebacase disrupts the cell wall of Staph aureus bacteria by enzymatic lysis, we expected exebacase to be highly active against biofilms and we have performed an extensive battery of studies to profile exebacase’s activity against Staph aureus biofilms. These studies tested exebacase against biofilms formed on a range of surfaces, including polystyrene (i.e., microtiter plates), glass (i.e., chamber slides), and PVC (i.e., catheter tubing), as well as in human serum, plasma, blood and synovial fluid. The results of these studies as detailed and recently published in Antimicrobial Agents and Chemotherapy (Schuch, et al, AAC, July 2017), provide evidence that exebacase is a potent anti-staphylococcal biofilm agent.

We conducted a pilot study evaluating exebacase’s ability to eradicate Staph aureus biofilm from the inside of a hemodialysis catheter removed from an infected patient. The endpoint of the model was a reduction in the amount of bacteria (measured in CFUs). Segments of the catheter were assigned to one of three different treatment groups: exebacase, daptomycin (DAP) or exebacase + DAP at the clinically relevant concentration of 1 µg/mL. As shown in Figure 1 below, exebacase eradicated the biofilm at 1 µg/mL whereas daptomycin alone did not clear biofilm at 1 µg/mL. The addition of exebacase with daptomycin resulted in the same clearance of biofilm as exebacase alone. The catheter biofilm contained MRSA as well as other Staph species. We believe these data provide important translation of the previously reported potent efficacy of exebacase against biofilms formed in vitro and in animal models, to biofilms formed in the setting of human disease.

Figure 1: Sensitivity of MRSA Biofilms on Explanted Human Catheter to Exebacase (CF-301)

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In view of the lack of efficacy of conventional antibiotics against biofilms, we believe exebacase, if approved, may provide an important new therapeutic option to address the biofilm components of invasive Staph aureus infections and potentially forestall or eliminate the need for surgical intervention.

Rapid, potent and selective bactericidal activity

Lysins have demonstrated rapid bactericidal activity. We have performed timekill assays comparing the time it has taken exebacase to kill bacteria in vitro and exert a bactericidal effect to the time required for daptomycin or vancomycin to do the same. All drugs were administered at a concentration of 1x minimal inhibitory concentration (“MIC”). Exebacase reduced the number of Staph aureus bacteria in tests on 62 strains (20 MSSA and 42 MRSA strains) by 3-logs within 30 minutes. In contrast, daptomycin required six hours to achieve the same level of cell killing, while vancomycin failed to achieve a 2-log, or 99%, cell kill during the same six-hour test period. The rapid bactericidal activity of exebacase is one of the important reasons that we believe it could be a highly desirable therapeutic option, if approved, for the treatment of Staph aureus infections.

Exebacase has been bactericidal against all Staph aureus isolates tested to date, regardless of their antibiotic-resistance profile. We have tested over 250 different drug sensitive and resistant isolates of Staph aureus. The isolates tested can be classified by the particular drugs to which they are sensitive or resistant, including MSSA, MRSA, VRSA, linezolid-resistant (“LRSA”) and daptomycin-resistant (“DRSA”) Staph aureus. Exebacase was shown to be active against all the strains tested. Our Standard Bacteremia Model utilizes animals infected with 10 million (10⁷) CFU of MRSA and treated 3 hours later with various doses of therapy or buffer. In this model, exebacase produced a dose-dependent increase in survival rates, with mice receiving at least 0.5 mg/kg of exebacase having demonstrated at least 90% survival, whereas doses below 0.5 mg/kg resulted in lower survival.

Synergy with Standard-of-Care Antibiotics

Synergy is defined as the interaction of two or more agents so that their combined effect is greater than the sum of their individual effects. We identified a strong synergy between lysins and a wide range of anti-staphylococcal

antibiotics, including daptomycin, vancomycin and oxacillin through in vitro synergy assays. In these tests, synergy was assessed by checkerboard assay using the fractional inhibitory concentration index (“FICI”) for each combination. An FICI mean was derived from each checkerboard based on two consecutive FIC values along the growth/no growth interface. Synergy was defined as an FICI of £0.5; strongly additive was >0.5-<1; indifference was 1 to <2; and antagonism was ³2.

To test and demonstrate this synergy in vivo, we developed the Drug Failure Bacteremia Model where exebacase could be tested in combination with a SOC antibiotic. The Drug Failure Bacteremia Model utilizes an extremely high infection burden of one billion (10⁹) CFU. This produces such an overwhelming infection in the animals such that SOC antibiotics used as monotherapies at their human equivalent doses failed to produce significant cure rates. We tested daptomycin, vancomycin and oxacillin in this model. We then adjusted the dose of exebacase so that monotherapy with exebacase would also fail to have significant cure rates under these intense infection conditions. To test and demonstrate whether the synergy that we had observed in vitro between exebacase and SOC antibiotics would lead to improved efficacy in vivo, we then treated groups of animals in the Drug Failure Bacteremia Model with the drugs as monotherapies and also in combination to evaluate if there was an improvement in efficacy.

In the Drug Failure Bacteremia Model, all control mice treated with buffer succumbed to bacterial infection within 12 hours. Administration of a clinical dose of daptomycin as a single agent resulted in clinical failure, as only 31% of mice survived. Similarly, when exebacase was dosed as a single agent at this chosen dose, only 18% of mice survived. In contrast, when mice received the exebacase in addition to daptomycin, 82% survived the bacterial challenge, demonstrating superiority of the combination therapy over either of the single-drug regimens, with a significantly higher survival rate than the sum of the results from the two monotherapies.

We have tested the combination of exebacase with daptomycin, vancomycin and oxacillin in multiple experiments with the Drug Failure Bacteremia Model. In each experiment, the combination therapy was shown to be superior to monotherapy with a single drug alone. We have also studied the combination of exebacase with other anti-staphylococcal agents, including linezolid, televancin, nafcillin, cefazolin, clindamycin and azithromycin, in vitro and found exebacase to be synergistic or strongly additive with each agent against both MSSA and MRSA strains.

To further explore the activity of exebacase in combination with SOC antibiotics for the treatment of life-threatening, drug-resistant infections, we engaged the LA Biomed Research Institute at Harbor-UCLA Medical Center (“UCLA”) to perform studies in their standard, well characterized rat and rabbit infective endocarditis models. The endpoint of the model is a reduction in the amount of bacteria (measured as CFUs) on the heart valve, in the kidney and in the spleen. The studies examined the activity of exebacase in combination with daptomycin, in UCLA’s prototypical high-burden biofilm-based model.

In this study, a single dose of exebacase used in addition to daptomycin resulted in an additional substantial reduction in CFUs, on top of the reduction in CFUs by daptomycin alone. This study is highly relevant to our understanding of the therapeutic potential of exebacase and the intended clinical application in a difficult to treat biofilm-based infection. This study demonstrated that a single dose of exebacase, when combined with four days of daptomycin treatment, resulted in a 3-log drop in bacterial burden in the cardiac vegetations and >2-log drop in the kidney and spleen of infected animals relative to daptomycin treatment alone. Importantly, four out of nine animals treated with exebacase and daptomycin were found to have sterilized kidney, spleen and heart valve vegetations, whereas none of the animals treated with daptomycin alone had tissues that were sterilized.

We have subsequently conducted additional experiments at UCLA in the rabbit infective endocarditis model in order to both replicate the results of the rat study, but also to examine a range of exebacase doses used in addition to daptomycin as compared to both buffer and daptomycin alone. The results of a dose-ranging study, where a range of single doses of exebacase was assessed when administered in addition to four days of daptomycin treatment are shown in Figure 2 below. As seen in the rat studies, administration of daptomycin

alone resulted in a 3-log reduction in CFUs in the heart valve vegetations in these animals infected with MRSA. The addition of a single dose of exebacase, resulted in an additional ~3-log reduction in CFUs in the cardiac vegetations compared to daptomycin alone at all doses of exebacase tested (p < 0.002). Using conventional allometric scaling, the 0.7 mg/kg dose of exebacase approximates the human clinical dose of 0.25mg/kg, which is the dose being studied in our Phase 2 clinical trial. This dose together with daptomycin resulted in a 6-log reduction in CFUs compared to buffer (p < 0.001). Of note, efficacy was maintained even at the lowest dose of exebacase tested (0.09 mg/kg) in this study (p < 0.001).

Figure 2: Dose Ranging Study of Exebacase (CF-301) with Daptomycin in Rabbit Infective

Endocarditis Model

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Collectively, we believe these preclinical data provided significant support to the design of our clinical trials.

Non-Clinical Activities

Chemistry, Manufacturing and Controls (“CMC”)

Exebacase is manufactured using a proprietary engineered E. coli strain that expresses the product in a recombinant manner during the fermentation process. This technology allows production of up to nine grams of exebacase per liter of fermentation broth. After fermentation, the broth containing exebacase is separated and purified through a process containing two chromatographic columns. The resulting product has greater than 99% purity.

We achieved concurrence with the FDA on our CMC plans for Phase 3 and registration. We have further optimized the manufacturing process for increased purity and yield and completed the manufacture of Phase 3 materials. The process will be validated in a series of manufacturing batches to demonstrate consistency. In parallel to the validation, we intend to conduct a comparability program that demonstrates comparability between the final product used in Phase 3 and commercial manufacturing. We intend to include the results in the BLA that we expect to submit to the FDA. Following submission, we expect that the FDA will conduct pre-approval

inspections of all manufacturing facilities and determine whether it agrees that our commercial material is sufficiently comparable to our Phase 3 material.

Safety Pharmacology and Toxicology

We conducted non-clinical safety pharmacology and toxicology studies in connection with our IND application for exebacase. In these studies, exebacase was well-tolerated in rats for a single two-hour IV administration of doses up to 25mg/kg (determined by us to be the no observable adverse effect level, or “NOAEL”) and that a single dose of 2.5 mg/kg was not associated with any effects, adverse or not, and was therefore determined to be the no observable effect level (“NOEL”). Exebacase was well tolerated in these studies in both rats and dogs for seven consecutive days of once daily two-hour IV infusions of up to 2.5 mg/kg. In a non-GLP pilot study in rats, 1.0 mg/kg/day was well tolerated for up to seven consecutive days of once daily two-hour IV infusions or IV boluses.

Dose-dependent adverse effects were seen in both species at doses above 25 mg/kg/day for 1 day in the rat and above 2.5 mg/kg/day for seven-consecutive days in both the rat and the dog. The dose limiting toxicity observed was a localized microscopic histopathological change surrounding certain blood vessels. In accordance with industry practice, we have studied exebacase in clinical trials at doses much lower than those that caused adverse effects in animals, and we believe these doses to be within the efficacious range of the drug.

Upon first exposure to exebacase, no hypersensitivity reaction was observed in any of our animal studies. Upon administration of a second course of exebacase, given two weeks after completion of the first course, including multiple-day courses, hypersensitivity or hypersensitivity-like findings were observed in mice, rats and dogs. In a dedicated hypersensitivity study in rats, using a model intended to elicit hypersensitivity, findings consistent with hypersensitivity were observed after a two-week delayed re-challenge with a second course of exebacase and were not dose-dependent. In general, in humans, Type I hypersensitivity is an allergic anaphylaxis-like response (e.g., an immediate and potentially life-threatening allergic reaction) and Type III hypersensitivity is a serum sickness-like response (e.g., fever, joint pain, protein in urine, vascular changes). While the nature of hypersensitivity reactions in rats may not necessarily be predictive of hypersensitivity reactions that may occur in humans, we have also considered the risk of hypersensitivity occurring upon first administration of exebacase due to potential prior exposure to the active protein component of exebacase from the environment, as it is a naturally occurring protein. Testing for anti-drug antibodies was performed in Phase 1 subjects and Phase 2 patients. No clinical hypersensitivity related to exebacase was observed in subjects dosed in our Phase 1 or Phase 2 study.

CF-296: An Engineered Lysin for Invasive Staph aureus Infections

We have engineered a lysin variant of exebacase which we believe may suitable for the potential treatment of the most challenging invasive infections caused by Staph aureus including biofilm-related infections in prosthetic joints and indwelling devices and osteomyelitis. Based on the safety pharmacology and toxicology profile of exebacase described above, our objectives for the program were to maintain the spectrum of activity of an anti-staphylococcal lysin while improving the non-clinical safety profile.

We are conducting further in vitro and in vivo preclinical studies of CF-296 to further characterize this compound. In June 2019, we were awarded up to $7.2 million of funding from USAMRDC over the course of three years to advance CF-296 through IND-enabling studies.

CF-370: A Novel Engineered Lysin for P. aeruginosa Infections

Medical Opportunity

P. aeruginosa is a gram-negative pathogen that is common in the environment and is an important and much-feared potential pathogen in hospitals. P. aeruginosa readily develops resistance to conventional

antibiotics resulting in the emergence of multidrug resistant (“MDR”) strains, which have become common in some hospitals and regions. P. aeruginosa is a major cause of hospital-acquired infections and is a particularly important cause of infections in immunocompromised hosts, and is also a major pathogen in burn and surgical wound infections. P. aeruginosa is also the most common pathogen isolated from adults with cystic fibrosis, the most common cause of respiratory failure in cystic fibrosis and responsible for the deaths of the majority of these patients.

Invasive P. aeruginosa infections, including ventilator associated pneumonia, blood stream infections, complicated urinary tract infections, and infections following surgery carry some of the highest risks of mortality among hospital acquired infections. More than 32,000 P. aeruginosa infections are multidrug-resistant, with roughly 2,700 deaths per year attributed to these infections. Infections caused by multidrug resistant P. aeruginosa are associated with high all-cause mortality, hospital mortality and higher health-care related costs compared to infections caused by susceptible strains.

CF-370 Development

CF-370 is an investigational first-in-class anti-bacterial therapeutic candidate targeting a gram-negative pathogen. CF-370 has been engineered to bypass the outer membrane of the bacteria and to enable potent activity in human serum. We believe this is a significant milestone for direct lytic agents as native lysins are typically unable to penetrate the outer membrane of gram-negative bacteria and consequently are unable to kill these pathogens. CF-370 has exhibited the hallmark in vitro features of the lysin class, including rapid and potent bactericidal activity, synergy with a broad range of standard of care agents and the eradication of biofilms in preclinical studies.

We have studied the in vivo activity of CF-370 against P. aeruginosa in a rabbit pneumonia model. CF-370 was well-tolerated and conferred a survival advantage to animals with 100% of animals receiving CF-370 surviving, compared to only 40% survival among vehicle control animals. In animals receiving either meropenem or CF-370 alone, the mean bacterial lung counts decreased by 1.5-2log₁₀ CFU/g versus pretreatment or vehicle-treated controls (p £ 0.0016). CF-370 (10 mg/kg) in addition to meropenem was synergistic, with bacterial counts in all target tissues decreasing by an additional 2log₁₀ CFU/g versus meropenem or CF-370 alone (p £ 0.02).

We have also studied CF-370 against P. aeruginosa in the rabbit infective endocarditis model. CF-370 was well-tolerated and in the analysis of the right ventricle, the primary target organ of the study where cardiac vegetations and dense biofilms were present, three days of CF-370 dosing at 10 mg/kg in addition to meropenem was synergistic, providing >2log₁₀ CFU/g reduction, as compared to meropenem alone. In further analysis of the kidney, spleen and lungs, CF-370 showed additive activity when administered with meropenem, and reduced the mean bacterial lung counts by an additional 0.7-1.6log10 CFU/g versus meropenem alone.

We believe the results from these studies provide in vivo proof-of-concept for CF-370 as a potential treatment for P. aeruginosa infections and for lysins as a potential new modality to combat the threat of multidrug-resistant gram-negative pathogens. We continue to progress CF-370 through IND-enabling activities and we expect it to be our next molecule in clinical studies. In July 2020, we were awarded up to $18.9 million in funding from CARB-X in support of the advancement of CF-370 toward Phase 1 clinical trials.

Lysin Discovery Platform

The main objective of our lysin discovery platform has been to bring forth a portfolio of lysins that selectively target the largest threats of resistant bacteria, commonly referred to as the ESKAPE pathogens (Enterococcus faecium, Staphylococcus aureus, Klebsiella pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, and Enterobacter species), which are the leading causes of hospital acquired infections throughout the world.

In nature, lysins are potent enzymatic killers of bacteria produced by bacteriophage, which are viruses that infect bacteria. When recombinantly produced from genetic sequences as purified proteins and then applied to bacteria, lysins cleave a key component of the target bacteria’s peptidoglycan cell wall, resulting in rapid bacterial cell death. Conventional antibiotics require bacterial cell division and metabolism to occur in order to exert their effect (i.e., cell death or cessation of growth). Based on in vitro tests, lysins, however, are fundamentally different in that they kill bacteria rapidly by enzymatic cleavage of the bacterial cell wall without need for bacterial growth and cell division. In addition to the speed of action and potent cidality, we believe lysins are differentiated by their other hallmark features which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models. Naturally occurring lysins targeting gram-positive pathogens have a “narrow spectrum” of activity and are not expected to have negative effects on the beneficial, normal human GI microbiome in contrast to conventional “broad spectrum” antibiotics which can kill the body’s normal, beneficial bacteria. We believe that the potential therapeutic profile of lysins is complementary to that of conventional antibiotics. As such, our approach includes the use of lysins in addition to conventional antibiotics for the treatment of serious, drug-resistant bacterial infections, including biofilm-associated infections, in an effort to achieve greater efficacy and improve clinical outcomes, as well as potentially protect against antibiotic resistance.

We employ bioinformatics and a series of metagenomic-based techniques to identify lysins from bacterial, viral, and environmental sources. The field of metagenomics is based on the bulk extraction of DNA/RNA from environmental samples (e.g., soil, water, etc.) without prior isolation of individual microbial sources. This is useful when one considers that less than 1% of microbes are culturable under standard laboratory conditions. Once extracted, the metagenomic DNA can then be examined using sequence-based methods or by proprietary functional screens. These functional screens for lysin activity form the major component of our lysin discovery work. Once cloned, our scientists also employ a variety of techniques to further optimize and ‘engineer’ changes to the lysins to introduce specific characteristics which we believe may be favorable for potential therapeutic use.

For the functional metagenomic work that we perform, environmental genes are expressed in a recombinant format in a standard host organism (i.e., Escherichia coli) and cells are monitored for the acquisition of a desired phenotype. We can vary both the source of environmental DNA and the way we monitor for desired phenotypes to focus only on environmental populations enriched for bacteriophage lysins that can actively kill a pathogen of interest. We sample various DNA sources including viral, prophage, and pathogen-amplified viral metagenomics. Multiple methods for both DNA library construction and for functional screening are used in parallel in order to maximize lysin identification.

The application of these methods enables the large scale identification of lysins, enabling the production of lysin banks specific for any particular pathogen. We believe the ability to rapidly identify lysins specific for any pathogen of interest, either by in vitro or in silico methods, will provide a steady pipeline of novel lysins for consideration as potential antimicrobial therapeutic candidates.

The focus of our research and discovery efforts is on identifying lysins which selectively kill specific species of gram-negative bacteria that are considered to be urgent or serious threats to global health by the CDC or critical priorities by the WHO. Emerging strains of multi-drug resistant gram-negative pathogens that are resistant to all or nearly all available antibiotics are considered to be a major global health threat. We believe that lysins targeting gram-negative pathogens have the potential to be important therapeutics to combat antimicrobial resistance due to their novel mechanism of action and therapeutic profile, which is complementary to conventional antibiotics.

We have discovered and engineered a novel lysin, CF-370, an investigational first-in-class anti-bacterial therapeutic candidate targeting a gram-negative pathogen, P. aeruginosa. CF-370 has been engineered to bypass the outer membrane of the bacteria and to enable potent activity in human serum. We will continue to pursue new lysins that target other gram-negative pathogens, such as the Enterobacteriaceae family of bacteria.

Enterobacteriaceae

The Enterobacteriaceae family of gram-negative bacteria includes Klebsiella pneumoniae (“K. pneumoniae”), Enterobacter species (“Enterobacter” e.g. Enterobacter cloacae) and Escherichia coli (“E. coli”), all of which can cause serious, life-threatening infections, and have demonstrated concerning resistance patterns.

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K. pneumoniae are common causes of serious, potentially life-threatening invasive infections (e.g. pneumonia, complicated urinary tract, intra-abdominal infections) in hospital settings, particularly in intensive care units and among vulnerable patients with impaired immune systems, diabetes or alcohol-use disorders. The mortality rates for hospital-acquired pneumonia due to K. pneumoniae can exceed 50% in vulnerable patients.

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Enterobacter cloacae can cause a wide range of invasive infections, and potentially contaminate intravenous fluids and medical devices as the source of deadly outbreaks in the hospital.

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E. coli is the most frequent cause of community and hospital acquired urinary tract infections and a frequent cause of bloodstream infection. Patients in hospitals, nursing homes, and other healthcare settings whose care requires devices like ventilators (breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and patients who are taking long courses of certain antibiotics are most at risk for infection.

The emergence and spread of antimicrobial resistance among Enterobacteriaceae are recognized public health threats which complicate the treatment of serious nosocomial infections.

Enterobacteriaceae can produce enzymes (e.g., “extended-spectrum beta-lactamases (“ESBL”)) that confer resistance to most beta-lactam antibiotics, including penicillins, cephalosporins, and the monobactam aztreonam. Infections with ESBL-producing organisms have been associated with poor outcomes. Approximately 20% of K. pneumoniae infections and 31% of Enterobacter infections in intensive care units in the United States now involve strains which are not susceptible to third-generation cephalosporins. Community and hospital-acquired ESBL-producing Enterobacteriaceae are prevalent worldwide, and their prevalence may be underestimated because reliable identification of ESBL-producing organisms in clinical laboratories can be challenging.

Carbapenem antibiotics are considered to be the best currently available antimicrobial agent to treat infections caused by ESBL-producing Enterobacteriaceae. However, resistance to carbapenems is becoming increasingly prevalent, and the resulting Carbapenem-resistant Enterobacteriaceae (“CRE”), have high levels of resistance to antibiotics. K. pneumoniae and E. coli are a normal part of the human gut bacteria that can become carbapenem-resistant due to enzymes that breakdown carbapenem antibiotics and make them ineffective. Klebsiella pneumoniae carbapenemase (“KPC”) and New Delhi Metallo-beta-lactamase (“NDM”) are two such enzymes that break down carbapenems and make them ineffective. Both of these enzymes have also been reported in P. aeruginosa. CRE infections typically occur in hospitals, nursing homes, and other healthcare settings. Patients who require devices like ventilators (breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and/or patients who are taking long courses of certain antibiotics are most at risk for CRE infections. Some CRE bacteria have become resistant to most available antibiotics, are very difficult to treat, and can lead to death in up to 50% of patients who become infected.

We believe that lysins which target K. pneumoniae, Enterobacter and E. coli may be important therapeutic options for the treatment of serious, potentially life-threatening invasive infections caused by multidrug resistant pathogens. Because of the novel mechanism by which lysins kill bacterial, no cross resistance to conventional antibiotics, and as such, KPC, NDM and similar enzymes are not expected to have any effect on the activity of lysins. We believe that lysins may help to improve clinical outcomes of infections caused by these pathogens and thus we are also focusing research efforts to identify and develop lysins which target them.

Gram-positive lysins

In addition to our proprietary lysin discovery program, we hold worldwide exclusive license rights to patents for composition of matter for nine lysins from The Rockefeller University (“Rockefeller”). The lysins each target a specific species of gram-positive bacteria, including drug-sensitive and drug-resistant forms as exemplified in Table 4 below.

Table 4: Lysins Licensed From The Rockefeller University


Pathogen	CDC Threat Level	WHO Priority Level	Lysins
Staphylococcus aureus	Serious	High	CF-301, CF-302
Streptococcus pneumoniae	Serious	Medium	CF-303, CF-309
Enterococcus faecalis	Serious	High	CF-304
Group B streptococcus	Concerning	—	CF-305, CF-307
Bacillus anthracis	—	—	CF-306, CF-308

Amurin Discovery Program

Amurin peptides are a class of novel, phage-derived lytic agents discovered in our laboratories. In preclinical studies, amurin peptides have shown some features common to lysins, including potent bacteriocidality, including antibiotic-resistant strains, the ability to clear biofilms and synergize with conventional antibiotics. However, amurin peptides are further differentiated in their potential ability to exert these actions on the full range of gram-negative ESKAPE pathogens, as well as a range of additional, serious and difficult to treat gram-negative bacteria, including some strains of Burkholderia and Stenotrophomonas, in the context of human serum, without apparent ‘off target’ effects against gram-negatives. As such, amurin peptides have shown a highly differentiated spectrum of action, and we believe, if successfully developed, would be extremely well suited as potential treatments for patients suffering from polymicrobial gram-negative infections, such as cystic fibrosis, ventilator-associated pneumonia, intra-abdominal infections, and serious burns or certain chronic wound infections. Given their powerful in vitro activity against a broad range of resistant pathogens, as shown in Table 5 below, we believe that amurin peptides have the potential to become a powerful addition to our armamentarium against strains of gram-negative pathogens which have extreme- or pan- drug resistance to all or almost all currently available antibiotics.

Table 5: In Vitro Activity (minimal inhibitory concentrations) of Amurin

Candidates (AM1, AM2 and AM3) Observed Against Carbapenem-Resistant Pathogens*


Pathogen	AM1	AM2	AM3	Colistin	Meropenem
Escherichia coli	0.5	0.25	0.625	0.5	>8
Enterobacter cloacae	0.25	0.125	0.0625	1	>8
Klebsiella pneumoniae	0.5	0.5	0.0625	>8	8
Acinetobacter baumannii	1	1	0.25	>8	>8

*	strains listed are representative of >100 strains tested

Similar to the pilot study performed with exebacase, we evaluated the ability of one of our lead amurins, AM2, to eradicate Stenotrophomonas maltophilia biofilms from the inside of hemodialysis catheters removed from infected patients. The endpoint of the model was a reduction in the amount of bacteria (measured in CFUs) in sections of the catheters treated with amurin AM2 compared to a control group (sections with no treatment) and sections treated with clinically relevant concentrations of meropenem. Treatment with amurin AM2 resulted in the reduction in the amount of bacteria below the limit of detection, 0.7 log₁₀ CFU/g, while both the control groups and sections treated with meropenem had CFU counts >3.0 log₁₀ CFU/g. We believe these results provide important ex vivo translation of the in vivo activity to biofilms formed in the setting of human disease.

We plan to progress our amurin peptide program as rapidly as possible through preclinical profiling and into clinical studies. We are currently evaluating the in vivo profiles of the amurins as we continue to advance the program. In March 2019, we were awarded up to $6.9 million of funding from CARB-X to support the development of amurin peptides as potential therapeutics to treat serious and potentially life-threatening infections, including those caused by antibiotic-resistant gram-negative ESKAPE pathogens.

Intellectual Property

Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets, and operate without infringing on the valid proprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and abroad. However, patent protection does not always afford us with complete protection against competitors who seek to circumvent our patents.

We also depend upon the skills, knowledge, experience and know-how of our management and research and development personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how, which is not patentable, and for certain inventions, in accordance with our business strategies, we currently rely and will in the future rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we will require all of our employees, consultants, and other contractors (including any consultants or contractors we may retain for purposes of any of our ad hoc Clinical Advisory Boards) to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.

Our lysin portfolio consists of twenty-two (22) U.S. patents, one-hundred and sixteen (116) foreign patents and three hundred and fifty-five (355) U.S. and international patent applications that we have licensed from Rockefeller and/or developed in-house. Certain patents related to our lysin portfolio will expire between 2024 and 2033. Our patents and patent applications include those that are directed to compositions and methods for the treatment of infections caused by gram-positive bacteria (Group B Streptococci, Staph aureus, Streptococcus pneumonia, Bacillus anthracis (anthrax), Enterococcus faecalis and Enterococcus faecium) and infections caused by gram-negative bacteria (P. aeruginosa, K. pneumoniae, Enterobacter cloacae and E. coli). If patents are granted on our patent applications, which include certain patent applications related to exebacase, CF-296 and the gram-negative lysins, they would expire between 2029 and 2040.

The U.S. patent system permits the filing of provisional and non-provisional patent applications. A non-provisional patent application is examined by the United States Patent and Trademark Office (“USPTO”), and can issue as a patent once the USPTO determines that the claimed invention meets the various standards for patentability. A provisional patent application is not examined or prosecuted, and automatically expires 12 months after its filing date if a non-provisional application is not filed based on the provisional application within that 12-month period. Provisional applications are often used, among other things, to establish a priority filing date for the subsequently filed non-provisional patent application. The term of individual patents depends upon the legal term for patents in the countries in which they are filed. In most countries in which we file, the patent term is 20 years from the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in granting a patent. Alternatively, a patent’s term may be shortened if a patent is terminally disclaimed over another patent.

The term of a patent that covers an FDA-approved drug may also be eligible for patent term extension (“PTE”), which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-

Waxman Amendments, permits a PTE of up to five years beyond the expiration of the patent. The length of the PTE is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical product candidates receive FDA or other regulatory approval, we may be able to apply for or receive the benefit of PTEs on patents covering those products.

License Agreements—The Rockefeller University

We have entered into the following license agreements with Rockefeller:

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On July 12, 2011, we entered into a license agreement for the worldwide, exclusive right to a provisional patent application, upon which a non-provisional patent application has since been filed, covering the composition of matter for the lysin PlySS2 for the treatment and prevention of diseases caused by gram-positive bacteria (the “CF-301 License”). We rebranded PlySS2 as CF-301, or exebacase. This license gives us the right to exclusively develop, make, have made, use, import, lease, sell and offer for sale products that would fall within the scope of claims in the patent application or otherwise infringe a claim of the patent.

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On June 1, 2011, we entered into a license agreement for the exclusive rights to Rockefeller’s interest in a joint patent application, which have granted patents covering the method of delivering antibodies through the cell wall of a gram-positive bacteria to the periplasmic space. This intellectual property was developed as a result of the sponsored research agreement between us and Rockefeller, and was jointly discovered and filed by the two parties.

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On September 23, 2010, we entered into a license agreement for the worldwide, exclusive right to develop, make, have made, use, import, lease and sell, and offer for sale products that would otherwise infringe or fall within the scope of a claim of the suite of patents and patent applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group B Streptococci, Staph aureus, Streptococcus pneumonia, Bacillus anthracis, Enterococcus faecalis and Enterococcus faecium.

In consideration for the licenses, we paid Rockefeller license initiation fees in cash and stock and may be required to pay an annual maintenance fee, milestone payments and royalties on net sales from products to Rockefeller. We are allowed to grant sublicenses to third parties without prior approval, subject to certain conditions and the payment of a certain percentage of all payments we receive from sublicensees.

Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. Rockefeller may terminate any license agreement in the event of a breach of such agreement by us or if we challenge the validity or enforceability of the underlying patent rights. We may terminate any license agreement at any time on 60 days’ notice.

Competition

The pharmaceutical and biotechnology industries are intensely competitive. While we believe that our technology and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies and academic and research organizations in developing therapies to treat diseases.

Exebacase is a potential first-in-class drug candidate and we believe it is the first lysin to enter human clinical trials in the U.S. We believe there is currently no clinical competitor to exebacase, which is highly

differentiated from conventional antibiotics by at least six attributes that no single antibiotic possesses, including: (1) a novel mechanism of action, (2) specificity for a target bacteria (only Staph aureus), (3) rapid speed of action, (4) activity across all drug-sensitive and drug-resistant strains of the target bacteria (including MRSA, VRSA and DRSA), (5) the ability to eradicate biofilms, and (6) synergy with antibiotics.

Staph aureus bacteremia is typically treated with oxacillin or other semi-synthetic penicillin or first-generation cephalosporin, or for MRSA strains, daptomycin or vancomycin. We do not see market competition with these drugs, as our strategy is to administer exebacase in addition to these drugs with the goal of achieving clinical superiority over any one of those SOC antibiotics alone. We are aware of several other clinical trials currently being conducted or recently concluded in patients with Staph aureus bacteremia. Most of these agents are small molecules being studied in non-inferiority trials. We believe that exebacase has demonstrated synergy in vitro with a broad range of conventional anti-staphylococcal agents of different classes and, in the event any of these non-inferior small molecules are approved, we believe that exebacase will also be synergistic and non-competitive with them.

Based on recent data published by the WHO, there are only five biologic agents, other than ours, in clinical development for Staph aureus infections from iNtRon Biotechnology, Inc., (“iNtRon”), Aridis Pharmaceuticals, Inc. (“Aridis”), MedImmune (a subsidiary of AstraZenenca plc), XBiotech, Inc (“XBiotech”) and Genentech, Inc. (“Genentech”). Aridis is studying AR-301, a monoclonal antibody, in Staph aureus pneumonia, not bacteremia. MedImmune has been studying MEDI-4893, a monoclonal antibody, for the prevention of Staph aureus pneumonia in a Phase 2 study since 2014. XBiotech is planning to study 514G3, a monoclonal antibody, for the prevention of Staph aureus infection in hemodialysis patients. Genentech has been studying DSTA-4637S, an antibody-drug conjugate, in a Phase 1 study since 2017. Depending on the outcomes of these and future trials, exebacase may compete with these products. We believe iNtRon, a biotechnology company located in South Korea, is currently conducting a human clinical trial in South Korea alone for SAL-200, an endolysin-based drug candidate, to evaluate it as a treatment for Staph aureus bacteremia. Additionally, in November 2018, iNtRon announced a licensing arrangement with Roivant Sciences with a stated purpose to pursue the global development and commercialization of its endolysin products, including SAL-200. We will continue to monitor the advancement of SAL-200 as data and information become available. We are not aware of SAL-200 or any other anti-staphylococcal lysins having been applied for under an IND for clinical development in the United States.

Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved medicines than we do. We compete with companies that have products on the market or in development for the same indications as our product candidates. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price and the availability of reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize medicines that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any medicines that we may develop. Our competitors also may obtain FDA or other regulatory approval for their medicines more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

Manufacturing

We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical or clinical manufacturing, testing, as well as for commercial manufacture of any products that we may commercialize. To date, we have employed the services of Fujifilm Diosynth Biotechnologies UK LTD (“Fujifilm UK”) to supply the drug substance for exebacase. In the fourth quarter of 2020, we were notified by Fujifilm UK that they experienced equipment failures that would impact their manufacturing timelines. To mitigate this delay, Fujifilm UK has proposed the transition of the exebacase manufacturing process to Fujifilm Diosynth Biotechnologies USA Inc. (“Fujifilm USA”). We are currently in the transition process and expect to ultimately complete the process validation and initial commercial manufacturing of drug substance with Fujifilm USA in support of a potential BLA submission for exebacase. While steps have been and will continue to be taken to mitigate risks, we may still experience delays to the manufacturing timeline.

We do not yet have contracts to produce a commercial supply of the drug substance for exebacase; however, we intend to pursue agreements with Fujifilm USA to do so. We employ the services of multiple vendors to produce exebacase in its final vialed drug product form. We intend to pursue agreements with third party manufacturers regarding commercial supply of vialed drug product at an appropriate future time. We may choose to locate additional fill finish third party manufacturers to supply other world regions such as the EU or Asia.

Sales, Marketing and Distribution

We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. We may rely on licensing and co-promotion agreements with strategic partners for the commercialization of our products in the United States and other territories. If we choose to build a commercial infrastructure to support marketing in the United States, such commercial infrastructure could be expected to include a targeted sales force supported by sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure internally, we would have to invest financial and management resources, some of which would have to be deployed prior to any confirmation that any of our other products will be approved.

Government Regulation

The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

U.S. Regulation of Drugs and Biologics

In the United States, the FDA regulates biological products under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and the Public Health Service Act (“PHSA”), and their implementing regulations, and biologics under the FDCA and the Public Health Service Act (“PHSA”), and its implementing regulations. FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States. Drugs and biologics are also subject to other federal, state, and local statutes and regulations. The process required by the FDA before product candidates may be marketed in the United States generally involves the following:

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completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the Good Laboratory Practices (“GLP”) regulations;

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submission to the FDA of an IND which must become effective before human clinical studies may begin and must be updated annually;

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approval by an independent institutional review board (“IRB”) or ethics committee representing each clinical site before each clinical study may be initiated;

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performance of adequate and well-controlled human clinical studies in accordance with Good Clinical Practice (“GCP”), requirements to establish the safety and efficacy, or with respect to biologics, the safety, purity and potency of the product candidate for each proposed indication;

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preparation of and submission to the FDA of a BLA after completion of all pivotal clinical studies;

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potential review of the product application by an FDA advisory committee, where appropriate and if applicable;

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a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

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satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities where the proposed product drug substance is produced to assess compliance with current Good Manufacturing Practices (“cGMP”), and audits of selected clinical trial sites to ensure compliance with GCP; and

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FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of a biological product in the United States.

An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol or protocols for preclinical studies and clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamic characteristics of the product, chemistry, manufacturing and controls (“CMC”) information, and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP, which includes the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing preclinical studies and clinical trials and clinical study results to public registries.

The clinical investigation of a drug is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or be combined.

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Phase 1. The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

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Phase 2. The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

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Phase 3. The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

In some cases, the FDA may condition approval of a BLA for a product candidate on the sponsor’s agreement to conduct additional clinical studies after approval. In other cases, a sponsor may voluntarily conduct additional clinical studies after approval to gain more information about the drug. Such post-approval studies are typically referred to as Phase 4 clinical studies. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency

BLA Review Process

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s CMC and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of the product, or from a number of alternative sources, including studies initiated and sponsored by investigators. The submission of a BLA requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies.

In addition, under the Pediatric Research Equity Act (“PREA”), a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the biological product candidate 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. FDA requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial pediatric study plan within sixty days after an end-of-Phase 2 meeting or as may be agreed between the sponsor and FDA. Unless otherwise required by regulation, PREA does not apply to any drug or biological product for an indication for which orphan designation has been granted.

Within 60 days following submission of the application, the FDA reviews the submitted BLA to determine if the application is substantially complete before the agency accepts it for filing. The FDA may refuse to file any

BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. Once a BLA has been accepted for filing, the FDA’s goal is to review standard applications within ten months after the filing date, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. The FDA reviews a BLA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is sufficient to assure and preserve the product’s identity, strength, quality and purity. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency. In both standard and priority reviews, the review process may also be extended by FDA requests for additional information or clarification. When reviewing a BLA, the FDA may convene an advisory committee to provide clinical insight on application review questions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates the BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL”). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A CRL will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy (“REMS”), to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

FDA Expedited Review Programs

The FDA administers a number of programs to facilitate the development, and expedite the review, of drugs or biologics that are intended for the treatment of serious or life-threatening diseases or conditions. For example, the fast track program is intended to expedite or facilitate the process for reviewing product candidates that meet certain criteria. Specifically, product candidates are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product candidate and the specific indication for which it is being studied. The sponsor of a fast track product candidate has opportunities for more frequent interactions with the review team during product development and, once a BLA is submitted, the product may be eligible for priority review. A fast track product candidate may also be eligible for rolling review, where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.

A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers.

Any marketing application for a drug or biologic submitted to the FDA for approval, including a product candidate with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval. A product candidate is eligible for priority review if it has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition. For new-molecular-entity NDAs and original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (as compared to ten months under standard review).

Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required post-marketing studies or if such studies fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval 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 approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Post-Approval Requirements

Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of 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 user fee requirements, under which the FDA assesses an annual program fee for each product identified in an approved BLA. Drug and biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. 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 cGMPs and impose reporting 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 cGMPs and other aspects of regulatory compliance.

The FDA may withdraw 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 studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

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fines, warning letters, or untitled letters;

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clinical holds on clinical studies;

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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals;

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product seizure or detention, or refusal to permit the import or export of products;

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consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

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mandated modification of promotional materials and labeling and the issuance of corrective information;

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the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or

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injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. 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.

Biosimilars and Reference Product Exclusivity

The Biologics Price Competition and Innovation Act of 2009 (“BPCIA””), created an abbreviated approval pathway for biological products that are highly similar, or “biosimilar,” to or interchangeable with an FDA-approved reference biological product. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, is generally shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. A product shown to be biosimilar or interchangeable with an FDA-approved reference biological product may rely in part on the FDA’s previous determination of safety and effectiveness for the reference product for approval, which can potentially reduce the cost and time required to obtain approval to market the product. Complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.

Guidance for Industry: “Antibacterial Therapies for Patients with an Unmet Medical Need for the Treatment of Serious Bacterial Diseases” – Potential for Streamlined Development

The FDA issued guidance for the industry in August 2017, which among other things, discusses the potential for antibacterial drug candidates intended to treat serious bacterial infections in patients who have few or no available therapies to be candidates for a streamlined development pathway. According to the guidance, candidates for a streamlined process would be likely to have (1) a new mechanism of action that preserves antibacterial activity against bacteria that have mechanisms of resistance to other available antibacterial drugs; (2) an added inhibitor that neutralizes a mechanism of resistance; (3) an alteration in the structure of the molecule that makes the drug candidate no longer susceptible to the mechanisms of resistance to existing drugs; or (4) some other characteristic that has a potential to lead to enhanced effectiveness.

Guidance for Industry: “Limited Population Pathway for Antibacterial and Antifungal Drugs” (LPAD)

Introduced as part of the 21^st Century Cures Act of 2016, the LPAD pathway to help encourage the development of drug products that address unmet needs of patients with serious bacterial and fungal infections. The FDA may approve a drug under the LPAD pathway based upon a conclusion of a positive benefit-risk balance in the limited population, even though insufficient data exist to conclude that there is a favorable benefit-risk profile in a broader population. The FDA issued final guidance for the industry regarding the LPAD pathway in August 2020 to assist sponsors in the development of certain new antibacterial and antifungal drugs that may be eligible for approval under the LPAD pathway. According to the guidance, candidates for this pathway are agents intended to treat a serious or life-threatening infection in a limited population with unmet needs that otherwise meet the standards for approval or licensure set forth in the FDCA and PHSA, and for which the sponsor submits a written request to FDA seeking approval of the agent as a limited population drug.

Guidance for Industry: “Conduct of Clinical Trials of Medical Products During the COVID-19 Public Health Emergency

In March 2020, the FDA issued initial guidance to industry related to the conduct of clinical trials during the COVID-19 pandemic, with subsequent updates issued over the last year, most recently on January 17, 2021. FDA issued this guidance to provide general considerations to assist sponsors in assuring the safety of trial participants, maintaining compliance with good clinical practice (“GCP”), and minimizing risks to trial integrity for the duration of the COVID-19 public health emergency. FDA recognizes that the COVID-19 public health emergency may impact the conduct of clinical trials of medical products (e.g. from quarantines, site closures, travel limitations, interruptions to the supply chain or other considerations if site personnel or trial participants become infected with COVID-19) and that these challenges may lead to difficulties in meeting protocol-specified procedures, and recognizes that protocol modifications may be required, and that there may be unavoidable protocol deviations due to COVID-19 illness and/or COVID-19 public health control measures.

Additional Controls for Biologics

To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in the United States and between states.

After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.

Other U.S. Regulatory Requirements

In the United States, the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject to regulation by various federal, state, and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of the United States Department

of Health and Human Services (e.g., the Office of the Inspector General), the United States Department of Justice and individual United States Attorneys’ offices within the Department of Justice, and state and local governments. For example, sales, marketing, and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act and the False Claims Act. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection, unfair competition, and other laws, and violations of these laws may result in imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. In addition, 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. Violations of the Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

Federal false claims laws, including the False Claims Act, prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Moreover, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

HIPAA also created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up 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. 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.

There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Affordable Care Act”), among other things, imposes new reporting requirements on drug manufacturers for payments made by them to physicians (as defined by statute), certain other healthcare providers beginning in 2022 and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may

result in significant civil monetary penalties and additional penalties for “knowing failures”, for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers are required to submit reports to the government by the 90th day of each calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.

Moreover, ContraFect is now, and in the future may become, subject to additional federal, state, and local laws, regulations, and policies relating to safe working conditions, laboratory practices, the experimental use of animals, and/or the use, storage, handling, transportation, and disposal of human tissue, waste, and hazardous substances, including radioactive and toxic materials and infectious disease agents used in conjunction with our research work.

Physician Drug Samples

As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. The Prescription Drug Marketing Act, or the PDMA, imposes requirements and limitations upon the provision of drug samples to physicians, as well as prohibits states from licensing distributors of prescription drugs unless the state licensing program meets certain federal guidelines that include minimum standards for storage, handling and record keeping. In addition, the PDMA sets forth civil and criminal penalties for violations.

New Legislation and Regulations

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 changed or what the effect of such changes, if any, may be.

For example, in December 2016, the 21st Century Cures act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and biologics and spur innovation, but its ultimate implementation remains unclear. Among other things, the Cures Act provides a new “limited population” approval pathway for antibacterial and antifungal drugs intended to treat serious or life-threatening infections.

Government Contracts and Regulation

We currently contract with the federal government. The BARDA Contract could result in payments to us of up to approximately $86.8 million, and consists of a one-year base period-of-performance and a total contract period-of-performance (base period plus option exercises) of up to six years in support of the completion of the Phase 3 clinical trial of exebacase, further clinical and non-clinical studies, manufacturing, supply chain, clinical, regulatory and administrative activities. As a government contractor, we are subject to complex and wide-ranging federal and agency-specific regulations and contractual requirements that not only govern how we perform under the contract but also impose other requirements that affect our operations, including socio-economic obligations such as obligations related to affirmative action or maintaining a drug-free workplace. While some of our employees have been involved in government contracts previously, many of these government contracting requirements are new to us as a company. The costs of compliance with these requirements may be significant. Failure to comply with government contracting requirements could result in termination of our contract or the imposition of penalties.

Foreign Regulation

In addition to regulations in the United States, we may become subject to widely varying foreign regulations governing, among other things, clinical trials, manufacture, product registration and approval, and pharmaceutical sales. Whether or not FDA approval has been obtained, we must obtain a separate approval for a product by the comparable regulatory authorities of foreign countries prior to the commencement of clinical studies or marketing of the product in these countries. The requirements and process governing the conduct of clinical studies, approval process, product licensing, pricing and reimbursement vary from country to country. Failure to comply with applicable foreign regulatory requirements, may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Clinical Trials

Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the European Union (“EU”), for example, a clinical trial authorization (“CTA”) must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and the IRB, respectively. Once the CTA is approved by the national health authority and the ethics committee has granted a positive opinion in relation to the conduct of the trial in the relevant member state(s), in accordance with a country’s requirements, clinical study development may proceed.

The CTA must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation. Currently, CTAs must be submitted to the competent authority in each EU member state in which the trial will be conducted. Under the new Regulation on Clinical Trials, which is currently expected to take effect by early 2022, there will be a centralized application procedure where one national authority takes the lead in reviewing the application and the other national authorities have only limited involvement. Any substantial changes to the trial protocol or other information submitted with the CTA must be notified to or approved by the relevant competent authorities and ethics committees. Medicines used in clinical trials must be manufactured in accordance with GMP. Other national and European Union-wide regulatory requirements may also apply.

Clinical studies of medicinal products in the European Union must be conducted in accordance with EU and national regulations and the International Conference on Harmonization (“ICH”) guidelines on GCP as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EU, it must appoint an EU entity to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most EU countries, the sponsor is liable to provide ‘no fault’ compensation to any study subject injured in the clinical trial.

Marketing Authorizations

To obtain regulatory approval of an investigational medicinal product under European Union regulatory systems, we must submit a marketing authorization application. The application used to file the BLA in the United States is similar to that required in the European Union, with the exception of, among other things, country specific document requirements. The process for doing this depends, among other things, on the nature of the medicinal product.

The centralized procedure results in a single marketing authorization, issued by the European Commission, based on the opinion of the EMA’s Committee for Human Medicinal Products (“CHMP”), which is valid across the entire territory of the EU. The centralized procedure is compulsory for human medicines that are: (i) derived from biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and

other immune dysfunctions and viral diseases, (iii) designated orphan medicines and (iv) advanced therapy medicinal products, or advanced therapy medicinal products, such as gene therapy, somatic cell therapy or tissue-engineered medicines. The centralized procedure may at the request of the applicant also be used in certain other cases.

Under the centralized procedure, the maximum timeframe for the evaluation of a marketing authorization application by the EMA is 210 days. In exceptional cases, the CHMP might perform an accelerated review of a marketing authorization in no more than 150 days (not including clock stops). Innovative products that target an unmet medical need and are expected to be of major public health interest may be eligible for a number of expedited development and review programs, such as the PRIME scheme, which provides incentives similar to the breakthrough therapy designation in the U.S. PRIME is a voluntary scheme aimed at enhancing the EMA’s support for the development of medicines that target unmet medical needs. It is based on increased interaction and early dialogue with companies developing promising medicines, to optimize their product development plans and speed up their evaluation to help them reach patients earlier. Product developers that benefit from PRIME designation can expect to be eligible for accelerated assessment but this is not guaranteed. The benefits of a PRIME designation include the appointment of a CHMP rapporteur before submission of a marketing authorization application, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review earlier in the application process.

There are also other possible routes to authorize medicinal products in several EU member states. National marketing authorizations, which are issued by the competent authorities of the EU member states and only cover their respective territory, are available for products not falling within the mandatory scope of the centralized procedure. Where a product has already been authorized for marketing in an EU member state, this national marketing authorization can be recognized in another member state through the mutual recognition procedure. If the product has not received a national marketing authorization in any member state at the time of application, it can be approved simultaneously in various member states through the decentralized procedure. Under the decentralized procedure an identical dossier is submitted to the national competent authority of each of the member states in which the marketing authorization is sought, one of which is selected by the applicant as the reference member state.

MAs have an initial duration of five years. After these five years, the authorization may be renewed for an unlimited period on the basis of a reevaluation of the risk-benefit balance.

Data and Marketing Exclusivity

The European Union also provides opportunities for market exclusivity. Upon receiving marketing authorization, new chemical entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic or biosimilar application. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization application can be submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity. The overall ten-year market exclusivity period may be extended to a maximum of eleven years if, during the first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved. However, there is no guarantee that a product will be considered by the European Union’s regulatory authorities to be a new chemical entity, and products may not qualify for data exclusivity.

There is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product, for example, because of differences in raw materials or manufacturing processes. For such products, the results of appropriate preclinical or clinical trials must be provided, and guidelines from the EMA detail the type of quantity of supplementary data to be provided for different types of biological product. There are no such guidelines for complex biological products, such as gene or cell therapy medicinal products, and so it is unlikely that biosimilars of those products

will currently be approved in the European Union. However, guidance from the EMA states that they will be considered in the future in light of the scientific knowledge and regulatory experience gained at the time.

Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal products and marketing of such products, both before and after grant of the marketing authorization, manufacturing of pharmaceutical products, statutory health insurance, bribery and anti-corruption or with other applicable regulatory requirements may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.

The aforementioned EU rules are generally applicable in the European Economic Area (“EEA”), which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland. For other countries outside of the European Union, such as countries in Latin America or Asia, the requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical studies are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. With respect to the United Kingdom, following its exit from the European Union on January 31, 2020, the transition period, during which E.U. pharmaceutical laws continued to apply to the United Kingdom, has expired on December 31, 2020. However, the E.U. and the United Kingdom have concluded a trade and cooperation agreement, or TCA, which is provisionally applicable since January 1, 2021. The TCA includes specific provisions concerning pharmaceuticals, which include the mutual recognition of Good Manufacturing Practice, or GMP, inspections of manufacturing facilities for medicinal products and GMP documents issued, but does not foresee wholesale mutual recognition of U.K. and E.U. pharmaceutical regulations.

European Medicines Agency – Actions to Support the Development of New Antibiotics

The EMA is currently revising its “Guideline on the evaluation of medicinal products indicated for treatment of bacterial infections” on how to carry out studies to demonstrate the benefits and risks of antibiotics. The draft revision reflects the outcome of cooperation between EMA, the FDA and the Japanese Pharmaceuticals and Medical Devices Agency (“PMDA”) to align data requirements as much as possible in Europe, the United States and Japan. It provides guidance on study design for specific indications and clarification on the clinical development of antibacterial agents that are expected to address an unmet medical need, in accordance with experience gained from previous regulatory decisions.

In addition, as of May 24, 2019, EMA’s Innovation Task Force is open to all developers of medicines and therapeutic approaches for the treatment or prevention of life-threatening or debilitating bacterial and fungal infections. This free-of-charge service provides medicine developers a forum for early dialogue with EMA to help their orientation and subsequent use of formal regulatory tools such as EMA’s scientific advice.

European Medicines Agency – Small and Medium Enterprise (“SME”) Designation

The SME designation was established by EMA to promote innovation and the development of new medicinal products by smaller companies established in the EEA. Companies with SME status are eligible to receive financial incentives as well as administrative and regulatory support through national and regional level programs. These benefits include access to dedicated EMA personnel during the clinical development process as well as reductions in fees associated with regulatory procedures such as scientific advice, pre- and post-authorization regulatory procedures, and inspections. Companies with SME status can apply for the PRIME scheme at an earlier stage of development when they have compelling non-clinical data and tolerability data from initial clinical trials. They may also request a fee waiver for scientific advice.

Data Privacy and Security Laws

Numerous state, federal and foreign laws and regulations govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, certain state and non-U.S. laws, such as the California Consumer Privacy Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the European Union General Data Protection Regulation (“GDPR”) and the United Kingdom GDPR (“UK GDPR”), govern the privacy and security of personal information, including health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.

Pharmaceutical Coverage, Pricing and Reimbursement

Our ability to commercialize our product candidates successfully will depend in part on the extent to which the United States and foreign governmental authorities, private health insurers and other third-party payors establish appropriate coverage and reimbursement levels for our product candidates and related treatments. In many of the markets where we would commercialize a product following regulatory approval, the prices of pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement programs with varying price control mechanisms. Public and private health care payors control costs and influence drug pricing through a variety of mechanisms, including through negotiating discounts with the manufacturers and through the use of tiered formularies and other mechanisms that provide preferential access to certain drugs over others within a therapeutic class. Payors also set other criteria to govern the uses of a drug that will be deemed medically appropriate and therefore reimbursed or otherwise covered. In particular, many public and private health care payors limit reimbursement and coverage to the uses of a drug that are either approved by the FDA or that are supported by other appropriate evidence (for example, published medical literature) and appear in a recognized drug compendium. Drug compendia are publications that summarize the available medical evidence for particular drug products and identify which uses of a drug are supported or not supported by the available evidence, whether or not such uses have been approved by the FDA.

Healthcare Reform

In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future revenues and profitability and the future revenues and profitability of our potential customers. For example, in March 2010, the Affordable Care Act was passed, which substantially changed the way health care is financed by both governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The Affordable Care Act, among other things, subjected biologic products to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the Affordable Care Act. For example, on December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the entire Affordable Care Act is invalid based primarily on the fact that the Tax Cuts and Jobs Act of 2017 repealed the tax-based shared responsibility payment imposed by the Affordable Care Act, 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”. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is unclear how the Supreme Court will rule. It is also unclear how or other efforts, if any, to challenge, repeal or replace the Affordable Care Act will impact the law, or our business or financial condition.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, the Budget Control Act of 2011 among other things, resulted in aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. Further, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Recently there has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed to, among other things, reform government program reimbursement methodologies. For example, the Cures Act changes the reimbursement methodology for infusion drugs and biologics furnished through durable medical equipment in an attempt to remedy over- and underpayment of certain drugs.

If additional state and federal healthcare reform measures are adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, we could expect such measures to result in reduced demand for our product candidates or additional pricing pressures.

Segment Reporting

We are engaged solely in the discovery and development of therapeutic protein and antibody products for life-threatening, drug-resistant infectious diseases. Accordingly, we have determined that we operate in one operating segment.

Employees

As of March 24, 2021, we had 33 full-time employees. We consider our staff relations to be good, and we have had relatively low turnover rates, supported by our regular staff engagement. Our company operates within an industry with a complex regulatory environment. The unique demands of our industry, together with the challenges of running a company focused on the discovery, development and manufacture of innovative therapeutics, require talent that is highly educated and/or has significant industry experience. Additionally, for certain key functions, we require specific scientific expertise to oversee and conduct these activities. Accordingly, of our full-time employees, 22 employees are engaged in research and development activities, including 15 employees with advanced degrees. None of our employees is represented by a labor union or covered by a collective bargaining agreement.

Our Corporate Information

We were incorporated under the laws of the State of Delaware in March 2008. Our executive offices are located at 28 Wells Avenue, 3rd Floor, Yonkers, NY 10701, and our telephone number is (914) 207-2300. Our

website address is www.contrafect.com. References to our website are inactive textual references only and the content of our website should not be deemed incorporated by reference into this Form 10-K.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website located at www.contrafect.com as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (the “SEC”). These reports are also available at the SEC’s Internet website at www.sec.gov.

Item 1A.

Risk Factors

You should carefully consider the following risk factors, as well as the other information in this report, and in our other public filings. Our business, financial condition and operating results can be affected by a number of important factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and common stock price. Other factors may exist that we do not consider significant based on information that is currently available. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect us. Past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

We are a clinical-stage biopharmaceutical company with no approved products, and we have not generated any revenue from product sales to date. To date, we have focused exclusively on developing our product candidates and have funded our operations primarily through the sale of common stock and warrants, convertible preferred stock and issuances of convertible debt to our investors, and to a lesser extent, grant funding. We have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in the pharmaceutical industry, and you should analyze our company in light of such risks and uncertainties.

Since inception, we have incurred significant operating losses. Our losses from operations were $28.2 million, $12.8 million and $37.7 million for the years ended December 31, 2020, 2019, and 2018, respectively. We have devoted substantially all of our efforts to research and development. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase substantially as clinical trials for any of our product candidates commence or progress. Our expenses will increase if and as we:

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seek to discover or develop additional product candidates;

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seek marketing approvals for any of our product candidates that successfully complete clinical trials;

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in-license or acquire other products and technologies;

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maintain, expand and protect our intellectual property portfolio;

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hire additional clinical, quality control and scientific personnel; and

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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.

We currently have no source of product revenue and have not yet generated any revenues from product sales.

To date, we have not completed the development of any products and have not generated any revenues from product sales. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully commercialize products, including any of our current product candidates, or other product candidates that we may in-license or acquire in the future. Even if we are able to successfully achieve regulatory

approval for these product candidates, we may never generate revenues that are significant enough to achieve profitability. Our ability to generate revenue from product sales from our current or future product candidates also depends on a number of additional factors, including our ability to:

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successfully complete development activities, including the necessary clinical trials;

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complete and submit BLAs to the FDA, and obtain regulatory approval for indications for which there is a commercial market;

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complete and submit applications to, and obtain approval from, foreign regulatory authorities;

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set a commercially viable price for our products;

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develop a commercial organization capable of sales, marketing and distribution for any products we intend to sell ourselves in the markets which we choose to commercialize on our own;

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find suitable distribution partners to help us market, sell and distribute our products in other markets; and

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obtain coverage and adequate reimbursement from third parties, including government and private payors.

In addition, because of the numerous risks and uncertainties associated with product development, including that any of our product candidates may not advance through development or achieve the desired endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for any product candidates, we anticipate incurring significant costs associated with commercializing these products.

Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital to expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of exebacase and possibly acquire and develop new product candidates or technologies. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. For example, the trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms.

Our future capital requirements will depend on many factors, including:

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the complexity, timing and results of our clinical trials of our product candidates;

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the costs, timing and outcome of regulatory review of our product candidates;

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the costs of developing our product candidates for additional indications;

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the timing and amount of actual reimbursements under the BARDA Contract;

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the continuation of funding under our CARB-X and USAMRDC grants;

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our ability to establish scientific or business collaborations on favorable terms, if at all;

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the costs of preparing, filing and prosecuting patent or other intellectual property applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;

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the extent to which we in-license or acquire other product candidates or technologies; and

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the scope, progress, results and costs of product development for our product candidates;

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the effects of the COVID-19 pandemic on, among other things, our financial performance, business and operations.

Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results to obtain marketing approval and achieve product sales. In addition, if approved, exebacase or any other product candidate that we develop may not achieve commercial success. Accordingly, we may need to continue to rely on additional financing to achieve our business objectives. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. Adequate additional financing may not be available to us on acceptable terms, or at all.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we may finance our cash needs through a combination of equity offerings, debt financings, grants, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

The timing of the milestone and royalty payments we are required to make under certain agreements to Rockefeller is uncertain and could adversely affect our cash flows and results of operations.

We are party to certain agreements with Rockefeller pursuant to which we have acquired licenses to certain patents and patent applications and other intellectual property related to a series of compounds, including exebacase to develop and commercialize therapeutics. Under our agreements with Rockefeller, we have obligations to achieve diligence minimums and to make payments upon achievement of specified development and regulatory milestones. We will also make additional payments upon the achievement of future sales milestones and for royalties on future net sales.

The timing of milestone payments under our licenses and sponsored research agreements is subject to factors relating to the clinical and regulatory development and commercialization of products, many of which are beyond our control. We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us.

If BARDA were to eliminate, reduce, or delay funding for our BARDA Contract, we would experience a negative impact on our programs associated with such funding.

On March 10, 2021, we executed a cost-share contract from BARDA, part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services. Under the terms of the BARDA Contract, the Company will receive $9.8 million in initial funding during the base period. Following successful completion of the base period, the BARDA Contract provides for approximately $77.0 million of additional BARDA funding for five option stages in support of the completion of the Phase 3 clinical trial of exebacase, further clinical and non-clinical studies, manufacturing, supply chain, clinical, regulatory and administrative activities. The BARDA Contract contains terms and conditions that are customary for contracts with BARDA of this nature, including provisions giving the government the right to terminate the contract at any time for its convenience. If BARDA were to eliminate, reduce, or delay funding under the BARDA Contract or prohibit reimbursement of some of our incurred costs, we would have to seek additional funding to complete our ongoing Phase 3 DISRUPT superiority trial of exebacase or advance exebacase through FDA product approval and completion of post-approval commitments.

The BARDA Contract includes special requirements, which subject us to the risk of a reduction or loss of funding.

Our BARDA Contract subjects us to various U.S. government contract requirements, including general clauses for a cost-reimbursement research and development contract, which may limit our reimbursement. In addition, if we are found to be in violation of the BARDA Contract, it could result in termination. If BARDA terminates the BARDA Contract with us for its convenience, or if we default by failing to perform in accordance with the contract schedule and terms, a significant negative impact on our cash flows and operations could result.

U.S. government contracts, such as our BARDA Contract, generally contain unfavorable termination provisions, which may subject us to additional risks as compared to our competitors that have not entered into such contracts. These risks include the ability of the U.S. government to unilaterally:

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terminate or reduce the scope of our contract with or without cause;

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interpret relevant regulations (federal acquisition regulation clauses);

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require performance under circumstances that may not be favorable to us;

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require an in-process review where the U.S. government will review the project and its options under the contract;

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control the timing and amount of funding, which impacts the development progress of exebacase; and

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audit and object to our contract-related costs and fees, including allocated indirect costs.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. As a result of our past transactions, we may have experienced an “ownership change.” At this time, we have not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since our formation, due to the costs and complexities associated with such a study. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Thus, our ability to utilize carryforwards of our net operating losses and other tax attributes to reduce future tax liabilities may be substantially restricted. Further, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be able to take full advantage of these carryforwards for federal or state tax purposes. As of December 31, 2020 and 2019, we had federal and state net

operating loss carryforwards of approximately $234.3 million and $201.3 million, respectively, and federal research and development credits of approximately $3.8 million and $3.1 million, the use of which could be limited or eliminated by virtue of one or more “ownership changes.”

Risks Related to the Discovery, Development and Commercialization of Our Product Candidates

The COVID-19 pandemic or other pandemics, epidemics or outbreaks of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

During 2020, the novel coronavirus disease, COVID-19, was declared a pandemic and spread across the globe, including the United States and Europe. The outbreak and government measures taken in response have also had a significant impact on the economy and, to a lesser extent, both directly and indirectly, on our business. We adjusted our business operations, with a majority of our employees working remotely, and as a result, incurred minor delays in internal research activities. Our Phase 3 DISRUPT clinical trial has also experienced some delays as a result of the COVID-19 pandemic, as some clinical sites in high impact areas have delayed new patient enrollment as dictated by local conditions.

As a result of the COVID-19 pandemic or other pandemic, epidemic or outbreak of an infectious disease, we may experience disruptions that could severely impact our business, preclinical studies and clinical trials, including:

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delays or difficulties in enrolling patients in our clinical trials;

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delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and staff;

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increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or being forced to quarantine;

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interruption of key clinical trial activities, such as clinical trial site data monitoring and efficacy and safety data collection, processing and analyses, due to limitations on travel imposed or recommended by federal, state or local governments, employers and others or interruption of clinical trial subject visits, which may impact the collection and integrity of subject data and clinical study endpoints;

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interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

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delays in receiving authorization from local regulatory authorities to initiate our planned clinical trials;

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changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

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SEC Form 10-K filed by ContraFect Corporation