gnpx20191231

10-K 1 gnpx20201231_10k.htm FORM 10-K gnpx20191231_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-38244

Genprex, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	90-0772347
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1601 Trinity Street, Bldg B, #3.312.09
Austin, Texas	78712
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (877) 774-4679

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GNPX

The Nasdaq Capital Market

Securities registered pursuant to 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 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 an 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.

Large accelerated filer:	☐	Accelerated filer	☐
Non-accelerated filer:	☒	Smaller reporting company	☒
		Emerging growth company	☒

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. Yes ☐ No ☒

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2020 was approximately $114 million, computed by reference to the closing price of the registrant’s common stock on June 30, 2020 (the last business day of the registrant's most recently completed second fiscal quarter) of $3.14 per share, as reported by The Nasdaq Capital Market.

As of March 15, 2021, there were 43,276,764 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, subsequent to the date hereof pursuant to Regulation 14A in connection with the registrant’s 2021 annual meeting of stockholders, are incorporated by reference into Part III of this Annual Report on Form 10-K. Such proxy statement will be filed with the SEC not later than 120 days after the conclusion of the registrant’s fiscal year ended December 31, 2020.

TABLE OF CONTENTS

		Page
PART I		4
Item 1.	Business	4
Item 1A.	Risk Factors	46
Item 1B.	Unresolved Staff Comments	86
Item 2.	Properties	86
Item 3.	Legal Proceedings	86
Item 4.	Mine Safety Disclosures	86

PART II		87
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	87
Item 6.	Selected Financial Data	87
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	88
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	94
Item 8.	Financial Statements and Supplementary Data	94
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	94
Item 9A.	Controls and Procedures	94
Item 9B.	Other Information	95

PART III		96
Item 10.	Directors, Executive Officers and Corporate Governance	96
Item 11.	Executive Compensation	96
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	96
Item 13.	Certain Relationships and Related Transactions, and Director Independence	96
Item 14.	Principal Accountant Fees and Services	96

PART IV		96
Item 15.	Exhibits and Financial Statement Schedules	96
Item 16.	Form 10-K Summary	99

SIGNATURES		100

FINANCIAL STATEMENTS		F-1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements that involve substantial risks and uncertainties. Any statements in this Annual Report about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.

Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this Annual Report. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include but are not limited to:

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Market conditions;

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Our capital position;

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Our ability to compete with larger better financed pharmaceutical companies;

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Our uncertainty of developing marketable products;

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Our ability to develop and commercialize our products;

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Our ability to obtain regulatory approvals;

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Our ability and third parties’ ability to maintain and protect intellectual property rights;

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Our ability to raise additional future financing and possible lack of financial and other resources;

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The success of our clinical trials through all phases of clinical development;

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Any delays in regulatory review and approval of our current and future product candidates;

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Our dependence on third-party manufacturers to supply or manufacture our products;

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Our ability to control product development costs;

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Our ability to attract and retain key employees;

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Our ability to compete effectively;

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Our ability to enter into new strategic collaborations, licensing or other arrangements;

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Changes in government regulation affecting product candidates could increase our development costs;

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Our involvement in patent and other intellectual property litigation could be expensive and could divert management’s attention;

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The possibility that there may be no market acceptance for our products; and

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Changes in third-party reimbursement policies which could adversely affect potential future sales of any of our products that are approved for marketing.

The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements, which speak only as of the date of this Annual Report. Except as required by law, we assume no obligation and expressly disclaim any duty to update any forward-looking statement to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements contained in this Annual Report. All forward-looking statements are expressly qualified in their entirety by the cautionary statements contained in this section.

RISK FACTOR SUMMARY

Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Annual Report on Form 10-K. If any of the following risks actually occurs (or if any of those listed elsewhere in this Annual Report on Form 10-K occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

Risks Related to Our Financial Position and Need for Additional Capital

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We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease our operations.

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We have never been profitable, we have no products approved for commercial sale, and to date we have not generated any revenue from product sales. As a result, our ability to reduce our losses and reach profitability is unproven, and we may never achieve or sustain profitability.

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We have a limited operating history and we expect a number of factors to cause our operating results to fluctuate on an annual basis, which may make it difficult to predict our future performance.

Risks Related to Development and Commercialization of Our Current and Future Product Candidates

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Our success depends greatly on the success of our development of REQORSA for the treatment of NSCLC, and our other product candidates, including GPX-002 for the treatment of diabetes.

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Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our current and future product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our current and future product candidates.

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Conducting successful clinical studies may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit.

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The accelerated approval pathway for our product candidates may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.

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If we are unable to secure contract manufacturers with capabilities to produce the products that we require, we could experience delays in conducting our planned clinical trials.

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REQORSA, GPX-002 and any other product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval. Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize our product candidates, and the approval may be for a narrower indication than we seek. Furthermore, even if we obtain regulatory approval of our current and future product candidates, the products may not gain market acceptance among physicians, patients, hospitals, treatment centers, third-party payors and others in the medical community.

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REQORSA, GPX-002 and other future product candidates may have undesirable side effects that may delay or prevent marketing approval, or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

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If a product liability claim is successfully brought against us for uninsured liabilities, or such claim exceeds our insurance coverage, we could be forced to pay substantial damage awards that could materially harm our business.

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

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Our business may be adversely affected by the ongoing coronavirus pandemic.

Risks Related to Regulatory Approval and Marketing of Our Current and Future Product Candidates and Other Legal Compliance Matters

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If the FDA does not find the manufacturing facilities of our current or future contract manufacturers acceptable for commercial production, we may not be able to commercialize REQORSA, GPX-002 or any of our future product candidates.

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We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and other federal and state healthcare laws, and the failure to comply with such laws could result in substantial penalties. Our employees, independent contractors, consultants, principal investigators, contract research organizations, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

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Coverage and reimbursement may be limited or unavailable in certain market segments for REQORSA, GPX-002 and our future product candidates, if approved, which could make it difficult for us to sell REQORSA, GPX-002 and our future product candidates profitably.

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Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

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We are subject to a variety of risks associated with international operations which could materially adversely affect our business.

Risks Related to Our Dependence on Third Parties

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We may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely affect our ability to develop certain of our current product candidates and our financial condition and operating results.

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We rely, in part, and expect to continue to rely, in part, on third parties to conduct, supervise and monitor our clinical trials, and to distribute, manufacture and perform release testing for our current and future product candidates and other key materials. If such third parties perform in an unsatisfactory manner or do not carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approvals for our product candidates which may harm our business.

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We have completed and may in the future complete related party transactions that were not and may not be conducted on an arm’s length basis.

Risks Related to Our Intellectual Property

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If we fail to comply with obligations pursuant to our license agreements, we could lose intellectual property and other rights that are important to our business.

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If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

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Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information and may not adequately protect our intellectual property. In addition, we may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

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We may not be able to protect our intellectual property rights throughout the world.

Risks Related to Employee Matters and Managing Growth

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We have no sales, marketing or distribution experience, and we will have to invest significant resources to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.

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We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.

General Risk Factors

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The market price of our common stock may be highly volatile, and you may lose all or part of your investment.

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If we are unable to maintain listing of our securities on Nasdaq or any stock exchange, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired.

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We have no intention of declaring dividends in the foreseeable future.

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Our charter documents contain an exclusive forum provision with respect to certain actions which may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable and discourage lawsuits against us or our current or former directors or officers and/or stockholders in such capacity.

PART I

Item 1. Business.

Overview

We are a clinical stage gene therapy company focused on developing life-changing treatments for cancer and diabetes. Our lead cancer drug candidate, REQORSA™ Immunogene therapy drug (sometimes referred to as GPX-001), is being developed to treat non-small cell lung cancer ("NSCLC"). The active agent in REQORSA is a TUSC2 gene expressing plasmid that is encapsulated in a DOTAP cholesterol nanoparticle. TUSC2 is a tumor suppressor gene which has both tumor killing (via apoptosis) and immunomodulatory effects. We utilize our novel proprietary ONCOPREX® Nanoparticle Delivery System to deliver the TUSC2 gene expressing plasmid to cancer cells. The TUSC2 gene is one of a series of genes whose therapeutic use is covered by our exclusive worldwide licenses from The University of Texas MD Anderson Cancer Center ("MD Anderson").

We are planning to initiate our Acclaim-1 and Acclaim-2 clinical trials in 2021. Acclaim-1 is a Phase 1/2 clinical trial using a combination of REQORSA with AstraZeneca PLC’s Tagrisso® in patients with late-stage NSCLC with mutated epidermal growth factor receptors ("EGFRs") whose disease progressed after treatment with Tagrisso. In January 2020, we received Food and Drug Administration ("FDA") Fast Track Designation for the Acclaim-1 patient population. Acclaim-2 is a Phase 1/2 clinical trial using a combination of REQORSA with Merck & Co.’s Keytruda® in late-stage NSCLC patients who are low expressors (1% to 49%) of the protein programmed death-ligand 1 ("PD-L1").

In diabetes, we are developing a gene therapy that is exclusively licensed from the University of Pittsburgh of the Commonwealth System of Higher Education ("University of Pittsburgh") for the treatment of Type 1 and Type 2 diabetes. This potential treatment is designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. Our diabetes product candidate is currently being evaluated in preclinical studies.

Oncology Platform

Utilizing our non-viral ONCOPREX Nanoparticle Delivery System, we are developing cancer treatments that are designed to administer cancer fighting genes. We encapsulate the gene-expressing plasmids using ONCOPREX lipid nanoparticles, and administer them intravenously, where they are then taken up by tumor cells and express proteins that are missing or found in low quantities in the tumor cells. With our lead drug candidate, REQORSA, there is a multimodal mechanism of action whereby REQORSA interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for apoptosis, or programmed cell death, in cancer cells, and modulates the immune response against cancer cells. REQORSA has also been shown to block mechanisms that create drug resistance.

We believe that our ONCOPREX Nanoparticle Delivery System could allow delivery of a number of cancer-fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer. We believe that REQORSA’s combination of pan-kinase inhibition, direct induction of apoptosis, anti-cancer immune modulation and complementary action with targeted drugs and immunotherapies is unique, and positions REQORSA to provide treatment for patients with NSCLC and possibly other cancers, who are not benefitting from current therapies.

Diabetes Gene Therapy

Our diabetes gene therapy, also referred to as GPX-002, was developed by lead researcher Dr. George Gittes, at the Rangos Research Center at the University of Pittsburgh Medical Center ("UPMC") Children’s Hospital. This potential treatment is designed to work by transforming alpha cells in the pancreas into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system. The therapy utilizes a procedure in which an adeno-associated virus vector delivers Pdx1 and MafA genes to the pancreas.

Recent Developments

License Amendment with MD Anderson

On March 3, 2021, we entered into an amendment (the “MD License Amendment”) to the Patent and Technology License Agreement dated May 4, 2020 with MD Anderson. The MD License Amendment grants us a worldwide, exclusive, sublicensable license to an additional portfolio of six patents and one patent application and related technology for methods for treating cancer by administration of a TUSC2 therapy in conjunction with EGFR inhibitors or other anti-cancer therapies in patients predicted to be responsive to TUSC2 therapy. Pursuant to the MD License Amendment, we agreed to (i) pay annual maintenance fees ranging from the mid five figures to the low six figures, (ii) total milestone payments of $6,150,000, (iii) a one-time fee in the mid five figures and (iv) certain patent related expenses.

Financings

On February 11, 2021, we sold an aggregate of 4,000,000 shares of our common stock for a purchase price of $6.25 per share in a registered direct offering. We received net proceeds of approximately $23.2 million after deducting estimated offering expenses.

Our Pipeline

Our technologies are designed to administer disease-fighting genes to provide new treatment options for large patient populations with cancer and diabetes who currently have limited treatment options. We are developing our lead product candidate REQORSA to be administered with targeted therapies and with immunotherapies for NSCLC. We continue to conduct preclinical research to explore how REQORSA may be administered with targeted therapies and immunotherapies in other solid tumors and are researching how other cancer fighting genes can be applied using our ONCOPREX Nanoparticle Delivery System. We also are developing our pre-clinical diabetes candidate, GPX-002. The following table summarizes our product development pipeline.

Introduction – Cancer

Cancer and Genetic Mutations. Cancer results from genetic mutations. Mutations that lead to cancer are usually present in two major classes of genes: oncogenes, which are involved in functions such as signal transduction and transcription; and tumor suppressor genes, which play a role in governing cell proliferation by regulating transcription. Transduction is the process by which chemical and physical signals are transmitted through cells. Transcription is the process by which a cell’s DNA sequence is copied to make RNA molecules, which then play a role in protein expression. In normal cells, mutations in oncogenes are discovered and targeted for elimination by tumor suppressor genes. In cancer cells, the oncogene mutations may overwhelm the natural tumor suppression processes, or those tumor suppression processes may be impaired or absent. Functional alterations due to mutations in oncogenes or tumor suppressor genes may result in the abnormal and uncontrolled growth patterns characteristic of cancer. These genetic alterations facilitate such malignant growth by affecting signal transduction pathways and transcription, thus inhibiting normal growth signaling in the cell, circumventing the natural process of apoptosis, evading the immune system’s response to cancer, and inducing angiogenesis, which is the formation of new blood vessels that supply cancer cells.

The most common genetic alterations present in NSCLC are in tumor suppressor genes, against which few targeted small molecule drugs, historically considered the backbone of traditional medicine, have been developed.

Another genetic condition associated with lung cancer is the overexpression of EGFRs and mutations of kinases. Kinases are enzymes that play an important role in signal transduction through the modification of proteins by adding or taking away phosphate groups, a process called dephosphorylation, to change the proteins’ function. When two EGFR transmembrane proteins are brought to proximity on the cell membrane surface, or dimerize, either through a ligand, or binding molecule, that binds to the extracellular receptor, or through some other process, the intracellular protein-kinase domains can autophosphorylate, and activate downstream processes, including cell signaling pathways that can lead to either cell cycle arrest or cell growth and proliferation. EGFRs and kinases can act similarly to a switch that turns “on” and “off” when phosphate groups are either added or taken away. Mutated kinases can have a malfunctioning on/off switch, causing the switch to be stuck in the “on” position or failing to turn the switch “off,” leading to the loss of cell control.

Cancer and the Immune System. Cancer can also spread when the body’s natural immune functions are impaired, including by the cancer cells themselves. PD-1, or Programmed Death-1, is a receptor expressed on the surface of activated T cells, which are part of the body’s immune system. PD-L1 is a protein/receptor expressed on the surface of cancer and other cells. The binding of PD-1 to PD-L1 has been speculated to contribute to cancer cells’ ability to evade the body’s immune response. PD-1 and similar molecules are called immune checkpoints because they can impede the normal immune response, for example by blocking the T cells from attacking the cancer cells. In many cancers, PD-L1 receptors are up-regulated. Substantial research is now being performed in the emerging field of immuno-oncology to discover drugs or antibodies that could block PD-L1 and similar receptors. It is believed that blocking the PD-1/PD-L1 interaction pathway and other similar checkpoints, such as cytotoxic T-lymphocyte-associated protein 4, or CTLA-4, with drugs called checkpoint inhibitors can prevent cancer cells from inactivating T cells.

Current Treatment of NSCLC. Chemotherapy is the standard treatment for the majority of NSCLC patients, as it is for many other cancer patients. Because it is a non-selective systemic treatment, rather than a targeted approach to treating cancer, chemotherapy also kills healthy cells and has a number of other side effects.

A subset of NSCLC patients carry one or both of two EGFR mutations, referred to as exon 19 deletion and exon 21 substitution, which make their tumors sensitive to tyrosine kinase inhibitors ("EGFR TKIs"). Because EGFR is frequently overexpressed in lung tumors, it has become a favored therapeutic target for pharmaceutical companies. Several pharmacological and biological approaches, including EGFR TKIs, have been developed specifically to block activated EGFR for cancer therapy. The class of drugs functioning as protein kinase inhibitors ("KIs") comprises the majority of targeted therapies for lung cancer, accounting for most sales and use. Of the KIs, the EGFR TKI drugs are the most common, with drugs targeting EGFR kinases leading the sector growth. Several EGFR TKI therapies are marketed commercially including, but not limited to, Tagrisso, Tarceva, Iressa and Gilotrif.

Approximately 7% of NSCLC patients of North American and European descent and approximately 30% to 50% of NSCLC patients of Asian descent have activating EGFR mutations. This means that the majority of NSCLC patients do not have activating EGFR mutations and are therefore “EGFR negative” and not optimal candidates for EGFR TKIs.

However, while EGFR TKIs are most effective in patients who have an activating EGFR mutation and are therefore described as “EGFR positive,” they are significantly less effective in overall NSCLC populations and are generally not effective in patients without an activating EGFR mutation.

In addition, even among those patients who are EGFR positive and benefit from EGFR TKI therapy, nearly all eventually become resistant to and ultimately no longer respond to EGFR TKI therapy, resulting in eventual disease progression. For example, according to the FLAURA study, sponsored by AstraZeneca, the median time to tumor progression for lung cancer patients on Tagrisso is approximately 18 months. Furthermore, clinical trials have shown that combining EGFR TKIs with conventional chemotherapy does not increase survival for lung cancer patients.

Epidemiology of Non-Small Cell Lung Cancer. According to the World Health Organization in 2019, lung cancer was the leading cause of cancer deaths worldwide, causing more deaths than colorectal, breast, liver or stomach cancers. In the United States, according to the American Cancer Society, it is estimated that in 2021 there will be more than 235,000 new cases of lung cancer and more than 131,000 deaths from this disease. The American Society of Clinical Oncology reports that NSCLC represents 84% of all lung cancers and has a 24% five-year survival rate. However, according to the National Cancer Institute, 57% of lung cancer diagnoses are distant, or have metastasized, and the five-year relative survival rate for Stage 4 (metastatic) NSCLC is approximately 5%. With limited benefit from current therapies, we believe there is a significant unmet medical need for new treatments for NSCLC in the United States and globally, and we believe REQORSA may be suitable for a majority of NSCLC patients.

REQORSA™

Our REQORSA™ immunogene therapy is designed to (i) interrupt cell signaling pathways that cause replication and proliferation of cancer cells, (ii) to target and kill cancer cells via receptor pathways, and (iii) to stimulate the natural immune responses against cancer. REQORSA is an immunogene therapy in that it combines features of gene therapy and immunotherapy. It up-regulates TUSC2 expression in the cell, and also increases the anti-tumor immune cell population and down-regulates PD-L1 receptors, thereby potentially boosting the immune response to cancer.

REQORSA consists of the TUSC2 gene expressing plasmid encapsulated in a non-viral nanoparticle made from lipid molecules (our ONCOPREX Nanoparticle Delivery System) with a positive electrical charge. REQORSA is injected intravenously and specifically targets cancer cells. Cancer cells have elevated metabolism compared to healthy cells and as a result, are negatively charged compared to healthy cells, which are positively charged, or charged neutral. REQORSA is designed to deliver the functioning TUSC2 gene to cancer cells while minimizing their uptake by normal tissue. Tumor biopsy studies conducted at MD Anderson show that, in three patients, the uptake of TUSC2 in tumor cells after REQORSA treatment was 10 to 33 times the uptake in normal cells. We believe that REQORSA, unlike other gene therapies, which either need to be delivered directly into tumors or require cells to be removed from the body, re-engineered and then reinserted into the body, is the first systemic gene therapy to be used for cancer in humans.

REQORSA has been shown to have a multimodal mechanism of action whereby it interrupts cell signaling pathways that cause replication and proliferation of cancer cells, re-establishes pathways for programmed cell death (apoptosis) in cancer cells, and modulates the immune response against cancer cells. REQORSA also has been shown to block mechanisms that create drug resistance.

REQORSA is a pan-kinase inhibitor shown to simultaneously inhibit the EGFR and Protein kinase B, also known as AKT, oncogenic kinase pathways in vitro and in vivo. Once the cancer cell takes up the nanoparticles containing the TUSC2 expressing plasmid, it is reprogrammed to die. Resistance to targeted drugs and checkpoint inhibitors develop through activation of alternate bypass pathways. For example, when PD-1 is blocked, the TIM-3 checkpoint is up-regulated. We believe that REQORSA’s multimodal activity will block emerging bypass pathways, thereby potentially reducing the probability that drug resistance develops.

Many approved cancer therapeutics target only single molecules or a single specific genetic abnormality related to driving the proliferation and survival of cancer cells. In contrast, REQORSA is designed to work by targeting several molecules within the cancer cell to interrupt cell signaling pathways that cause replication and proliferation of cancer cells, to target and kill cancer cells, to block mechanisms that create drug resistance and to stimulate the natural immune response.

Our preclinical and clinical data indicates that REQORSA is well tolerated and may be effective alone or in combination with targeted small molecule therapies. Preclinical data indicates that REQORSA may also be effective with immunotherapies, and in a three-drug combination with immunotherapy and chemotherapy. By facilitating the action of both drugs, we believe there may be an expanded population of patients who may benefit from these advanced therapy regimens.

TUSC2, the Active Agent in REQORSA™

TUSC2, is a multifunctional gene that plays a vital role in cancer suppression and normal cell regulation. Key TUSC2 anti-cancer mechanisms of action include the inactivation of multiple oncogenic kinases, the induction of apoptosis, the control of cell signaling and inflammation, and modulation of the immune system to fight cancer. REQORSA has also been shown to block mechanisms that create drug resistance. Our data indicates that REQORSA in combination with both EGFR TKIs and with immunotherapies achieve results more favorable than results achieved with either REQORSA or such other therapies alone, and may make those drugs effective for patients who would not otherwise benefit from them.

Normal TUSC2 function is inactivated at the early onset of cancer development, making TUSC2 a potential target for all stages of cancer, including metastatic disease. The TUSC2 protein is reduced or absent in approximately 85% of lung cancers. In patients with NSCLC, the loss of TUSC2 expression has been associated with significantly worse overall survival than when TUSC2 expression is not impaired.

Studies show TUSC2 protein functions as a key mediator in the Apaf1-mediated mitochondrial apoptosis pathway by recruiting and directing cytoplasmic Apaf1 protein to a critical cellular location and activating it in situ and by up-regulating activity of other proapoptotic effectors. Normal TUSC2 function mediates apoptosis in cancer cells through interaction with Apaf1 and down-regulates multiple tyrosine kinases including EGFR, AKT, platelet-derived growth factor receptor ("PDGFR"), c-Kit, and c-Abl. TUSC2 mediates apoptosis in cancer cells but not normal cells through its interaction with Apaf1 and down-regulates tyrosine kinases including EGFR, PDGFR, c-Kit, and c-Abl.

In normal cells, the proteins involved in the PI3K/AKT pathway (also called the mTOR pathway), in which PI3K, a kinase, generates messenger molecules required to translocate AKT, another protein kinase, to the cell’s plasma membrane where it is phosphorylated and activated, play an important role in cellular function and cellular trafficking. These proteins are often found to be aberrantly active in cancers, causing cells to lose their ability to control cell growth, proliferation, and differentiation. Thus, mutations in PI3K (overexpression) and its upstream receptors, EGFR, have been associated with many forms of cancers.

Similarly, proteins in the Ras/MAPK pathway, which is a signal transduction pathway that transduces signals to the cell nucleus where specific genes are activated for cell growth, division and differentiation, play a critical role in cellular responses to various stress stimuli, including osmotic stress, DNA damage, and proinflammatory factors. As shown in the figures below, the TUSC2 protein, a potent pan-kinase inhibitor, blocks multiple cell signaling pathways downstream of the receptor (EGFR in the figures), leading to cell cycle interruption and thereby preventing cancer cell proliferation and survival.

Under stress conditions, such as oncogenic stress, cells go through a regulated process of programmed cell death, also known as apoptosis, in order to control cell development and replication. The TUSC2 protein interacts via various apoptotic signaling pathways to stimulate programmed cell death via the release of caspases, enzymes that play a significant role in apoptosis.

Pan-Kinase Inhibition by TUSC2

Stimulation of Apoptotic Signaling by TUSC2

Our clinical and preclinical data indicates that the combination of REQORSA, with EGFR TKIs, may increase anti-tumor activity in cancers with or without the EGFR mutations and in cancers that have become resistant to EGFR TKI therapy, thus expanding the number of patients who could benefit from those drugs.

TUSC2 and the Immune Response. In addition to its pro-apoptotic cytotoxicity and tyrosine kinase inhibitory activity, TUSC2 enhances the immune response to cancer. Data from preclinical studies at MD Anderson has shown a therapeutic benefit from the combination of TUSC2 and anti-PD-1 antibody and a key role for TUSC2 in regulating immune cell subpopulations including cytokines, natural killer ("NK") cells, and T lymphocytes. In addition, TUSC2 has been found to down-regulate PD-L1 receptors on the surface of cancer cells. By inducing tumor cell apoptosis TUSC2 increases antigen release and presentation, thus promoting an enhanced antitumor response in the presence of other immune regulators.

NK cells, an important part of the innate immune system, have developed several mechanisms to distinguish healthy cells from target cells. These mechanisms allow NK cells to kill cells that are deemed dangerous to the host, including cancer cells. However, one of the consequences of malignant transformation is the ability of the cancer cell to evade the immune system. Cancer cells do so via the up-regulation and interplay of receptors, including checkpoint inhibitors such as PD-1 and PD-L1.

As shown in the illustration below, TUSC2 has been found to stimulate the release of interleukin-15, or IL-15, resulting in up-regulation of mature NK cells that circulate and target cancer cells.

Modulation by TUSC2 of the Immune Response to Cancer

ONCOPREX® Nanoparticle Delivery System

Our immunogene therapy platform consists of anti-cancer genes expressing DNA plasmids contained in non-viral lipid nanoparticles delivered intravenously. REQORSA, our lead drug candidate, utilizes the ONCOPREX® Nanoparticle Delivery System to encapsulate the TUSC2 gene in positively charged nanoparticles that bind to actively replicating (and therefore negatively charged) cancer cells, and then enter the cancer cell through selective endocytosis, a process by which cells take in substances from outside the cell by engulfing them in a vesicle. The nanoparticles in our system differ significantly from liposomes historically used for drug delivery in that they are true particles encapsulating the therapeutic payload within a bilamellar lipid coat.

Operation of the ONCOPREX Nanoparticle Delivery System

The particle size is small enough to allow REQORSA to cross tight barriers in the lung, but large enough to avoid accumulation or clearance in the liver, spleen and kidney. The cationic (positive) charge of the nanoparticles target cancer cells, and direct nanoparticle fusion avoids target cell endocytosis. A Phase 1 clinical trial showed that intravenous REQORSA therapy selectively and preferentially targeted primary and metastatic tumor cells, resulting in anticancer activity. The nanoparticles are non-immunogenic, allowing repetitive therapeutic dosing and providing extended half-life in the circulation.

The ONCOPREX Nanoparticle Delivery System is based on a non-viral delivery system. Most gene therapies rely on viral based delivery systems. The benefit of the viral system is that viruses are skilled at penetrating cells. However, viruses can also affect more than one type of cell and it is possible that the virus may infect additional cells, not just the targeted cells containing mutated genes. If this happens, healthy cells may be damaged causing other illness or diseases, such as cancer. With REQORSA, once it is taken up into a cancer cell, the TUSC2 gene is expressed into a protein that is capable of restoring certain defective functions arising in the cancer cell. REQORSA has been designed using the ONCOPREX Nanoparticle Delivery System to deliver the functioning TUSC2 gene to cancer cells while minimizing their uptake by normal tissue. Tumor biopsy studies conducted at MD Anderson showed that, in three patients, the uptake of TUSC2 in tumor cells after REQORSA treatment was 10 to 33 times the uptake in normal cells.

REQORSA Origins

TUSC2 was discovered through a lung cancer research consortium from MD Anderson and The University of Texas Southwestern Medical Center along with the National Cancer Institute. The TUSC2 discovery teams included Jack A. Roth, MD, FACS, chairman of our Scientific and Medical Advisory Board.

Our technology discoveries and research and development programs have been the subjects of numerous peer-reviewed publications and have been supported by Small Business Innovation Research ("SBIR") grants and grants from the National Institutes of Health, the United States Department of Treasury, and the State of Texas. We hold a worldwide, exclusive license from MD Anderson to patents covering the therapeutic use of TUSC2 and other genes that have been shown to have cancer fighting properties, as well as a number of related technologies, including 27 issued patents and 17 pending patent applications. The rights we have obtained pursuant to our license agreement with MD Anderson are made subject to the rights of the U.S. government to the extent that the technology covered by the licensed intellectual property was developed under a funding agreement between MD Anderson and the U.S. government.

REQORSA Development Rationale and Strategy

Our goal is to utilize our novel immunogene platform to provide large patient populations suffering from devastating illness with more effective treatments.

REQORSA, our lead product candidate, is being developed as a potential treatment for NSCLC. Clinical and preclinical data indicates that REQORSA, when combined with EGFR TKIs such as Tagrisso, Tarceva and Iressa, provides a synergistic effect that could also benefit the larger population of NSCLC patients who are EGFR negative (which means they are not expected to benefit from EGFR TKI drugs alone). Further, our data shows that REQORSA may re-sensitize EGFR positive patients who become resistant to, and therefore no longer benefit from, EGFR TKIs alone. Thus, REQORSA may both significantly expand the benefit of EGFR TKIs to the majority of patients who do not have EGFR activating mutations, and also extend the usefulness and benefit of EGFR TKIs for the population of NSCLC patients who are EGFR positive, but whose tumors progress on EGFR TKIs. Preclinical and clinical data support our belief that REQORSA may provide medical benefit in several subpopulations of NSCLC patients for which there is an unmet medical need, and also served as the basis for the receipt from the FDA in January 2020 of a Fast Track Designation. In granting our Fast Track Designation, the FDA found that REQORSA may provide a benefit over existing therapies for patients whose tumors progress on Tagrisso. The FDA Fast Track Designation is for use of the combination of REQORSA with TKI Tagrisso for the treatment of NSCLC patients with EGFR mutations whose tumors progressed after treatment with Tagrisso.

Pre-clinical data also has shown that REQORSA enhances the immune response to cancer. Data from preclinical studies at MD Anderson has shown a therapeutic benefit from the combination of TUSC2 and anti-PD-1 antibody and a key role for TUSC2 in regulating immune cell subpopulations including cytokines, NK cells, and T lymphocytes. In addition, TUSC2 has been found to down-regulate PD-L1 receptors on the surface of cancer cells.

Pre-clinical studies by MD Anderson researchers have included combining REQORSA with:

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the EGFR TKI gefitinib (marketed as Iressa® by AstraZeneca Pharmaceuticals) in animals and in human NSCLC cells;

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third generation EGFR TKIs such as osimertinib (marketed as Tagrisso® by AstraZeneca Pharmaceuticals);

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MK2206 in animals (MK2206 is an inhibitor of AKT kinases, which affect cell signaling pathways downstream from tyrosine kinases);

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an anti-PD-1 antibody equivalent to the checkpoint inhibitor pembrolizumab (marketed as Keytruda® by Merck & Co.) in animals;

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an anti-PD-1 antibody equivalent to the checkpoint inhibitor nivolumab (marketed as Opdivo® by Bristol-Myers Squibb Company) in animals; and

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an anti-CTLA4 antibody equivalent to ipilimumab (marketed as Yervoy® by Bristol-Myers Squibb Company) in animals.

The manufacturers of the marketed drugs were not involved in any of our clinical or preclinical studies. In studies involving marketed drugs, the drugs were administered concurrently with REQORSA without being modified in any way, and the antibodies used in our preclinical studies that did not use the marketed drugs were the non-humanized equivalent to marketed drugs.

Data from these clinical and preclinical studies indicates that combining REQORSA with these other therapies yields results more favorable than either these therapies or REQORSA alone, with minimal side effects relative to other lung cancer drugs, thereby potentially making REQORSA a therapy complementary to these cancer treatments.

Our Fast Track Designation, clinical and preclinical data have provided the basis for the Company’s development strategy for REQORSA and its use in treating NSCLC. Accordingly, we are planning to initiate, our Acclaim-1 and Acclaim-2 clinical trials in late-stage NSCLC in 2021.

Acclaim-1

In January 2020, we received Fast Track Designation from the FDA for use of REQORSA in combination with TKI Tagrisso for the treatment of NSCLC patients with EGFR mutations whose tumors progressed after treatment with Tagrisso. Given the poor prognosis for these patients and our FDA Fast Track Designation, we are prioritizing this drug combination and patient population and plan to initiate a Phase 1/2 clinical trial in 2021.

The Acclaim-1 trial is a Phase 1/2 Open-Label, Dose-Escalation and Clinical Response Study of REQORSA in Combination with Tagrisso in patients with advanced, EGFR-mutant, metastatic non-small-cell lung cancer who have progressed after treatment with Tagrisso. We anticipate enrolling patients at approximately 15 clinical sites and estimate that the Phase 1 portion of the Acclaim-1 trial will enroll up to 18 patients and that the Phase 2 portion will enroll approximately 74 patients (a 1:1 ratio of REQORSA and Tagrisso combination therapy versus Tagrisso monotherapy). Patients will be treated until a second progression event or unacceptable toxicity is experienced. Patients must have histologically confirmed unresectable stage III or IV EGFR-positive NSCLC (any histology) with:

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radiological progression on Tagrisso (third generation EGFR-TKI); and

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an ECOG performance status of 0 to 1.

The primary endpoint of the Phase 1 portion is dose limiting toxicity ("DLT"), defined as ≥Grade 3 prolonged non-hematological or ≥Grade 4 prolonged hematological toxicity occurring during the first cycle of therapy and considered to be possibly, probably, or definitely related to REQORSA and Tagrisso combination therapy. The primary endpoint of the Phase 2 portion of the trial is progression-free survival which is defined as time from randomization after first progression on Tagrisso, to first event (second progression) or death. Patients will be followed for up to 12 months following administration of their last dose of Tagrisso. We have received centralized institutional review board ("IRB") approval for Acclaim-1.

Acclaim-2

In 2019, preclinical data was presented by MD Anderson collaborators relating to the combination of TUSC2, the active agent in REQORSA, with Keytruda showing that TUSC2 combined with the checkpoint blockade mechanism of action of Keytruda was more effective than Keytruda alone in increasing the survival of mice with human immune cells (humanized mice) that had metastatic lung cancer. MD Anderson also presented preclinical data in 2019 for the combination of TUSC2, Keytruda and chemotherapy for the treatment of some of the most resistant metastatic lung cancers. This study found that the addition of TUSC2 demonstrates synergy with Keytruda and chemotherapy, and thus, may improve on first-line standard of care for lung cancer. In May 2020, we entered into a worldwide, exclusive license agreement with The Board of Regents of the University of Texas System on behalf of MD Anderson for the use of TUSC2 in combination with immunotherapies, including Keytruda, and also for the use of TUSC2 in a three-drug combination of TUSC2, immunotherapy and chemotherapy.

The Acclaim-2 trial is a Phase 1/2 clinical trial combining REQORSA with Keytruda in patients whose disease has progressed on Keytruda in NSCLC patients who are low expressors (1% to 49%) of PD-L1. We plan to initiate the Acclaim-2 trial in 2021.

ONC-001: REQORSA™ Phase 1 Monotherapy Trial (completed)

In 2012, MD Anderson researchers completed a Phase 1 clinical trial of REQORSA as a monotherapy (the “REQORSA Monotherapy Trial”). The primary objective of the REQORSA Monotherapy Trial was to assess the toxicity of REQORSA administered intravenously and to determine the maximum tolerated dose ("MTD") and recommended Phase 2 dose of REQORSA alone. Secondary objectives were to assess the expression of TUSC2 following intravenous delivery of REQORSA in tumor biopsies and also to assess the anticancer activity of REQORSA. This trial showed that REQORSA was well tolerated and established the MTD and the therapeutic dosage for REQORSA at 0.06 mg/kg administered every 21 days. Although this trial was not designed to show changes in outcomes, a halt in cancer growth was observed in a number of patients, and tumor regressions occurred in primary lung tumors and metastatic cancers in the liver, pancreas, and lymph nodes. In addition, pre- and post-treatment patient biopsies demonstrated that intravenous REQORSA selectively and preferentially targeted patients’ cancer cells, and suggested that clinical anti-cancer activity was mediated by TUSC2.

In the Phase 1 Monotherapy Trial, REQORSA was injected intravenously in stage IV (metastatic) lung cancer patients who had received traditional platinum combination chemotherapy but still showed tumor progression at the time of entry into the study. 31 subjects were treated at six dose levels. Seventy percent of subjects had received two or more prior chemotherapy regimens. The only serious adverse events, defined as grade 3, 4 or 5 events under the Common Terminology Criteria for Adverse Events published by the U.S. Department of Health and Human Services, were grade 3 fever (experienced by three patients) and grade 3 hypotension (experienced by 1 patient). The only dose-limiting toxicities were two episodes of transient grade 3 hypophosphatemia (abnormally low levels of phosphate in the blood) resulting in an MTD of 0.06 mg/kg. Twenty-three subjects received two or more doses, of whom five subjects, or 22% of the 23 subjects, achieved disease control for periods ranging from 2.6 months to 10.8 months. The median disease control period for these subjects was 5.0 months (95% CI: 2.0-7.6), while the other 18 subjects’ cancer progressed during the Phase 1 Monotherapy Trial. Disease control for cancer therapies is defined under the Response Evaluation Criteria in Solid Tumors ("RECIST") as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD)>8weeks). Median survival for all subjects in the Phase 1 Monotherapy Trial was 8.3 months (95% CI 6.0-10.5 months) and mean survival time was 13.2 months (95%CI 8.9-7.5 months) with a range of two to 23+ months.

Two subjects had reductions in primary tumor size of 14% and 26%. One subject with stable disease, a 54-year-old female with a large cell neuroendocrine carcinoma who received 12 cycles of REQORSA therapy, had evidence of a durable metabolic response, which is a lasting reduction of metabolic activity in the tumor, as shown by positron emission tomography ("PET") imaging. The response was documented with PET scans performed after the second, fourth and sixth doses, all showing decreased metabolic activity in the tumor with no changes in size or number of metastases by computed tomography ("CT") imaging. The illustration below is of the PET scan of this subject performed after the fourth dose. This subject had received six prior chemotherapy regimens. Prior to entry in the Phase 1 Monotherapy Trial, two hepatic metastases were progressing on gemcitabine. The subject also had a metastasis in the head of the pancreas and a peripancreatic lymph node, shown by the arrows in the illustration below. Illustration A shows the pretreatment PET scan. The dose of Fluorodeoxyglucose (18F) was 8.8mCi. Illustration B shows the post treatment PET scan performed 20 days following the fourth dose of REQORSA. The dose of Fluorodeoxyglucose (18F) was 9.0mCi. All scans were performed within a 60 to 90 minute window after injection.

Metabolic Tumor Response in a Metastatic Lung Cancer Subject

This subject survived after subsequent therapy more than seven years after the final treatment with REQORSA, to our knowledge, without evidence of cancer progression in the responding sites.

ONC-002: Phase 1/2 - Trial Combining REQORSA with Tarceva (Phase 1 portion completed; Phase 2 portion no longer enrolling in favor of conducting Acclaim-1)

Phase 1 Portion: The Phase 1 Monotherapy Trial showed that REQORSA is well tolerated, that high levels of TUSC2 expression are detected in the tumor post-treatment, and that there is evidence of tumor growth suppression. Based on the results from the Phase 1 Monotherapy Trial and substantial preclinical evidence that REQORSA is complementary with EGFR TKIs, we began a Phase 1/2 trial (the “Phase 1/2 Combination Tarceva Trial”) at MD Anderson combining REQORSA with Tarceva in patients with Stage IV (metastatic) or recurrent NSCLC that is not potentially curable by radiotherapy or surgery, whether or not they have received prior chemotherapy, and whether or not they have an activating EGFR mutation. Enrollment in the Phase 1 portion of the Phase 1/2 Combination Tarceva Trial commenced in 2014 at MD Anderson with Dr. Charles Lu as the Principal Investigator.

In the Phase 1 portion of the Phase 1/2 Combination Tarceva Trial, 18 subjects were treated with the following dose levels:

Dose Level		Drug Doses
1		Tarceva (100 mg/day) + REQORSA (0.045mg/kg)
2		Tarceva (100 mg/day) + REQORSA (0.06mg/kg)
3		Tarceva (150 mg/day) + REQORSA (0.045mg/kg)
4		Tarceva (150 mg/day) + REQORSA (0.06mg/kg)

As in the Phase 1 Monotherapy Trial, subjects received a pre-treatment regimen of oral and intravenous dexamethasone and diphenhydramine to reduce fever, along with an infusion of REQORSA every three weeks. Subjects received oral Tarceva daily during each three-week cycle during the treatment period.

The Phase 1 portion of the Phase 1/2 Combination Tarceva Trial was also a dose escalation study with the primary purpose of determining the MTD. DLT were defined as grade 3, 4, or 5 events during the first cycle of treatment that were considered to be treatment related. At dose level 1, one subject had grade 3 adverse events of fatigue, muscle weakness, and hyponatremia (low sodium level) considered to be related to the study treatment (Tarceva). Therefore, three additional subjects were treated at this dose level (six subjects total), none of whom suffered a DLT. At dose level 2, there were no DLTs. At dose level 3, one subject had a grade 3 rash considered to be related to the study treatment (Tarceva); therefore, an additional three subjects were treated at this dose level (six subjects total). No additional subjects suffered a DLT. At dose level 4, there were no DLTs; thus dose level 4 was determined to be the MTD.

Once the MTD for the study treatment combination was determined in the Phase 1 portion of the Phase 1/2 Combination Tarceva Trial to be Dose Level 4, accrual proceeded with the Phase 2 portion of the study. Since the eligibility criteria, drug administration details (other than dose) and evaluation details were identical for the Phase 1 portion and the Phase 2 portion, three subjects in the Phase 1 portion of the Phase 1/2 Combination Tarceva Trial who were treated at the MTD were included in the Phase 2 portion of the study.

Four patients in the Phase 1 portion of the study had stable disease ranging from 12 weeks to 36 weeks. The following observations from our preclinical studies and from the Phase 1 portion of the Phase 1/2 Combination Tarceva Trial provided the rationale for proceeding with the Phase 2 portion of the study:

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TUSC2 inhibits a variety of tyrosine kinases including EGFR, PDGFR, c-kit, and c-abl;

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expression of TUSC2 in NSCLC cells combined with EGFR TKIs is complementary in vitro and in vivo;

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intravenous administration of a nanoparticle encapsulated TUSC2 expression plasmid effectively delivers TUSC2 to distant tumor sites and mediates an anti-tumor effect in orthotopic human lung cancer xenograft models; and

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when the TUSC2-nanoparticle is combined with an EGFR TKI, the suppression of tumor growth in mouse xenograft models is synergistic.

Phase 2 Portion: The Phase 2 portion of the Phase 1/2 Combination Tarceva Trial was designed to include subjects treated with the combination of REQORSA and Tarceva at the MTD with the primary goal of measuring the response rate, and secondary endpoints of stable disease, time to progression and overall survival. The response rate for cancer therapies is defined under the RECIST as Complete Response (CR) + Partial Response (PR); disease control rate is defined under the RECIST criteria as Complete Response (CR) + Partial Response (PR) + Stable Disease (SD) > 8 weeks.

Enrollment criteria for the Phase 2 portion were identical to those in the first phase. The first subject enrolled in the Phase 2 portion began Tarceva on Day 8, and subsequently every other enrolled subject began Tarceva on Day 8. The rationale for delaying Tarceva was to allow exploratory analyses of potential differential effects of REQORSA alone and in combination with Tarceva on downstream pathway activation and potential biomarkers of Tarceva resistance. Subjects received three-week cycles of REQORSA in combination with Tarceva until the occurrence of progressive disease (PD), unacceptable toxicity, withdrawal of consent, or study treatment discontinuation for other reasons, whichever occurred first.

Of the 39 patients allowed in the protocol for the Phase 2 portion of the trial, 10 were enrolled (three of whom were also subjects of the Phase 1 portion of the Phase 1/2 Combination Tarceva Trial) and nine were evaluable for response under the trial protocol, because they received two or more cycles of treatment. None of the 10 subjects treated in the Phase 2 portion of the Phase 1/2 Combination Tarceva Trial suffered a DLT. Interim results from the Phase 2 portion for the 9 evaluable patients show that:

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One patient had a response rate for a study response rate of 11%; this response was a CR;

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Four patients had tumor regression;

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The median response duration for all patients (the median time between when response is first noted to the time when cancer progression is observed) was three months; and

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Disease control rate for the nine patients was 78%.

The patient with the CR, a 58-year-old female, upon enrollment in the study had metastatic NSCLC status following 6 cycles of pemetrexed and carboplatin and two cycles of maintenance pemetrexed with cancer progression. The patient’s tumor has EGFR exon 18 and 20 missense mutations, which are not sensitive to Tarceva. As shown in the illustrations below, this patient had disappearance of both the lung primary tumor and the lung, liver and lymph node metastases.

Subject with RECIST Complete Response

We are no longer enrolling the Phase 2 portion of the Phase 1/2 Combination Tarceva Trial in favor of conducting Acclaim-1.

The response rate and disease control rate in the Phase 2 portion of the Phase 1/2 Combination Tarceva Trial substantially exceeds the response rate of 7% (with no CRs) and disease control rate of 58% reported for a clinical trial of the EGFR TKI afatinib (marketed as Gilotrif® by Boehringer Ingelheim Pharmaceuticals, Inc.) in a study referred to as the LUX-Lung 1 clinical trial. A total of 585 patients were enrolled in that Phase 2b/3 clinical trial, whose primary endpoint was overall survival and whose secondary endpoints were progression-free survival, RECIST response, quality of life and safety. The LUX-Lung 1 clinical trial was a randomized, double blinded Phase 2b/3 clinical trial treating subjects with Stage IIIB or IV adenocarcinoma, a type of NSCLC. The Phase 2 portion of our Phase 1/2 trial was not blinded, and was designed to treat NSCLC subjects regardless of EGFR status.

The following table sets forth interim data from the Phase 2 portion of the Phase 1/2 Combination Tarceva Trial for subjects with and without EGFR mutations.

Preclinical Studies of REQORSA supporting our conduct of Acclaim-1

REQORSA and Tyrosine Kinases. Investigators at MD Anderson conducted preclinical research showing that REQORSA alone blocked the activation of the c-Abl tyrosine kinase. A number of other studies at MD Anderson have shown the complementary effects of REQORSA combined with a variety of targeted kinase inhibitory agents, both marketed and in various stages of clinical development, including Tarceva, Iressa, Tagrisso, MK2206, and others. Researchers investigated the use of REQORSA combined with commercially available EGFR TKI drugs Tarceva and Iressa, and conducted preclinical in vitro and in vivo studies combining REQORSA with these drugs in a variety of human lung cancer cell lines, including cancers with activating EGFR mutations and EGFR mutation negative cancers. Lung cancers known to have intrinsic and acquired resistance to Tarceva therapy were also studied, as were Kras-related and other cancers. Notably, studies in xenograft animal models showed that REQORSA and either Tarceva or Iressa showed synergistic anti-cancer effects, superior to either agent used alone, in both EGFR mutation negative cancers (generally not candidates for Tarceva) and in EGFR mutation positive cancers (optimal candidates for Tarceva), including cancers known to be resistant to Tarceva therapy. The addition of REQORSA to either Tarceva or Iressa overcame drug-induced resistance by simultaneously inactivating EGFR and AKT signaling pathways and by inducing apoptosis in Tarceva- or Iressa-resistant cancers with EGFR mutations and with EGFR mutation-negative cancers.

In one study, MD Anderson researchers tested the combination of Tarceva and REQORSA against five human NSCLC cell lines: H1299, H322, A549, H460, and H1975, the latter of which has the L858R and T790M EGFR mutations and is highly resistant to Tarceva. The results showed that the combination of REQORSA and Tarceva significantly reduced NSCLC colony formation beyond the effect of Tarceva, REQORSA or controls alone (p<0.01 at both 1 and 2.3 uM concentrations for all cell lines). The cooperative interaction between Tarceva and REQORSA was confirmed in vivo using a lung colony formation metastases model in nu/nu mice with A549 human lung cancer cells injected in the tail vein. Mice were treated with the combination of REQORSA and Tarceva and various controls including empty nanovesicles, Tarceva alone, REQORSA alone, and other controls.

The greatest reduction in lung colonies occurred in the REQORSA with Tarceva combination (90% reduction) which was reduced compared to all control groups (p<0.0005). In terms of total tumor nodules, the cooperative effect is greater than 0.9999. This means that there is less than a 1 in 10,000 chance that the low dose Tarceva with TUSC2 combination does not have a cooperative effect and greater than 9,999 in 10,000 chance that the cooperative effect exists. P-value is the probability that the difference between two data sets was due to chance. The smaller the p-value, the more likely the differences are not due to chance alone. In general, if the p-value is less than or equal to 0.05, the outcome is considered statistically significant. The FDA’s evidentiary standard of efficacy generally relies on a p-value of less than or equal to 0.05.

REQORSA and TUSC2 deficient and Tarceva or Iressa resistant cell lines. MD Anderson researchers also tested REQORSA in TUSC2-deficient and Tarceva- or Iressa-resistant NSCLC cell lines. Treatment of the NSCLC EGFR mutation negative cell lines H1299, H322, H358 and H460 cancer cell line showed that the REQORSA combination significantly sensitized (p<0.001) response of the cancer cell lines to both Tarceva or Iressa treatment and synergistically induced apoptosis in vitro. The findings were confirmed in vivo in an H322 orthotopic lung cancer mouse model. These studies included the Kras mutant cell line H460, which is significant because patients with Kras mutant tumors are generally unresponsive to Tarceva or Iressa. Synergistic induction of apoptosis was observed with the combination of REQORSA and concentrations of Tarceva or Iressa similar to steady-state serum concentrations achievable with oral dosing. The combination of REQORSA and either Tarceva or Iressa induced similar levels of tumor cell growth inhibition, apoptosis induction, and inactivation of oncogenic protein kinases.

Data from these and other MD Anderson studies suggest a combination of REQORSA with Iressa or Tarceva can promote synergistic tumor cell killing and overcome drug-induced resistance by simultaneously inactivating the EGFR and the AKT signaling pathways and by inducing apoptosis in resistant cells with nonmutated EGFR. These data suggest that NSCLC patients with an activating EGFR mutation, whose cancer progresses on Tarceva, may potentially benefit from REQORSA with Tarceva combination therapy. These data also suggest that NSCLC patients without an activating EGFR mutation (generally unresponsive to Tarceva) may potentially benefit from REQORSA with Tarceva combination therapy.

TUSC2 and Tumor Sensitivity. In another study, MD Anderson researchers analyzed the effects of TUSC2 re-expression on the sensitivity of tumor cells to the AKT inhibitor MK2206 in vitro and in mice. The AKT pathway is an important intracellular, converging positive regulator of apoptosis. AKT stimulates apoptosis and is frequently dysregulated in cancers, and this has been associated with reduced sensitivity to anti-tumor drugs. The study showed that the combination of TUSC2 transfection with MK2206 treatment suppressed tumor cell viability in vitro and effectively inhibited xenograft tumor growth in vivo more effectively than either agent alone.

Preclinical Studies of TUSC2 in the Immune Response to Cancer supporting our conduct of Acclaim-2

Previous research has shown that TUSC2 regulates cytokine expression in vitro. Cytokines are proteins that stimulate inflammation as part of the immune response. Stable expression of TUSC2 in H1299 NSCLC cells altered expression of a wide spectrum of cytokines including IL2, IL7, IL8 and 10, GM-CSF and PDGF-beta. TUSC2 is a positive regulator of innate immunity via regulation of IL-15 expression. IL-15 induces NK cell differentiation.

The systemic effect of the TUSC2 and anti-PD1 antibody combination was examined in two immunocompetent, syngeneic mouse models of Kras and p53 mutant lung cancer. C57BL/6 mice were subcutaneously injected with murine adenocarcinoma lung carcinoma CMT/167-luc cells (KrasG12V mutation). CMT/167 cells do not express TUSC2. Tumors from untreated mice, isotype antibody control, or those treated with anti-PD1 were used as controls. 344SQ (KrasG12D allele and a knock-in Trp53R172HÄG allele) adenocarcinomas which metastasize to the lung in 126S2 mice were also used. When tumors reached 50-100 mm3, mice were either injected intravenously with DOTAP:cholesterol (DC)-TUSC2 complex alone (at a dose of 25 “g of plasmid DNA and 10 nmol DC, every 48 hours for three injections), or (DC)-TUSC2 complex combined with anti-PD1 antibody (250 “g for four injections) alone or combined with anti-CTLA4 (100ug for three injections). Tumor growth and development was monitored by scoring ex-vivo luminescence using the IVIS Imaging System 200 Series. All tumor measurements were blinded to treatment and results were analyzed independently by biostatisticians.

Preclinical Study Showing that the TUSC2 and Anti-PD1 Combination Cooperatively Inhibits Growth of CMT/167 Lung Adenocarcinomas

Mouse experiments showed combined treatment with TUSC2 and anti-PD1 antibody superior to anti-PD1 alone in five independent experiments in two different tumor models. Results of a representative experiment are shown in the graph below. By week three the reduction in tumor image intensity by the combination of TUSC2 and anti-PD1 and TUSC2, anti-PD1, plus anti-CTLA4 was greater than the reduction with TUSC2 alone, anti-PD1 combined with anti-CTLA4, or the isotype control. Spleens and blood were collected for immunological analysis profiling by multicolor flow cytometry. Immune profiling panels were designed to evaluate response and major changes of specific regulatory innate and adaptive immune cells to TUSC2 or anti-PD1 treatment in peripheral blood and spleen.

Preclinical Study Showing Effect of TUSC2 Anti-PD1 Combo on T Lymphocytes

Preclinical Study Showing the Effect of the TUSC2 and Anti-PD1 Combination on T Lymphocytes

The population of NK cells, cytotoxic lymphocytes critical to innate immune function, was assessed in peripheral blood mononuclear cells ("PBMCs") in tumor bearing mice treated with anti-PD1, TUSC2 alone and the combination. As shown in the graph below, the NK cell population increased strongly in the TUSC2 alone and TUSC2+PD1 groups which correlated with tumor regression. Anti-PD1 alone had no effect on NK cell proliferation.

Tumor free mice without mutations that lead to metastasis were injected intravenously with TUSC2 which caused a threefold up-regulation of NK cells in the peripheral blood of TUSC2 injected mice as compared with non-injected mice. CD8 T cells, which are cytotoxic T cells ("CTL") for tumor killing, act as a prognostic marker of tumor regression. Increased numbers of CTL were found in the TUSC2 and TUSC2+PD1 groups as compared with that of the control group which directly correlated with the anti-tumor effect, as shown in the graph below. Lower levels of CD62L expression on T lymphocytes in TUSC2 treated mice suggests that TUSC2 regulates T cell activation. Moreover, TUSC2 induced down-regulation of regulatory T cells (Treg, CD4+CD25+). TUSC2 was shown to down-regulate checkpoint markers such as PD-1, CTLA-4, Tim-3, and LAG-3.

Effect of TUSC2 with Anti-PD1 on Immune Cell Populations in Peripheral Blood (Large)

Preclinical Study Showing that TUSC2 Immunogene Therapy is Synergistic with Anti-PD1 in Lung Cancer Syngeneic Mouse Models

Based on the prolonged responses that were observed in TUSC2 clinical trials, which suggest that TUSC2 may modulate the immune response, and on the fact that checkpoint blockade immunotherapy against PD1 and PD-L1 has yielded durable antitumor activity in a subset of NSCLC patients, MD Anderson researchers conducted a preclinical study to investigate the immune response to TUSC2 in immune cell populations and the synergistic antitumor effect of TUSC2 in combination with anti-PD1 checkpoint blockade in syngeneic mouse NSCLC models.

Two Kras-mutant syngeneic mouse models were used to explore the effect of TUSC2+anti-PD1 (+/- anti-CTLA-4) on immune cells infiltration into the tumor micro-environment. Activating Kras mutations are the most common driver mutations in lung adenocarcinomas. Lung cancer with mutant Kras has a poor prognosis, is often resistant to conventional therapy, and readily becomes resistant to targeted therapies with kinase inhibitors. Studies by researchers not at MD Anderson have found that PD1 expression was highly associated with the presence of Kras mutations and that PD-L1 expression was elevated in premalignant Kras-mutant cells, suggesting that Kras mutation may affect the function of the PD1/PD-L1 immune checkpoint pathway.

The first syngeneic mouse model used a murine lung carcinoma cell line CMT/167-luc with a Kras G12V mutation and a low level of TUSC2 expression, implanted subcutaneously in C57BL/6 mice. The second syngeneic mouse model optimized an aggressive experimental metastatic lung cancer model using 129SvE mice injected with SQ344 lung cancer cells, which contained KrasG12D allele. The SQ344 tumor model was found to be less sensitive to anti-PD1 single agent treatment.

The image below shows the results of this preclinical study, in which anti-PD-1, TUSC2 and anti-CTLA-4 treatments were administered in the SQ344 metastatic lung tumor mouse model. The graph on the left shows the survival of the mice with the lung tumor cells treated with (a) no treatment, (b) a combination of anti-PD-1 and anti-CTLA-4, (c) TUSC2 alone, (d) a combination of TUSC2 and anti-PD-1, and (e) a combination of TUSC2, anti-PD-1 and anti-CTLA-4. The image on the right shows samples of untreated lung tissue and lung tissue treated with TUSC2.

Preclinical Studies Showing that TUSC 2 Immunogene Therapy is Synergistic with Anti-PD1 in Lung Cancer Humanized Mouse Models

The results of a preclinical study combining anti-PD1 with TUSC2 immunogene therapy showed strong antitumor immune responses of anti-PD-1 against PDX (patient derived xenograft) tumors developed in humanized mice. In addition, TUSC2 plus anti-PD1 plus a chemotherapy combination resulted in metastasis regression significantly greater than either TUSC2 immunogene therapy alone or anti-PD1 plus chemotherapy.

Discovery Programs

ONCOPREX® Nanoparticle Delivery System as a platform. We believe that the ONCOPREX Nanoparticle Delivery System may be applicable to delivery of a range of therapeutic and prophylactic plasmid DNA and RNA interference constructs and show efficacy in cancers beyond NSCLC. The manufacturing methods we have developed for REQORSA have been optimized and we believe they may be useful for a wide array of disease treatments. Clinical data from the use of REQORSA has shown that the ONCOPREX Nanoparticle Delivery System is well tolerated in humans and can be delivered at high therapeutic doses.

Rights to other Tumor Suppressor Genes. We have licensed rights to a group of candidate tumor suppressor genes, including 101F6, NPRL2, CACNA2D2, PL6, BLU, RASSF1, HYAL 1 and HYAL2, in addition to tumor suppressor gene, TUSC2, all of which are located in a sub-region of human chromosome 3 known as 3p21.3. Using a number of techniques, MD Anderson researchers and their collaborators have identified these genes as potentially having cancer-fighting characteristics. MD Anderson researchers have subsequently conducted a number of preclinical studies on certain of these genes, particularly 101F6 and NPRL2, as well as TUSC2, both alone and in combination with other compounds, in order to assess their actual effects on NSCLC. Under our Sponsored Research Agreement with MD Anderson, we plan to continue to support continuing research into the cancer-fighting properties of these and other genes in the 3p21.3 sub-region.

Researchers at MD Anderson have collaborated with other researchers to identify other genes, such as those in the 3p21.3 chromosomal region, that may act as tumor suppressors or have other cancer fighting functions. We hold rights to certain of these genes under license agreements with MD Anderson. Data from preclinical studies performed by MD Anderson researchers and others suggest that TUSC2, the active agent in REQORSA, could be effective against other types of cancer, including glioblastoma, head and neck, breast (including triple-negative breast cancer), renal cell (kidney), thyroid, and soft tissue sarcoma, as well as NSCLC. Therefore, the ONCOPREX Nanoparticle Delivery System may allow delivery of a number of cancer fighting genes, alone or in combination with other cancer therapies, to combat multiple types of cancer.

Introduction – Diabetes

Diabetes Mellitus. Diabetes mellitus refers to a group of metabolic diseases that affect how the body produces and uses blood sugar (glucose). Glucose is vital to health because it is an important source of energy for the cells that make up the body’s muscles and tissues. It is also the brain's main source of fuel. Chronic diabetes conditions include Type 1 diabetes and Type 2 diabetes, both of which lead to excess sugar in the blood and can cause serious health problems. Left untreated, high blood sugar levels can damage eyes, kidneys, nerves, and the heart, and can also lead to coma and death.

Epidemiology of Diabetes. According to the U.S. Center for Disease Control, 34.2 million Americans, or approximately 10.5% of the population, have diabetes. It is also believed that more than 88 million Americans have prediabetes, which represents approximately 35% of the U.S. population. The prevalence of this chronic disease is continuing to rise.

The Role of Alpha Cells and Beta Cells. The two most abundant endocrine cell types in the pancreas, the beta and the alpha cells, are essential for the maintenance of blood glucose homeostasis whereby levels of glucose are maintained by the body within a narrow range. While the beta cell produces insulin, the only blood glucose-lowering hormone of the body, the alpha cell releases glucagon, which elevates blood glucose. While the release products of the beta cell inhibit alpha cell function, the alpha cell releases factors that are stimulatory for beta cell function and increase glucose-stimulated insulin secretion.

In people with Type 1 diabetes, however, beta cells are destroyed by the immune system and no longer secrete insulin leading to an absolute deficit of insulin. Type 2 diabetes is due to "insulin resistance," an initial resistance of the body's cells to obey the direction from insulin. To overcome this resistance, the beta cells secrete more insulin, and glucose is eventually forced into the cells. Glucose is maintained within normal limits, but at the expense of increased insulin secretion by the beta cells. After many years of such increased secretion, the beta cells become "tired" from working overtime, and the fatigue process begins. This fatigue tends to be progressive, and in time the compensation of insulin resistance disappears. At that point, blood glucose levels start going up.

Current Treatments for Diabetes. Advances in new treatments have helped many people better manage the disease. However, despite patients' best attempts, managing diabetes remains a challenging, daily balancing act because insulin therapy simply cannot ideally mimic the body’s biological function.

Type 1 diabetes patients are treated with insulin, with most of the progress in therapy relating to enhanced delivery of the drug and improved methods for measuring blood glucose levels. A variety of drug release technologies have allowed for rapid-acting, intermediate-acting and long-acting insulin injections that provide drug anywhere from one to 24 hours. In addition, improvements in needles, continuous delivery ports, and inhalation technologies all have helped patients better manage their disease and may impact quality of life, but none of these advances are disease modifying.

Type 2 diabetes patients are advised to use diet and exercise to manage their condition. When these lifestyle changes alone do not control the disease, Type 2 diabetes patients may be prescribed a variety of medications that help alter how the body manages blood sugar levels. For example, biguanides such as Metformin®, reduce the amount of glucose produced in the liver. DPP-4 inhibitors, such as Januvia®, Onglyza®, and Tradjenta®, improve blood sugar levels and prevent them from dropping too low. Glucagon-like peptides, such as Byetta®, Trulicity® and Victoza®, change the way the body produces insulin. Drugs in the SGLT2 inhibitor class, such as Farxiga and Inokana, release more glucose into the urine. Finally, insulin injections may be needed if these oral medications, along with diet and exercise, do not lower blood sugar levels enough. These medications, including insulin replacement therapy, while offering improvements for Type 2 diabetes patients, do not affect the underlying cause of the disease.

GPX-002

We have licensed a pre-clinical gene therapy from the University of Pittsburgh to restore the function of beta cells that are destroyed by the immune system and overcome further destruction of insulin-producing cells. This technology, referred to us as GPX-002, infuses adeno-associated virus carrying Pdx1 and MafA gene expression cassettes through the pancreatic duct to reprogram alpha cells into functional beta-like cells, which can produce insulin but are distinct enough from beta cells to evade the body’s immune system.

Preclinical Studies

GPX-002 has been tested in vivo in mice and nonhuman primates. In studies in non-obese diabetic mice, a model of Type 1 autoimmune diabetes, the gene therapy approach restored normal blood glucose levels for an extended period of time, typically around four months. According to the researchers, the duration of restored blood glucose levels in mice could potentially translate to decades in humans. If successful, this gene therapy could eliminate the need for insulin replacement therapy for diabetic patients.

Process Development and Manufacturing

We have developed a robust manufacturing process for REQORSA through years of process development. REQORSA is an immunogene therapy with two main components. The active agent in REQORSA is a DNA plasmid encoding the TUSC2 protein. The plasmid is encapsulated by non-viral DOTAP cholesterol lipid nanoparticles. This system of encapsulating DNA plasmid in non-viral lipid nanoparticles is referred to by us as our ONCOPREX Nanoparticle Delivery System. Each of these two components is manufactured by separate third-party contract development and manufacturing organizations ("CDMOs") and then transported to another CDMO for final drug formulation. We do not currently have the internal infrastructure or facilities to manufacture REQORSA or any other product candidate for use in the conduct of our clinical trials or for commercial supply; however, our strategy could change in the future and we could choose to develop this infrastructure. Where other gene therapy agents need to be prepared individually for each patient or require viral vectors for gene delivery, REQORSA utilizes the ONCOPREX Nanoparticle Delivery System and has been shown to be scalable at current Good Manufacturing Practices (“cGMP”) and stored for at least one year for later use. Successful tech transfer of REQORSA from MD Anderson, where it was previously manufactured, to a CDMO has been achieved as well as scale-up of our clinical grade manufacturing production in accordance with cGMP. The clinical grade production will be used to supply our Acclaim-1 and Acclaim-2 clinical trials. We manage our manufacturing arrangements with our CDMO vendors through various agreements.

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 proprietary rights of other parties, both in the U.S. and in other countries. Our policy is to actively seek the broadest intellectual property protection possible for our products, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the U.S. and elsewhere in the world.

We hold a worldwide, exclusive license to 27 issued patents and 17 pending patent applications for technologies developed at MD Anderson and The University of Texas Southwestern Medical Center. These patents comprise various therapeutic, diagnostic, technical and processing claims relating to REQORSA, our ONCOPREX Nanoparticle Delivery System. We also hold a worldwide, exclusive license to an issued patent for diabetes technologies developed at the University of Pittsburgh.

We also have received trademark registrations for the trademarks GENPREX and ONCOPREX and have filed a trademark application for the drug name REQORSA.

Licenses and Research Collaborations

Agreements with MD Anderson

Our ONCOPREX and REQORSA technologies are exclusively licensed pursuant to a Patent and Technology License Agreement (“MD Anderson License Agreement”) dated July 20, 1994 with MD Anderson, as amended on September 1, 1996, August 11, 1997, July 31, 1994 and October 4, 2001, between MD Anderson and Introgen Therapeutics, Inc. (f/k/a Intron Therapeutics, Inc.) (“Introgen”).

Pursuant to the MD Anderson License Agreement, we have rights to patents covering use of various genes, including the TUSC2 gene, for treatment of cancer, as well as know-how and related intellectual property.

The exclusive licenses under the MD Anderson License Agreement, will continue until the expiration of all patents covered by such agreement. Upon the expiration of the exclusive licenses, we will have a non-exclusive, fully paid-up right and license to use and otherwise exploit the technology rights licensed under the agreement. MD Anderson may terminate the agreement for, among other things, a breach of the agreement by us which remains uncured.

Pursuant to a Technology Sublicense Agreement dated March 7, 2007 (“Sublicense Agreement”), Introgen sublicensed its rights under the MD Anderson License Agreement to Introgen Research Institute, Inc. (“IRI”) a company formed and owned by Rodney Varner, our current President, CEO and Chairman of the board of directors.

Pursuant to an Assignment and Collaboration Agreement dated April 13, 2009 (“IRI Collaboration Agreement”) IRI assigned its rights under the Sublicense Agreement to us, and we granted to IRI a non-exclusive, royalty-free license to use and practice the licensed technology for non-commercial research purposes. As consideration for this assignment, we agreed to assume all of IRI’s obligations to MD Anderson under the MD Anderson License Agreement, including ongoing patent related expenses and royalty obligations.

The IRI Collaboration Agreement was amended by an Amended Collaboration and Assignment Agreement dated July 1, 2011 ("2011 IRI Collaboration Agreement"). The 2011 Collaboration Agreement provided that IRI would provide additional licensing opportunities and services to us, in return for monthly payments and our obligation to pay to IRI a royalty of 1% on sales of products licensed to us under the MD Anderson License Agreement. In 2012, IRI’s obligation to provide those opportunities and services, and our obligation to make monthly payments to IRI, were terminated; however, we are required to pay a 1% royalty to IRI upon sales of products licensed to us under the MD Anderson License Agreement which royalty obligation continues for 21 years after the later of the termination of the MD Anderson License Agreement and the termination of the sublicense assigned by IRI to us.

Pursuant to a Technology Sublicense Agreement dated June 1, 2011, we granted to IRI a non-exclusive sublicense, for non-commercial purposes, to the rights under the Sublicense Agreement.

At the time that we entered into the 2011 IRI Collaboration Agreement, Mr. Varner was not an officer or director of Genprex, but he was deemed to be an “affiliate” of the Company due to his beneficial ownership of approximately 39% of our issued and outstanding shares. At the time we acquired the ONCOPREX and REQORSA technologies under the 2009 IRI Collaboration Agreement, they were the subject of the Phase 1 Monotherapy Trial. We completed the Phase 1 Monotherapy Trial and did substantial process development, manufacturing and regulatory work necessary to bring the technologies into a Phase 1/2 combination trial.

Pursuant to the MD Anderson License Agreement, the Sublicense Agreement and the 2009 IRI Collaboration Agreement, we are obligated to pay all fees, patent related expenses, royalties, and other amounts that become due with respect to the licensed patents, patent application and other technologies. We are also obligated to pay to MD Anderson royalties of 1.5% of net sales of the licensed products, as well as 1.5% of advance payments received by us (excluding amounts paid to us in reimbursement of development or other costs) from third parties pursuant to sublicense, marketing, distribution or franchise arrangements. Under the 2011 IRI Collaboration Agreement, we are obligated to pay to IRI a royalty of 1.0% of net sales of licensed products and 1.0% of certain other payments received by us. This royalty obligation continues for 21 years after the later of the termination of the MD Anderson License Agreement and the termination of the Sublicense Agreement. We have no other payment obligations to IRI under the 2009 IRI Collaboration Agreement or the 2011 IRI Collaboration Agreement. We were not required to make any up-front payments to MD Anderson or IRI when we entered into the MD Anderson License Agreement, the Sublicense Agreement or the 2009 IRI Collaboration Agreement.

On May 4, 2020 (the “MD Effective Date”), we entered into a Patent and Technology License Agreement with MD Anderson, as amended on March 3, 2021 (collectively, the “2020 License Agreement”). Pursuant to the 2020 License Agreement, MD Anderson granted us a worldwide, exclusive, sublicensable, royalty-bearing license to certain licensed intellectual property and technology, including, without limitation, use of chemotherapy in combination with TUSC2 therapy and methods for treating cancer by administration of a TUSC2 in conjunction with EGFR inhibitors or other anti-cancer therapies in patients that are expected to be responsive to TUSC2 therapy (collectively, the “Licensed IP”), to manufacture, use, commercialize, seller, offer for sale and import licensed products related to the treatment of cancer using TUSC2 therapy in combination with certain immunotherapies (the “Licensed Products”). In consideration for our use of the Licensed IP, we are required to make certain payments to MD Anderson, including, without limitation, an upfront license fee as well as a fee paid to amend the agreement, annual maintenance fees ranging from the low five figures to low six figures, milestone payments aggregating up to a maximum of $6,150,000, low single digit royalty payments to low double digits royalty payments with lower net sales being subject to lower royalty payments, and minimum annual royalties after the first sale in a low six figure amount. In addition, we shall be required to reimburse MD Anderson for certain patent expenses. The 2020 License Agreement shall expire on the later to occur of (a) the expiration of all patents issued under the Licensed IP and the cancellation, withdrawal, or express abandonment of all patent applications under the Licensed IP, or (b) 30 years after the MD Effective Date, unless earlier terminated pursuant to the terms thereof. In 2015 and 2017, we entered into two option agreements with MD Anderson, paying MD Anderson $35,000 and $37,803, respectively, for the rights to negotiate exclusive rights to additional licensed intellectual property and technology from MD Anderson.

License Agreement with P53, Inc.

On February 26, 2010, IRI and P53, Inc. entered into a Technology License Agreement ("P53 License Agreement") pursuant to which IRI granted to P53, Inc. ("P53") a worldwide, exclusive license under certain patents related to the ONCOPREX Nanoparticle Delivery System that we are now using for the delivery of TUSC2, but only for P53’s use in gene therapy products in which the sole active genes are P53 and MDA-7. As a result of the 2009 IRI Collaboration Agreement, we are the licensor under the P53 License Agreement.

The P53 License Agreement authorizes P53 to develop, make and have made, use, offer for sale, sell, import and otherwise distribute the licensed products. As consideration for the P53 License Agreement, P53 agreed to pay IRI one-half of all amounts invoiced by MD Anderson to IRI, up to a maximum of $15,000 to be paid by P53, for patent prosecution expenses incurred prior to the effective date of the P53 License Agreement, as well as two-thirds of IRI’s ongoing patent prosecution expenses, in each case with respect to the licensed patents. Additionally, P53 agreed to pay all amounts that become due to IRI as a result of the P53 License Agreement or the sales, licensing, or other activities of P53 under the P53 License Agreement. Pursuant to the P53 License Agreement, P53 has granted to IRI a fully paid license with respect to improvements made by P53 to the technology licensed to P53 under the P53 License Agreement. The P53 License Agreement remains in effect until the expiration of the last of the patents licensed under the agreement. The last licensed patent under the P53 License Agreement will expire in April 2025. We may terminate the agreement for, among other things, P53’s breach of the agreement or if P53 challenges the validity or enforceability of any of the licensed patents. P53 may terminate the agreement upon 90 days’ written notice.

License Agreement with University of Pittsburgh - Of the Commonwealth System of Higher Education

On February 11, 2020, we entered into an exclusive license agreement (the “UP License Agreement”) with the University of Pittsburgh - Of the Commonwealth System of Higher Education (“UP”) pursuant to which UP granted us a worldwide, exclusive license to certain licensed technology, and a worldwide, non-exclusive license to use certain related know-how, all related to diabetes gene therapy. The UP License Agreement permits us to make, have made, use and sell certain licensed technology and to practice the patent rights in the field of diabetes therapy. We have agreed to sell the licensed technology to UP upon its request on terms and conditions as such products and/or processes are made available to our most favored customer. As consideration for the UP License Agreement, we agreed to pay UP an initial license fee, annual maintenance fees, running royalties minimum annual royalties beginning with the first commercial sale of the licensed technology pursuant to such agreement, a share of non-royalty sublicense income, and milestone payments in the aggregate amount of up to $3,975,000, as well as patent prosecution expenses incurred prior to and after the effective date of the UP License Agreement. The UP License Agreement shall remain in effect until the later of 20 years after the first commercial sale of the licensed technology or the expiration of the last Valid Claim (as defined in the UP License Agreement). UP may terminate the agreement if, among other things, (i) we fail to cure a default, (ii) if we fail to achieve the specified milestones within the specified time periods or (iii) our intentional practice of the licensed patent rights or know-how outside the field of diabetes therapy. We may terminate the UP License Agreement upon six months’ prior written notice to UP and payment of all amounts accrued or due to UP through the effective date of termination.

Grants

We have received grants from the following entities: Texas Emerging Technology Fund, the SBIR program, the National Institutes of Health (“NIH”), and the United States Department of the Treasury. Our collaborators at University of Pittsburgh have also received grants from the NIH in connection with pre-clinical work on GPX-002.

Competition

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. There is also a strong emphasis on intellectual property and proprietary products. We have domestic and international competitors including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Currently, there are a number of drugs approved and under development for treatment of lung cancer. Treatments competitive with our primary product candidates generally fall into the following categories: chemotherapies such as cisplatin, carboplatin, docetaxel and pemetrexed; targeted therapies such as Tarceva, Iressa, Gilotrif, and Tagrisso, and immunotherapies such as checkpoint inhibitors and CAR and CAR T cells, and oncolytic virus-based technology. Any such competing therapy may be more effective and/or cost-effective than ours.

Many of our competitors have greater financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing drugs for the cancer indications that we are targeting before we do or may develop drugs that are deemed to be more effective or gain greater market acceptance than ours. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. In addition, many universities and private and public research institutes may become active in our target disease areas. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than any product candidates that we are currently developing or that we may develop, which could render our products obsolete or noncompetitive. Any product candidates that we successfully develop and commercialize may compete with existing and new therapies that may become available in the future. The availability of reimbursement from government and other third-party payers will also significantly affect the pricing and competitiveness of our products.

Government Regulation

Government authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. The pharmaceutical drug product candidates that we develop must be approved by the FDA before they may be legally marketed.

In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug and Cosmetic Act (“FDCA”) and implementing regulations and other federal, state and local statutes and regulations. In the case of biologics, the section of the FDCA that governs the approval of drugs via New Drug Applications (“NDAs”) does not apply to the approval of biologics. Rather, biologics, such as gene therapy products, are approved for marketing under provisions of the Public Health Service Act ("PHSA") via a Biologics License Application (“BLA”). However, the application process and requirements for approval of BLAs are very similar to those for NDAs. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, the approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

Ethical, social, and legal concerns about gene therapy, genetic testing, and genetic research could result in additional regulations restricting or prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any products. New government requirements may be established that could delay or prevent regulatory approval of our current and potential product candidates. It is impossible to predict whether legislative changes will be enacted, regulations, policies, or guidance changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be.

U.S. Biological Products Development Process

The process required by the FDA before a biological product, including our REQORSA product candidate, may be marketed in the United States generally involves the following:

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completion of preclinical laboratory tests and animal studies according to Good Laboratory Practices ("GLPs"), and applicable requirements for the humane use of laboratory animals or other applicable regulations;

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submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin;

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performance of adequate and well-controlled human clinical trials according to the FDA’s regulations, commonly referred to as Good Clinical Practices ("GCPs") and any additional requirements for the protection of human research patients and their health information, to establish the safety, purity, and potency of the proposed biological product for its intended use;

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submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from results of nonclinical testing and clinical trials;

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satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the product is produced and tested to assess compliance with GMP requirements to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

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potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the BLA; and

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FDA review and approval, or licensure, of the BLA.

Within the FDA, the Center for Biologics Evaluation and Research (“CBER”) regulates gene therapy products. CBER works closely with the NIH and its Novel and Exception Technology and Research Advisory Committee (“NExTRAC”) which makes recommendations to the NIH on gene therapy issues and engages in a public discussion of scientific, safety, ethical and societal issues related to proposed and ongoing gene therapy protocols. The FDA and the NIH have published guidance documents with respect to the development and submission of gene therapy protocols, including informed consent documents. The FDA also has published guidance documents related to, among other things, gene therapy products in general, their preclinical assessment, observing patients involved in gene therapy studies for delayed adverse events, potency testing, and chemistry, manufacturing and control information in gene therapy Investigational New Drugs (“INDs”).

Before testing any product candidate, including a gene therapy product, in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of certain preclinical tests must comply with federal regulations and requirements, including GLPs.

The clinical trial sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA.

Clinical trials involve the administration of the product candidate to volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, patient selection and exclusion criteria, and the parameters to be used to monitor patient safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations comprising the GCP requirements, including the requirement that all patients provide informed consent. Further, each clinical trial must be reviewed and approved by an independent IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent, which must be signed by each clinical trial patient or his or her legal representative, and must monitor the clinical trial until completed. Clinical trials involving biological product candidates also must be reviewed by an institutional biosafety committee ("IBC"), a local institutional committee that reviews and oversees basic and clinical research conducted at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

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Phase 1. The investigational product candidate is initially introduced into human patients and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product candidate may be inherently too toxic to be ethically administered to healthy volunteers, the initial human testing is often conducted in patients; gene therapy is usually administered to patients in Phase 1 trials. This is also true in situations where toxicity can only be judged in patients with disease. An evaluation for preliminary evidence of efficacy can be performed at this time.

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Phase 2. The investigational product candidate is evaluated in a limited patient population to identify possible adverse effects and safety risks, to evaluate preliminarily the efficacy of the product candidate for specific targeted diseases, and to generate hypotheses for the dosage tolerance, optimal dosage, and dosing schedule.

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Phase 3. Clinical trials are undertaken to evaluate further dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product candidate and provide an adequate basis for product labeling.

In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial may be sufficient in rare instances, including (1) where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible or (2) when in conjunction with other confirmatory evidence. Typically, during the development of oncology therapies, all subjects enrolled in Phase 1 clinical trials are disease-affected patients and, as a result, considerably more information on clinical activity may be collected during such trials than during Phase 1 clinical trials for non-oncology therapies. A single pivotal trial may be sufficient in rare instances to provide substantial evidence of effectiveness (generally subject to the requirement of additional post-approval studies).

In addition, the manufacturer of an investigational biologic in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access to such investigational biologic.

Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up. The FDA recommends that sponsors observe patients for potential gene therapy-related delayed adverse events with agents such as those we are developing for a period of up to 15 years, including a minimum of five years of annual examinations followed by ten years of annual queries, either in person or by questionnaire, of clinical trial patients.

During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, and the investigators for serious and unexpected adverse events, any findings from other trials, tests in laboratory animals or in vitro testing that suggest a significant risk for human patients, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for expedited reporting. The sponsor must also notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA, the sponsor, or its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the investigational product candidate has been associated with unexpected serious harm to patients.

There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial.

Concurrently with clinical trials, companies usually complete additional animal studies and also develop additional information about the physical characteristics of the components of a product as well as finalize processes for manufacturing the components in commercial quantities in accordance with GMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA, emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the components of a product candidate do not undergo unacceptable deterioration over their shelf life.

U.S. Review and Approval Processes

After the completion of clinical trials of an investigational biologic product, FDA approval of a BLA must be obtained before commercial marketing of the product may begin. The BLA must include results of product development, laboratory, and animal studies, human trials, information on the manufacture and composition of the product, proposed labeling and other relevant information. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will file the BLA and, even if filed, that any approval will be granted on a timely basis, if at all.

Under the Prescription Drug User Fee Act, as amended (“PDUFA”), each BLA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes annual program fees on prescription drugs, including biologics. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. No user fees are assessed on BLAs for products designated as orphan drugs, unless the application also includes a non-orphan indication.

Within 60 days following submission, the FDA reviews the BLA to determine if it is substantially complete before the agency files it. 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. The resubmitted application also is subject to an initial filing review before the FDA files it. Once the submission is filed, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with GMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations when making decisions. During the product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy (“REMS”) is necessary to assure the safe use of the product. If the FDA concludes that a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required.

Before approving a BLA, the FDA will typically inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in substantial compliance with GMP 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 that the clinical trials were conducted in compliance with GCP requirements. To assure GMP, GLP and GCP compliance, an applicant must incur significant expenditure of time, money, and effort in the areas of training, record keeping, production, and quality control.

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently from how we interpret the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may resubmit the BLA, addressing all of the deficiencies identified in the letter, withdraw the application, or request a hearing.

If a product candidate receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings, or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to assess further a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

One of the performance goals agreed to by the FDA under the PDUFA is to review 90% of original standard BLAs within 10 months of the 60-day filing date and 90% of original priority BLAs within six months of the 60-day filing date, whereupon a review decision is to be made. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.

Expedited Development and Review Programs

The FDA has four programs in place intended to facilitate and expedite development and review of new drugs and biologics intended to address unmet medical needs in the treatment of serious or life-threatening conditions. These are Fast Track Designation, Breakthrough Therapy Designation, Accelerated Approval Program, and Priority Review Designation.

The Fast Track program is intended to expedite or facilitate the process for reviewing a new product if it is intended for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. Fast Track Designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.

A product can receive Breakthrough Therapy Designation if it is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that it may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A Breakthrough Therapy Designation conveys all of the features of Fast Track Designation in addition to more intensive FDA guidance on an efficient development program, organizational commitment involving senior managers, and eligibility for priority review. Specifically, the FDA intends to expedite the development and review of a Breakthrough Therapy by, where appropriate, intensively involving senior managers and experienced review staff in a proactive collaborative, cross-disciplinary review. Where appropriate, the FDA also intends to assign a cross-disciplinary project lead for the review team to facilitate an efficient review of the development program. The FDA notes that a compressed drug development program still must generate adequate data to demonstrate that the drug or biologic meets the statutory standard for approval. Omitting components of the development program that are necessary for such a determination can significantly delay, or even preclude, marketing approval.

Breakthrough Therapy Designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy. Breakthrough Therapy Designation intensifies FDA involvement to ensure an efficient drug development program and is an organizational commitment from the FDA to involve its senior managers. A sponsor receiving Breakthrough Therapy Designation has up to six months after receiving the Breakthrough Therapy Designation to request an Initial Comprehensive Multidisciplinary meeting to discuss the drug development program. This initial meeting is a Type B meeting, used to discuss the overarching, high-level plan for drug development. These discussions include topics such as planned clinical trials and endpoints, any resizing or adaptations to the trials, plans for expediting the manufacturing development strategy and studies that potentially could be completed after approval. When Breakthrough Therapy Designation has been granted, the FDA is encouraged to meet regularly with the sponsor and subsequent meetings are considered Type B meetings and are established based on the needs of the program.

The FDA may grant accelerated approval under its Accelerated Approval Program to a product candidate for a serious or life-threatening condition upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured earlier than an effect on 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. Accelerated approval is contingent on a sponsor’s agreement to conduct at least one adequate and well-controlled additional post-approval trial to verify and describe the product’s 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, and Accelerated Approval do not change the standards for approval but may expedite the development process.

An application for a product candidate may be eligible to obtain Priority Review Designation if it is intended to treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA will attempt to direct additional resources to the evaluation of an application for a new product designated for priority review in an effort to facilitate the review. A Priority Review Designation means FDA’s goal is to take action on the marketing application within six months (compared to ten months under standard review) of the 60-day filing date. Priority Review Designation does not change the standards for approval but may expedite the review process.

Post-Approval Requirements

Maintaining post-approval compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of products continues after approval, particularly with respect to GMP. We rely, and expect to continue to rely, on third parties for the production and distribution of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the GMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements include reporting of GMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature requirements. After a BLA is approved, the product also may be subject to official lot release. 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 also may perform certain confirmatory tests on lots of some products before releasing the lots for distribution by the manufacturer.

We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions.

Manufacturers and other entities involved in the manufacture and distribution of approved products are required to register the establishments where the approved products are made with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with GMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain GMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA, including withdrawal of the product from the market. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.

Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

U.S. Patent Term Restoration

Depending upon the timing, duration, and specifics of the FDA approval of the use of our current and potential product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 ("Hatch-Waxman Amendments"). The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.

Biosimilars and Exclusivity

The Biologics Price Competition and Innovation Act of 2009 ("BPCIA") created an abbreviated approval pathway for biological products shown to be highly similar to, or interchangeable with, an FDA-licensed 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, can be 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. However, 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.

The BPCIA includes, among other provisions:

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A 12-year exclusivity period from the date of first licensure of the reference product, during which approval of a 351(k) application referencing that product may not be made effective;

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A four-year exclusivity period from the date of first licensure of the reference product, during which a 351(k) application referencing that product may not be submitted; and

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An exclusivity period for certain biological products that have been approved through the 351(k) pathway as interchangeable biosimilars.

The BPCIA also establishes procedures for identifying and resolving patent disputes involving applications submitted under section 351(k) of the PHSA.

The BPCIA is complex and its interpretation and implementation by the FDA remains unpredictable. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate effect, implementation, and meaning of the BPCIA is subject to uncertainty.

Pediatric Information

Under the Pediatric Research Equity Act (“PREA”), BLAs or supplements to BLAs must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the biological product is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any biological product with orphan product designation except a product with a new active ingredient that is a molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to a BLA submitted on or after August 18, 2020.

The Best Pharmaceuticals for Children Act (“BPCA”) provides a six-month extension of any non-patent exclusivity for a biologic if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug or biologic in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

Additional U.S. Regulation

In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare and Medicaid Services ("CMS"), other divisions of the U.S. Department of Health and Human Services, for instance the Office of Inspector General, the U.S. Department of Justice ("DOJ"), and individual U.S. Attorney offices within the DOJ, 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, the false claims laws, the physician payment transparency laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act ("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act ("HITECH") and similar state laws, each as amended.

In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, may affect our business. These and other laws govern our use, handling and disposal of various biological, chemical, and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith is unlikely to have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.

Federal and State Fraud and Abuse Laws

In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, CMS, other divisions of the U.S. Department of Health and Human Services, for instance, the Office of Inspector General, DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. These federal and state laws, which generally will not be applicable to us or our current and potential product candidates unless and until we obtain FDA marketing approval for any of our current and potential product candidates, include, among others, anti-kickback statutes, the False Claims Act and related stated state and federal laws, the Stark Law and related state and federal laws, transparency laws, privacy and regulation regarding providing drug samples, sales and marketing activities and our relationships with customers and payors as follows.

The federal Anti-Kickback Statute prohibits, among other things, individuals and entities from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, recommending, ordering, or arranging for the purchase, lease, recommendation or order of any health care item or service reimbursable, in whole or in part, under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Additionally, the intent standard under the Anti-Kickback Statute was amended by the Affordable Care Act to a stricter standard such that 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. Further, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.

HIPAA created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payers, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. 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.

Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, or knowingly making, using, or causing to be made or used, a false statement to get a false claim paid. Several pharmaceutical and other health care companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the company’s marketing of the product for unapproved, and thus non-reimbursable, uses.

The majority of states also have statutes or regulations similar to the federal Anti-Kickback Statute 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 payer.

We may also be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended by HITECH, and their respective implementing regulations, including the final Omnibus Rule published in 2013, imposes requirements on certain types of entities, including mandatory contractual terms, relating to the privacy, security, and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards and certain privacy standards directly applicable to business associates, which are independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other and from HIPAA in significant ways and may not have the same requirements, thus complicating compliance efforts.

Additionally, the federal Physician Payments Sunshine Act under the Affordable Care Act, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with certain exceptions, annually report to CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately, and completely the required information may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for “knowing failures.” Certain states also mandate implementation of compliance programs, impose restrictions on pharmaceutical manufacturer marketing practices, and/or require the tracking and reporting of gifts, compensation, and other remuneration to healthcare providers and entities.

Because of the breadth of these laws and the narrowness of the exceptions and safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition, and results of operations. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to, without limitation, significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

In addition, as part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved products to physicians. This practice is regulated by the FDA and other governmental authorities, including, in particular, requirements concerning record keeping and control procedures. Any failure to comply with the regulations may result in significant criminal and civil penalties as well as damage to our credibility in the marketplace.

Coverage and Reimbursement

In many of the markets where we may do business in the future, the prices of pharmaceutical products are subject to direct price controls (by law) and to reimbursement programs with varying price control mechanisms. In the United States, significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain product approval. Often private payers follow the coverage and reimbursement decisions of the Medicare program, and it is difficult to predict how CMS may decide to cover and reimburse approved products, especially novel products, and those determinations are subject to change.

Moreover, the process for determining whether a third-party payer will provide coverage for a drug product may be separate from the process for setting the price of a drug product or for establishing the reimbursement rate that such a payer will pay for the drug product. Third-party payers may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payer not to cover our current and potential product candidates could reduce physician utilization of our products once approved. A payer’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payer’s determination to provide coverage for a drug product does not assure that other payers will also provide coverage for the drug product. Coverage and reimbursement for new products can differ significantly from payer to payer. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payer separately and will be a time-consuming process. Additionally, third-party reimbursement may not be available or may not be adequate to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.

Federal, state and local governments in the United States and foreign governments continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing.

Different pricing and reimbursement schemes exist in other countries. In the EU, governments influence the price of drug products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate systems under which products may be marketed only after a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of studies or analyses of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to set their own prices for medicines, but exert cost controls in other ways, including but not limited to, placing revenue caps on product sales, providing reimbursement for only a subset of eligible patients, mandating price negotiations after a set period of time, or mandating that prices not exceed an average basket of prices in other countries. The downward pressure on health care costs in general, particularly treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, European governments may periodically review and decrease prices based on factors, including, but not limited to, years-on-market, price in other countries, competitive entry, new clinical data, lack of supporting clinical data, or other factors.

The marketability of any product candidates for which we or our collaborators receive regulatory approval for commercial sale may suffer if the government and third-party payers fail to provide adequate coverage and reimbursement. In addition, an emphasis on cost containment measures in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Third-party payers are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of drugs, medical devices and medical services, in addition to questioning safety and efficacy. If these third-party payers do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we or our collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Health Care Reform

In March 2010, the Affordable Care Act was enacted, which affected, and may further affect, health care financing and delivery by both governmental and private insurers, and therefore the pharmaceutical and biotechnology industry. The Affordable Care Act has affected and may continue to affect existing government healthcare programs and may result in the development of new programs.

Among the Affordable Care Act’s provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:

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an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs;

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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price;

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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics, including our current and potential product candidates, that are inhaled, infused, instilled, implanted or injected;

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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;

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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts, now 70%, 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;

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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

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establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January 1, 2011; and

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a licensure framework for follow on biologic products.

There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the Affordable Care Act. In January 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers or manufacturers of pharmaceuticals or medical devices. In December 2018 a judge for the United States District Court for the Northern District of Texas ruled that the entire Affordable Care Act is unconstitutional. This ruling was appealed to the U.S. Court of Appeals for the Fifth Circuit, which held that the individual mandate is unconstitutional. This decision was appealed, and in November 2020, the United States Supreme Court held oral arguments. It is uncertain how the United States Supreme court will rule on this case or how healthcare measures of the Biden administration will impact the Affordable Care Act and our business. With respect to repeal or revision of the Affordable Care and its replacement with new or revised legislation, it is unclear when such legislation will be enacted, what it will provide and what impact it will have on the availability of healthcare and containing or lowering costs of healthcare.

The former Trump Administration proposed a number of initiatives to drive down prescription drug costs and health care spending. President Biden has indicated a desire to address prescription drug costs as well. However, it is unclear how any proposed or future initiatives may affect our business.

Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the fiscal year 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2030 unless additional Congressional action is taken. The CARES Act, which was signed into law in March 2020 and is designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030. The Consolidated Appropriations Act, 2021 extended the suspension of the 2% Medicare sequester through March 31, 2021. Further, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several 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.

We anticipate that the Affordable Care Act and other legislative reforms will result in additional downward pressure on the price that we receive for any approved product, if covered, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition, and results of operations.

Environmental Regulation

U.S. Foreign Corrupt Practices Act

The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to influence otherwise a person working in an official capacity.

Other countries, including a number of EU member states, have laws of similar application, including anti-bribery or anti-corruption laws such as the UK Bribery Act. The UK Bribery Act prohibits giving, offering, or promising bribes to any person, as well as requesting, agreeing to receive, or accepting bribes from any person. Under the UK Bribery Act, a company that carries on a business or part of a business in the United Kingdom may be held liable for bribes given, offered or promised to any person in any country by employees or other persons associated with the company in order to obtain or retain business or a business advantage for the company. Liability under the UK Bribery Act is strict, but a defense of having in place adequate procedures designed to prevent bribery is available.

Government Regulation Outside of the United States

In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be subjected to different types of restrictions in different countries.

Whether or not we obtain FDA approval for a product, we must obtain the required approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application equivalent to an IND prior to the commencement of human clinical trials. In the European Union, for example, a clinical trial authorization, or 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 in accordance with a country’s requirements, clinical trials may start.

The requirements and process governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary from country to country. In all cases, the clinical trials are to be conducted in accordance with GCP, applicable regulatory requirements, and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension, or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution in those countries.

Employees

As of March 15, 2021, we had 12 full-time employees. We are not a party to any collective bargaining agreements. We believe that we maintain good relations with our employees.

Corporate Information and Available Information.

We were incorporated in Delaware in April 2009. Our principal executive offices are located at 1601 Trinity Street, Bldg B, #3.312.09, Austin, TX 78712, and our telephone number is (877) 774-4679.

Our website address is www.genprex.com. The contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K, and our website address is included in this document as an inactive textual reference only. We make our filings with the U.S. Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, available free of charge on our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC. The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov. The information contained in the SEC’s website is not intended to be a part of this filing.

We have proprietary rights to a number of trademarks, including GENPREX, ONCOPREX and REQORSA, that are used in this Annual Report on Form 10-K. Solely for convenience, the trademarks and trade names in this Annual Report on Form 10-K are generally referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. All other trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners.

We qualify as an “emerging growth company” as the term is used in The Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), and therefore, we may take advantage of certain exemptions from various public company reporting requirements, including:

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a requirement to only have two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis;

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exemption from the auditor attestation requirement on the effectiveness of our internal controls over financial reporting;

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reduced disclosure obligations regarding executive compensation; and

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exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments.

We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We may choose to take advantage of some, but not all, of the available benefits of the JOBS Act. We have taken advantage of some of the reduced reporting requirements in this Annual Report on Form 10-K. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Item 1A. Risk Factors.

An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and the other information in this Annual Report on Form 10-K before investing in our common stock. Our business and results of operations could be seriously harmed by any of the following risks. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

We are using the proceeds from our recent sales of securities to advance REQORSA through clinical development, as well as for other corporate purposes. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We will require substantial additional future capital to complete clinical development and commercialize REQORSA and for preclinical and clinical development and commercialization of our gene therapy for diabetes, GPX-002. If the FDA requires that we perform additional preclinical studies or clinical trials beyond what we currently anticipate, our expenses will further increase beyond what we currently expect and the anticipated timing of any potential approval of REQORSA and GPX-002 would likely be delayed. Furthermore, there can be no assurance that the costs to obtain regulatory approval of these product candidates will not increase.

We will continue to require substantial additional capital to continue our preclinical and clinical development and commercialization activities. Because successful development of our current and potential product candidates is uncertain, we are unable to estimate the actual amount of funding we will require to complete research and development and commercialize our current and future product candidates.

The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

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the progress, costs, results and timing of our preclinical development and clinical trials for REQORSA and GPX-002;

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the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;

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the ability of third parties to deliver materials and provide services for us;

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the costs associated with securing and establishing commercialization and manufacturing capabilities;

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market acceptance of our current and future product candidates;

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the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;

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our ability to maintain, expand and enforce the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

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our need and ability to hire additional management and scientific and medical personnel;

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the effect of competing drug candidates and new product approvals;

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our need to implement additional internal systems and infrastructure, including financial and reporting systems; and

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the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future.

Some of these factors are outside of our control. Although we expect that our existing cash, and marketable securities will be sufficient to fund our current operations and planned clinical trial activities into 2024, this period could be shortened if there are any significant increases in planned spending on current or additional development programs or more rapid progress of these development programs than anticipated. Furthermore, we believe that our existing capital will not be sufficient to enable us to complete the development and commercialization of REQORSA or GPX-002. Accordingly, we expect that we will need to raise additional funds in the future.

SEC Form 10-K filed by Genprex, Inc.