Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

Filed Pursuant to Rule 424(b)4
Registration No. 333-230451

PROSPECTUS

6,000,000 Shares

LOGO

Common Stock



               This is HOOKIPA Pharma Inc.'s initial public offering. We are selling 6,000,000 shares of our common stock.

               The public offering price is $14.00 per share. Currently, no public market exists for the shares. Our common stock has been approved for listing on the Nasdaq Global Select Market under the symbol "HOOK."

               We are an "emerging growth company" under the federal securities laws and are subject to reduced public company disclosure standards. See "Prospectus Summary—Implications of Being an Emerging Growth Company."

               Investing in the common stock involves risks that are described in the "Risk Factors" section beginning on page 11 of this prospectus.



 
  Per Share
  Total
 

Public offering price

  $ 14.00   $ 84,000,000  

Underwriting discount(1)

  $ 0.98   $ 5,880,000  

Proceeds, before expenses, to us

  $ 13.02   $ 78,120,000  
(1)
See "Underwriting" beginning on page 188 for additional information regarding underwriting compensation.

               Following the closing of this offering, we will have two classes of common stock: common stock and Class A common stock. The common stock and Class A common stock will be economically equivalent to each other. The rights of the holders of our common stock and Class A common stock will be identical, except with respect to voting and conversion. Each share of common stock will be entitled to one vote and will not be convertible into any other class of our share capital. The shares of Class A common stock will not have associated voting rights and each share of Class A common stock will be convertible at any time following the closing of this offering at the election of the holder into one share of common stock. See "Description of Capital Stock—Common Stock" for more information on the rights of the holders of our common stock and Class A common stock.

               The underwriters may also exercise their option to purchase up to an additional 900,000 shares from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.

               Certain of our existing stockholders, directors and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $55.0 million in shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering. The underwriters will receive the same underwriting discount and commissions on these shares as they will on any other shares sold to the public in this offering.

               Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

               The shares will be ready for delivery on or about April 23, 2019.



Joint Book-Running Managers

BofA Merrill Lynch   SVB Leerink   RBC Capital Markets

Co-Manager

Kempen



   

The date of this prospectus is April 17, 2019.


Table of Contents


TABLE OF CONTENTS

 
  Page  

PROSPECTUS SUMMARY

   
1
 

RISK FACTORS

   
11
 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

   
66
 

INDUSTRY AND MARKET DATA

   
67
 

USE OF PROCEEDS

   
68
 

DIVIDEND POLICY

   
69
 

CAPITALIZATION

   
70
 

DILUTION

   
72
 

SELECTED CONSOLIDATED FINANCIAL DATA

   
75
 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   
76
 

BUSINESS

   
94
 

MANAGEMENT

   
144
 

EXECUTIVE COMPENSATION

   
153
 

DIRECTOR COMPENSATION

   
164
 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

   
167
 

PRINCIPAL STOCKHOLDERS

   
171
 

DESCRIPTION OF CAPITAL STOCK

   
175
 

SHARES ELIGIBLE FOR FUTURE SALE

   
181
 

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK

   
184
 

UNDERWRITING

   
188
 

LEGAL MATTERS

   
196
 

EXPERTS

   
196
 

WHERE YOU CAN FIND MORE INFORMATION

   
196
 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

   
F-1
 



              You should rely only on the information contained in this prospectus or in any free writing prospectus we file with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with information other than that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, common stock, but only under circumstances and only in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date on the front cover page of this

i


Table of Contents

prospectus, or other earlier date stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

              For investors outside the United States:    We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

              This prospectus includes our trademarks and trade names, including, without limitation, VAXWAVE™ and THERAT™, which are our property and are protected under applicable intellectual property laws. This prospectus also includes trademarks and trade names that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this prospectus appear without the ® and ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. All trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

              Unless otherwise indicated or the context otherwise requires, all references in this prospectus to "HOOKIPA Pharma," "HOOKIPA," the "Company," "we," "our," "ours," "us" or similar terms refer to HOOKIPA Pharma Inc. and our consolidated subsidiaries.

ii


Table of Contents

 


PROSPECTUS SUMMARY

              This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. You should also consider, among other things, the matters described under "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case appearing elsewhere in this prospectus.

Overview

              We are a clinical-stage biopharmaceutical company developing a new class of immunotherapeutics targeting infectious diseases and cancers based on our proprietary arenavirus platform that is designed to reprogram the body's immune system. We are using our "off-the-shelf" technologies, VaxWave and TheraT, to elicit directly within patients a powerful and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against infectious diseases and cancers. We believe that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by eliciting killer T cell response levels previously not achieved by other published immunotherapy approaches. Our lead infectious disease product candidate, HB-101, is in a randomized, double-blinded Phase 2 clinical trial in cytomegalovirus-negative patients awaiting kidney transplantation from cytomegalovirus-positive donors. Our lead oncology product candidates, HB-201 and HB-202, are in development for the treatment of human papillomavirus-positive cancers. We plan to file an investigational new drug application with the U.S. Food and Drug Administration for HB-201 and HB-202 in the first half of 2019 and 2020, respectively. We have also entered into a strategic partnership with Gilead Sciences, Inc. to accelerate building a pipeline of additional infectious disease product candidates in a cost efficient manner.

              Our platform is based on engineering arenaviruses to carry and deliver virus-specific or tumor-specific genes directly in patients to dendritic cells, which are natural activators of killer T cells, also known as cytotoxic T cells, or CD8+ T cells. Arenaviruses have been used for decades as a preclinical tool to study CD8+ T cell responses. Our co-founder, Rolf Zinkernagel, was awarded a Nobel Prize in Physiology or Medicine for his arenavirus-based work on how CD8+ T cells recognize virus-infected cells. We believe that arenaviruses have several key advantages which give them the characteristics of an optimal antigen-specific immunotherapy, including:

              We believe we are the first to reengineer arenaviruses for therapeutic purposes. We have created two technologies capable of delivering disease-specific antigens for the prevention and treatment of disease. Our first technology, VaxWave, is a replication-defective arenavirus which induces a strong immune response for prophylactic use against infectious disease. Our second technology, TheraT, is a replication-attenuated arenavirus which produces an even more powerful immune response that we believe is more appropriate for use in oncology. In preclinical studies, our TheraT technology was able to reprogram the immune system such that more than half of the body's CD8+ T cells

1


Table of Contents

focused on a specific cancer antigen target of our choice without observed serious adverse events. We have designed our platform to be modular in nature in order to allow substitution of antigens to target a broad range of infectious diseases and cancers. We have a robust intellectual property portfolio for our suite of arenaviruses with exclusive rights in issued patents and patent applications related to our VaxWave technology and exclusive and joint rights in patent applications related to our TheraT technology. These platform technologies can be used with a broad spectrum of antigens in therapeutic applications in immunotherapy ranging from infectious diseases to oncology. We believe the breadth and depth of our intellectual property is a strategic asset that has the potential to provide us with a significant competitive advantage.

              We believe that our arenavirus platform approach gives us a unique and powerful way to tap into the biology of the immune system and reprogram it by instructing dendritic cells to express antigen-encoding genes that direct the immune system to the desired targets. Our product candidates are designed to deliver full-length proteins to activate T cells and B cells to produce a robust immune response through natural means, avoiding the use of artificial ex vivo constructs such as CAR-T cells and related approaches that bypass the immune system's normal control mechanisms. Although these latter approaches have shown clinical efficacy, they have the potential to cause life-threatening side effects, including cytokine release syndrome. In addition, we believe that our "off-the-shelf" immunotherapy is simpler, more straightforward and cost effective to manufacture and administer than CAR-T cells or other patient-derived cellular approaches.

Our Pipeline

   
GRAPHIC
   

              Our lead product candidate in infectious diseases, utilizing VaxWave technology, is HB-101 for the prevention of cytomegalovirus infections. A majority of the worldwide human population is latently infected with cytomegalovirus and can transmit the infection through bodily fluids. While infection in immunocompetent persons typically presents as mild or asymptomatic, cytomegalovirus remains a major cause of morbidity and mortality in persons with a compromised immune system and in patients undergoing solid organ or hematopoietic stem cell transplants. Current therapies to prevent the transmission of cytomegalovirus during organ transplants utilize antiviral prophylactic and therapeutic strategies. However, these therapies are only partially protective in preventing viral disease while also being hampered by toxicity and resistance. HB-101 delivers two clinically validated antigens, phosphoprotein 65 to induce cytomegalovirus-specific CD8+ T cells and glycoprotein B to elicit cytomegalovirus-neutralizing antibodies.

2


Table of Contents

              In our Phase 1 clinical trial, HB-101 was well tolerated and elicited a strong cytomegalovirus-specific immune responses in all 42 of the treatment arm volunteers. Importantly, we observed robust CD8+ and CD4+ T cell responses as well as cytomegalovirus-neutralizing antibody responses, without meaningful vector-neutralizing antibody responses. These responses increased in a statistically significant manner upon repeat administration. We believe these results demonstrate the differentiating features of our arenavirus platform. In the fourth quarter of 2018, we commenced a Phase 2 clinical trial for HB-101 in cytomegalovirus-negative patients awaiting kidney transplantation from living cytomegalovirus-positive donors. We expect safety and immunogenicity data from the first cohorts enrolled in this trial in the first half of 2020, and preliminary efficacy data to follow in the second half of 2020.

              We are developing our lead oncology product candidates, HB-201 and HB-202, both utilizing TheraT technology, for cancers caused by human papilloma virus, or HPV. These cancers account for approximately 5% of the total worldwide cancer prevalence and recent studies have shown that approximately 70% of cancers of the tonsil and tongue base and the majority of cervical and anal cancers, in addition to several other cancers including head and neck may be linked to HPV. Tumors caused by HPV are referred to as HPV-positive tumors, or HPV+, and can be characterized by their expression of proteins from the HPV genome, particularly the viral E6 and E7 proteins. These two proteins are expressed in tumors but absent in normal cells, which makes them ideal target candidates for immunotherapy, however, to date, there are no therapeutically approved agents directed against these targets.

              In preclinical studies, HB-201 as a monotherapy was effective at suppressing tumor growth and eliminated up to 40% of HPV+ tumors. HB-201 generated a strong and durable T cell and antibody response with successfully treated animals demonstrating resistance to a tumor re-challenge. Based on these preliminary results, we believe that treating patients with HB-201 has the potential to both control metastatic disease and prevent relapse. We intend to file an investigational new drug application for HB-201 in treatment refractory HPV16+ cancers in the first half of 2019. Our first planned Phase 1/2 clinical trial will assess the safety and efficacy of HB-201 both as a monotherapy and in combination with a checkpoint inhibitor. Our second planned Phase 1/2 clinical trial will assess the safety and efficacy of the combination of HB-201 and HB-202 in HPV16+ cancers, with or without a checkpoint inhibitor. HB-202 similarly targets E6 and E7 of HPV16+ tumors, but uses a different arenavirus than HB-201. We believe that our preclinical studies demonstrate that the combination of HB-201 and HB-202 results in a synergistic increase in E7 immunogenicity as compared to either HB-201 or HB-202 alone. Our goal is to establish the safety of this combination approach and its superiority over monotherapy.

Collaboration with Gilead

              In June 2018, we partnered with Gilead Sciences, Inc., or Gilead, a world leader in innovative therapies against infectious diseases, to develop arenavirus based therapeutics to treat hepatitis B virus, or HBV, and human immunodeficiency virus, or HIV, infections. We received a one-time upfront payment of $10.0 million upon entering into the agreement. We are also eligible to receive milestone payments based upon the achievement of specified development, regulatory, and commercial milestones potentially amounting to approximately $400 million, as well as tiered royalties ranging from high single-digit to mid-teens percentage on net sales. In December 2018, we achieved the first research milestone under the HIV program, entitling us to a payment of $2.8 million from Gilead, which we received in January 2019.

3


Table of Contents

Our Strategy

              Our goal is to transform the prevention and treatment of infectious diseases and cancers to significantly improve the lives of patients by developing and commercializing a new class of "off-the-shelf" immunotherapeutics.

              The key elements of our strategy are:

Management and Investors

              We are led by a team of highly experienced executives, clinicians, and scientists with focused and translational expertise in oncology, immunology, vaccinology, clinical development and commercialization. Our Chief Executive Officer, Jörn Aldag, was previously the Chief Executive Officer of uniQure N.V., a company that under his leadership pioneered the approval of the first gene therapy product. Igor Matushansky, M.D., Ph.D., our Chief Medical Officer and Global Head of Research and Development was previously Global Head of Translational Development for Oncology at Daiichi Sankyo Company, Limited. The fundamental discoveries underlying our arenavirus platform originated with our co-founders, Nobel laureate Rolf Zinkernagel, M.D., and Daniel Pinschewer, M.D., an internationally recognized arenavirus expert who serves as our Chief Scientific Officer.

              We are supported by prominent biotechnology investors, including BioMedPartners, Boehringer Ingelheim Venture, Forbion Capital Partners, HBM, Hillhouse Capital, Redmile Group, Sofinnova Partners and Takeda Ventures, as well as Gilead, a leading biopharmaceutical company.

Risks Associated with Our Business

              Our ability to implement our business strategy is subject to numerous risks, as more fully described in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, among others:

4


Table of Contents

Indications of Interest

              Certain of our existing stockholders, directors and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $55.0 million in shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more,

5


Table of Contents

fewer or no shares in this offering. The underwriters will receive the same underwriting discount and commissions on these shares as they will on any other shares sold to the public in this offering.

Implications of Being an Emerging Growth Company

              As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

              We may take advantage of these exemptions for up to five years following the closing of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the closing of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion; or (c) in which we are deemed to be a large accelerated filer under the rules of the SEC, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus and may elect to take advantage of other reduced reporting requirements in future filings. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock.

              We have irrevocably elected to "opt out" of the exemption in Section 107 of the JOBS Act that allows for the delayed adoption of certain accounting standards and, therefore, will be subject to the same, new or revised accounting standards as other public companies that are not emerging growth companies.

Corporate Information

              We were originally incorporated as Hookipa Biotech AG under the laws of Austria in 2011. In February 2017, we reorganized to become a corporation under the laws of the State of Delaware as Hookipa Biotech, Inc., which was a fully-owned subsidiary of Hookipa Biotech AG. In June 2018, Hookipa Biotech, Inc. changed its name to HOOKIPA Pharma Inc. and acquired all of the shares of Hookipa Biotech AG, now Hookipa Biotech GmbH. Our principal executive offices are located at 350 Fifth Avenue, 72nd Floor, Suite 7240, New York, New York 10118 and our telephone number is +43 1 890 63 60. Our website address is www.hookipapharma.com. We have included our website address in this prospectus solely as an inactive textual reference.

6


Table of Contents

 


THE OFFERING

Common stock offered by us

  6,000,000 shares.

Common stock to be outstanding immediately after this offering

 

21,588,756 shares (22,488,756 shares if the underwriters exercise their option to purchase additional shares in full).

Class A common stock outstanding before this offering

 

Zero shares.

Class A common stock outstanding after this offering

 

3,819,732 shares.

Underwriters' option to purchase additional shares

 

We have granted a 30-day option to the underwriters to purchase up to an aggregate of 900,000 additional shares of common stock from us at the public offering price, less underwriting discounts and commissions, on the same terms as set forth in this prospectus.

Use of proceeds

 

We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately $74.8 million, or $86.5 million if the underwriters exercise their option to purchase additional shares in full, based on the initial public offering price of $14.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, to advance HB-101 through our ongoing Phase 2 clinical trial, advance HB-201 and HB-202 into and through Phase 1 clinical trials, advance HB-301 into and through a Phase 1 clinical trial, for ongoing research and development activities related to next generation programs and the remainder for working capital and other general corporate purposes. For a more complete description of our intended use of the proceeds from this offering, see "Use of Proceeds" beginning on page 68 for additional information.

7


Table of Contents

Voting Rights

 

Following the closing of this offering, we will have two classes of common stock: common stock and Class A common stock. Holders of our shares of common stock—the only class of common stock being sold in this offering—will be entitled to one vote and will not be convertible into any other class of our share capital. The shares of Class A common stock will not have associated voting rights and each share of Class A common stock will be convertible at any time following the closing of this offering, at the election of the holder, into one share of common stock. See "Description of Capital Stock—Common Stock" for more information on the rights of the holders of our common stock and Class A common stock.

Risk factors

 

You should carefully read the "Risk Factors" beginning on page 11 and the other information included in this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

Nasdaq Global Select Market symbol

 

"HOOK."

              The number of shares of our common stock to be outstanding after this offering is based on 15,588,756 shares of our common stock outstanding as of February 28, 2019, after giving effect to (i) the automatic conversion of 1,252,440 shares of our preferred stock into an aggregate of 14,582,161 shares of voting common stock upon closing of this offering and (ii) the automatic conversion of 328,071 shares of our preferred stock into 3,819,732 shares of non-voting Class A common stock upon the closing of this offering, and excludes:

              Unless otherwise indicated, all information in this prospectus reflects or assumes the following:

8


Table of Contents



Summary Consolidated Financial Data

              The following tables set forth our summary consolidated financial data for the period indicated. We have derived the consolidated statement of operations data for the years ended December 31, 2017 and 2018 and the consolidated balance sheet data as of December 31, 2018 from our audited consolidated financial statements and related notes appearing at the end of this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus.

 
  Year ended December 31,  
 
 
2017
  2018  
(in thousands, except share and per share data)
   
   
 

Consolidated Statements of Operations Data:

             

Revenue from collaboration and licensing

  $   $ 7,629  

Operating expenses:

             

Research and development

    (9,772 )   (21,965 )

General and administrative

    (4,385 )   (6,844 )

Total operating expenses

    (14,157 )   (28,809 )

Loss from operations

    (14,157 )   (21,180 )

Other income (expense):

             

Grant income

    2,069     5,612  

Interest expense

    (606 )   (778 )

Other income and expenses, net

    (25 )   133  

Total other income (expense), net

    1,438     4,967  

Net loss before tax

    (12,719 )   (16,213 )

Income tax expense

    (4 )   (24 )

Net loss

    (12,723 )   (16,237 )

Net loss per share attributable to common stockholders—basic and diluted(1)

  $ (13.95 ) $ (17.76 )

Weighted average common shares outstanding—basic and diluted(1)

    911,777     914,375  

Pro forma net loss per share attributable to common shareholders—basic and diluted (unaudited)(1)

        $ (0.99 )

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

          16,324,008  

(1)
See Note 2 and Note 13 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share

9


Table of Contents

    attributable to common shareholders and on the calculation of pro forma basic and diluted net loss per share attributable to common shareholders.


 
  As of December 31, 2018  
 
  Actual   Pro Forma(2)   Pro Forma
As Adjusted(3)
 
 
  (unaudited)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 48,580   $ 85,857   $ 160,856  

Working capital(1)

    47,616     84,893     161,200  

Total assets

    68,251     105,528     179,040  

Redeemable convertible preferred stock

    104,774          

Accumulated deficit

    (59,982 )   (59,982 )   (59,982 )

Total stockholders' equity (deficit)

    (60,375 )   81,676     156,497  

(1)
We define working capital as current assets less current liabilities.

(2)
The pro forma balance sheet data give effect to (i) our sale of 257,000 shares of Series D redeemable convertible preferred stock in February 2019 for gross proceeds of $37.4 million, (ii) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,401,893 shares of voting common stock upon the closing of this offering, and (iii) no issuances of shares of non-voting Class A common stock upon the closing of this offering.

(3)
Reflects the pro forma adjustments described in footnote (2) above and gives further effect to our issuance and sale of 6,000,000 shares of our common stock in this offering at the initial public offering price of $14.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Net proceeds assumed in this offering are $74.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. As of December 31, 2018, deferred offering expenses classified as other non-current assets were $1.5 million, of which $0.2 million had been paid and $1.3 million were accrued in current liabilities.

10


Table of Contents


RISK FACTORS

              Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks Related to Our Financial Position and Capital Needs

We are a clinical-stage biopharmaceutical company with no approved products and a limited operating history. We have incurred significant losses since inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

              We are a clinical-stage biopharmaceutical company with no approved products and a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of our product candidates, securing related intellectual property rights and conducting discovery, research and development activities for our programs. As a result, we are not profitable and have incurred losses in each period since our inception in 2011. For the years ended December 31, 2017 and 2018 we reported a net loss of $12.7 million and $16.2 million respectively. As of December 31, 2018, we had an accumulated deficit of $60.0 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that our expenses will increase substantially if, and as, we:

11


Table of Contents

              Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates and we may never generate revenue that is significant or large enough to achieve profitability. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital.

              If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Accordingly, our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

Even if we consummate this offering, we will require substantial additional financing and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

              Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities for our VaxWave and TheraT technologies and our product candidates derived from these technologies. Preclinical studies and clinical trials and additional research and development activities will require substantial funds to complete. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the development of our current product candidates and programs, any future product candidates we may choose to pursue, when we begin to develop our own manufacturing capabilities and other corporate uses. These expenditures will include costs associated with conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply, as well as marketing and selling any products approved for sale. Our expenses could increase beyond our current expectations if other unanticipated costs arise or if the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or EMA, or other comparable foreign regulatory authorities requires us to perform clinical trials and other studies in addition to those that we currently anticipate. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current or future product candidates. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or terminate our research and development programs or future commercialization efforts.

              As of December 31, 2018, we had approximately $48.6 million in cash and cash equivalents. In December 2018, we achieved the first research milestone under the HIV program, entitling us to a payment of $2.8 million from Gilead Sciences, Inc., or Gilead, which we received in January 2019. Additionally, in February 2019, we received gross proceeds of $37.4 million from the sale of our Series D redeemable convertible preferred stock. We estimate that the net proceeds from this offering will be approximately $74.8 million after deducting the estimated offering expenses payable by us. Based on our research and development plans, we expect that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. Changes may occur beyond our control that would cause us to consume our available capital before

12


Table of Contents

that time, including changes in and progress of our development activities and changes in regulation. Our future capital requirements depend on many factors, including:

              We do not have any committed external source of funds or other support for our development efforts.

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

              Until we can generate sufficient product and royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements and grant funding.

              If we raise additional capital through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us.

              If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, reduce or terminate our product development or future commercialization

13


Table of Contents

efforts or grant rights to third parties to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders if we issue equity securities, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

              We may evaluate various acquisitions and strategic partnerships, including acquiring complementary products, intellectual property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

              In addition, if we undertake acquisitions, we may incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.

We have obtained funding from an agency of the Austrian government that contains certain covenants that may restrict our operations.

              In the past, we have contracted numerous funding agreements with an agency of the Austrian government to partially finance our research and development programs, such as personnel costs, material costs, third-party services, travel expenses and research and development infrastructure use. These funding agreements include both below market rate loans and grants, which are subject to various criteria linked to certain terms and conditions as well as certain costs attributable to the respective funded research and development program. We have committed to reporting obligations and to obtain the approval for significant changes in the cost structure of the funded research and development programs. If we were to breach these contractual obligations, we may be held liable by the agency of the Austrian government for damages incurred by such agencies resulting from the breach of contract and we could be required to reimburse in full the funding granted by such agencies.

              Further, pursuant to the general terms of each grant, the agency is entitled to re-evaluate the funding granted to us in case of a fundamental change in our ownership structure if such change no longer ensures that the purpose of the funding can be achieved. Any such re-evaluation could negatively impact the funding that we receive or have received from the agency or that we may receive in the future from other agencies of the Austrian government.

14


Table of Contents

Risks Related to Our Business and Industry

We currently have only one product candidate, HB-101, in clinical development. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates based on the same therapeutic approach.

              We recently initiated a Phase 2 clinical trial for HB-101 and it is currently our only clinical development-stage product candidate. Although we have other programs in preclinical development and we intend to develop additional product candidates in the coming years, it will take additional investment and time for such product candidates to reach the same stage of development as HB-101, and there can be no assurance that they will ever do so. If we are required to discontinue development of HB-101, or if it fails to receive regulatory approval or achieve sufficient market acceptance, if approved, we could be prevented from or significantly delayed in achieving profitability and may be required to delay or abandon the development of our other programs.

If we are unable to advance our current or future product candidates into and through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.

              All of our product candidates are in early stages of development, including our lead product candidate, HB-101, that recently commenced a Phase 2 clinical trial, and as such will require extensive preclinical and clinical testing. We cannot predict with any certainty if or when we might submit an investigational new drug application, or IND, or biologics license application, or BLA, for regulatory approval for any of our product candidates or whether any such IND or BLA will be accepted for review by the FDA, or subsequently whether any such IND will go into effect or BLA will be approved upon review.

              Our ability to generate product revenues, which we do not expect to occur for several years, if ever, will depend heavily on the successful development and eventual commercialization of the product candidates we develop, which may never occur. Before we are able to generate any revenues from product sales, our current product candidates, and any future product candidates we develop, will require additional preclinical and clinical development, management of clinical, preclinical and manufacturing activities, marketing approval in the United States and other markets, demonstrating effectiveness to pricing and reimbursement authorities, obtaining sufficient manufacturing supply for both clinical development and commercial production, building of a commercial organization, and substantial investment and significant marketing efforts. The success of our current and future product candidates will depend on several factors, including the following:

15


Table of Contents

              We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize the product candidates we develop, which would materially harm our business.

The regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

              The time required to obtain approval from the FDA, the EMA and other comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our current or future product candidates will ever obtain regulatory approval.

              Our current and future product candidates could fail to receive regulatory approval for many reasons, including the following:

16


Table of Contents

This lengthy approval process as well as the unpredictability of clinical trial results may result in our failing to obtain regulatory approval to market any product candidate we develop, which would significantly harm our business, results of operations and prospects.

              We have conducted, and intend to conduct, clinical trials of certain of our product candidates outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA, including compliance with all applicable U.S. laws and regulations. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with good clinical practice, or GCP, including review and approval by an independent ethics committee and informed consent from subjects. The study population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. In general, the patient population for any clinical trials conducted outside of the United States must be representative of the population for whom we intend to label the product in the United States. There can be no assurance the FDA will accept data from trials conducted outside of the United States.

              The FDA, the EMA and other comparable foreign regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any product candidate that we develop. Even if we believe the data collected from future clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or any other comparable foreign regulatory authorities.

              Even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Our clinical trials may fail to demonstrate adequately the safety and efficacy of any of our product candidates, which would prevent or delay regulatory approval and commercialization.

              Before obtaining regulatory approvals for the commercial sale of our product candidates, including HB-101 and any other future product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe

17


Table of Contents

and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process, and, because our product candidates are in an early stage of development, there is a high risk of failure and we may never succeed in developing marketable products.

              Clinical trials that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market our product candidates. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. If the results of our ongoing or future clinical trials are inconclusive with respect to the efficacy of our product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with our product candidates, we may be delayed in obtaining marketing approval, if at all.

              Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue from future drug sales and regulatory and commercialization milestones. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates, if approved, or allow our competitors to bring comparable products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects.

              Even if the trials are successfully completed, clinical data are often susceptible to varying interpretations and analyses, and we cannot guarantee that the FDA, the EMA, or other comparable foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. We cannot guarantee that the FDA, the EMA or other comparable foreign regulatory authorities will view our product candidates as having efficacy even if positive results are observed in our planned clinical trials. To the extent that the results of the trials are not satisfactory to the FDA, the EMA or other comparable foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

Our preclinical programs may experience delays or our product candidates may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these product candidates on a timely basis or at all, which would have an adverse effect on our business.

              Our product candidates HB-201, HB-202, HB-301 and all of our next generation product candidates are still in the preclinical development stage, and the risk of failure of preclinical programs is high. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies to obtain regulatory clearance to initiate human clinical trials, including based on INDs in the United States and clinical trial applications, or CTAs, in Europe. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA, the EMA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our product candidates. As a result, we cannot be sure that submission of INDs or similar applications will result in the FDA, the EMA or other comparable foreign regulatory authorities allowing clinical trials to begin.

18


Table of Contents

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

              From time to time, we may publish interim, top line or preliminary data from our clinical trials. We may decide to conduct an interim analysis of the data after a certain number or percentage of patients have been enrolled, or after only a part of the full follow-up period but before completion of the trial. Similarly, we may report top line or preliminary results of primary and key secondary endpoints before the final trial results are completed. Preliminary, top line and interim data from our clinical trials may change as more patient data or analyses become available. Preliminary, top line or interim data from our clinical trials are not necessarily predictive of final results and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, more patient data become available and we issue our final clinical trial report. These data also remain subject to verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, preliminary, interim and top line data should be viewed with caution until the final data are available. Material adverse changes in the final data compared to the interim data could significantly harm our business prospects.

Results of earlier studies and trials of our product candidates may not be predictive of future trial results.

              Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Even if we are able to commence clinical trials, issues may arise that could suspend or terminate such clinical trials. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in clinical trials, even after positive results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway and safety or efficacy observations made in clinical trials, including previously unreported adverse events. Notwithstanding any potential promising results in earlier studies and trials, we cannot be certain that we will not face similar setbacks. In addition, the results of our preclinical animal studies, including our oncology mouse studies and animal studies, may not be predictive of the results of outcomes in human clinical trials. For example, our oncology product candidates that are in preclinical development may demonstrate different chemical and biological properties in patients than they do in laboratory animal studies or may interact with human biological systems in unforeseen or harmful ways.

Our TheraT technology has never been tested in humans and could therefore prove to be unsafe.

              TheraT is an attenuated but replicating viral vector technology. Safety and toxicity studies have so far only been conducted in animal species. If our first clinical trial for HB-201 causes unexpected side effects that are not tolerable in the treatment of the relevant patient group, the further development of the product candidate and any other potential products based on the TheraT technology may be significantly limited or become impossible.

Our product candidates are based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.

              We have concentrated all of our research and development efforts on product candidates based on our VaxWave and TheraT technologies, and our future success depends on the successful development of this therapeutic approach. Our VaxWave and TheraT technologies utilize arenaviruses to activate CD8+ T cells and induce pathogen-neutralizing antibodies. There are no approved products that utilize the arenavirus. Because our VaxWave and TheraT technologies are novel, regulatory agencies may lack experience with product candidates such as HB-101 and HB-201, which may

19


Table of Contents

lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our product candidates. We have not yet succeeded and may not succeed in demonstrating safety and efficacy for any of our product candidates in ongoing or later-stage clinical trials or in obtaining marketing approval thereafter.

              In addition, our vectors are live, gene-modified organisms for which the FDA, the EMA and other comparable foreign regulatory authorities and other public health authorities, such as the Centers of Disease Control and Prevention and hospitals involved in clinical studies, have established additional safety and contagion rules and procedures, which could establish additional hurdles for the development, manufacture or use of our vectors. These hurdles may lead to delays in the conduct of clinical trials or in obtaining regulatory approvals for further development, manufacturing or commercialization of our product candidates. We may also experience delays in transferring our process to commercial partners, which may prevent us from completing our clinical trials or commercializing our product candidates on a timely or profitable basis, if at all.

Since the number of patients that we plan to dose in some of our planned clinical trials is small, the results from such clinical trials, once completed, may be less reliable than results achieved in larger clinical trials, which may hinder our efforts to obtain regulatory approval for our product candidates.

              A trial design that is considered appropriate for regulatory approval includes a sufficiently large sample size with appropriate statistical power, as well as proper control of bias, to allow a meaningful interpretation of the results. In our planned Phase 1 trial for HB-201, we expect to enroll 20 patients and future trials for HB-201 or other product candidates may similarly enroll a small number of patients. The preliminary results of trials with smaller sample sizes, such as our planned Phase 1 trial for HB-201, can be disproportionately influenced by the impact the treatment had on a few individuals, which limits the ability to generalize the results across a broader community, making the trial results less reliable than trials with a larger number of patients. As a result, there may be less certainty that such product candidates would achieve a statistically significant effect in any future clinical trials. If we conduct any future clinical trials, we may not achieve a statistically significant result or the same level of statistical significance, if any, that would have been possible to achieve in a larger trial.

Our product candidates may cause serious adverse events, undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, require expansion of the trial size, limit their commercial potential or result in significant negative consequences.

              Undesirable side effects caused by our product candidates could cause us or regulatory authorities, including institutional review boards, or IRBs, to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA or other comparable foreign regulatory authorities. Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of subjects and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the drug. Because of our dose escalation design for our clinical trials, undesirable side effects could also result in an expansion in the size of our clinical trials, increasing the expected costs and timeline of our clinical trials. Additionally, results of our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. If we do observe severe side effects in our clinical trials, our ongoing clinical trials may be halted or put on clinical hold prior to completion if there is an unacceptable safety risk for patients.

              If unacceptable toxicities arise in the development of our product candidates, we could suspend or terminate our trials or the FDA, the EMA or other comparable foreign regulatory authorities, or local regulatory authorities such as IRBs, could order us to cease clinical trials. Competent national health authorities, such as the FDA, could also deny approval of our product candidates for any or all targeted indications. Even if the side effects presented do not preclude the product from obtaining or

20


Table of Contents

maintaining marketing approval, treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates, if approved, to understand the side effect profile of these technologies for both our planned clinical trials and upon any commercialization of any product candidates, if approved. Inadequate training in recognizing or managing the potential side effects of our technologies could result in patient deaths. Any of these occurrences may harm our business, financial condition and prospects significantly.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

              We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. The enrollment of patients depends on many factors, including:

              In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates or similar areas, and this competition will reduce the number and types of patients available to us because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our product candidates represent a departure from more commonly used methods for the treatment of infectious diseases and cancers, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and hematopoietic stem cell transplantation, rather than enroll patients in any future clinical trial. Additionally, because some of our clinical trials will be in patients with relapsed or refractory cancer, the patients are typically in the late stages of the disease and may experience disease progression independent from our product candidates, making them unevaluable for purposes of the trial and requiring additional enrollment.

              Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our ongoing and planned clinical trials, which could prevent completion or commencement of these trials and adversely affect our ability to advance the development of our product candidates.

21


Table of Contents

We have limited experience as a company conducting clinical trials or managing a manufacturing facility for our product candidates.

              We have limited experience as a company in conducting clinical trials. In part because of this lack of experience, we cannot be certain that our ongoing clinical trial will be completed on time or if the planned clinical trials will begin or be completed on time, if at all. Large-scale trials would require significant additional financial and management resources and reliance on third-party clinical investigators, contract research organizations, or CROs, or consultants. Relying on third-party clinical investigators or CROs may force us to encounter delays that are outside of our control.

              We do not have our own manufacturing facility for the production of clinical trial material or future commercial products and therefore depend on third-party contract manufacturing organizations, or CMOs, and their know-how for production of our product candidates. Because of our limited control of our third-party manufacturers and in part because of our inexperience, our third-party manufacturers may fail to produce our product in a reliable and consistent manner and in sufficient quality and quantity. We have encountered problems with our third-party manufacturers in the past, including delays and low yields, and there can be no assurance that we will not encounter similar or other difficulties in the future.

              As we continue to progress our product candidates into and through clinical trials, we intend to operate our own manufacturing facility, which will require significant resources, and we have limited experience as a company in expanding or managing a manufacturing facility. In part because of this lack of experience, we cannot be certain that our manufacturing facility will be completed on time, if at all, or if the planned clinical trials will begin or be completed on time, if at all. In addition, if we switch from one manufacturing facility to our own manufacturing facility for one or more of our product candidates in the future, we may need to conduct additional studies to bridge our modified product candidates to earlier versions. Failure to successfully create and operate our proposed manufacturing facility could adversely affect the commercial viability of our product candidates.

The market opportunities for our oncology product candidates may be limited to those patients who are ineligible for or have failed prior treatments.

              Cancer therapies are characterized as first line, second line, or third line, and the FDA often approves new therapies initially only for a particular line of use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever first line therapy, usually chemotherapy, antibody drugs, tumor-targeted small molecules, hormone therapy, radiation therapy, surgery, or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor-targeted small molecules, or a combination of these. Third line therapies can include hematopoietic stem cell transplantation in certain cancers, chemotherapy, antibody drugs, and small molecule tumor-targeted therapies, more invasive forms of surgery, and new revolutionary technologies. We expect to initially seek approval of our product candidates in most instances at least as a third line therapy, for use in patients with relapsed or refractory metastatic cancer. Subsequently, for those product candidates that prove to be sufficiently safe and beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is no guarantee that our product candidates, even if approved as a third or subsequent line of therapy, would be approved for an earlier line of therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.

22


Table of Contents

If the market opportunities for our product candidates are smaller than we believe they are, even assuming approval of a drug candidate, our business may suffer.

              Our projections of both the number of people who have the infectious diseases and cancers we are targeting, as well as the subset of people with these infectious diseases and cancers in a position to receive a particular line of therapy and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, commissioned reports, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new therapies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may not be amenable to treatment with our product candidates. Even if we obtain significant market share for our product candidates within our addressable patient population, because the potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as first or second line therapy.

              Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance among physicians, patients, hospitals, cancer treatment centers and others in the medical community.

              The use of an arenavirus for the treatment of infectious diseases and tumors is a recent development and may not become broadly accepted by physicians, patients, hospitals, cancer treatment centers and others in the medical community. Various factors will influence whether our product candidates, if approved, are accepted in the market, including:

              In addition, although we are not utilizing fully replication competent live virus vectors, our TheraT technology uses a replication attenuated vector and adverse publicity due to the ethical and social controversies surrounding the therapeutic use of such technologies, and reported side effects from any clinical trials using these technologies or the failure of such trials to demonstrate that these therapies are safe and effective may limit market acceptance of our product candidates. If our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals,

23


Table of Contents

cancer treatment centers or others in the medical community, we will not be able to generate significant revenue.

We are developing, and in the future may develop, other product candidates, in combination with other therapies, which exposes us to additional risks.

              Our HB-201 and HB-202 product candidates are being developed to be used in combination with nivolumab, a currently approved cancer therapy. In the future, we may develop other product candidates to be used with one or more currently approved cancer therapies. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA or similar regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our product candidates for use in combination with other drugs or for indications other than cancer. This could result in our own products being removed from the market or being less successful commercially.

              We may also evaluate our future product candidates in combination with one or more other cancer therapies that have not yet been approved for marketing by the FDA or similar regulatory authorities outside of the United States. We will not be able to market any product candidate we develop in combination with any such unapproved cancer therapies that do not ultimately obtain marketing approval.

              If the FDA or similar regulatory authorities outside of the United States do not approve these other drugs or revoke their approval of, or if safety, efficacy, manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination with any product candidate we develop, we may be unable to obtain approval.

Negative developments in the field of immuno-oncology and virus-based therapies could damage public perception of any of our product candidates and negatively affect our business.

              The commercial success of TheraT-based product candidates will depend in part on public acceptance of the use of cancer immunotherapies. Adverse events in clinical trials of HB-201 or our other TheraT-based product candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any other negative developments in the field of immuno-oncology that may occur in the future, including in connection with competitor therapies, could result in a decrease in demand for any TheraT-based product candidates that we may develop. These events could also result in the suspension, discontinuation, or clinical hold of or modification to our clinical trials. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, our product candidates may not be accepted by the general public or the medical community and potential clinical trial subjects may be discouraged from enrolling in our clinical trials. In addition, responses by national or state governments to negative public perception may result in new legislation or regulations that could limit our ability to develop or commercialize any product candidates, obtain or maintain regulatory approval or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, prospects and results of operations and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. As a result, we may not be able to continue or may be delayed in conducting our development programs.

              Our product candidates consist of a modified virus. Adverse developments in clinical trials of other immunotherapy products based on viruses, like oncolytic viruses, may result in a

24


Table of Contents

disproportionately negative effect for our VaxWave and TheraT technologies as compared to other products in the field of infectious disease and immuno-oncology that are not based on viruses. Future negative developments in the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for our product candidates.

We may not be successful in our efforts to identify and successfully commercialize additional product candidates.

              Part of our strategy involves identifying novel product candidates. We have developed a pipeline of product candidates and intend to pursue clinical development of additional product candidates utilizing our VaxWave and TheraT technologies. The process by which we identify product candidates may fail to yield product candidates for clinical development for a number of reasons, including those discussed in these risk factors and also:

              Developing, obtaining regulatory approval for and commercializing additional product candidates will require substantial additional funding beyond the net proceeds of this offering and is prone to the risks of failure inherent in medical product development. We cannot provide you any assurance that we will be able to successfully advance any of these additional product candidates through the development process.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

              We may choose to focus our efforts on and allocate resources to a potential product candidate that ultimately proves to be unsuccessful, or to license or purchase a marketed product that does not meet our financial expectations. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases that may later prove to have greater commercial potential, or

25


Table of Contents

relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we are unable to evaluate the commercial potential or target market for a particular product candidate, identify and successfully commercialize additional suitable product candidates, this would adversely impact our business strategy and our financial position.

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

              The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other products or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. In addition, many of these competitors are active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology that they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could make the product candidates that we develop obsolete. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement.

              Specifically, we face significant competition in cytomegalovirus management, companies such as Helocyte, Inc., VBI Vaccines, Inc., Moderna, Inc., SL VaxiGen, Inc., Merck & Co., GlaxoSmithKline plc and Pfizer, Inc. In immuno-oncology for human papilloma virus-16 positive, or HPV16+, cancers, we face competition from companies such as Kite Pharma, a Gilead company, Advaxis, Inc., ISA Pharmaceuticals B.V., in collaboration with Regeneron Pharmaceuticals, Inc. and BioNtech AG. Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors' products could limit the demand and the price we are able to charge for our product candidates. In addition, other immuno-oncology companies are developing the following technologies, including, but not limited to, neoantigens, bispecific antibodies, engineered cell therapies and tumor specific antigens in areas outside of cytomegalovirus and HPV16+ cancers.

              We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. For additional information regarding our competition, see "Business—Competition."

26


Table of Contents

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

              We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

              Failure to obtain or retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with corporate collaborators. Although we have clinical trial insurance, our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. In the future, we may be unable to maintain this insurance coverage, or we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

A variety of risks associated with operating our business internationally could materially adversely affect our business.

              We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we, and any potential collaborators in those jurisdictions, will be subject to additional risks related to operating in foreign countries, including:

27


Table of Contents

These and other risks associated with our planned international operations may materially adversely affect our ability to attain or maintain profitable operations.

We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if approved, we may not be able to generate product revenue.

              We currently have no sales, marketing or distribution capabilities and have no experience in marketing products. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of product candidates, securing related intellectual property rights and conducting discovery, research and development activities for our programs. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other biotechnology and pharmaceutical companies to recruit, hire, train and retain marketing and sales personnel. There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In addition, there can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.

28


Table of Contents

Insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

              We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, umbrella, and directors' and officers' insurance.

              Insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.

              We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

Exchange rate fluctuations may materially affect our results of operations and financial conditions.

              Owing to the international scope of our operations, fluctuations in exchange rates, particularly between the U.S. dollar and the euro, may adversely affect us. Although we are incorporated in Delaware in the United States, we have significant research and development operations in Austria, and source third-party manufacturing, consulting and other services in the European Union. As a result, our business and the price of our common stock may be affected by fluctuations in foreign exchange rates, which may have a significant impact on our results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place.

Risks Related to Our Reliance on Third Parties

We are fully dependent on our collaboration with Gilead for the development of our HIV and hepatitis B virus programs and may depend on Gilead or additional third parties for the development and commercialization of our other programs and future product candidates. Our current and future collaborators may control aspects of our clinical trials, which could result in delays or other obstacles in the commercialization of the product candidates we develop. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

              In June 2018, we entered into a research collaboration and license agreement with Gilead, or the Collaboration Agreement, which is focused on researching, developing and commercializing therapies for the treatment, cure, diagnosis and prevention of HIV and hepatitis B virus, or HBV. Pursuant to the Collaboration Agreement, we granted Gilead a worldwide exclusive license to research, develop, manufacture and commercialize vaccine products for HIV and HBV using our VaxWave and TheraT technologies. The collaboration involves a complex allocation of rights, provides for milestone payments to us based on the achievement of specified clinical development, regulatory and commercial milestones, and provides us with royalty-based revenue if certain product candidates are successfully commercialized. Gilead is solely responsible for the preclinical and clinical development of the programs. Our lack of control over the clinical development under the Collaboration Agreement could result in delays or other difficulties in the development and commercialization of product candidates,

29


Table of Contents

which may prevent completion of intended IND filings in a timely fashion, if at all. Additionally, Gilead has the right to terminate the Collaboration Agreement at any time for convenience. In the event Gilead terminates the Collaboration Agreement, we would be prevented from receiving any milestone payments, royalty payments and other benefits under that agreement, which would have a materially adverse effect on our results of operations. We cannot provide any assurance with respect to the success of the Collaboration Agreement.

              In the future, we may form or seek other strategic alliances, joint ventures, or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to product candidates we develop.

              Our current collaboration with Gilead poses, and potential future collaborations involving our product candidates may pose, the following risks to us:

30


Table of Contents

              As a result, if we enter into additional collaboration agreements and strategic partnerships or license our intellectual property, products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to any product candidate we develop could delay the development and commercialization of our other product candidates, which would harm our business prospects, financial condition, and results of operations.

We may seek to establish additional collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

              The advancement of our product candidates and development programs and the potential commercialization of our current and future product candidates will require substantial additional cash to fund expenses. For some of our programs, we may decide to collaborate with additional biotechnology and pharmaceutical companies with respect to development and potential commercialization. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. We will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of any product candidates we may seek to develop with them. We cannot predict the success of any collaboration that we have entered into or will enter into.

              We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Whether we reach a definitive agreement for other collaborations will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the design or results of clinical trials, the progress of our clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. Further, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for future product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view them as having the requisite potential to demonstrate safety and efficacy.

              We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. For example, under the Collaboration Agreement, we have granted worldwide exclusive rights to Gilead for using our technologies to develop

31


Table of Contents

treatments for HIV and HBV, and during the term of the agreement we will be restricted from granting similar rights to other parties. This exclusivity could limit our ability to enter into strategic collaborations with future collaborators.

              In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

              We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations or do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

We rely and will continue to rely on third parties to conduct our clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

              We depend and will continue to depend upon independent investigators and collaborators, such as medical institutions, CROs, CMOs and strategic partners to conduct our preclinical studies and clinical trials under agreements with us. We expect to have to negotiate budgets and contracts with CROs, trial sites and CMOs which may result in delays to our development timelines and increased costs. We will rely heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. As a result, we have less direct control over the conduct, timing and completion of these clinical trials and the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff.

              Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with good clinical practices, or GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with the GCP regulations. In addition, our clinical trials must be conducted with biologic product produced under current good manufacturing practices, or cGMP, regulations and will require a large number of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

              Any third parties conducting our clinical trials are and will not be our employees and, except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our ongoing, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our

32


Table of Contents

competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

              Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.

We expect to rely on third parties to manufacture our clinical product supplies, and we may rely on third parties for at least a portion of the manufacturing process of our product candidates, if approved. Our business could be harmed if those third parties fail to provide us with sufficient quantities of clinical product supplies or product candidates or fail to do so at acceptable quality levels or prices.

              We do not currently own any facility that may be used as our clinical-scale manufacturing and processing facility and must currently rely on outside vendors to manufacture our product candidates. We have not yet caused our product candidates to be manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates.

              The manufacture of biological drug products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of biologic products often encounter difficulties in production, particularly in scaling up or out, validating the production process and assuring high reliability of the manufacturing process, including the absence of contamination. These problems include logistics and shipping, difficulties with production costs and yields, quality control, including lot consistency, stability of the product, product testing, operator error and availability of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in our supply of our product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidates will not occur in the future.

              Although we do intend to develop our own manufacturing facility, we currently rely on third parties as part of our manufacturing process and may, in any event, never be successful in developing our own manufacturing facility. Our reliance on a limited number of third-party manufacturers exposes us to the following risks:

33


Table of Contents

              Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our product candidates by the FDA and comparable foreign regulatory authorities, result in higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties to perform certain specification tests on our product candidates prior to delivery to patients. If these tests are not appropriately done and test data are not reliable, patients could be put at risk of serious harm and the FDA and comparable foreign regulatory authorities could place significant restrictions on our company until deficiencies are remedied.

If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

              Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by our manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although we believe that our manufacturers' procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and

34


Table of Contents

interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.

Risks Related to Government Regulation

Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

              Any regulatory approvals that we receive for our product candidates will require surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a risk evaluation and mitigation strategy in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA, the EMA or another comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for any such approved product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or our or our distributors', licensees' or co-marketers' failure to comply with changes to regulatory requirements, may result in, among other things:

              The FDA's, the EMA's and other comparable foreign regulatory authorities' policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

35


Table of Contents

              If any of these events occurs, our ability to commercialize such product candidate may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could adversely affect our business, financial condition and results of operations.

The impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us is currently unknown, and may adversely affect our business model.

              In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of our collaborators, to profitably sell any products for which we obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or our collaborators, may receive for any approved products.

              For example, legislative and regulatory changes have been proposed and adopted since the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, was enacted in 2010. These changes include, among other things, aggregate reductions to Medicare Part B payments to providers of up to 2% per fiscal year, which became effective on April 1, 2013 and will remain in effect through 2027 unless additional congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Changes imposed by recent legislative actions are further described in the section of this prospectus titled "Business—Government Regulation."

              While Congress has not passed repeal legislation to date, the 2017 Tax Cuts and Jobs Act includes a provision repealing the individual insurance coverage mandate included in the Affordable Care Act, effective January 1, 2019. Since January 20, 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Further, on June 14, 2018, the U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay to third-party payors more than $12 billion in ACA risk corridor payments that they argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers, and our business, are not yet known.

              Recent regulatory changes may also affect our business. In 2016, the Centers for Medicare and Medicaid Services, or CMS, issued a final rule regarding the Medicaid drug rebate program. The final rule, effective April 1, 2016, among other things, extended manufacturer rebate obligations to U.S. territories, revised the manner in which the "average manufacturer price" is to be calculated by manufacturers participating in the program, and implements certain amendments to the Medicaid rebate statute created under the ACA. In 2017, CMS issued a final Medicare rule limiting payment for outpatient drugs purchased by hospitals under the 340B program. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

              Moreover, there have been a number of other legislative and regulatory changes in recent years aimed at the biopharmaceutical industry. For instance, the Drug Quality and Security Act imposes obligations on manufacturers of biopharmaceutical products related to product tracking and tracing. Among the requirements of this legislation, manufacturers are required to provide certain information

36


Table of Contents

regarding the product to individuals and entities to which product ownership is transferred, will be required to label products with a product identifier, and are required keep certain records regarding the product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers are also required to verify that purchasers of the manufacturers' products are appropriately licensed. Further, manufacturers have product investigation, quarantine, disposition, and FDA and trading partner notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that could result in serious adverse health consequences or death to humans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

              We expect federal, state and national healthcare reform measures that may be adopted in the United States or other foreign jurisdictions in the future may result in more rigorous coverage criteria, increased regulatory burdens and operating costs, decreased net revenue from our pharmaceutical products, decreased potential returns from our development efforts, and in additional downward pressure on the price that we receive for any approved product. Compliance with new requirements may increase our operational expenses and impose significant administrative burdens. As a result of these and other new proposals, we may need to change our current manner of operation, which could have a material adverse effect on our business, financial condition, and results of operations. Any reduction in reimbursement from Medicare or other government healthcare programs may result in a similar reduction in payments from private payors.

              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. Legislative and regulatory proposals may also impact our regulatory and commercial prospects, expand post-approval requirements, and restrict sales and promotional activities. We cannot predict the extent to which our business may be affected by these or other potential future legislative or regulatory developments, whether regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. Such future price controls or other changes in pricing regulation or negative publicity related to the pricing of pharmaceutical drugs generally could restrict the amount that we are able to charge for our future products, which would adversely affect our anticipated revenue and results of operations.

We may pursue breakthrough therapy designation from the FDA for our product candidates but such designation may not lead to a faster development or regulatory review or approval process, and it would not increase the likelihood that our product candidates will receive marketing approval.

              We may in the future seek breakthrough therapy designation for some of our product candidates. A breakthrough therapy is defined as a drug that 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 the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For compounds that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval.

              Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. We cannot be sure that any evaluation we may make of our product candidates as qualifying for breakthrough therapy designation will meet the FDA's expectations. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure

37


Table of Contents

ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

We may seek Fast Track Designation by the FDA for a product candidate that we develop, and we may be unsuccessful. If we are successful, the designation may not actually lead to a faster development or regulatory review or approval process.

              We may seek Fast Track Designation for the product candidates we develop. If a product is intended for the treatment of a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address an unmet medical need for this condition, the product sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may rescind the Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program.

We may seek Orphan Drug Designation for product candidates we develop, and we may be unsuccessful or may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity.

              As part of our business strategy, we may seek Orphan Drug Designation for any product candidates we develop, and we may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.

              Similarly, in Europe, the European Commission grants Orphan Drug Designation after receiving the opinion of the EMA Committee for Orphan Medicinal Products on an Orphan Drug Designation application. Orphan Drug Designation is intended to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in Europe and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for drugs intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in Europe would be sufficient to justify the necessary investment in developing the drug. In Europe, Orphan Drug Designation entitles a party to a number of incentives, such as protocol assistance and scientific advice specifically for designated orphan medicines, and potential fee reductions depending on the status of the sponsor.

              Generally, if a drug with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity

38


Table of Contents

period can be reduced to six years if a drug no longer meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable such that market exclusivity is no longer justified.

              Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different therapies can be approved for the same condition and the same therapies can be approved for different conditions but used off-label. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. While we may seek Orphan Drug Designation for applicable indications for our current and any future product candidates, we may never receive such designations. Even if we do receive such designations, there is no guarantee that we will enjoy the benefits of those designations.

Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

              Although we do not currently have any products on the market, if we obtain FDA approval for our product candidates, and begin commercializing those products in the United States, our operations may be directly, or indirectly through our prescribers, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal civil and criminal false claims laws and the Physician Payments Sunshine Act and regulations. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws may impact, among other things, our current business operations, including our clinical research activities, and proposed sales, marketing and education programs and constrain the business of financial arrangements and relationships with healthcare providers, physicians and other parties through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business. Finally, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by comparable foreign regulatory authorities in jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:

39


Table of Contents

40


Table of Contents

              The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource- consuming and can divert a company's attention from the business.

              Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the delay, reduction, termination or restructuring of our operations. Further, defending against any such actions can be costly and time-consuming, and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the physicians or other providers or entities with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment. If any of the above occur, our ability to operate our business and our results of operations could be adversely affected.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

              Obtaining and maintaining regulatory approval of a product candidate in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval for that product candidate in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, in order to market and sell our drugs in the European Union and many other jurisdictions, we, and any collaborators we may have in the future, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside of the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside of the United States, it is required that the drug be approved for reimbursement before the drug can be approved for sale in that country. In some cases, the price that we intend to charge for our products is also subject to regulatory approval. We, and any collaborators we may have in the future, may not obtain approvals from regulatory authorities outside of the United States on a timely basis, if at all. The regulatory approval process and other regulations we may be subject to in other jurisdictions in which we may operate are further described in the section of this prospectus titled "Business—Government Regulation."

41


Table of Contents

European data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.

              The collection and use of personal health data in the European Union is governed by the provisions of the Data Protection Directive, and as of May 2018 the General Data Protection Regulation, or GDPR. These directive impose several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The Data Protection Directive and GDPR also impose strict rules on the transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the Data Protection Directive, the GDPR, and the related national data protection laws of the European Union Member States may result in fines and other administrative penalties. The GDPR introduces new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. The GDPR regulations may impose additional responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with these and/or new data protection rules. This may be onerous and adversely affect our business, financial condition, prospects and results of operations.

Our business activities may be subject to the Foreign Corrupt Practices Act and similar anti-bribery and anti-corruption laws.

              Our business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice, or DOJ, and the Securities and Exchange Commission, or the SEC, is involved with enforcement of the books and records provisions of the FCPA and may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions. Recently the SEC and DOJ have increased their FCPA enforcement activities with respect to pharmaceutical companies. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA.

              There is no certainty that all of our employees, agents, contractors, or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.

Comprehensive tax reform legislation could adversely affect our business and financial condition.

              On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or TCJA, that significantly reforms the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate

42


Table of Contents

from a top marginal rate of 35% to a flat rate of 21%; limitation of the tax deduction for interest expense; limitation of the deduction for net operating losses and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017 (though any such tax losses may be carried forward indefinitely); and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as "orphan drugs". We continue to examine the impact this tax reform legislation may have on our business in the future. However, the TCJA did not have an impact on us and our affiliates due to our loss making situation. You are urged to consult your tax adviser regarding the implications of the TCJA on an investment in our common stock.

Our ability to utilize our foreign net operating loss carryforwards may be limited by GILTI taxation introduced through the tax reform.

              We have incurred substantial losses during our operating history. We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. The tax reform legislation introduced section 951A, a new tax on so-called "global intangible low-taxed income," or GILTI. GILTI applies to income of a controlled foreign corporation, or CFC, that is not otherwise subpart F income. Our Austrian subsidiary falls under the category of a CFC and GILTI taxation may therefore apply when use of foreign net operating loss carryforwards reduce our foreign income tax to a low level. Tax benefits from the use of our foreign net operating loss carryforwards could be partially offset by U.S. GILTI taxation, which could have an adverse effect on our future results of operations.

Risks Related to Our Intellectual Property

Our rights to develop and commercialize our product candidates are subject, in part, to the terms and conditions of licenses granted to us by others, and, if we fail to comply with our obligations under these arrangements or resolve related disputes, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property.

              We are dependent on patents, know-how and proprietary technology, both our own and licensed from others. We license patents related to our VaxWave and TheraT technologies and certain other intellectual property rights from third parties, including from the University of Geneva, the University of Basel and the University of Zurich and expect in the future to be party to other material license or collaboration agreements. These agreements typically impose numerous obligations, such as diligence and payment obligations, including in relation to revenues we may receive from any sublicenses we grant in respect of the licensed patents. If we fail to comply with our obligations under these agreements, our licensors may have the right to terminate our licenses, in which event we might not be able to develop, manufacture or market any product that is covered by the intellectual property we in-license from such licensor and may face other adverse consequences. See "Business—License Agreements" for additional information regarding our license agreements. These licenses do and future licenses may also include provisions that impose obligations and restrictions on us that could delay or otherwise negatively impact a transaction that we may wish to enter into.

              Disputes may also arise between us and our licensors regarding the license agreements we have with them, including with respect to:

43


Table of Contents

              In particular, we utilize the intellectual property rights we license from each of the University of Geneva, the University of Basel and the University of Zurich in connection with the development of our product candidates as well as in connection with our obligations under the Collaboration Agreement with Gilead. Those in-licensed intellectual property rights are also part of the rights that we license to Gilead pursuant to the Collaboration Agreement. We recently entered into a written agreement with each of the University of Geneva, the University of Basel and the University of Zurich to resolve a disagreement regarding the interpretation of certain provisions in the respective license agreements and the calculation of sublicense fees payable to the Universities in respect of the payments we receive from Gilead under the Collaboration Agreement. If we fail to comply with, or if we contest, the terms of this agreement, the Universities may seek to terminate the respective license agreements, which could materially and adversely affect our business operations.

              If similar disputes prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

              We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize products could suffer.

If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market.

              We rely upon a combination of patents, confidentiality agreements, trade secret protection and license agreements to protect the intellectual property related to our technologies. Such means may afford only limited protection of our intellectual property and may not: (i) prevent our competitors from duplicating our technology or product candidates; (ii) prevent our competitors from gaining access to our proprietary technology; or (iii) permit us to gain or maintain a competitive advantage. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by the third parties to which we grant access to such intellectual property, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. These third parties also may use our proprietary information and intellectual property in such a way as to invite litigation or other intellectual property-related proceedings that could jeopardize or invalidate our proprietary information and intellectual property. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

              Our success depends in large part on our ability to obtain and maintain patent protection with respect to our VaxWave technology, including our HB-101 product candidate, obtain patent protection with respect to our TheraT technology, including our HB-201, HB-202 and HB-301 product candidates, the vaccine product candidates we are developing with Gilead for HBV and HIV, and other proprietary product candidates. Although we own or license from others certain patent applications that cover the foregoing technologies and product candidates, we do not currently own or license from others issued patents covering all of the foregoing. Our reliance on patent applications carries certain risks associated with pending patent applications prior to the issuance of patents, as described below. If we do not adequately obtain and protect our intellectual property rights, competitors may be able to erode, negate or preempt any competitive advantage we may have, which could harm our business and ability to

44


Table of Contents

achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our product candidates that are important to our business. The patent application and approval process is expensive and time-consuming and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We cannot predict:

              We cannot be certain that the claims in our pending patent applications covering composition of matter of our product candidates will be considered patentable by the U.S. Patent and Trademark Office, or USPTO, or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered patentable by courts in the United States or foreign countries. Certain of our issued patents and pending applications are method of use patents, which protect the use of a product for a specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products "off-label." Although off-label prescriptions may induce or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.

              The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights may be uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries. Even if patents do successfully issue from such applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. If our patents are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded our products could be impaired. Such impairment could significantly impede our ability to market our products, negatively affect our competitive position and harm our business and operating results. In addition, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, patent laws in various jurisdictions, including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the human body more than United States law does. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our patent protection. No assurances can be given that third parties will not create new products or methods that achieve similar results without infringing upon patents we own. If these developments were to occur, it could have an adverse effect on our sales or market position. If the breadth or strength of protection provided by the patent applications we hold with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates.

45


Table of Contents

              If we enter into additional collaboration agreements and strategic partnerships or license our product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects,

Our internal computer systems, or those used by our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of the development programs of our product candidates.

              We and these third parties rely extensively on information technology systems to conduct and manage our business. Despite the implementation of security measures, our internal computer systems and those of our current and future CROs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. The risk of a security breach or disruption, particularly through cyber attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, such as the loss of clinical trial data from completed or future clinical trials. Such loss could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. Any breach in our information technology systems could lead to the unauthorized access, disclosure and use of non-public information, including information from our patient registry or other patient information, which is protected by HIPAA, and other laws. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, damage to our reputation and the further development and commercialization of our product candidates could be delayed.

              In addition, our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. Damage or extended periods of interruption to our third-party collaborators', including Gilead's, corporate, development or research facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause them to cease or delay development.

              Further, if we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, for U.S. applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the USPTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. Various post grant review proceedings, such as inter partes review and post grant review, are available for any interested third party to challenge the patentability of claims issued in patents to us. These procedures are relatively new and can be unpredictable. It is also possible for third parties to file observations with various patent offices during the patent application process. In our European

46


Table of Contents

patent application directed to our VaxWave technology, an unknown third party submitted such an observation. Despite that submission, the European Patent Office proceeded to grant our patent.

              In addition to the protection afforded by patents, we seek to rely on trade secret protection, confidentiality agreements, and license agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our product discovery and development processes that involve proprietary know-how, information, or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results and financial condition.

Third-party claims of intellectual property infringement may prevent or delay our product discovery and development efforts.

              Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, reexamination, and post grant review proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.

              Third parties may assert that we are employing their proprietary technology without authorization. Generally, conducting clinical trials and certain other development activities in the United States is not considered an act of infringement. If and when HB-101 or another product candidate is approved by the FDA, a third party may then seek to enforce its patent by filing a patent infringement lawsuit against us. While we are aware of certain third party patents and applications that relate to similar subject matter as our technologies, we do not believe that any patent claims that could otherwise materially adversely affect commercialization of our product candidates, if approved, are valid and enforceable. We may be incorrect in this belief, or we may not be able to prove it in a litigation. In this regard, patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is "clear and convincing," a heightened standard of proof. There may be third-party patents of which we are currently unaware which cover materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Moreover, we may fail to identify relevant patents or incorrectly conclude that a patent is invalid, not enforceable, exhausted, or not infringed by our activities. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, constructs or molecules used in or formed during the manufacturing process, or any final

47


Table of Contents

product itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we obtained a license under the applicable patents, or until such patents expire or they are determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the product candidate unless we obtained a license, which may not be available on commercially reasonable terms, if at all, or until such patent expires or is determined to be invalid or unenforceable. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

              Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, could involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need or may choose to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly.

We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through acquisitions and in-licenses.

              Presently we have rights to certain intellectual property, through licenses from third parties and under patent applications that we own or will own, related to HB-101 and certain other product candidates. Because additional product candidates may require the use of proprietary rights held by third parties, such as the rights to use certain antigens, specific to future disease targets, the growth of our business will likely depend in part on our ability to acquire, in-license or use these proprietary rights. In addition, while we have patent rights directed to certain VaxWave and TheraT technologies we may not be able to obtain intellectual property to all uses of VaxWave and TheraT technologies. Our product candidates may also require specific formulations to work effectively and efficiently and these rights may be held by others. Similarly, efficient production or delivery of our product candidates may also require specific compositions or methods, and the rights to these may be owned by third parties. We may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify. Even if we are able to obtain a license to use such intellectual property, it may be non-exclusive, which would not restrict the licensor party from giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. Moreover, the specific antigens that will be used with our product candidates may be covered by the intellectual property rights of others.

              The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies, which may be more established, or have greater resources than we do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates. More established companies

48


Table of Contents

may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.

              Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.

              Post-grant proceedings, including interference proceedings, provoked by third parties or brought by the USPTO may be necessary to determine the validity or priority of inventions with respect to our patents or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not agree to a license on commercially reasonable terms or at all. Litigation or post-grant proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.

              Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

              Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an

49


Table of Contents

event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court or the USPTO.

              If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that such patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we, our patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidate. Such a loss of patent protection could have a material adverse impact on our business.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

              As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology or pharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States continues to adapt to wide-ranging patent reform legislation that became effective starting in 2012. Moreover, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Furthermore, the specific content of patents and patent applications that are necessary to support and interpret patent scope is highly uncertain due to the complex nature of the relevant legal, scientific, and factual issues. Changes in either patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Changes in the laws and regulations governing patents in other jurisdictions could similarly have an adverse effect on our ability to obtain and effectively enforce our patent rights.

We have less robust intellectual property rights in certain foreign jurisdictions and may not be able to protect our intellectual property rights throughout the world.

              Certain of our key patent families have been filed in the United States, as well as in numerous jurisdictions outside the United States. However, our intellectual property rights in certain jurisdictions outside the United States may be less robust. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and

50


Table of Contents

state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may export otherwise infringing products to territories where we have patent protection. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Most of our patent portfolio is at the very early stage. We will need to decide whether and in which jurisdictions to pursue protection for the various inventions in our portfolio prior to applicable deadlines.

              Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

              We generally enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and contractors. These agreements generally provide that inventions conceived by an employee, consultant, or contractor, as applicable, in the course of rendering services to us will be our exclusive property. However, those agreements may not be honored and may not effectively assign intellectual property rights to us. We may face claims by third parties that our agreements with employees, contractors or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property. Moreover, there may be some circumstances, where we are unable to negotiate for such ownership rights. Disputes regarding ownership or inventorship of intellectual property can also arise in other contexts, such as collaborations and sponsored research. We may be subject to claims that former collaborators or other third parties have an ownership interest in our patents or other intellectual property. If we are subject to a dispute challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time-consuming. If we are unsuccessful, we could lose valuable rights in intellectual property that we regard as our own.

We may be subject to claims that our employees, consultants or contractors have wrongfully used or disclosed confidential information of third parties.

              We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees' former employers or our consultants' or contractors' current or former clients or customers. Litigation may be

51


Table of Contents

necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees from their normal responsibilities. If we are not successful, in addition to paying monetary damages, we could lose access or exclusive access to valuable intellectual property and personnel.

Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.

              The degree of future protection afforded by our intellectual property rights, whether owned or in-licensed, is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technologies, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:

Should any of these events occur, they could significantly harm our business and results of operation.

Risks Related to Employee Matters, Managing Our Growth and Other Risks

The contractual obligations of our Chief Scientific Officer to the University of Basel may present conflicts of interest.

              Daniel Pinschewer, M.D., our Chief Scientific Officer, provides research services to us pursuant to a consulting agreement. Dr. Pinschewer is also an employee of the University of Basel where he engages in, among other activities, academic research related to Arenaviruses and our technology

52


Table of Contents

platform. Pursuant to a separate research service agreement with the University of Basel, the university provides us with on-going services with respect to our technologies, and employs the services of Dr. Pinschewer to perform some of these services. As an employee of the University of Basel, Dr. Pinschewer is subject to the university's rules of conduct, such as confidentiality, academic objectivity and transparency of research with respect to his academic research. As a result of Dr. Pinschewer's obligations to the University of Basel and his role as our Chief Scientific Officer, circumstances may arise that could create or appear to create conflicts of interest when, we, the University of Basel or Dr. Pinschewer are faced with decisions that could have different implications for the University of Basel and our company. Additionally, we would not automatically obtain rights to inventions that are developed by Dr. Pinschewer unless the inventions were made in the course of his consulting services to us. Furthermore, other research being conducted by the University of Basel may receive higher priority than research and services related to our technology platform. Any potential disagreement or dispute that may arise with the University of Basel relating to the ownership of Dr. Pinschewer's inventions, conflicts of interest or otherwise may result in a delay or termination of the research, development or commercialization of our product candidates or may have other negative consequences for our company. See the section titled "Certain Relationships and Related Party Transaction—Agreements with the University of Basel."

We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

              We are highly dependent on members of our executive team. The loss of the services of any of them may adversely impact the achievement of our objectives. Although we have formal employment agreements with our executive officers, any of our executive officers could leave our employment at any time, or within a contractual termination period that is too short to find an adequate replacement. We currently do not have "key person" insurance on any of our employees. The loss of the services of one or more of our current employees might impede the achievement of our research, development and commercialization objectives.

              Recruiting and retaining qualified employees, consultants and advisors for our business, including scientific and technical personnel, also will be critical to our success. We primarily conduct our operations at our facility in Vienna, Austria. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous biotechnology and pharmaceutical companies and academic institutions for skilled individuals. In addition, failure to succeed in preclinical studies, clinical trials or applications for marketing approval may make it more challenging to recruit and retain qualified personnel.

              To induce valuable employees to join and remain at our company, in addition to salary and cash incentives, we have provided, and intend to continue to provide, stock options that vest over time. The value of these equity grants that vest over time to our employees may be significantly affected by movements in the fair market value of our capital stock that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

              Moreover, many of our employees have become or will soon become vested in a substantial amount of our common stock or a number of common stock options. Our employees may be more likely to leave us if the shares they own have significantly appreciated in value relative to the original purchase prices of the shares, or if the exercise prices of the options that they hold are significantly below the market price of our common stock, particularly after the expiration of the lock-up agreements described herein.

53


Table of Contents

              Accordingly, our future success depends on our ability to continue to attract and retain current and additional executive officers and other key employees. The inability to recruit, or the loss of services of certain executives, key employees, consultants or advisors, may impede the progress of our research, development and commercialization objectives and have a material adverse effect on our business, financial condition, results of operations and prospects.

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

              As of February 28, 2019, we had 60 full-time employees. As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel, as well as additional facilities to expand our operations. Future growth would impose significant added responsibilities on members of management, including:

              Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. Due to our limited financial resources and the limited experience of some members of our management team in managing a public company, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may also lead to significant costs. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, or we are not able to effectively build out new facilities to accommodate this expansion, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

              We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical trial management and manufacturing. Our independent organizations, advisors and consultants may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

54


Table of Contents

Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

              We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the regulations of the FDA and other comparable foreign regulatory bodies, provide true, complete and accurate information to the FDA and other comparable foreign regulatory bodies, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws and regulations will increase significantly, and our costs associated with compliance with such laws and regulations are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research patients, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally.

              We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.

Violations of or liabilities under environmental, health and safety laws and regulations could subject us to fines, penalties or other costs that could have a material adverse effect on the success of our business.

              We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures, the handling, use, storage, treatment and disposal of hazardous materials and wastes and the cleanup of contaminated sites. Our operations involve the use of potentially hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We could incur substantial costs as a result of violations of or liabilities under environmental requirements in connection with our operations or property, including fines, penalties and other sanctions, investigation and cleanup costs and third-party claims. Although we generally contract with third parties for the disposal of hazardous materials and wastes from our operations, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of changes to applicable laws and regulations and cannot be certain of our future compliance. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts.

              Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

55


Table of Contents

Risks Related to This Offering and Ownership of Our Common Stock

We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and as a result it may be difficult for you to sell your shares of our common stock.

              Prior to this offering, there was no public trading market for shares of our common stock. Although we have been approved for listing on The Nasdaq Global Select Market, an active trading market for our shares may never develop or be sustained following this offering. You may not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active. The initial public offering price may not be indicative of the market price of the common stock after the offering. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

              The initial public offering price is substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $7.84 per share, based on the initial public offering price of $14.00 per share. Further, investors purchasing common stock in this offering will contribute approximately 37% of the total amount invested by stockholders since our inception, but will own only approximately 24% of the total number of shares of our common stock outstanding after this offering.

              This dilution is due to our investors who purchased shares prior to this offering having paid substantially less when they purchased their shares than the price offered to the public in this offering and the exercise of stock options granted to our employees. To the extent that outstanding stock options are exercised, there will be further dilution to new investors. As a result of the dilution to investors purchasing common stock in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. For a further description of the dilution that you will experience immediately after this offering, see "Dilution."

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

              The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this prospectus, these factors include:

56


Table of Contents

57


Table of Contents

              In addition, the stock market in general, and The Nasdaq Global Select Market and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company's securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would harm our business, operating results or financial condition.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

              The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

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

              Our Class A common stock has no voting rights. As a result, all matters submitted to our stockholders will be decided by the vote of holders of our common stock. Prior to this offering, our executive officers, directors, and 5% stockholders beneficially owned approximately 77.8% of our voting stock as of February 28, 2019, and, based on the initial public offering price of $14.00 per share, that same group will hold approximately 60.0% of our outstanding voting stock (assuming no exercise of the underwriters' option to purchase additional shares and that all outstanding shares of our preferred stock convert into shares of voting common stock upon the closing of this offering). These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

              Certain of our existing stockholders, directors and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $55.0 million in shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering. The foregoing discussion does not reflect any potential purchases by these potential purchasers.

58


Table of Contents

We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

              We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, being permitted to present only two years of audited financial statements and a correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure, as well as reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

              Even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company," which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

              Under the JOBS Act, emerging growth companies can also 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, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

              As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which will require, among other things, that we file with the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq Global Select Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices.

59


Table of Contents

              Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as "say on pay" and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

              We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.

              If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on the number of shares of common stock outstanding as of February 28, 2019 upon the closing of this offering, we will have outstanding a total of 25,408,488 shares of common stock (without giving effect to the conversion of 328,071 shares of preferred stock in to 3,819,732 shares of Class A common stock upon the closing of this offering). Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters' option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering, unless purchased by our affiliates. Merrill Lynch, Pierce, Fenner & Smith Incorporated and SVB Leerink LLC, however, may, in their sole discretion, permit our officers, directors, and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

              Certain of our existing stockholders, directors and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $55.0 million in shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. Any such shares purchased by stockholders who are considered to be our affiliates cannot be resold in the public market immediately following this offering as a result of restrictions under securities laws, but will be able to be sold following the expiration of these restrictions as described in the "Shares Eligible for Future Sale" section of this prospectus.

              The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus. In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our 2019 Stock Option Incentive Plan will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up

60


Table of Contents

agreements and Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

              After this offering, the holders of 18,401,893 shares of our common stock as of December 31, 2018 will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. See "Description of Capital Stock—Registration Rights." Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

              Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled "Use of Proceeds," and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase or maintain the value of your investment. We expect to use the net proceeds from this offering, together with our existing cash and cash equivalents, to advance the development of our clinical and preclinical product candidates and to fund working capital, including general operating expenses. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

              Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. From time to time, we may enter into license or collaboration agreements with other companies that include development funding and significant upfront and milestone payments and/or royalties, which may become an important source of our revenue. Accordingly, our revenue may depend on development funding and the achievement of development and clinical milestones under current and any potential future license and collaboration agreements and, if approved, sales of our product candidates. These upfront and milestone payments may vary significantly from period to period and any variance could cause a significant fluctuation in our operating results from one period to the next.

              Further, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:

61


Table of Contents

              The cumulative effect of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. The price of our common stock could decline even when we have met any previously publicly stated revenue and/or earnings guidance we may provide.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

              We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock, which may never occur.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

              Our amended and restated certificate of incorporation and amended and restated bylaws, which are to become effective upon the closing of this offering and upon the effectiveness of the registration statement of which this prospectus is a part, respectively, will contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

62


Table of Contents

              In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our amended and restated bylaws will designate the Court of Chancery of the State of Delaware, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.

              Our amended and restated bylaws, to be in effect upon the closing of this offering, provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers and employees to us or our stockholders, (iii) any action asserting a claim against us or any of our current or former directors, officers, or other employees or stockholders arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws, or (v) any action asserting a claim against us or any of our current or former directors or officers or other employees that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. Stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near the jurisdiction. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court were to find this provision of our amended and restated certificate of incorporation or amended and restated bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs, which could have a material adverse effect on our business, financial condition or results of operation.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

              Upon the closing of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We are continuing to refine our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed,

63


Table of Contents

summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

              These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

We have identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

              Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. In connection with our preparation and the audits of our financial statements as of and for the years ended December 31, 2017 and 2018, we and our independent registered public accounting firm identified two material weaknesses as defined under the Exchange Act and by the Public Company Accounting Oversight Board (United States) in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual financial statements will not be prevented or detected on a timely basis. We did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience, and training, which would allow for appropriate monitoring, presentation and disclosure, and internal control over financial reporting. Specifically, we have not designed and implemented a sufficient level of formal accounting policies and procedures. Additionally, the limited personnel resulted in our inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, as demonstrated by, amongst other things, our insufficient segregation of duties in their finance and accounting functions. In connection with the preparation and the audit of our financial statements as of and for the year ended December 31, 2018, we determined that the two previously identified material weaknesses had not been remediated.

              Neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provision of the Sarbanes-Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified.

              Once public, we will be subject to reporting obligations under U.S. securities laws and the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act will require that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 10-K beginning with our annual report for the fiscal year ending December 31, 2020. If we fail to remediate the material weaknesses identified above, our management may conclude that our internal control over financial reporting is not effective. This conclusion could adversely impact the market price of our shares due to a loss of investor confidence in the reliability of our reporting processes.

              We have begun taking measures and plan to continue to take measures to remediate these material weaknesses. However, the implementation of these measures may not fully address these material weaknesses in our internal control over financial reporting, and therefore we would not be

64


Table of Contents

able to conclude that it has been fully remedied. Our failure to correct these material weaknesses or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price and listing of our shares, may be materially and adversely affected. We cannot assure you that all of our existing material weaknesses have been identified, or that we will not in the future identify additional material weaknesses.

If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

              Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. In connection with this offering, we intend to begin the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which will require annual management assessment of the effectiveness of our internal control over financial reporting. We have begun recruiting additional finance and accounting personnel with certain skill sets that we will need as a public company. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following the date we are no longer an emerging growth company, depending on whether we choose to rely on certain exemptions set forth in the JOBS Act.

              Implementing any appropriate changes to our internal controls, including compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors' perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price, make it more difficult for us to effectively market and sell our service to new and existing customers and subject us to sanctions or investigations by The Nasdaq Stock Market LLC, the SEC or other regulatory authorities. In addition, our common stock may not be able to remain listed on The Nasdaq Global Select Market or any other securities exchange.

65


Table of Contents


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

              This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business," contains express or implied forward-looking statements that are based on our management's belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

66


Table of Contents

              In some cases, forward-looking statements can be identified by terminology, such as "may," "will," "should," "expects," "intends," "project," "target," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. These statements are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

              The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.


INDUSTRY AND MARKET DATA

              We obtained the industry, statistical and market data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. All of the market data used in this prospectus involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. While we believe our internal company research as to such matters is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled "Risk Factors." These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us.

67


Table of Contents


USE OF PROCEEDS

              We estimate that our net proceeds from the sale of shares of our common stock in this offering will be approximately $74.8 million, or $86.5 million if the underwriters exercise in full their option to purchase additional shares, based on the initial public offering price of $14.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

              We currently estimate that we will use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:

              Based on our current plans, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operations for at least the next 12 months. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect.

              This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development, the status of and results from preclinical studies or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates, and any unforeseen cash needs. We may also use a portion of the net proceeds to in-license, acquire, or invest in additional businesses, technologies, products or assets, although currently we have no specific agreements, commitments or understandings in this regard. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

              Pending our use of proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation instruments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

68


Table of Contents


DIVIDEND POLICY

              We have never declared or paid cash dividends on our common stock. We intend to retain all available funds and any future earnings to fund the growth and development of our business. We do not intend to pay cash dividends to our stockholders in the foreseeable future. In addition, any future financing instruments could preclude us from paying dividends. Any future determination to pay dividends will be made at the discretion of our board of directors subject to applicable laws, and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Investors should not purchase our common stock with the expectation of receiving cash dividends.

69


Table of Contents


CAPITALIZATION

              The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2018:

              Net proceeds assumed in this offering are $74.8 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. As of December 31, 2018, deferred offering expenses classified as other non-current assets were $1.5 million, of which $0.2 million had been paid and $1.3 million were accrued in current liabilities. You should read this table together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus.

70


Table of Contents

 
  As of December 31, 2018  
 
  Actual   Pro Forma   Pro Forma As
Adjusted
 
 
  (in thousands, except share and per
share data)

 

Cash and cash equivalents

  $ 48,580   $ 85,857   $ 160,856  

Loans payable, net of discount

  $ 4,392   $ 4,392   $ 4,392  

Redeemable convertible preferred stock (Series A, B and C), par value $0.0001 per share; 1,323,506 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    104,774          

Stockholders' equity (deficit):

                   

Preferred stock, $0.0001 par value per share; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted

             

Common stock, par value $0.0001 per share; 18,454,860 shares authorized, 1,006,595 shares issued and outstanding, actual; 25,614,706 shares authorized, 19,408,488 shares issued and outstanding, pro forma; 100,000,000 shares authorized, 25,408,488 shares issued and outstanding, pro forma as adjusted

    0     2     3  

Class A common stock, par value $0.0001 per share, no shares authorized, no shares issued and outstanding, actual; 1,632,466 shares authorized, no shares issued and outstanding, pro forma; 3,900,000 shares authorized, no shares issued and outstanding, pro forma as adjusted

             

Additional paid-in capital

    3,327     145,377     220,196  

Accumulated other comprehensive (loss) income

    (3,720 )   (3,720 )   (3,720 )

Accumulated deficit

    (59,982 )   (59,982 )   (59,982 )

Total stockholders' equity (deficit)

    (60,375 )   81,676     156,497  

Total capitalization

  $ 48,791   $ 86,068   $ 160,889  

              The table above does not include:

71


Table of Contents


DILUTION

              If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

              Our historical net tangible book value (deficit) as of December 31, 2018 was $(61.9) million, or $(61.53) per share of common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying value of our preferred stock, which is not included within stockholders' equity (deficit). Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by 1,006,595 shares of common stock outstanding as of December 31, 2018.

              Our pro forma net tangible book value as of December 31, 2018 was $80.1 million, or $4.13 per share of common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) our sale of 257,000 shares of Series D redeemable convertible preferred stock in February 2019 for gross proceeds of $37.4 million, (ii) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,401,893 shares of voting common stock upon the closing of this offering and (iii) no issuances of shares of Class A common stock upon the closing of this offering. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of December 31, 2018, after giving effect to the pro forma adjustment described above.

              After giving further effect to our issuance and sale of 6,000,000 shares of our common stock in this offering at the initial public offering price of $14.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2018 would have been $156.4 million, or $6.16 per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $2.03 to existing stockholders and immediate dilution of $7.84 in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

Initial public offering price per share

        $ 14.00  

Historical net tangible book value (deficit) per share as of December 31, 2018

  $ (61.53 )      

Increase (decrease) per share attributable to the pro forma adjustment described above

    65.66        

Pro forma net tangible book value (deficit) per share as of December 31, 2018

    4.13        

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering

    2.03        

Pro forma as adjusted net tangible book value per share after this offering

          6.16  

Dilution per share to new investors purchasing common stock in this offering

        $ 7.84  

              If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $6.39, representing an immediate increase in pro forma as adjusted net tangible book value per share of $0.23 to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $0.23 to new investors purchasing common stock in this offering, based on the initial public offering price of $14.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

72


Table of Contents

              The following table summarizes, as of December 31, 2018, on the pro forma as adjusted basis described above, the total number of shares purchased from us on an as converted to common stock basis (assuming all of the outstanding preferred stock convert into shares of voting common stock), the total consideration paid or to be paid, and the average price per share paid or to be paid by existing stockholders and by new investors in this offering, based on the initial public offering price of $14.00 per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 
  Shares Purchased   Total Consideration    
 
 
  Average
Price Per
Share
 
 
  Number   Percent   Amount   Percentage  

Existing stockholders

    19,408,488     76.4 % $ 142,567,049     62.9 % $ 7.35  

New investors

    6,000,000     23.6     84,000,000     37.1   $ 14.00  

Total

    25,408,488     100.0 % $ 226,567,049     100.0 %      

              Certain of our existing stockholders, directors and their affiliated entities have indicated an interest in purchasing an aggregate of up to approximately $55.0 million in shares of our common stock in this offering at the initial public offering price per share and on the same terms as the other purchasers in this offering. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, fewer or no shares to any of these potential purchasers, and any of these potential purchasers could determine to purchase more, fewer or no shares in this offering. The table above does not reflect any potential purchases by these potential purchasers.

              The table above assumes no exercise of the underwriters' option to purchase additional shares in this offering. If the underwriters' option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to 73.8% of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to 26.2% of the total number of shares of our common stock outstanding after this offering.

              The number of shares purchased from us by existing stockholders is based on 19,408,488 shares of our common stock outstanding as of December 31, 2018, after giving effect to (i) our sale of 257,000 shares of Series D redeemable convertible preferred stock in February 2019 for gross proceeds of $37.4 million, (ii) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 18,401,893 shares of voting common stock upon the closing of this offering and (iii) no issuances of shares of Class A common stock upon the closing of this offering, and excludes:

73


Table of Contents

              To the extent that outstanding stock options are exercised, new stock options are issued, or we issue additional shares of common stock in the future, there will be further dilution to new investors. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

74


Table of Contents


SELECTED CONSOLIDATED FINANCIAL DATA

              We have derived the consolidated statement of operations data for the years ended December 31, 2017 and 2018 and the consolidated balance sheet data as of December 31, 2017 and 2018 from our audited consolidated financial statements appearing at the end of this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus.

 
  Year ended
December 31,
 
(in thousands, except share and per share data)
  2017   2018  

Consolidated Statements of Operations Data:

             

Revenue from collaboration and licensing

  $   $ 7,629  

Operating expenses:

             

Research and development

    (9,772 )   (21,965 )

General and administrative

    (4,385 )   (6,844 )

Total operating expenses

    (14,157 )   (28,809 )

Loss from operations

    (14,157 )   (21,180 )

Other income (expense):

             

Grant income

    2,069     5,612  

Interest expense

    (606 )   (778 )

Other income and expenses, net

    (25 )   133  

Total other income (expense), net

    1,438     4,967  

Net loss before tax

    (12,719 )   (16,213 )

Income tax expense

    (4 )   (24 )

Net loss

    (12,723 )   (16,237 )

Net loss per share attributable to common stockholders—basic and diluted(1)

  $ (13.95 ) $ (17.76 )

Weighted average common shares outstanding—basic and diluted(1)

    911,777     914,375  

Pro forma net loss per share attributable to common shareholders—basic and diluted (unaudited)(1)

        $ (0.99 )

Pro forma weighted average common shares outstanding—basic and diluted (unaudited)(1)

          16,324,008  

(1)
See Note 2 and Note 13 to our consolidated financial statements appearing at the end of this prospectus for further details on the calculation of basic and diluted net loss per share attributable to common shareholders and on the calculation of basic and diluted net loss per share attributable to common shareholders.
 
  As of December 31,  
 
  2017   2018  
 
  (in thousands)
 

Consolidated Balance Sheet Data:

             

Cash and cash equivalents

  $ 61,362   $ 48,580  

Working capital(1)

    65,923     47,616  

Total assets

    73,732     68,251  

Redeemable convertible preferred stock

    104,774     104,774  

Accumulated deficit

    (43,745 )   (59,982 )

Total stockholders' equity (deficit)

    (42,656 )   (60,375 )

(1)
We define working capital as current assets less current liabilities.

75


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

              You should read the following discussion and analysis of our financial condition and results of operations together with the section titled "Selected Consolidated Financial Data" and our audited consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included elsewhere in this prospectus. For convenience of presentation, some of the numbers have been rounded in the text below.

Overview

              We are a clinical-stage biopharmaceutical company developing a new class of immunotherapeutics targeting infectious diseases and cancers based on our proprietary arenavirus platform that is designed to reprogram the body's immune system. We are using our "off-the-shelf" technologies, VaxWave and TheraT, to elicit directly within patients a powerful and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against infectious diseases and cancers. We believe that our technologies can meaningfully leverage this immune defense mechanism for prophylactic and therapeutic purposes by eliciting killer T cell response levels previously not achieved by other published immunotherapy approaches.

              Our lead infectious disease product candidate, HB-101, is in a Phase 2 clinical trial in cytomegalovirus-negative patients awaiting kidney transplantation from living cytomegalovirus-positive donors. Our lead oncology product candidates, HB-201 and HB-202, are in development for the treatment of human papillomavirus-positive cancers. We plan to file an investigational new drug application, or IND, with the U.S. Food and Drug Administration, or the FDA, for HB-201 and HB-202 in the first half of 2019 and 2020, respectively. We have also entered into a strategic partnership with Gilead Sciences, Inc., or Gilead, to accelerate building a pipeline of additional infectious disease product candidates in a cost efficient manner.

              We have funded our operations to date primarily from private placements of our redeemable convertible preferred stock, with aggregate gross proceeds of approximately $105.0 million, grant funding and loans from an Austrian government agency, and $12.8 million in upfront and milestone payments from Gilead in connection with a research collaboration and license agreement. We do not expect to generate revenue from any product candidates that we develop until we obtain regulatory approval for one or more of such product candidates, if at all, and commercialize our products or enter into additional collaboration agreements with third parties. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

              All of our product candidates, including our most advanced product candidate, HB-101, will require substantial additional development time and resources before we would be able to apply for and receive regulatory approvals and begin generating revenue from product sales. Before launching our first products, if approved, we plan to establish our own manufacturing facility to minimize or eliminate our reliance on contract manufacturing organizations, or CMOs, which will require substantial capital expenditures and cause additional operating expenses. We currently have no marketing and sales organization and have no experience in marketing products; accordingly, we will incur significant expenses to develop a marketing organization and sales force in advance of generating any commercial product sales. As a result, we will need substantial additional capital to support our operating activities. In addition, upon the closing of this offering we expect to incur additional legal, accounting and other

76


Table of Contents

expenses in operating our business, including the additional costs associated with operating as a public company.

              We currently anticipate that we will seek to fund our operations through equity or debt financings or other sources, such as government grants and additional collaboration agreements with third parties. Adequate funding may not be available to us on acceptable terms, or at all. If sufficient funds on acceptable terms are not available when needed, we will be required to significantly reduce our operating expenses and delay, reduce the scope of, or eliminate one or more of our development programs.

              We have incurred net losses each year since inception, including net losses of $12.7 million for the year ended December 31, 2017 and $16.2 million for the year ended December 31, 2018. As of December 31, 2017 and 2018, we had an accumulated deficit of $43.7 million and $60.0 million, respectively, and we do not expect positive cash flows from operations in the foreseeable future. We expect to continue to incur net operating losses for at least the next several years as we advance our product candidates through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization, continue our research and development efforts and invest to establish a commercial manufacturing facility.

Components of Our Operating Results

Revenue from collaboration and licensing

              To date, we have not generated any revenue from product sales and do not expect to do so in the near future, if at all. All of our revenue to date has been derived from a research collaboration and license agreement with Gilead.

              On June 4, 2018, we entered into a Research Collaboration and License Agreement, or the Collaboration Agreement, with Gilead to evaluate potential vaccine products using or incorporating our TheraT technology and VaxWave technology for the treatment, cure, diagnosis or prevention of hepatitis B virus, or HBV, and the human immunodeficiency virus, or HIV.

              Under the Collaboration Agreement, we granted Gilead an exclusive, royalty-bearing license to our technology platform for researching, developing, manufacturing or commercializing products for HIV or HBV. We received a non-refundable $10.0 million upfront payment upon entering the Collaboration Agreement. Gilead is also obligated to reimburse us for our cost, including all benefits, travel, overhead, and any other expenses, of performing research and development under the agreement and to make additional payments to us upon the achievement of preclinical, development and commercial milestones. We are eligible for up to $140.0 million in developmental milestone payments for each of the HBV and HIV programs and up to $50.0 million in commercialization milestone payments for each of the HBV and HIV programs. Additionally, Gilead is obligated to pay royalties of a high single-digit to low-teens percentage on the worldwide net sales of each HBV product, and royalties of a mid-single-digit to low-teens percentage of worldwide net sales of each HIV product.

              We determined that our performance obligations under the terms of the Collaboration Agreement included one combined performance obligation for each of the HBV and HIV research programs, comprised of the transfer of intellectual property rights and providing research and development services. Accordingly, we recognize these amounts as revenue over the performance period of the respective services on a percent of completion basis using total estimated research and development labor hours for each of the performance obligations.

              Through December 31, 2018, we have received from Gilead the non-refundable upfront payment of $10.0 million discussed above and $0.9 million of cost reimbursements for research and development services performed during the period. In December 2018, we achieved the first pre-clinical

77


Table of Contents

milestone under the HIV program, entitling us to a payment of $2.8 million from Gilead, which we received in January 2019. During the year ended December 31, 2018 we recognized revenue of $7.6 million under the Collaboration Agreement, which included recognition of $2.8 million of the upfront payment from collaboration and licensing, $2.0 million in cost reimbursements for research and development services and $2.8 million for the achievement of the first pre-clinical milestone.

Operating Expenses

              Our operating expenses since inception have only consisted of research and development costs and general administrative costs.

Research and Development Expenses

              Since our inception, we have focused significant resources on our research and development activities, including establishing our arenavirus platform, conducting preclinical studies, developing a manufacturing process and conducting a Phase 1 clinical trial for HB-101. Research and development activities account for a significant portion of our operating expenses. Research and development costs are expensed as incurred. These costs include:

              The majority of our research and development costs are external costs, which we track on a program-by-program basis. We do not track our internal research and development expenses on a program-by-program basis as they primarily relate to shared costs deployed across multiple projects under development.

              We expect our research and development expenses to increase substantially in the future as we advance our existing and future product candidates into and through clinical studies and pursue regulatory approval. The process of conducting the necessary clinical studies to obtain regulatory approval is costly and time-consuming. Clinical studies generally become larger and more costly to conduct as they advance into later stages and, in the future, we will be required to make estimates for expense accruals related to clinical study expenses.

              At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any product candidates that we develop from our programs. We are also unable to predict when, if ever, material net cash inflows will commence from sales of product candidates we develop, if at all. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

78


Table of Contents

              A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

              Our general and administrative expenses consist primarily of personnel costs in our executive, finance, business development and administrative functions. Other general and administrative expenses include consulting fees and professional service fees for auditing, tax and legal services, rent expenses related to our offices, depreciation and other costs. We expect our general and administrative expenses to continue to increase in the future as we expand our operating activities and prepare for potential commercialization of our current and future product candidates, increase our headcount and support our operations as a public company, including increased expenses related to legal, accounting,

79


Table of Contents

regulatory and tax-related services associated with maintaining compliance with requirements of the Nasdaq Global Select Market and the Securities and Exchange Commission, or the SEC, directors and officers liability insurance premiums and investor relations activities.

Grant Income

              Since inception, we have received grants from an Austrian government agency, either under funding agreements or under research incentive programs. In addition, we have received loans under funding agreements that bear interest at below market interest rate. We account for the grants received as other income and for the imputed benefits arising from the difference between a market rate of interest and the rate of interest as additional grant income, and record interest expense for the loans at a market rate of interest.

Interest Expense

              Interest expense results primarily from loans under funding agreements with the Austrian Research Promotion Agency, recorded at a market rate of interest. The difference between interest payments payable pursuant to the loans, which rates are at below market interest rates, and the market interest rate, is accounted for as grant income.

Income Taxes

              Income tax expense results from foreign minimum income tax and profit on a legal entity basis. The losses that we have incurred since inception result primary from the losses of our Austrian subsidiary. As of December 31, 2018, we had foreign net operating loss carryforwards of $76.0 million with no expiry date, resulting in a deferred tax asset of $19.2 million. We have considered that it is more likely than not that we will not realize the benefits of the deferred tax asset, and accordingly, established a full valuation allowance as of December 31, 2018.

Results of Operations

              The following table sets forth the significant components of our results of operations (in thousands):

 
  Year ended December 31,  
 
  2017   2018  

Revenue from collaboration and licensing

  $   $ 7,629  

Operating expenses:

             

Research and development

    (9,772 )   (21,965 )

General and administrative

    (4,385 )   (6,844 )

Total operating expenses

    (14,157 )   (28,809 )

Loss from operations

    (14,157 )   (21,180 )

Other income (expense):

             

Grant income

    2,069     5,612  

Interest expense

    (606 )   (778 )

Other income and expenses, net

    (25 )   133  

Total other income (expense), net

    1,438     4,967  

Net loss before tax

    (12,719 )   (16,213 )

Income tax expense

    (4 )   (24 )

Net loss

  $ (12,723 ) $ (16,237 )

80


Table of Contents

Revenue from collaboration and licensing

              We had no revenue for the year ended December 31, 2017.

              Revenue for the year ended December 31, 2018 was $7.6 million, which resulted from collaboration and licensing under the Collaboration Agreement. This included $2.0 million from reimbursement of research and development expenses, $2.8 million from partial recognition of revenue related to the upfront payment of $10.0 million that we received in June 2018 and $2.8 million of revenue that was recognized upon the achievement of a research milestone in December 2018.

Research and Development Expenses

              For the year ended December 31, 2017, our research and development expenses were $9.8 million, compared to $22.0 million for the year ended December 31, 2018. Direct expenses for outside services, consultants and materials due to the preparations for the Phase 2 clinical trials for our HB-101 program and due to the increased costs for manufacturing of clinical trial material for our HB-201 and HB-202 programs. The primary driver of the increase was direct research and development expenses of $9.3 million. In addition, costs related to the start of our collaboration with Gilead and the expansion of earlier stage projects, also contributed to the increase in direct expenses.

              Personnel related research and development expenses for the years ended December 31, 2017 and 2018 were $3.8 million and $5.7 million, respectively. This increase of $1.9 million was primarily a result of our increased research and development headcount. Facility related research and development expenses and other internal costs increased by $0.4 million and $0.6 million, respectively in the year ended December 31, 2018 and were due to the expansion of laboratory space and our increased research and development headcount.

              The following table summarizes our research and development expenses by product candidate or program (in thousands):

 
  Year ended December 31,  
 
  2017   2018  

Direct research and development expenses by program:

             

HB-101

  $ 1,185   $ 4,232  

HB-201/202

    1,695     6,445  

Gilead partnered programs(1)

        761  

Other and earlier-stage programs

    1,637     2,377  

Sub-total direct expenses

    4,517     13,815  

Internal research and development expenses:

             

Personnel related (including stock-based compensation)

    3,789     5,660  

Facility related

    779     1,190  

Other internal costs

    687     1,300  

Sub-total internal expenses

    5,255     8,150  

Total research and development expenses

  $ 9,772   $ 21,965  

(1)
Expenses incurred by us in connection with Gilead partnered programs are reimbursed to us by Gilead and accounted for as revenue.

General and Administrative Expenses

              General and administrative expenses for the years ended December 31, 2017 and 2018 were $4.4 million and $6.8 million, respectively. The increase in general and administrative expenses in the year ended 2018 was primarily due to an increase in personnel related expenses of $0.7 million and an

81


Table of Contents

increase in professional and consulting fees of $1.3 million. Personnel related expenses increased mainly due to the growth in headcount in our general and administrative functions. The increase in professional and consulting fees resulted from an increase in accounting, audit and legal fees as well as costs associated with ongoing business activities and our preparations to operate as a public company.

Grant Income

              In the years ended December 31, 2017 and 2018, we recorded grant income of $2.1 million and $5.6 million, respectively, from grants, research incentives and imputed benefits from below market interest rates on loans from governmental agencies. A significant part of our grant income is linked to the amount of qualifying research and development expenses, which have increased substantially in the year ended December 31, 2018 and thus our grant income has also increased.

Interest Expense

              Interest expenses for loans from government agencies in the years ended December 31, 2017 and 2018 were $0.6 million and $0.8 million, respectively, and included $0.5 million and $0.7 million, respectively, in interest representing the difference between contractual interest and the market rate of interest. Contractual interest was $0.1 million in both of the years ended December 31, 2017 and 2018.

Liquidity and Capital Resources

Sources of Liquidity

              Since our inception, we have funded our operations primarily through private placements of our convertible preferred stock as well as from grants, research incentives and borrowings under various agreements with public funding agencies, and most recently, from an upfront payment and service reimbursement of fees received pursuant to the Collaboration Agreement. Through December 31, 2018, we had received gross proceeds of approximately $105.0 million from the issuance of our convertible preferred stock and $10.9 million pursuant to the Collaboration Agreement. In February 2019, we raised an additional gross proceeds of $37.4 million from the issuance of our Series D convertible preferred stock. As of December 31, 2018, the principal amount outstanding under loans from government agencies was $8.3 million and we had cash and cash equivalents of $48.6 million. Key financing and corporate milestones include:

              We entered into various funding agreements with the Austrian Research Promotion Agency, or FFG. The loans by FFG, or the FFG Loans, were made on a project-by-project basis and bear interest at rates ranging from 0.75% to 1.0% per annum. In the event that the underlying program research

82


Table of Contents

results in a scientific or technical failure, the principal then outstanding under any loan may be forgiven by FFG and converted to non-repayable grant funding on a project-by-project basis. The FFG Loans contain no financial covenants and are not secured by any of our assets.

              Because the FFG Loans bear interest at below market rates we account for the imputed benefit arising from the difference between an estimated market rate of interest and the contractual interest rate as grant funding from FFG, which is included in grant income. On the date that FFG Loan proceeds are received, we recognize the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan and as unearned income. As of December 31, 2018, the unamortized debt discount related to FFG Loans was $3.9 million.

              We do not expect positive cash flows from operations in the foreseeable future, if at all. Historically, we have incurred operating losses as a result of ongoing efforts to develop our arenavirus technology platform and our product candidates, including conducting ongoing research and development, preclinical studies, clinical trials, providing general and administrative support for these operations and developing our intellectual property portfolio. We expect to continue to incur net operating losses for at least the next several years as we progress clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization of our most advanced product candidates HB-101, HB-201 and HB-202, continue our research and development efforts relating to our other and future product candidates, and invest in our manufacturing capabilities and our own manufacturing facility.

Future Funding Requirements

              We have no products approved for commercial sale. To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of our product candidates. As a result, we are not profitable and have incurred losses in each period since our inception in 2011. As of December 31, 2017 and 2018, we had an accumulated deficit of $43.7 million and $60.0 million, respectively. We expect to continue to incur significant losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

83


Table of Contents

              Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital.

              Even if we consummate this offering, we will require substantial additional financing and a failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

              Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities for our VaxWave and TheraT technologies and our product candidates derived from these technologies. Preclinical studies and clinical trials and additional research and development activities will require substantial funds to complete. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the development of our current product candidates and programs as well as any future product candidates we may choose to pursue, as well as the gradual gaining of control over our required manufacturing capabilities and other corporate uses. These expenditures will include costs associated with conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any preclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our current or future product candidates.

              Our future capital requirements depend on many factors, including:

84


Table of Contents

              A change in the outcome of any of these or other variables with respect to the development of any of our current and future product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will need additional funds to meet operational needs and capital requirements associated with such operating plans.

              We do not have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product and royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements as well as grant funding. Based on our research and development plans, we expect that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. These estimates are based on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

              If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain additional funding on favorable terms when needed, we may have to delay, reduce the scope of or terminate one or more of our research and development programs or clinical trials.

Cash Flows

              The following table sets forth a summary of the primary sources and uses of cash (in thousands):

 
  Year ended
December 31,
 
 
  2017   2018  

Net cash used in operating activities

  $ (11,913 ) $ (14,998 )

Net cash used in investing activities

    (1,297 )   (2,150 )

Net cash provided by financing activities

    58,892     6,873  

Net increase (decrease) in cash and cash equivalents

  $ 45,682   $ (10,275 )

Cash Used in Operating Activities

              During the year ended December 31, 2017, cash used in operating activities was $11.9 million, which consisted of a net loss of $12.7 million, adjusted by non-cash charges of $1.1 million and cash used due to changes in our operating assets and liabilities of $0.3 million. The non-cash charges consisted primarily of depreciation and amortization expense of $0.4 million and stock-based compensation of $0.8 million. The change in our operating assets and liabilities was primarily due to a decrease of $1.2 million in accounts payable, partially offset by an increase of accrued expenses and other liabilities of $1.0 million.

85


Table of Contents

              During the year ended December 31, 2018, cash used in operating activities was $15.0 million, which consisted of a net loss of $16.2 million, adjusted by non-cash charges of $1.5 million and cash used by changes in our operating assets and liabilities of $0.3 million. The change in our operating assets and liabilities included $13.5 million in cash as a result of increases in accounts receivables, prepaid expenses and other current assets. These charges were largely offset by an increase in accounts payable and other current liabilities of $4.6 million and an increase in deferred revenues of $8.6 million mainly driven by the unrecognized portion of the $10.0 million upfront payment received pursuant to the Collaboration Agreement. Changes in accounts payable, prepaid expenses and other current assets and liabilities in the year ended December 31, 2018 were generally due to growth in our business, the advancement of our research programs and the timing of invoicing and payments.

Cash Used in Investing Activities

              During the years ended December 31, 2017 and 2018, cash used in investing activities was $1.3 million and $2.2 million, respectively, which resulted from capital expenditures in connection with leasehold improvements to expand our laboratory space and for purchase of property and equipment.

Cash Provided by Financing Activities

              During the year ended December 31, 2017, cash provided by financing activities was $58.9 million, which primarily consisted of net proceeds from the issuances of shares of our Series C convertible preferred stock of $58.1 million and $0.7 million in loan proceeds from FFG.

              During the year ended December 31, 2018, cash provided by financing activities was $6.9 million, which primarily consisted of $6.4 million in net proceeds from the issuances of shares of our Series C convertible preferred stock in December 2017, and of proceeds from borrowings of $0.4 million, received under a loan from FFG.

Options Granted

              The following table sets forth by grant date the number of shares underlying options granted between January 1, 2017 and December 31, 2018, the per share exercise price of the options, the fair value of common stock per share on each grant date, and the per share estimated fair value of the options on each grant date:

Grant Date
  Number of
Shares Subject
to Options
Granted
  Per Share
Exercise Price
of Options
  Fair Value per
Share of
Common Stock
on Option
Grant Date
  Per Share
Estimated
Fair Value
of Option on
Grant Date
 

February 20, 2017

    188,314   $ 0.10   $ 1.62   $ 1.64  

June 13, 2017

    74,224   $ 0.10   $ 1.62   $ 1.64  

December 30, 2017

    283,874   $ 0.10 - 2.93   $ 2.93   $ 2.64  

December 6, 2018

    283,305   $ 10.33   $ 10.33   $ 6.31  

              In determining the compensation expense in our consolidated statements of operations and comprehensive loss for option grants in the year ended December 31, 2017, we retrospectively estimated the fair value of our common stock as of the date of each option grant. For option grants during the year ended December 31, 2018 the estimated fair value of our common stock has been determined by our board of directors considering the most recently available third-party valuation of common stock. See "—Critical Accounting Policies and Use of Estimates—Stock-based compensation."

86


Table of Contents

Off-Balance Sheet Arrangements

              We did not have during the periods presented and we do not currently have any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Contractual Obligations and Commitments

Operating leases

              As of December 31, 2018, our future annual minimum lease payments under non-cancellable operating leases and debt obligations were as follows (in thousands):

 
  Payments Due by Period  
 
  Total   Less Than
1 Year
  1 - 3
Years
  4 - 5
Years
  More than
5 Years
 

Operating lease commitments(1)

  $ 895   $ 520   $ 321   $ 54   $  

CMO commitments(2)

    19,578     9,222     10,356          

Debt obligations(3)

    8,316         2,168     3,720     2,428  

Total

  $ 28,789   $ 9,742   $ 12,845   $ 3,774   $ 2,428  

(1)
Our lease obligations relate primarily to the rent of our office and laboratory facilities in Vienna, Austria, which expire in 2020 and 2023.

(2)
Reflects our non-cancellable obligations under arrangements with CMOs including an embedded lease in one of these arrangements commencing in February 2019.

(3)
Reflects the contractually required principal and interest payments payable under the FFG Loans.

              The contractual obligations table does not include any potential contingent payments upon the achievement by us of specified clinical, regulatory and commercial events, as applicable, or patent prosecution or royalty payments we may be required to make under license agreements we have entered into with various universities or partners pursuant to which we have in-licensed certain intellectual property, including our license agreements with the University of Zurich, the University of Basel and the University of Geneva. We have excluded these potential payments in the contractual obligations table because the timing and likelihood of these contingent payments are not known. See "Business—License Agreements" for additional information about these license agreements, including with respect to potential payments thereunder.

              We enter into contracts in the normal course of business with CROs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancellable obligations under these agreements are not material.

Intellectual property licenses

              In October 2011, we entered into a license agreement with University of Zurich for an exclusive, worldwide, royalty-bearing license for a propagation-deficient arenavirus vector. Pursuant to the license agreement, we are obligated to pay the University of Zurich low single-digit royalties on aggregate net sales of products licensed under the agreement, and to pay percentages ranging from the mid-single digits to 20% of the sublicense fees that we may receive from sublicensing, depending on the amount of fees received from sublicensees.

87


Table of Contents

              In January 2017, we entered into a license agreement with University of Basel for an exclusive, worldwide, royalty-bearing license for a tri-segmented Pichinde virus vector. We are required to use reasonable efforts to make commercially available licensed products. Pursuant to the license agreement, we are obligated to pay nominal milestone payments for each licensed product upon the achievement of certain development and regulatory milestones and to pay royalties of low single digits of net sales of licensed products. We are also obligated to pay a low- to high-single digit percentage of the sublicense fees that we may receive from sublicensing.

              In February 2017, we entered into a license agreement with the University of Geneva for an exclusive, worldwide, royalty-bearing license for a tri-segmented arenavirus vector. Pursuant to the license agreement, we are obligated to pay the University of Geneva an annual fee which is fully deductible from any milestone, royalty or sublicense payments. We are also obligated to pay milestone nominal payments for each licensed product upon the achievement of certain development and regulatory milestones and to pay low single-digit royalties on aggregate net sales of products licensed under the agreement, and to pay percentages ranging from the low-single digits to 10% of the sublicense fees that we may receive from sublicensing.

              In the year ended December 31, 2018, we recorded $0.1 million in licensing fees from intellectual property licenses as research and development expenses. At December 31, 2018, $0.5 million payable from sublicensing fees were included in accrued expenses and other current liabilities.

              For additional information on these license agreements, please see "Business—License Agreements."

Critical Accounting Policies and Use of Estimates

              This discussion and analysis of financial condition and results of operation is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to accruals for external manufacturing of clinical trial material as well as clinical study conduct, fair value of assets and liabilities, and the fair value of common stock and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

              While our significant accounting policies are more fully described in the notes to our audited financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.

Recognition of revenue from contracts with customers

              We have entered into the Collaboration Agreement with Gilead for the development and commercialization of certain of its product candidates. Our performance obligations under the terms of this agreement include one combined performance obligation for each research program comprised of the transfer of intellectual property rights (licenses) and providing research and development services. Payments by Gilead to us under this agreement included a non-refundable up-front payment, payments for research and development activities, and may include payments based upon the achievement of defined pre-clinical development and commercial milestones and royalties on product sales if certain future conditions are met.

88


Table of Contents

              We evaluate our collaboration and licensing arrangements pursuant to Accounting Standards Codification 606, or ASC 606. To determine the recognition of revenue from arrangements that fall within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation. We present revenues from collaboration and licensing arrangements separately from other sources of revenue.

              Amounts received by us as non-refundable upfront payment under the collaboration and licensing agreement prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in our consolidated balance sheets. Such amounts are recognized as revenue over the performance period of the respective services on a percent of completion basis for each of the obligations. Reimbursement of costs for or services under the collaboration and licensing agreement are presented as revenue and not deducted from expenses. Amounts of consideration allocated to the performance of research or manufacturing services are recognized over the period in which services are performed. Contingent milestone payments related to specified preclinical and clinical development milestones are not initially recognized within the transaction price as they are fully constrained under the guidance in ASC 606. The collaboration and licensing arrangement also includes certain sales-based milestone and royalty payments upon successful commercialization of a licensed product which we anticipate recognizing if and when sales from a licensed product are generated.

Research and development costs

              Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries and bonuses, stock-based compensation, employee benefits, facilities costs, laboratory supplies, depreciation, manufacturing expenses and external costs of vendors engaged to conduct preclinical development activities and clinical trials as well as the cost of licensing technology. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

              All patent-related costs incurred in connection with filing and prosecuting patent applications are classified as research and development expenses and expensed as incurred due to the uncertainty about the recovery of the expenditure. Upfront payments, milestone payments and annual payments made for the licensing of technology are generally expensed as research and development in the period in which they are incurred. Incremental sublicense fees triggered by contracts with customers are capitalized and expensed as research and development expenses over the period in which the relating revenue is recognized.

Stock-based compensation

              We measure stock options and other stock-based awards granted to employees, directors, consultants or advisors of the company or its affiliates based on their fair value on the date of the grant and recognize compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. We classify stock-based compensation expense in our Consolidated Statements of Operations and Comprehensive Loss in the same manner in which the award recipient's payroll costs are classified. Compensation expense for those awards is recognized, net of forfeitures, over the requisite service period, which is generally the vesting period of the respective award. We use the straight-line method to record the expense of awards with service-based vesting conditions.

89


Table of Contents

              We measure stock-based awards granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model for options. The fair value of options granted before the year ended December 31, 2018 were determined retrospectively as no independent third party valuation was performed at the time of such grants. Black-Scholes utilizes assumptions related to expected term, forfeitures, volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as we have not paid any cash dividends) and employee exercise behavior. The assumptions used in the Black-Scholes model to determine fair value for the 2017 stock option grants were:

 
  Year ended
December 31,
 
 
  2017   2018  

Risk-free interest rate

    (0.67 )%   2.78 %

Expected term (in years)

    2.8     5.1  

Expected volatility

    66.1 %   72.1 %

Expected dividends

         

              In the year ended December 31, 2018, we granted an aggregate of 283,305 options at a per share exercise price of $10.33.

              As there is no public market for our common stock to date, we estimated fair value of our common stock as of the date of each option grant, considering third-party valuations. These valuations considered both objective and subjective factors, including:

              The fair value of options granted for the year ended December 31, 2018 were determined in December 2018 in accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The fair value of options granted before the year ended December 31, 2018 were determined retrospectively as no independent third party valuation was performed at the time of such grants. The methods used to derive total equity value varied, depending on the availability of objective valuation-related information. Inputs used in our retrospective valuations include the issue prices of our periodic investment rounds, Return-on-R&D-Spend, and market factors based on recent mergers and acquisitions within the biotechnology and pharmaceutical industries. An option pricing allocation method, or OPM, was selected to allocate the total equity value. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for

90


Table of Contents

distribution to stockholders exceeded the value of the preferred stock liquidation preference at the time of the liquidity event, such as a strategic sale or a merger.

              The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

              Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

Recognition of other income under government grant agreements and research incentives

              We recognize income from grants, research incentives and the imputed benefit arising from the difference between an estimated market rate of interest and the contractual interest rate on loans received from Austrian government agencies. Income from grants and incentives is recognized in the period during which the related qualifying expenses are incurred, provided that the conditions under which the grants or incentives were provided have been met. For grants under funding agreements and for proceeds under research incentive programs, we recognize grant and incentive income in an amount equal to the qualifying expenses incurred in each period multiplied by the applicable reimbursement percentage.

              Grant income that we have received in advance of incurring qualifying expenses is recorded in the consolidated balance sheets as deferred income. Grant and incentive income recognized upon incurring qualifying expenses in advance of receipt of grant funding or proceeds from research and development incentives is recorded in the consolidated balance sheets as prepaid expenses and other current assets.

              We have received loans under funding agreements that bear interest below market rates. We account for the imputed benefit arising from the difference between an estimated market interest rate and the actual interest rate charged on such loans as additional grant income, and record interest expense for the loans at a market interest. On the date that loan proceeds are received, we recognize the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan and as unearned income, which is subsequently recognized as additional grant income over the term of the funding agreement.

JOBS Act

              We are an emerging growth company under the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an emerging growth company, we may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with 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.

              We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year (a) following the fifth anniversary of the consummation of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2) the date

91


Table of Contents

on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Quantitative and Qualitative Disclosures About Market Risk

Foreign currency and currency translation

              We are subject to the risk of fluctuations in foreign currency exchange rates, specifically with respect to the euro. Our functional currency is the U.S. dollar and the functional currency of our wholly owned foreign subsidiary, Hookipa Biotech GmbH, is the euro. Our cash and cash equivalents as of December 31, 2018 consisted primarily of cash balances held by Hookipa Biotech GmbH in euros.

              Assets and liabilities of Hookipa Biotech GmbH are translated into U.S. dollars at the exchange rate in effect on the balance sheet date. Income items and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the consolidated Statements of Stockholders' Equity as a component of accumulated other comprehensive loss. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other income and expenses, net in the consolidated Statements of Operations and Comprehensive Loss as incurred.

Interest Rate Sensitivity

              We are exposed to market risk related to changes in interest rates. We had cash and cash equivalents of $48.6 million as of December 31, 2018, which were primarily held as account balances with foreign banks. A hypothetical 10% relative change in interest rates during any of the periods presented would not have had a material impact on our financial statements.

Internal Control over Financial Reporting

              Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. As a result of becoming a public company, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, to furnish a report by our management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of the registration statement of which this prospectus is a part or the date we are no longer an "emerging growth company" as defined in the JOBS Act, if we take advantage (as we expect to do) of the exemptions contained in the JOBS Act. This assessment will need to include disclosures of any material weaknesses identified by our management in our internal control over financial reporting. The SEC defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be detected or prevented on a timely basis.

              In connection with our preparation and the audits of our financial statements as of and for the years ended December 31, 2017 and 2018, we and our independent registered public accounting firm identified two material weaknesses, as defined under the Exchange Act and by the Public Company Accounting Oversight Board (United States), in our internal control over financial reporting. We did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience, and training, which would allow for appropriate monitoring, presentation and disclosure, and internal control over financial reporting. Specifically, we have not designed and implemented a sufficient level of formal accounting policies and procedures. Additionally, the limited personnel resulted in our inability to consistently establish appropriate authorities and responsibilities in pursuit of

92


Table of Contents

our financial reporting objectives, as demonstrated by, amongst other things, our insufficient segregation of duties in their finance and accounting functions. These kinds of control deficiencies could result in a misstatement of these accounts or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected, and accordingly, it was determined that these control deficiencies constituted material weaknesses. In connection with the preparation and the audit of our financial statements as of and for the year ended December 31, 2018, we determined that the two previously identified material weaknesses had not been remediated.

Plan for Remediation of the Material Weaknesses

              We are implementing measures designed to improve our internal control over financial reporting to remediate these material weaknesses, including the following:

              These additional resources and procedures are designed to enable us to broaden the scope and quality of our internal review of underlying information related to financial reporting and to formalize and enhance our internal control procedures. With the oversight of senior management and our audit committee, we have begun taking steps and plan to take additional measures to remediate the underlying causes of the material weaknesses.

              We intend to complete the implementation of our remediation plan during fiscal year 2019. Although we believe that our remediation plan will improve our internal control over financial reporting, additional time may be required to fully implement it and to make conclusions regarding the effectiveness of our internal controls over financial reporting. Our management will closely monitor and modify, as appropriate, the remediation plan to eliminate the identified material weakness.

              If our remediation of the material weaknesses is not effective, or if we experience additional material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately or timely report our financial condition or results of operations. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.

Recent Accounting Pronouncements

              See Note 2 to our audited consolidated financial statements and related notes included elsewhere in this prospectus.

93


Table of Contents


BUSINESS

Overview

              We are a clinical-stage biopharmaceutical company developing a new class of immunotherapeutics targeting infectious diseases and cancers based on our proprietary arenavirus platform that is designed to reprogram the body's immune system. We are using our "off-the-shelf" technologies, VaxWave and TheraT, to elicit directly within patients a powerful and durable response of antigen-specific killer T cells and antibodies, thereby activating essential immune defenses against infectious diseases and cancers. We believe that our technologies can meaningfully leverage the human immune system for prophylactic and therapeutic purposes by eliciting killer T cell response levels previously not achieved by other published immunotherapy approaches. Our lead infectious disease product candidate, HB-101, is in a randomized, double-blinded Phase 2 clinical trial in cytomegalovirus-negative patients awaiting kidney transplantation from cytomegalovirus-positive donors. Our lead oncology product candidates, HB-201 and HB-202, are in development for the treatment of human papillomavirus-positive cancers. We plan to file an investigational new drug application with the U.S. Food and Drug Administration for HB-201 and HB-202 in the first half of 2019 and 2020, respectively. We have also entered into a strategic partnership with Gilead Sciences, Inc. to accelerate building a pipeline of additional infectious disease product candidates in a cost efficient manner.

              Our platform is based on engineering arenaviruses to carry and deliver virus-specific or tumor-specific genes directly in patients to dendritic cells, which are natural activators of killer T cells, also known as cytotoxic T cells, or CD8+ T cells. Arenaviruses have been used for decades as a preclinical tool to study CD8+ T cell responses. Our co-founder, Rolf Zinkernagel, was awarded a Nobel Prize in Physiology or Medicine for his arenavirus-based work on how CD8+ T cells recognize virus-infected cells. We believe that arenaviruses have several key advantages which give them the characteristics of an optimal antigen-specific immunotherapy, including:

              We believe we are the first to reengineer arenaviruses for therapeutic purposes. We have created two technologies capable of delivering disease-specific antigens for the prevention and treatment of disease. Our first technology, VaxWave, is a replication-defective arenavirus which induces a strong immune response for prophylactic use against infectious disease. Our second technology, TheraT, is a replication-attenuated arenavirus which produces an even more powerful immune response that we believe is more appropriate for use in oncology. In preclinical studies, our TheraT technology was able to reprogram the immune system such that more than half of the body's CD8+ T cells focused on a specific cancer antigen target of our choice without observed serious adverse events. We have designed our platform to be modular in nature in order to allow substitution of antigens to target a broad range of infectious diseases and cancers. We have a robust intellectual property portfolio for our suite of arenaviruses with exclusive rights in issued patents and patent applications related to our VaxWave technology and exclusive and joint rights in patent applications related to our TheraT technology. These platform technologies can be used with a broad spectrum of antigens in therapeutic applications in immunotherapy ranging from infectious diseases to oncology. We believe the breadth

94


Table of Contents

and depth of our intellectual property is a strategic asset that has the potential to provide us with a significant competitive advantage.

              We believe that our arenavirus platform approach gives us a unique and powerful way to tap into the biology of the immune system and reprogram it by instructing dendritic cells to express antigen-encoding genes that direct the immune system to the desired targets. Our product candidates are designed to deliver full-length proteins to activate T cells and B cells to produce a robust immune response through natural means, avoiding the use of artificial ex vivo constructs such as CAR-T cells and related approaches that bypass the immune system's normal control mechanisms. Although these latter approaches have shown clinical efficacy, they have the potential to cause life-threatening side effects, including cytokine release syndrome. In addition, we believe that our "off-the-shelf" immunotherapy is simpler, more straightforward and cost effective to manufacture and administer than CAR-T cells or other patient-derived cellular approaches.

              Our lead product candidate in infectious diseases, utilizing VaxWave technology, is HB-101 for the prevention of cytomegalovirus infections. A majority of the worldwide human population is latently infected with cytomegalovirus and can transmit the infection through bodily fluids. While infection in immunocompetent persons typically presents as mild or asymptomatic, cytomegalovirus remains a major cause of morbidity and mortality in persons with a compromised immune system and in patients undergoing solid organ or hematopoietic stem cell transplants. In a cytomegalovirus-negative patient receiving an organ or stem cells from a cytomegalovirus-positive donor, the spread of the virus through the bloodstream, known as viremia, can cause end-organ disease, such as hepatitis, pneumonitis, gastroenteritis and retinitis, and can result in transplant rejection and death. In this high risk patient group, approximately 80% of kidney transplant recipients develop active cytomegalovirus infections. Cytomegalovirus disease in the transplant setting varies according to the type of transplant, the immunosuppressive drugs used and the presence of any other comorbidity risk factors. Symptomatic cytomegalovirus infections develop in patients in between 8% and 32% of kidney transplants, 22% and 29% of liver transplants, 9% and 23% of heart transplants and 50% and 75% of lung transplants. Based on a recent market research study we commissioned from an independent third party and reviewed by management, we believe that approximately 110,000 patients are added to the solid organ transplant waiting list annually in developed countries, with kidney transplantation representing approximately 60% of cases. Furthermore, more than 20,000 allogeneic cell transplants, in which cell and tissue donors are matched with transplant recipients, are carried out annually worldwide. In this group, the incidence of cytomegalovirus infection is approximately 30% as a result of the donor being cytomegalovirus positive. Current therapies to prevent the transmission of cytomegalovirus during organ transplants utilize antiviral prophylactic and therapeutic strategies. However, these therapies are only partially protective in preventing viral disease while also being hampered by toxicity and resistance.

              HB-101 delivers two clinically validated antigens, phosphoprotein 65, or pp65, to induce cytomegalovirus-specific CD8+ T cells and glycoprotein B, or gB, to elicit cytomegalovirus-neutralizing antibodies. In our Phase 1 clinical trial, HB-101 was well tolerated and elicited a strong cytomegalovirus-specific immune responses in all 42 of the treatment arm volunteers. Importantly, we observed robust CD8+ and CD4+ T cell responses as well as cytomegalovirus-neutralizing antibody responses, without meaningful vector-neutralizing antibody responses. These responses increased in a statistically significant manner upon repeat administration. We believe these results demonstrate the differentiating features of our arenavirus platform. In the fourth quarter of 2018, we commenced a Phase 2 clinical trial for HB-101 in cytomegalovirus-negative patients awaiting kidney transplantation from living cytomegalovirus-positive donors. We expect safety and immunogenicity data from the first cohorts enrolled in this trial in the first half of 2020, and preliminary efficacy data to follow in the second half of 2020.

              We are developing our lead oncology product candidates, HB-201 and HB-202, both utilizing TheraT technology, for cancers caused by human papilloma virus, or HPV. These cancers account for

95


Table of Contents

approximately 5% of the total worldwide cancer prevalence and recent studies have shown that approximately 70% of cancers of the tonsil and tongue base and the majority of cervical and anal cancers may be linked to HPV. Tumors caused by HPV are referred to as HPV-positive tumors, or HPV+, and can be characterized by their expression of proteins from the HPV genome, particularly the viral E6 and E7 proteins. These two proteins are expressed in tumors but absent in normal cells, which makes them ideal target candidates for immunotherapy, however, to date, there are no therapeutically approved agents directed against these targets.

              HB-201 utilizes our TheraT replication-attenuated viral vector technology to target E6 and E7 proteins on HPV16+ cancer cells. In preclinical studies, HB-201 as a monotherapy was effective at suppressing tumor growth and eliminated up to 40% of HPV+ tumors. HB-201 generated a strong and durable T cell and antibody response with successfully treated animals demonstrating resistance to a tumor re-challenge. Based on these preliminary results, we believe that treating patients with HB-201 has the potential to both control metastatic disease and prevent relapse. HPV16+ cancers include cancers of the head, neck, anus, vagina, cervix and penis. Based on a recent market research study we commissioned from an independent third party, we believe that in developed countries, approximately 70,000 patients annually are newly diagnosed with HPV16+ head and neck cancer. Each year, approximately 30,000 of these patients present with metastatic disease and an additional 10,000 patients progress to the recurrent and metastatic stages of the disease. We intend to file an investigational new drug application, or IND, for HB-201 in patients with treatment-refractory HPV16+ cancers in the first half of 2019. Our first planned Phase 1/2 clinical trial will assess the safety and efficacy of HB-201 both as a monotherapy and in combination with a checkpoint inhibitor. Our second planned Phase 1/2 clinical trial will assess the safety and efficacy of the combination of HB-201 and HB-202 in HPV16+ cancers, with or without a checkpoint inhibitor. HB-202 is also based on our TheraT technology and similarly targets E6 and E7 of HPV16+ tumors, but uses a different arenavirus than HB-201. We believe that our preclinical studies demonstrate that the combination of HB-201 and HB-202 results in a synergistic increase in E7 immunogenicity as compared to either HB-201 or HB-202 alone. Our goal is to establish the safety of this combination approach and its superiority over monotherapy.

              In June 2018, we partnered with Gilead Sciences, Inc., or Gilead, a world leader in innovative therapies against infectious diseases, to develop arenavirus based therapeutics to treat hepatitis B virus, or HBV, and human immunodeficiency virus, or HIV, infections. We received a one-time upfront payment of $10.0 million upon entering into the agreement. We are also eligible to receive milestone payments based upon the achievement of specified development, regulatory, and commercial milestones potentially amounting to approximately $400 million, as well as tiered royalties ranging from high single-digit to mid-teens percentage on net sales. In December 2018, we achieved the first research milestone under the HIV program, entitling us to a payment of $2.8 million from Gilead, which we received in January 2019.

              We are led by a team of highly experienced executives, clinicians, and scientists with focused and translational expertise in oncology, immunology, vaccinology, clinical development and commercialization. Our Chief Executive Officer, Jörn Aldag, was previously the Chief Executive Officer of uniQure, a company that under his leadership pioneered the approval of the first gene therapy product. Igor Matushansky, M.D., Ph.D., our Chief Medical Officer and Global Head of Research and Development was previously Global Head of Translational Development for Oncology at Daiichi Sankyo. The fundamental discoveries underlying our arenavirus platform originated with our co-founders, Nobel laureate Rolf Zinkernagel, M.D., and Daniel Pinschewer, M.D., an internationally recognized arenavirus expert who serves as our Chief Scientific Officer.

              We are supported by prominent biotechnology investors, including BioMedPartners, Boehringer Ingelheim Venture Fund, Forbion Capital Partners, HBM, Hillhouse Capital, Sofinnova Partners and Takeda Ventures, as well as Gilead, a leading biopharmaceutical company.

96


Table of Contents

Our Pipeline

              We are leveraging our modular arenavirus platform to develop the following product candidates for multiple infectious diseases and cancers:

GRAPHIC


Our Strategy

              Our goal is to transform the prevention and treatment of infectious diseases and cancers to significantly improve the lives of patients by developing and commercializing a new class of "off-the-shelf" immunotherapeutics.

              The key elements of our strategy are:

97


Table of Contents

Background

              The immune system is designed to protect the human body from infections and cancers. Infections can be generally defined as the proliferation of foreign microorganisms such as bacteria, viruses, and parasites in a patient's body resulting in clinical manifestations of disease. Cancer can be generally defined as the uncontrolled proliferation of native cells resulting in disease. In both cases, the immune system recognizes and destroys microorganisms, infected cells and cancers by targeting specific proteins, or antigens, as well as their immunogenic sub-parts, which are referred to as epitopes.

              The innate immune system is the body's first line of defense and enables a rapid, short-lived and non-specific response. In contrast, the adaptive immune system utilizes highly specialized immune cells called lymphocytes that have been selected to recognize specific foreign antigens. Although it takes longer to mobilize, the adaptive immune system is capable of providing long-term, more effective

98


Table of Contents

immunity against specific pathogens by being able to recall prior antigen exposure and mounting a very powerful and specific response.

              In order for the adaptive immune system to function effectively, the innate immune system must first present disease specific antigens to a subset of lymphocytes called T cells in order to "instruct" the T cells as to which antigen they must recognize. The T cell population consists of CD8+ T cells, those that kill virus-infected and cancer cells by releasing cytotoxic proteins, and CD4+ T cells that help or stimulate additional parts of the immune system such as B cells that produce antibodies. Antigen presentation to T cells is mediated by antigen presenting cells, or APCs, the most important being the dendritic cells.

              The clinical application of immunotherapy in the context of managing infectious diseases and cancers is distinctly different. The approach taken for infectious diseases is commonly that of "vaccination," whereby the aim is to prevent onset of disease by administering a derivative of the disease causing agent to a healthy individual. In contrast, for cancer, the approach is typically one of therapeutic intervention in patients with active disease.

              Infectious disease and cancer immunotherapies represent areas of medicine with high potential for prophylactic and therapeutic benefit and have generated significant interest and investment from leading biopharmaceutical companies. Data from ongoing industry and academic research have demonstrated the potential clinical benefit for patients in a range of infectious disease and cancer settings and several immunotherapy products have been approved by the FDA, the European Medicines Agency, or the EMA, and other foreign regulatory agencies. However, despite ongoing development efforts and successes, we believe that the current immunotherapies are limited by several factors, including:

99


Table of Contents

              Unlike with cancer treatment, immunotherapies in the context of infectious diseases, commonly stimulate an antibody response that is dependent on the presence of CD4+ T cells. We believe that a vaccine approach that can generate the combination of CD8+ T cells with an antibody response offers a solution to optimally mobilize the immune response and potentially overcome many of the limitations that exist with current approaches.

Our Technology Platform

              Our proprietary platform is based on engineering arenaviruses to carry and deliver virus-specific or tumor-specific genes to dendritic cells, which are natural activators of CD8+ T cells. Arenaviruses have been used for decades to stimulate potent CD8+ T cells responses in preclinical research. Our co-founder, Rolf Zinkernagel, was awarded a Nobel Prize in Physiology or Medicine for his arenavirus-based work on how CD8+ T cells recognize virus-infected cells.

              Arenaviruses have several important advantages, which we believe represent the optimal characteristics for an antigen-specific immunotherapy. Specifically, they:

              The arenavirus family is comprised of 24 currently known species, many of which we believe have potential prophylactic and therapeutic applications. We believe we are the first to reengineer arenaviruses for the prevention and treatment of disease. We have created two types of viral technologies capable of delivering disease-specific antigens: VaxWave, a replication-defective vector, and TheraT, a replication-competent but attenuated vector.

              Our VaxWave and TheraT technologies utilize both lymphocytic choriomeningitis, or LCMV, and Pichinde virus, or PICV, two of the 24 species of arenaviruses, as a backbone of the product candidates we are developing. LCMV is principally carried and secreted by wild mice, with human infection being secondary to such exposure and uncommon. Approximately 2% to 5% of individuals in industrialized countries have circulating antibodies against LCMV, which indicates prior exposure in these individuals. Individuals infected with LCMV typically remain asymptomatic or may present with a non-specific and self-resolving flu-like illness. PICV is principally carried and secreted by Colombian rice rats (oryzomys albigularis) and is a nonpathogenic virus that does not cause disease in humans.

100


Table of Contents

              Our proprietary VaxWave technology disables arenavirus replication by substituting one of its four structural genes with the gene for a desired antigen. The modified, replication-defective arenavirus is able to directly infect individual dendritic cells and deliver proteins that serve as antigens to activate the immune system, but is not able to replicate and infect additional dendritic cells in the body.

              Based on the preclinical and clinical data that we have generated to date, we believe our VaxWave technology supports the benefits of our arenavirus platform approach. Specifically, in preclinical studies and clinical trials VaxWave has demonstrated that it is well tolerated and has the following additional benefits:

              Our proprietary TheraT technology is replication-competent but attenuated. The intent of designing a replicating vector was to allow it to retain all of the beneficial properties of VaxWave but to induce an even more robust immune response. Unlike naturally occurring arenaviruses which have two genomic segments, our TheraT constructs were engineered to have three segments in order to allow for the introduction of genomic space in which to insert additional target antigens of choice. As a result of the larger genome the virus' ability to replicate is naturally attenuated.

              Based on the preclinical data that we have generated to date, we believe our TheraT technology supports the benefits of our arenavirus platform approach. In addition to having the advantages of VaxWave technology, in preclinical studies TheraT has shown the following additional benefits:

101


Table of Contents

              The additional benefits of TheraT are attributable to its ability to replicate. This allows it to infect not only dendritic cells but also lymphoid stromal cells, which are immune support cells found in lymph nodes and the spleen. Infection of lymphoid stromal cells results in the release of a signaling protein which further drives the proliferation and differentiation of CD8+ T cells. This mechanism has the potential to generate ten-fold more antigen-specific CD8+ T cells as compared to viral delivery systems that are unable to trigger this pathway. Furthermore, we believe TheraT-induced CD8+ T cells do not need the addition of commonly used checkpoint inhibitors to function at optimal potency, as they are able to establish long-lasting interactions with their target cells inside solid tissues and kill them.

              To demonstrate the superior properties of our approach, we performed a head-to-head comparison in mice of our TheraT LCMV and PICV E7 constructs versus modified vaccinia virus Ankara, or MVA, and adenovirus 5, or Adeno5, each expressing E7 antigens for their ability to induce E7-specific CD8+ T cells. As shown below, our TheraT constructs were superior to MVA and Adeno5, despite being dosed at concentrations 1,000 times lower than the latter two vectors. Furthermore, sequential dosing of TheraT(PICV) followed by administration of TheraT(LCMV) resulted in over 50% of CD8+ T cells being targeted against E7.

GRAPHIC

              In additional preclinical models, including a mouse melanoma model and a cancer-testis self-antigen cancer model, we again demonstrated the ability of sequential administration of TheraT PICV and LCMV constructs to direct up to 50% of a body's T cells to focus on a single target of choice.

              We believe our preclinical data support the development of VaxWave for prophylactic and therapeutic uses for infectious disease.

102


Table of Contents

              We conducted a preclinical study in a monkey model of HIV infection using simian immunodeficiency virus, or SIV. We treated ten monkeys using an adenoviral vector carrying the SIV Env protein. The expression of the SIV Env protein is meant to prime the animal's immune system to detect and attack SIV. From earlier work, this initial adenoviral-Env prophylactic immunization on its own was shown not to prevent SIV infection. We then boosted the monkeys eight weeks later with an LCMV vector encoding SIV Env. We also treated ten monkeys with vectors encoding no relevant genes, identified as the null group below. Starting at week six, both groups were challenged with weekly SIV injections for 12 weeks. The dosing regimen of the study is shown in Figure 1 below. As depicted in the Figure 2 below, the VaxWave(LCMV)-Env vaccination resulted in over 70% of monkeys being SIV free at the end of the trial, as compared to less than 20% in the null group.

GRAPHIC


*
A p-value of 0.05 or less represents statistical significance, meaning that there is a less than 1-in-20 likelihood that the observed results occurred by chance. A p-value of 0.01 or less means that there is a less than 1-in-100 likelihood that the observed results occurred by chance.

              In addition to the HIV model, we explored the ability of our VaxWave vectors to induce immune responses against hepatitis B core, HBc, and hepatitis B surface, HBs, antigens. In our study, we observed that VaxWave(LCMV) expressing both HBc and HBs was able to generate significant CD8+ T cell responses against both proteins. These data indicate that a single dose of VaxWave expressing HBV antigens elicits robust cellular immunity against both encoded proteins delivered in a single vector. We believe that VaxWave-based immunotherapy may form an important cornerstone of a potential cure for the estimated 350 million people worldwide, who are persistently infected with HBV.

              We believe that the combination of our HIV and HBV preclinical and subsequent VaxWave clinical data facilitated our Gilead collaboration.

103


Table of Contents

              We have conducted several preclinical studies assessing the efficacy of our TheraT technology, for both LCMV and PICV constructs, carrying the HPV specific E7/E6 fusion protein through intravenous, or IV, and intratumoral, or IT, administration. Mice treated with the replication-attenuated TheraT vectors showed no evidence of toxicity. In a mouse model of HPV-induced cancer (TC1), we observed that a single intravenous administration of TheraT(LCMV) significantly suppressed and delayed tumor growth while a single intratumoral administration of TheraT(LCMV) eliminated the tumor in approximately half of the mice (top left panel). Intravenous administration of TheraT(PICV) eliminated the tumor in approximately half of the mice, by the same definition, while intratumoral administration of TheraT(PICV) significantly suppressed and delayed tumor growth (bottom left panel). These mice had complete remission without recurrence for at least six months, which represents over 25% of a mouse's lifetime (right panel). In contrast, TheraT vectors carrying non-tumor specific antigens, such as GFP, demonstrated no anti-tumor activity. In these studies, we also observed resistance to a tumor re-challenge after six months (right panel).

GRAPHIC

              We have also performed "tracking" experiments wherein we observed that while our intravenous TheraT vectors travel to dendritic cells, the reprogrammed antigen CD8+ T cells travel to tumors. We illustrated this in an EG7-OVA model, which analyzed subcutaneous tumors for the presence of antigen specific CD8+T cells. In mice injected with a TheraT vector, histopathology showed clear evidence of strong CD8+ T cell infiltration, as shown by the brown staining in the pictures below.

GRAPHIC

104


Table of Contents

              We observed similar results in a more aggressive B16F10 melanoma mouse model. In this experiment B16F10 malignant cells were introduced into the tail vein of mice, resulting in lung metastases within three weeks. Ten days after the introduction of B16F10, a TheraT vector expressing Trp2, a melanoma antigen, was introduced intravenously leading to a significant delay in disease progression. Similarly, in subcutaneously growing B16F10 tumors treated intravenously, histopathology showed clear evidence of strong CD8+ T cell infiltration.

GRAPHIC

              When we combined the above two experiments, by initially introducing B16F10 malignant cells subcutaneously, and then intravenously, we achieved both a localized subcutaneous tumor and metastatic lung lesions. Subsequent administration of our intratumoral TheraT vector demonstrated both a localized response, through subcutaneous tumor shrinkage, and systemic response, through clearance of lung metastases. The long term survivor mice were then re-challenged with B16F10 several months after remission with no observed subsequent tumor regrowth.

GRAPHIC

              We have observed increased anti-tumor activity and survival of animals that received sequential administration of TheraT(PICV) and TheraT(LCMV) in a preclinical mastocytoma model. In this model, tumor cells expressed a cancer-testis self-antigen known as P1A. In the absence of treatment, tumors grew rapidly and most of the mice died by day 25. When given a first dose with a TheraT(LCMV) P1A vector, followed by a second dose with the same vector, there was a delay in tumor growth of approximately ten days and an increase in survival rates, with some mice surviving to almost 100 days (left panel below). In contrast, mice that were treated first with TheraT(PICV) P1A followed by a second dose with a different arenavirus, TheraT(LCMV) P1A, had an average tumor growth delay of approximately 25 days and in 18% of the mice the tumors were eliminated and they

105


Table of Contents

survived beyond the 160 days of the study. Furthermore, and as seen in our other studies, mice with eliminated tumors demonstrated resistance to a tumor re-challenge (right panel below).

GRAPHIC

Our Product Candidates

              HB-101 is a VaxWave product candidate that delivers two clinically validated antigens: pp65, to induce cytomegalovirus-specific CD8+ T cells, and gB, to elicit cytomegalovirus-neutralizing antibodies. Cytomegalovirus infections present a serious risk for patients with suppressed immune systems, such as solid organ and stem cell transplant recipients. In our Phase 1 clinical trial, HB-101 was well tolerated and elicited strong and durable cytomegalovirus-specific immune responses in all 42 volunteers in the treatment arm. Importantly, we observed robust CD8+ and CD4+ T cell responses as well as cytomegalovirus-neutralizing antibody responses. As anticipated, the LCMV vector did not elicit clinically meaningful vector-neutralizing antibodies, as only one volunteer developed a transient neutralizing antibody response against the vector after three administrations. Furthermore, upon repeat administration, the pp65 CD8+ T cell levels achieved by VaxWave increased in a statistically significant manner. In the fourth quarter of 2018, we commenced a randomized, double-blinded Phase 2 clinical trial for HB-101 in cytomegalovirus-negative patients awaiting kidney transplantation from living cytomegalovirus-positive donors. We expect immunogenicity data from the first cohorts enrolled in this trial in the first half of 2020, and efficacy data to follow in the second half of 2020. We intend to pursue regulatory approval for HB-101 for the prevention of cytomegalovirus in all solid organ transplants regardless of cytomegalovirus status of the recipient. In the future, and in the event of successful proof of concept of HB-101 in the Phase 2 clinical trial, we may pursue additional indications such as stem cell transplantation and congenital cytomegalovirus infection.

              Cytomegalovirus is a virus that is commonly transmitted in childhood and early adulthood. Approximately 60% of the U.S. population has been exposed, and as such, is latently infected. Worldwide data indicate that while half the people in industrialized countries have been exposed, up to 99% of people in developing countries, including China and India, have been exposed. Infections result in lifelong latent persistence of the virus with few symptoms, if any. However, in immunosuppressed patients, such as transplant recipients, primary cytomegalovirus infection or reactivation generally causes significant morbidity, mortality and graft rejection. There are two scenarios in which cytomegalovirus infections are relevant in the transplant setting. In one case, the recipient could be cytomegalovirus negative, or previously uninfected, and the donor cytomegalovirus positive. In this case, introduction of cytomegalovirus into the immunocompromised recipient can lead to rapid virus spread and development of serious complications. In the other case, the recipient is already cytomegalovirus positive, but the immunosuppressive treatments required as part of the transplant procedure lead to reactivation of latent virus. Based on a recent market research study we commissioned from an independent third party, we believe that approximately 110,000 patients are added to the solid organ

106


Table of Contents

transplant waiting list annually in developed countries, with kidney transplantation representing approximately 60% of cases. Furthermore, more than 20,000 allogeneic cell transplants, in which cell and tissue donors are matched with transplant recipients, are carried out annually worldwide. In this group, the incidence of cytomegalovirus infection is approximately 30% as a result of the donor being cytomegalovirus positive. Current therapies to prevent the transmission of cytomegalovirus during organ transplants utilize antiviral prophylactic and therapeutic strategies. However, these therapies are only partially protective in preventing viral disease while also being hampered by toxicity and resistance.

              There are currently two standards of care to deal with cytomegalovirus during solid organ transplant; prophylactic and preemptive. In prophylactic therapy, patients are given antiviral drugs for several months after transplant. Antivirals can reduce the rate of cytomegalovirus viremia from approximately 70% to 36% in kidney transplant patients over a 12 month period. Of the 36% that present with viremia, most of these cases emerge once antiviral treatment has been stopped. In preemptive therapy, patients are intensively monitored post-transplant for cytomegalovirus reactivation using laboratory diagnostics, and short-term antiviral treatment is given only to those with significant viral loads, or cytomegalovirus viremia, before symptoms and overt cytomegalovirus disease occur. In preemptive therapy, most infections occur within three months following a transplant. However, the antiviral drugs used to treat cytomegalovirus have the potential to induce significant toxicities, including bone marrow toxicity for ganciclovir, valganciclovir and cidofovir, and renal toxicity for foscarnet and cidofovir. In addition, cytomegalovirus drug resistance mutations arise during this antiviral therapy. Despite the use of prophylactic and preemptive therapy using small molecule antivirals, many transplant patients develop serious symptomatic complications from cytomegalovirus, highlighting the need for new treatments.

              In 2015, approximately 85,000 of the approximately 126,000 solid organ transplants performed worldwide were kidney transplants, an increase of 5.5% over the previous year. Approximately 80% of high risk kidney transplant recipients develop active cytomegalovirus infections. High risk recipients are defined as cytomegalovirus-negative patients receiving kidney transplants from cytomegalovirus-positive donors. In most solid organ transplant patients, complications from cytomegalovirus develop between 30 and 90 days after transplantation and rarely after 180 days.

              HB-101 is a VaxWave-based product candidate designed to stimulate the immune system against cytomegalovirus and to protect against future cytomegalovirus infection or reactivation from latency. HB-101 is comprised of two VaxWave(LCMV)-based vectors:

              We, and third parties, have shown that pp65 is immunogenic. Adoptive T cell transfer approaches performed by third parties, in which CD8+ T cells directed against pp65 are isolated from exposed individuals and transferred to patients with active cytomegalovirus viremia, have also demonstrated the therapeutic efficacy of pp65. However, no vaccine approach to date has been successful in achieving CD8+ T cell levels sufficiently high enough to be protective. gB has been shown in previous third-party clinical trials to be immunogenic and protective by inducing antibody responses but not CD8+ T cells. However, response rates were limited, immunity was transient and protection was incomplete. In our preclinical data, using pp65 and gB as targets, we have observed robust immunogenicity, activity and durability thereby potentially overcoming the limitations of current approaches.

107


Table of Contents

              In preclinical studies, we have observed that HB-101 has the ability to improve the survival rates in animal models in a statistically significant manner. In our study, non-pregnant female guinea pigs were administered three doses of HB-101 at 30-day intervals. Thirty days after the last vaccination, females were allowed to mate. Following conception, the pregnant females were infected with cytomegalovirus during the gestation period, putting the guinea pig pups at risk of severe viral infection, low birth weight and potential mortality. As depicted below, guinea pig pups born to cytomegalovirus-infected females that had received a guinea pig equivalent of HB-101 (gpHB-101) had a statistically significant (p<0.0001) lower mortality rate at birth compared to those born to females who had only received a VaxWave carrying an irrelevant antigen, labeled as GFP in the figure below. Cytomegalovirus-positive pups born to mothers that received gpHB-101 vaccination also gained weight more rapidly and had improved survival rates as compared to those born to mothers vaccinated with placebo.

GRAPHIC

              We conducted a placebo-controlled, randomized double-blinded dose escalating Phase 1 clinical trial of HB-101 to assess the vaccine's safety and immunogenicity. In this trial, 54 healthy volunteers aged 18 to 45 were administered three consecutive doses of either HB-101 or placebo by intramuscular injection at month zero, one and three, then monitored for one year after the initial dose. The volunteers were randomized into three cohorts of 18 volunteers, with 14 volunteers receiving the study drug and four receiving placebo in each cohort.

              We observed that HB-101 was well-tolerated with no dose limiting toxicities and no serious adverse events. Symptoms by volunteers were of mild to moderate intensity and 93.5% of reported symptoms were of short duration (1-8 days). The maximum duration of any symptom was 10 days. Pain at the injection site was the predominant solicited local adverse event. Malaise, fatigue and generalized myalgia were the most common solicited general symptoms. The percentage of subjects reporting unsolicited causally related adverse events of mild to moderate intensity was similar for placebo and the vaccine groups. Upper respiratory tract infections were the predominant adverse event, occurring at rates in the low dose group that were twice as high as those seen in all three other groups (placebo, middle and high dose). The percentage of volunteers reporting related adverse events of mild to

108


Table of Contents

moderate intensity was similar for placebo and vaccine groups. None of the adverse events appeared to be treatment related.

              In addition, HB-101 elicited a strong, dose-dependent, and durable response as measured by the frequency of pp65-specific interferon-gamma, or IFNg, producing CD8+ T cells. Each administration of HB-101, as depicted by the black arrows in the figure below, resulted in an increase in IFNg producing CD8+ T cells, demonstrating the potential and rationale for repeat administrations of HB-101. Importantly, the frequencies of IFNg producing CD8+ T cells induced by the highest dose of HB-101 after the third administration in healthy volunteers were in the range of, or higher than, the therapeutic levels reported in human adoptive T cell therapy clinical trials which were separately designed and conducted by third-parties for patients with active cytomegalovirus viremia. These frequencies were observed to be therapeutic in patients experiencing active cytomegalovirus infection following stem cell as well as organ transplantation.

GRAPHIC

              Similarly, HB-101 administration also resulted in a strong neutralizing antibody response to the cytomegalovirus antigen gB that increased with each additional dose, as depicted by the black arrows in the figures below, which was sustained over the twelve-month follow up period. All volunteers receiving the highest or middle doses of HB-101, and 92% of the volunteers receiving the lowest dose, developed cytomegalovirus-neutralizing antibodies. The levels of antibodies generated in the highest dose after three doses were comparable to therapeutic levels reported with other cytomegalovirus vaccine product candidates in development that have demonstrated clinical efficacy in separately designed and conducted, published third-party clinical trials. As anticipated, the LCMV vector did not elicit clinically meaningful vector-neutralizing antibodies, as only one volunteer developed a transient neutralizing antibody response against the vector after three administrations. We believe that a fourth

109


Table of Contents

administration of the vaccine in all 42 of these volunteers could have resulted in an additional antibody response, if desired.

GRAPHIC

              In the fourth quarter of 2018, pursuant to an IND filed by us with the FDA in July 2018, we initiated a randomized, double-blinded Phase 2 trial of HB-101 to assess the safety, reactogenicity, immunogenicity and efficacy of HB-101 in cytomegalovirus-negative patients receiving a kidney transplant from living cytomegalovirus-positive donors. The primary endpoint of this trial will evaluate safety and immunogenicity of HB-101. The secondary endpoint will evaluate efficacy, which is defined as the reduction of viremia, as well as the decreased need to use antivirals. We plan to enroll a total of 150 patients, randomized 2:1 between the study drug and placebo, in two treatment groups. The first group will be randomized to receive two to three administrations of either HB-101 or placebo prior to transplant and then treated with standard preemptive anti-viral therapy post-transplant. The second group will be randomized to receive two to three administrations of either HB-101 or placebo before transplant, and will then receive three to six months of anti-viral prophylaxis therapy post-transplant. Patients will be monitored for twelve months post-transplant to assess safety and T cell and antibody

110


Table of Contents

responses to pp65, gB and the LCMV vector, as well as cytomegalovirus viremia and the need for use of antivirals. The trial design is depicted in the figure below.

GRAPHIC

              We dosed the first patient in our Phase 2 trial for HB-101 in December 2018.

              We are currently developing two immunotherapeutics targeting HPV16+ cancers.

              HB-201 is a TheraT(LCMV)-based product candidate expressing the E6/E7 fusion protein specific to HPV16+ cells and being developed for the treatment of HPV16+ cancers, including head and neck squamous cell carcinoma, or HNSCC, cervical and anal cancer. HB-201 will be studied as both monotherapy and in combination with a checkpoint inhibitor.

              HB-202 is a TheraT(PICV)-based product candidate expressing the E6/E7 fusion protein and also being developed for the treatment of HPV16+ cancers, including HNSCC, cervical and anal cancer. HB-202 will be studied in combination with HB-201, both with and without a checkpoint inhibitor. Our preclinical data support the concept that the combination of two different TheraT constructs based on different arenaviruses, but carrying the same tumor antigen results in an exponentially more robust immune response with potential improvements in anti-tumor activity.

              We plan to initiate a Phase 1/2 clinical trial for HB-201 in patients with treatment-refractory HPV16+ cancers in the second half of 2019 and expect preliminary results in the second half of 2020. We also plan to combine HB-201 with a checkpoint inhibitor and to commence a Phase 1/2 trial combining HB-201 and HB-202, both with and without a checkpoint inhibitor, in patients with treatment-refractory HPV16+ cancers in the first half of 2020.

              HPV is estimated to cause about 5% of cancers worldwide, including approximately 99% of cervical cancers, 25% to 60% of HNSCC, 70% of vaginal cancers and 88% of anal cancers, the majority of which are caused by the HPV serotype 16. While most infections with HPV are cleared from the body with no lasting consequences, in some cases, HPV DNA becomes integrated into chromosomal DNA. When host cells take up this DNA, they express the HPV E6 and E7 proteins. The expression of these proteins can potentially cause cancer because they can lead to alterations in cell cycle control, which in turn predisposes these cells to become cancerous.

111


Table of Contents

              While the rates of HNSCC from causes such as smoking and alcohol are decreasing, the rates of HPV16+ HNSCC are increasing. HNSCC is the fifth most common form of cancer. Each year, HNSCC is diagnosed in more than 600,000 people worldwide, with 65,000 new cases and more than 13,700 deaths occurring in the United States alone. HNSCC includes tumors of the oral cavity, oropharynx, larynx and hypopharynx. The current standard of care for HNSCC is the same regardless of HPV status. Treatment typically involves a combination of chemotherapy, radiation and surgery. These treatments are associated with acute and long-term effects including mucositis, swallowing dysfunction, dry mouth, and dental problems. The overall survival rate for patients with advanced metastatic HNSCC progressing on platinum and checkpoint based therapies is less than six months. While there is no T cell therapy approved for HNSCC, retrospective analyses have shown that patients with high levels of CD8+ T cells in tumors have a much better prognosis. In many cases, the survival rate of these patients is more than double that of patients with lower levels of CD8+ T cells.

              We believe that evaluating the potential of our product candidates for the treatment of HPV16+ HNSCC is a rational clinical development strategy as there is precedent data supporting the efficacy of immunotherapy in this patient population. In developed countries, HPV16+ HNSCC accounts for only 13% of the approximately 120,000 annual cases of HPV+ cancers. In contrast, in less developed countries, HPV+ HNSCC accounts for just 1% of 490,000 annual HPV-related cancer cases. Proof of concept in either HPV16+ HNSCC or HPV16+ non-HNSCC could support the potential of our product candidates to be effective for all HPV16+ cancers, regardless of the cancer's tissue of origin.

              Both HB-201(LCMV) and HB-202(PICV) are TheraT-based product candidates expressing a non-oncogenic but highly antigenic E6/E7 fusion protein from HPV16. In animal models, HB-201 was observed to be highly immunogenic, resulting in a robust CD8+ T cell response. Based on the levels of antigen-specific CD8+ T cells induced by HB-201 in preclinical models, notably when compared to therapeutic levels induced by other published approaches including adoptive cell therapies, as observed in separately designed and conducted third-party clinical trials, we believe that HB-201 monotherapy has the potential to provide therapeutic benefit to patients across the broader HPV16+ cancer setting. We have observed strong immunogenicity and robust anti-tumor activity in mouse models for HB-201 alone as well as for the sequential administration of HB-201 and HB-202.

              Integration of HPV viral sequences into the genome of a cell can result in the introduction of E6 and E7 oncoproteins. They are present in cells that become cancerous and play a critical role in interfering with cellular processes and interrupting normal tumor suppressor functions.

              Profiling of immune cells isolated from patients with HPV16+ tumors have identified E6- and E7-specific T-cells, indicating that the E6 and E7 proteins are immunogenic, meaning that they trigger antigen-specific CD8+ T cell responses. Because both E6 and E7 are highly expressed in tumor cells and are absent in normal cells, they are ideal candidates for use as targets of tumor-directed active immunization.

              The ability of HB-201 to suppress tumor growth was tested in a TC1 mouse model of a transplantable HPV16+ E6/E7 expressing tumor. HB-201 was administered either intravenously or intratumorally to animals when tumor volume was approximately 100mm3. In both cases, as depicted in the figures below, single doses of HB-201 led to suppression of tumor growth in a statistically significant manner (p < 0.05) in all treated mice, and intratumoral administrations resulted in an

112


Table of Contents

approximately 40% long term survival rate. When these long term survivor mice were re-challenged with the same tumor six months later, no new tumor growth was detected. We believe that these results demonstrate the potential for HB-201 to be active both in treating primary tumors and also controlling metastatic and recurring disease.

GRAPHIC

              Furthermore, we have observed that the dose of HB-201 strongly correlated with both immunogenicity, as depicted in the left side of the figure below, and anti-tumor activity, as depicted in the right side of the figure below. We believe that this indicates that anti-tumor activity is directly linked to immunogenicity. Specifically, low doses of HB-201 containing as few as 100 replication-competent virus, or RCV, particles per dose suppressed tumor growth by more than 50% as compared to untreated tumors. Dosing with the highest three doses of HB-201, ranging from 10,000 to 1,000,000 RCV particles per dose, led to greater suppression of tumor growth. These data suggest that the maximal effective dose was already achieved at the lower of those three doses, or 10,000 RCV particles per dose. All doses of HB-201 were well-tolerated in this model.

GRAPHIC

              We intend to initiate an open label, dose escalating Phase 1/2 clinical trial to evaluate HB-201 in HPV16+ cancers, alone and in combination with nivolumab, an approved checkpoint inhibitor that

113


Table of Contents

is marketed as Opdivo by Bristol-Myers Squibb Company as a current second line standard of care therapy in patients with HPV16+ HNSCC with disease progression on or after platinum-based therapy.

              We expect to enroll 100 patients in total for this trial with 20 patients in each dose escalation and expansion group, respectively. The trial will consist of two dose escalation groups in Phase 1 and three dose expansion groups in Phase 2.

              For Phase 1 dose escalation, the patient population will be divided into two groups:

              For Phase 2 dose expansion, the patient population will be divided into three arms:

              The primary endpoint of the Phase 1 portion of this trial will be to evaluate safety and tolerability to determine the recommended dose for the Phase 2 portion. Secondary endpoints will evaluate anti-tumor activity and immunogenicity. The Phase 2 groups of the trial will also investigate the efficacy of HB-201 alone and in combination with nivolumab. We anticipate commencing the initial

114


Table of Contents

Phase 1/2 clinical trial in the second half of 2019 with preliminary data expected to be available in late 2020 or early 2021.

GRAPHIC

              HB-202, like HB-201, is directed against HPV16+ E6/E7 tumors. In a mouse model of HPV16+ E6/E7 tumors, single doses of HB-202 were shown to be similarly effective as single doses of HB-201 when administered both intravenously and intratumorally. Also, as in HB-201, long term survivor mice were uniformly resistant to re-challenge at six months. The results of our preclinical studies of HB-202 are depicted below.

GRAPHIC

115


Table of Contents

              Additionally we have observed that if HB-202 and HB-201 are administered sequentially, activity levels, which tend to indicate effectiveness, are significantly superior to the repeat administration of either one alone.

              Based on preclinical data observed with HB-201, we intend to commence an open label dose escalating Phase 1/2 trial to evaluate HB-201 alone and in combination with nivolumab. Based on our preclinical experience, we anticipate that this combination approach may deliver significantly more robust anti-tumor activity in patients than nivolumab alone. The design of the trial will be the same as that of the single agent trial for HB-201. The primary endpoint of the Phase 1 portion of this trial will be to evaluate safety and tolerability to determine the recommended dose for the Phase 2 portion of the trial. Secondary endpoints will evaluate anti-tumor activity and immunogenicity. We anticipate commencing the initial Phase 1/2 trial in the second half of 2019 with preliminary data expected to be available in late 2020 or early 2021. Subsequent trials will also investigate the potential of HB-201 and HB-202 together and in combination with nivolumab.

Targeting Self-Antigens

              We believe that our viral vectors may be appropriate for any antigen where a T cell response may be therapeutically meaningful. We have shown in multiple preclinical models that TheraT product candidates are active in generating robust immune responses to tumor self-antigens and that this response results in decreased tumor growth and an increase in survival rates.

Additional Product Opportunities: Tumor Self-Antigens

              Our HB-101, HB-201 and HB-202 programs target viral antigens associated with virally-induced tumors. In these programs, the viral, or non-self nature of the antigens, makes them a natural target for an immunotherapy approach. In addition, we are pursuing the development of product candidates based on our arenavirus platform to target self-antigens, non-viral antigenic proteins that are highly overexpressed in solid tumors or only minimally expressed in normal cells. Because these self-antigens are found in certain normal cells as well as tumor cells, the immune system does not typically recognize them as foreign proteins and does not respond to them. This protection of self-antigens from immune system attack is known as immune tolerance. The results obtained by earlier-generation marketed products such as sipuleucel-T, developed as Provenge by Dendreon Pharmaceuticals, Inc. and currently marketed by Sanpower Group Co., Ltd. have proven that it is possible to overcome immune tolerance and activate the immune system to produce an anti-tumor response.

              We are developing our most advanced self-antigen project in this area, HB-301, as a TheraT product candidate in metastatic, hormone-resistant prostate cancer. Prostate cancer provides a unique treatment opportunity for immunotherapy because prostate cancer cells express a number of tumor-specific antigens that serve as potential targets. HB-301 targets three of these antigens: prostatic acid phosphatase, or PAP, prostate specific antigen, or PSA, and prostate-specific membrane antigen, or PSMA.

              Direct evidence for the ability to induce a therapeutically relevant immune response to one of these antigens, PAP, comes from Provenge. To create Provenge, a personalized treatment, clinicians remove dendritic cells from the body, load them with PAP and then reintroduce them to the patient. The use of Provenge has been shown to increase survival in patients with metastatic, hormone-resistant prostate cancer. Other companies are developing dendritic cell therapies similar to Provenge by using

116


Table of Contents

other tumor antigens. All of these dendritic cell therapies require a complex, patient-specific therapeutic manufacturing process involving isolating cells from patients, loading them ex vivo with tumor antigens and then re-administering the cells to patients.

              Our TheraT technology has been engineered to hold two additional genes compared to the natural form of the arenavirus. This allows us to express multiple antigens in one construct. In HB-301, we are including the coding sequences for PAP, PSA and PSMA antigens. Since it is a TheraT-based product candidate, we can deliver HB-301 by simple infusion and it can target dendritic cells in the body without the need for cellular isolation or ex vivo processing. We have shown in preclinical experiments that TheraT vectors can lead to robust CD8+ T cell responses to the encoded antigens. We intend to maximize these CD8+ T cell responses using a combination of TheraT vectors based on both LCMV and PICV in a sequential dosing regimen.

GRAPHIC

              In the future, we intend to develop product candidates against other self-antigens with the aim of eventually establishing a franchise of "off-the-shelf," dendritic-cell-targeting agents that take advantage of the ability of arenaviruses to stimulate CD8+ T-cell responses.

Next Generation Product Candidates

              A critical advantage of our technology is that it is designed to deliver full length proteins directly to dendritic cells for endogenous expression and direct presentation to CD8+ T cells. Having the dendritic cell express and present full length proteins rather than fragments overcomes the major difficulty of attempting to predict which part of the protein, or epitope, will be presented by the patient's individual major histocompatibility complex, or MHC, class I alleles. This presentation is important in immunotherapy because T cells will only recognize and respond to the antigen when it is bound to the individual's MHC class I molecules, of which several hundred different versions exist in the population. While this approach overcomes the major issue faced by neo-epitope-based personalized antigen approaches, it also has limitations in that the repertoire of known tumor-associated proteins that could be used for targets is limited. The best example of full length proteins that are, to a degree, cancer specific and immunogenic include the cancer-testis antigens, examples of which include NY-ESO-1, MAGE and CAGE. These cancer-testis antigens have been known for decades, and many of them are currently being pursued by other companies. For many tumor types the cancer-testis type of antigens remains unknown. Furthermore, most of the known tumor-associated

117


Table of Contents

antigens are not commonly expressed or are not sufficiently specific to tumor tissue, making them suboptimal targets for clinical development.

              In November 2018, we entered into a research collaboration and license agreement with DarwinHealth, a New York City-based bioinformatics company pioneering novel bioinformatic approaches, with the intent to identify the next generation of "cancer-testis antigens." Our goal is to find novel immunogenic full length transcripts that are specific for, and highly represented in specific tumor types, allowing for an "off-the-shelf" approach for many cancer types. During the initial two year preclinical collaboration period, we intend to develop and validate the bioinformatics approach and resulting proprietary algorithms. We will start out by identifying "off-the-shelf" next generation cancer-testis type antigens in mouse tumors, and will assess the anti-tumor efficacy of our technology when targeting these same antigens in tumor-bearing animals. Mice will thereby serve as a testing ground to validate and optimize our new proprietary bioinformatics algorithms. In parallel we will apply the same validated algorithms to human samples, and will prepare the next generation of cancer-testis antigens.

Intellectual Property

              Our success depends, in part, on our ability to obtain and maintain intellectual property protection for our product candidates, technology and know-how, to defend and enforce our intellectual property rights, in particular, our patent rights, to preserve the confidentiality of our know-how and trade secrets, and to operate without infringing the proprietary rights of others. We seek to protect our product candidates and technologies by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing of third-party intellectual property to develop and maintain our proprietary position. We, or our collaborators and licensors, file patent applications directed to our key product candidates in an effort to establish intellectual property positions to protect our product candidates as well as uses of our product candidates for the prevention and/or treatment of diseases.

              As of February 28, 2019, we are the owner or exclusive licensee to five issued U.S. patents and seven pending U.S. patent applications, 22 issued foreign patents and approximately 58 foreign patent applications, and two international Patent Cooperation Treaty, or PCT, applications. These patents and patent applications are related to our technologies concerned with the arenavirus-based immunization systems, VaxWave and TheraT, our product candidates and various development programs, which are directed to the use of these immunization systems for the treatment and/or prevention of various infectious diseases or cancer, and certain clinical uses of our current or future product candidates in oncology. The issued patents and pending patent applications contain claims directed to various aspects of our work, including compositions of matter, methods of treatment and prevention, methods of producing certain compositions, and use of our product candidates in combination with certain other therapeutics.

              Our patent portfolio related to our VaxWave technology includes a patent family exclusively licensed to us from the University of Zurich. This patent family includes three patents granted in the United States and patents granted in Europe (validated in Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Poland, Spain, Sweden, Switzerland and the United Kingdom), Canada, China, India, Hong Kong and Japan. This patent family also includes pending applications in the United States, Europe, China, Hong Kong and India. The granted patents and pending applications related to our VaxWave technology are expected to expire no earlier than 2028, not giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other

118


Table of Contents

governmental fees. Our VaxWave technology is being employed or may be employed in one or more of the product candidates or programs described herein.

              We are the owner or exclusive licensee to proprietary patent positions related to our TheraT technology. Our patent portfolio related to our TheraT technology includes a patent family exclusively licensed from the University of Geneva. This patent family includes pending applications in the United States, Europe, Canada, Australia, Japan, India, China and Hong Kong. The second patent family in our TheraT platform portfolio is jointly owned by us and the University of Basel. The rights of the University of Basel under this patent family are exclusively licensed to us. This second patent family includes pending applications in various countries, including in the United States, Europe, Canada, Australia, New Zealand, Mexico, Japan, Brazil, Singapore, India, and Israel. The pending applications related to our TheraT technology are expected to expire between 2035 and 2037, not giving effect to any potential patent term extensions or patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. Our TheraT technology is being employed or may be employed in one or more of the product candidates or programs described herein.

              For the application of our VaxWave and TheraT technologies in oncology, we own three patent families. These patent families include pending applications in the United States, Europe, Australia, Canada, China, India and Japan, as well as two pending PCT applications. These patent families relate to potential clinical uses of our product candidates, such as combination treatments and modes of administration. The pending applications are expected to expire between 2036 and 2038, not giving effect to any potential patent term extensions or patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.

              Our HB-101 product candidate relies on our VaxWave technology. In addition to the VaxWave patent portfolio, we own one patent family that more specifically relates to our HB-101 product candidate. This patent family includes one patent granted in the United States with claims directed to pharmaceutical compositions. This patent family also includes pending applications in the United States, Europe, Australia, Canada, China, Hong Kong, India and Japan. Excluding the VaxWave patent portfolio, the granted patent and pending applications specifically related to our HB-101 product candidate are expected to expire in 2034, not giving effect to any potential patent term extensions or patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.

              Our HBV program, co-developed with Gilead, is in the discovery phase and is being built on either our VaxWave or TheraT technologies. In addition to the VaxWave and TheraT patent portfolios, we own one patent family that relates to the use of our platform technologies for prevention and treatment of HBV. This patent family includes pending applications in the United States, Europe, Australia, Brazil, Canada, China, India, Israel, Japan, Korea, Mexico, New Zealand and Singapore. Excluding the VaxWave and TheraT patent portfolios, the pending applications related to the HBV program are expected to expire in 2036, not giving effect to any potential patent term extensions or patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.

119


Table of Contents

              Our HIV program, co-developed with Gilead, is in discovery phase and is being built on either our VaxWave or TheraT technologies. We currently do not own any patents or patent applications that more specifically relate to an HIV program outside of the VaxWave and TheraT patent portfolios.

              Our HB-201 product candidate relies on our TheraT technology and, depending on its clinical implementation, may relate to one or more applications in our oncology patent portfolio. In addition to the TheraT and oncology patent portfolios, we own one patent family that relates more specifically to our HB-201 product candidate. This patent family includes pending applications in the United States, Europe, Australia, Canada, China, India, Japan and Hong Kong. Excluding the TheraT and oncology patent portfolios, the pending applications specifically related to our HB-201 product candidate are expected to expire in 2036, not giving effect to any potential patent term extensions or patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.

              Our HB-202 product candidate relies on our TheraT technology and, depending on its clinical implementation, may relate to one or more applications in our oncology patent portfolio. In addition to the TheraT and oncology patent portfolios, we own one patent family that relates more specifically to our HB-202 product candidate. This patent family includes pending applications in the United States, Europe, Australia, Canada, China, India, Japan and Hong Kong. Excluding the TheraT and oncology patent portfolios, the pending applications specifically related to our HB-202 product candidate are expected to expire in 2036, not giving effect to any potential patent term extensions or patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.

              Our HB-301 product candidate relies on our TheraT technology and, depending on its clinical implementation, may relate to one or more applications in our oncology patent portfolio. We currently do not own any patents or patent applications that more specifically relate to our HB-301 product candidate outside of the TheraT and oncology patent portfolios.

              The actual term of any patent that may issue from the above-described patent applications claiming one of our product candidates could be longer than described above due to patent term adjustment or patent term extension, if available, or shorter if we are required to file terminal disclaimers. The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country.

              Our ability to maintain and solidify our proprietary position for our product candidates and technologies will depend on our success in obtaining effective patent claims and enforcing those claims once granted. We do not know whether any of our patent applications will result in the issuance of any patents, or what the scope of the claims in any future issued patents may be. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated, narrowed, rendered unenforceable or circumvented, which could limit our ability to stop competitors from marketing identical or substantially similar products or could reduce the length of term of patent protection that we may have for our products. With respect to patents and patent applications licensed to us, our licensors may have the right to terminate our licenses if we fail to comply with our obligations under the applicable license agreement. In addition, the claims granted in any of our issued

120


Table of Contents

patents may not provide us with advantages against competitors with similar products or technology. Furthermore, our competitors may independently develop technologies that are similar or identical to technology developed by us but that do not infringe our patents or other intellectual property. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, by the time that any of our product candidates or those developed by our collaborators can be commercialized, our key patent may have expired or may only continue to remain in force for a short period following commercialization, thereby reducing the usefulness of the patent.

              We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use technology or know-how owned by others in their work for us, disputes may arise as to the rights in related inventions. For this and more comprehensive risks related to our intellectual property, see "Risk Factors—Risks Related to Our Intellectual Property."

Gilead Collaboration Agreement

              On June 4, 2018, we entered into a Research Collaboration and License Agreement, the Collaboration Agreement, with Gilead to collaborate on preclinical research programs to evaluate potential vaccine products using or incorporating our TheraT and Vaxwave technology platforms for the treatment, cure, diagnosis, or prevention of HBV or HIV, which we refer to, collectively, as the Field.

              Pursuant to the Collaboration Agreement, we granted Gilead an exclusive (even as to us and our affiliates), worldwide, royalty-bearing license to our know-how and our owned and in-licensed patent rights (including those patent rights in-licensed from the University of Geneva, the University of Basel, and the University of Zurich) that are necessary or reasonably useful for researching, developing, manufacturing or commercializing products that contain a vaccine that uses our TheraT or Vaxwave technology platforms for expressing one or more HIV or HBV antigens, which foregoing know-how and patent rights we refer to as the Licensed Technology (and each such product a Licensed Product), for the purpose of researching, developing, manufacturing and commercializing Licensed Products for uses in the Field.

              Pursuant to the Collaboration Agreement, we will own all new intellectual property conceived or created out of the activities conducted under the Collaboration Agreement that specifically relate to the TheraT and Vaxwave technology platforms. Gilead will own all other intellectual property rights conceived or created out of the activities conducted under the Collaboration Agreement.

              The development of the programs governed by the Collaboration Agreement will be overseen by a six-member joint steering committee, or the JSC, comprised of three representatives each from us and Gilead. The JSC will oversee the activities carried out pursuant to the Collaboration Agreement, including reviewing the research plan for potential amendments, settling disputes arising under the Collaboration Agreement, and approving a Licensed Product as being ready for development. Similarly, the Collaboration Agreement establishes a six-member joint research committee, or the JRC, comprised of three representatives each from us and Gilead. The JRC will review the research activities conducted by us and Gilead, provide guidance with respect to such research activities, review and discuss the results, status and progress of such research activities, and approve our use of third party subcontractors to perform our tasks under the Collaboration Agreement.

121


Table of Contents

              Under the Collaboration Agreement, we are responsible for manufacturing and supplying to Gilead Lymphocytic Choriomeningitis Virus- and Pichinde Virus-based vectors expressing one or more HIV or HBV antigens to the extent necessary for both us and Gilead to carry out our respective research activities under the research plans. HBV antigen-encoding vectors and HIV antigen-carrying vectors used in good laboratory practice, or GLP, studies will be produced at a CMO. We are also responsible during the collaboration term for preparing all non-clinical and chemistry, manufacturing and control, or CMC, reports for inclusion in any IND filing. Pursuant to the Collaboration Agreement, each party is obligated to use commercially reasonable efforts to perform it obligations under the HBV and HIV research plans.

              Pursuant to the Collaboration Agreement, Gilead is solely responsible for conducting the development activities, including all regulatory filings, at its expense for any product arising from the Collaboration Agreement designated for development by Gilead and approved by the JSC. Gilead is also solely responsible, at its expense, for the manufacture and commercialization of any Licensed Product developed and commercialized under the Collaboration Agreement.

              We may not, directly or indirectly, conduct, participate in or fund any research, development, manufacture, or commercialization of, or with respect to products utilizing arenavirus-based vectors for the treatment, cure, diagnosis, or prevention of HBV or HIV, except for the activities we are expressly permitted to perform under the Collaboration Agreement.

              Pursuant to the Collaboration Agreement, in the event we offer a license or other rights to the Licensed Technology to a third party to research, develop, manufacture or commercialize a Licensed Product outside of the Field before June 4, 2028, we are required to offer Gilead a right of first negotiation for the same rights to the Licensed Technology in such field offered to the third party.

              Upon execution of the Collaboration Agreement, Gilead paid us a one-time upfront fee of $10.0 million. For each of the HBV and the HIV program, Gilead is obligated to pay us a one-time, low six-digit dollar amount upon the delivery by us of each research grade vector specified in the applicable program and a one-time mid seven-digit dollar amount after initiation of the IND-enabling studies for such program. In addition we are eligible for up to $140.0 million in developmental milestone payments for each of the HBV and HIV programs and $50.0 million in commercialization milestone payments for each of the HBV and HIV programs. Upon the commercialization of a Licensed Product, we are eligible to receive tiered royalties of a high single-digit to mid-teens percentage on the worldwide net sales of each HBV Licensed Product, and royalties of a mid-single-digit to low-teens percentage of worldwide net sales of each HIV Licensed Product. The royalty payments are subject to reduction under specified conditions set forth in the Collaboration Agreement. In December 2018, we achieved the first research milestone under the HIV program, entitling us to a payment of $2.8 million from Gilead.

              In addition, Gilead is obligated to pay us for all out-of-pocket costs actually incurred by us in connection with the HBV and HIV programs, including CMO-related costs, to the extent contemplated under the research plans and research budget.

122


Table of Contents

              Either party may terminate for the uncured breach of the other party and upon the other party filing for bankruptcy, reorganization, liquidation, or receivership proceedings. Gilead may terminate at any time in its entirety for convenience or on a product-by-product or a country-by-country basis upon prior written notice. If the Collaboration Agreement is not otherwise terminated prior to the expiration of the last-to-expire royalty term, upon such expiration the license granted to Gilead will continue in effect, but will be fully paid-up, royalty-free, perpetual, and irrevocable.

License Agreements

              In February 2017, we entered into an Exclusive License Agreement with the University of Geneva, or the Geneva Agreement. Pursuant to the Geneva Agreement, the University of Geneva granted us a worldwide, exclusive license to use the University of Geneva's technology titled "method for vaccine delivery" and the patent rights in the subject matter of U.S. Provisional Patent Application No. 62/079,493 and PCT Patent Application No. PCT/EP2015/076458, each titled "Tri-Segmented Arenavirus as Vaccine Vectors," including any patents that claim priority thereto, the Geneva Licensed Patent Rights, to make, have made, to use and have used, to sell and have sold, to commercialize and have commercialized products, the manufacture, use, sale, or importation of which would infringe a claim of the Geneva Licensed Patent Rights, each a Geneva Licensed Product.

              Pursuant to the terms of the Geneva Agreement, we are obligated to use reasonable efforts to develop and make commercially available Geneva Licensed Products. Beginning on March 31, 2019 and for as long as the University of Geneva has not received any milestone, royalty or sublicense payments pursuant to the Geneva Agreement, we are required to provide the University of Geneva with an annual report detailing our efforts and progress to develop Geneva Licensed Products. We are also required to provide proof to the University of Geneva that we have filed an IND or an equivalent application for a Geneva Licensed Product within seven years of the effective date of the Geneva Agreement. The University of Geneva can terminate the Geneva Agreement if we fail to provide such report, such report shows that we have stopped the development and/or exploitation of the technology licensed by the University of Geneva to us, or if we fail to provide proof of filing of such IND within such seven year period.

              Starting with the third anniversary of the effective date of the Geneva Agreement, we are required to pay the University of Geneva a nominal annual fee, which is deductible from any milestone payments, royalties or sublicense payments payable by us to the University of Geneva during the same fiscal year. We are required to pay the University of Geneva, subject to the achievement by us of specified development and regulatory milestones, payments aggregating up to CHF 290,000 per Geneva Licensed Product. While the Geneva Agreement remains in effect, we are required to pay the University of Geneva low-single digit royalties on aggregate net sales of Geneva Licensed Products sold by us. We must also pay the University of Geneva percentages ranging from the low-single digits to 10%, decreasing as a Geneva Licensed Product proceeds through development stages, of any consideration we receive from sublicensees, depending on the timing of such sublicense. We are also responsible for the prosecution and maintenance of the Geneva Licensed Patents Rights, including the costs related thereto.

              Unless earlier terminated, the Geneva Agreement remains in effect until the expiration of the last to expire of the Geneva Licensed Patent Rights. Following the expiry of the Geneva Agreement due to the last to expire of the Geneva Licensed Patent Rights, we will have a fully paid-up, royalty-free right to use, sell and commercialize Geneva Licensed Products. We or the University of Geneva may terminate the Geneva Agreement for the other party's breach that remains uncured after 60 days' notice. We may terminate the Geneva Agreement for convenience upon prior notice. The

123


Table of Contents

University of Geneva may terminate the Geneva Agreement if we cease to carry on our business or become insolvent.

              In January 2017, we entered into an Exclusive License Agreement with the University of Basel, or the Basel Agreement. Pursuant to the Basel Agreement, the University of Basel granted us a worldwide, exclusive license under the University of Basel's share in U.S. Provisional Patent Application No. 62/338,400, titled "Tri-segmented Pichinde viruses as vaccine vectors," including any patents that claim priority thereto, the Basel Licensed Patent Rights to use the technology titled "tri-segmented Pichinde viruses as vaccine vectors" as covered by the Basel Licensed Patent Rights, to make and have made, to use and have used, to sell and have sold, to commercialize and have commercialized products, the manufacture, use, sale, or importation of which would infringe a claim of the Basel Licensed Patent Rights, each a Basel Licensed Product.

              Pursuant to the terms of the Basel Agreement, we are obligated to use reasonable efforts to develop and make commercially available Basel Licensed Products. Beginning on February 28, 2018 and for as long as we have not effected a first commercial use of a Basel Licensed Product, we are required to provide the University of Basel with an annual report detailing our efforts to develop Basel Licensed Products.

              We are required to pay the University of Basel, subject to the achievement of specified development and regulatory milestones, payments aggregating up to CHF 265,000 per Basel Licensed Product. While the Basel Agreement remains in effect, we are required to pay the University of Basel low-single digit royalties on net sales of Basel Licensed Products. We must also pay the University of Basel a low- to high-single digit percentage, decreasing as a Basel Licensed Product proceeds through development stages, of any consideration we receive from sublicensees, depending on the timing of such sublicense. We are also responsible for the prosecution and maintenance of the Basel Licensed Patent Rights, and the costs related thereto.

              Unless earlier terminated, the Basel Agreement remains in effect until the expiration of the last to expire of the Basel Licensed Patent Rights. Following the expiry of the Basel Agreement due to the last to expire of the Basel Licensed Patent Rights, we will have a fully paid-up, royalty-free right to use, sell and commercialize Basel Licensed Products. We or the University of Basel may terminate the agreement for the other party's breach that remains uncured after 60 days' notice. We may terminate the Basel Agreement for convenience upon prior notice. The University of Basel may terminate the Basel Agreement if we cease to pay for the costs associated with prosecution and maintenance of the Basel Licensed Patent Rights.

              In October 2011, we entered into a License Agreement with the University of Zurich, or the Zurich Agreement. Pursuant to the Zurich Agreement, the University of Zurich granted us a worldwide, exclusive license to PCT Patent Application No. PCT/EP/08/010994, titled "Propagation-deficient arenavirus vectors," or the Zurich Licensed Patent Rights, to make and have made, use, sell, offer for sale, and import products that fall within the scope of the Zurich Licensed Patent Rights, each a Zurich Licensed Product and to practice the Zurich Licensed Patent Rights and methods that fall within the scope of the Zurich Licensed Patent Rights, each a Zurich Licensed Method.

              Pursuant to the terms of the Zurich Agreement, we are obligated to diligently proceed with the development, manufacture, and sale of, and the obtaining of government approvals for the manufacture, use and sale of, suitable Zurich Licensed Products in the United States, Japan and certain European countries. If we fail to use commercially reasonable efforts to do the foregoing, the University of Zurich can demand a written development and marketing plan. Failure of the parties to

124


Table of Contents

agree on a development and marketing plan entitles the University of Zurich to terminate the Zurich Agreement. Beginning on January 1, 2012 and ending on the date of the first commercial sale of a Zurich Licensed Product, we are required to provide the University of Zurich with an annual report detailing our efforts to develop and test Zurich Licensed Products and to use the Zurich Licensed Patent Rights and Zurich Licensed Methods.

              In consideration for the license granted to us under the Zurich Agreement, we issued 26,744 shares with a nominal value of EUR 2,297 of our common stock to the University of Zurich and agreed to provide them certain anti-dilution rights, which rights have subsequently expired. We are required to pay the University of Zurich low-single digit royalties on net sales of Zurich Licensed Products or Zurich Licensed Methods. We must also pay the University of Zurich percentages ranging from the mid-single digits to 20% of any sublicense fees and consideration we receive from sublicensees, depending on the amount of fees received from sublicensees and the cumulative monetary value of the consideration and fees received from all sublicensees. We are responsible for the prosecution and maintenance of the Zurich Licensed Patent Rights, and the costs related thereto.

              Unless earlier terminated, the Zurich Agreement remains in effect on a country-by-country basis until the expiration of the last to expire of the Zurich Licensed Patent Rights in such country. The University of Zurich may terminate the agreement for our uncured breach or if we oppose or dispute the validity of any of the Zurich Licensed Patent Rights, or assist a third party to do the same. If we fail to use commercially reasonable efforts to market and develop the Zurich Licensed Products in certain countries, and if we fail to agree with the University of Zurich on any amendments to our development and marketing plans within the time specified in the Zurich Agreement upon such demand for amendments from the University of Zurich, the University of Zurich may terminate the Zurich Agreement. We may terminate the Zurich Agreement for convenience upon prior notice. The Zurich Agreement automatically terminates if we file a petition for bankruptcy, insolvency, or reorganization relating to bankruptcy or insolvency, or in the event of an adjudication that we have become bankrupt or insolvent.

              In September 2013, we entered into a Biological Materials License Agreement with the National Institutes of Health, or the NIH, which was subsequently amended in April 2017 and July 2018, hereinafter referred to as the NIH Agreement. Pursuant to the NIH Agreement, the NIH granted us a worldwide, non-exclusive license to make, have made, import and use certain cells and cell clones developed at the Vaccine Research Center of the NIH, or the NIH Licensed Products, to manufacture viral vectors based on our proprietary arenavirus-based vectors.

              Pursuant to the terms of the NIH Agreement, we are required to provide the NIH with an annual report which states the number and description of NIH Licensed Products made or otherwise disposed of. We are further responsible for obtaining and maintaining any required third-party license for the background rights for the commercial use of the respective cells and cell clones.

              In consideration of the license granted to us pursuant to the NIH Agreement, we paid the NIH a low-six figure and a mid-five figure issue royalty, upon execution of the NIH Agreement and the first amendment, respectively. We must also pay the NIH 10% of any consideration we receive from sublicensees. We must also pay the NIH low-five figure to mid-six figure annual royalty payments, increasing as our most developed product candidate manufactured from NIH Licensed Products proceeds through development stages.

              Unless earlier terminated, the NIH Agreement remains in effect for a term of 20 years from the effective date. We have the option to extend the term of the agreement for additional one year periods, upon prior notice to the NIH. The NIH may terminate the NIH Agreement if we are in default in performing any material obligation under the NIH Agreement and do not remedy such

125


Table of Contents

default within a specified period upon notice thereof. We may terminate the NIH Agreement for convenience upon prior notice.

Competition

              The biotechnology and pharmaceutical industries have made substantial investments in recent years into the rapid development of novel immunotherapies for the treatment of a range of pathologies, including infectious diseases and cancers, making this a highly competitive market.

              We face substantial competition from multiple sources, including large and specialty pharmaceutical, biopharmaceutical and biotechnology companies, academic research institutions and governmental agencies and public and private research institutions. Our competitors compete with us on the level of the technologies employed to target various therapeutic areas, such as adoptive cell therapies and active immunization technologies, or on the level of development of product candidates. In addition, many small biotechnology companies have formed collaborations with large, established companies to (i) obtain support for their research, development and commercialization of products or (ii) combine several treatment approaches to develop longer lasting or more efficacious treatments that may potentially directly compete with our current or future product candidates. We anticipate that we will continue to face increasing competition as new therapies and combinations thereof, technologies, and data emerge within the field of immunotherapy and, furthermore, within the treatment of infectious diseases and cancers.

              In addition to the current standard of care treatments for patients with infectious diseases or cancers, numerous commercial and academic preclinical studies and clinical trials are being undertaken by a large number of parties to assess novel technologies and product candidates in the field of immunotherapy. Results from these studies and trials have fueled increasing levels of interest in the field of immunotherapy.

              Companies that compete with us directly on the level of the development of product candidates in our therapeutic areas, include, among others:

              On the technology level, other direct competitors which can potentially develop competing product candidates in areas in and outside of HPV16+ cancers and cytomegalovirus infection such as neoantigens, oncolytic viruses, bispecific antibodies, engineered cell therapies and tumor specific antigens, and other active immunization technologies, include, among others, Gritstone Oncology, Inc., in collaboration with bluebird bio, Inc., Neon Therapeutics, Inc., Replimune Group, Inc., in collaboration with Bristol-Myers Squibb Company, Immune Design Corp., in collaboration with MedImmune LLC, Turnstone Biologics Inc., Adaptimmune PLC, Achilles Therapeutics Ltd., CureVac AG, Roche Holdings AG, Five Prime Therapeutics, Inc., Novartis International AG and Juno Therapeutics, Inc.

              Many of our competitors, either alone or in combination with their respective strategic partners, have significantly greater financial resources and expertise in research and development, manufacturing, the regulatory approval process, and marketing than we do. Mergers and acquisition activity in the pharmaceutical, biopharmaceutical and biotechnology sector is likely to result in greater resource concentration among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through sizeable collaborative arrangements with established companies. These competitors also compete with us in recruiting and retaining

126


Table of Contents

qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

              Our commercial opportunity could be reduced or eliminated if one or more of our competitors develop and commercialize products that are safer, more effective, better tolerated, or of greater convenience or economic benefit than our proposed product offering. Our competitors also may be in a position to obtain FDA or other regulatory approval for their products more rapidly, resulting in a stronger or dominant market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be product safety, efficacy, convenience and treatment cost.

Manufacturing

              We are establishing manufacturing processes and supply agreements for all of the components used in our product candidates to support ongoing and planned clinical trials. These include the components for our VaxWave-based and TheraT-based product candidates. We rely on CMOs to produce our product candidates for clinical use and currently do not own or operate manufacturing facilities beyond laboratory scale production. We require that our CMOs produce bulk drug substances and finished drug products in accordance with cGMP, and all other applicable laws and regulations. Although we plan to establish our own manufacturing facility before the launch of our first commercial product, we may continue to rely on CMOs for parts of the process, like filling and labelling of our products for commercial sale. We maintain agreements with potential and existing manufacturers that include confidentiality and intellectual property provisions to protect our proprietary rights related to our product candidates.

              We plan to ultimately establish our own manufacturing facility. By establishing our own manufacturing facility, we aim to minimize or eliminate our reliance on CMOs, which typically have limited capacity at commercial scale and quality. We believe that having control over the whole manufacturing process will allow us to reduce cycle times, increase the robustness and consistency of the process and reduce cost of goods for commercial production. We expect that control over our own manufacturing facility will also help to shorten overall timelines for new product candidates in our development pipeline, as well as help us develop drug formulations or presentations to simplify distribution as well as administration of future immunotherapeutics. We also believe that having a dedicated manufacturing facility will allow us to optimize commercial-scale processes and to develop a suitable workforce capable of supporting market launch.

              As an intermediate step between utilizing different CMOs for production of clinical trial material, depending on their availability at the required times, and establishing our own manufacturing facility, we have recently entered into an agreement with Valneva Sweden AB, or Valneva, a commercial vaccine manufacturer, by which we gain exclusive access to a dedicated GMP facility including qualified workforce for the manufacture of clinical trial material according to our specifications. We expect that through this agreement, the necessary capacity for manufacture of Phase 1 and Phase 2 clinical trial material will largely be covered from 2020 onwards. In addition, we will avoid technology transfer activities to different CMOs and will benefit from increases in experience and efficiency with each additional run performed under the Valneva agreement.

Government Regulation

              Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of biological products, such

127


Table of Contents

as those developed from our VaxWave and TheraT technologies and any other product candidates we develop. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

              In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations and biologics under the FDCA, the Public Health Service Act, or the PHSA, and their implementing regulations. Both drugs and biologics also are subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state and local statutes and regulations requires 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, approval process or post-market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA's refusal to approve pending applications, withdrawal of an approval, license revocation, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

              Our product candidates and any future biological product candidates we develop must be approved by the FDA through a biologics license application, or BLA, process before they may be legally marketed in the United States. The BLA is a request for approval to market the biologic for one or more specified indications and must contain proof of safety, purity and potency. The FDA review and approval process generally involves the following:

128


Table of Contents

              The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, or at all.

              Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies.

              An IND sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational product to humans, and must become effective before human clinical trials may begin. Some long-term preclinical testing may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

              The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor's control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

              A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of a BLA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the study was conducted in accordance with GCP requirements, and the FDA is able to validate the data through an onsite inspection if deemed necessary.

              Clinical trials generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.

129


Table of Contents

              Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of a BLA.

              Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

              Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or 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 biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the chemistry and physical characteristics of the biologic as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product and, among other things, companies must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidates do not undergo unacceptable deterioration over their shelf life.

              Following completion of the clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of a BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. The BLA may include both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product's use or from a number of alternative sources,

130


Table of Contents

including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety, purity and potency of the investigational product to the satisfaction of FDA. FDA approval of a BLA must be obtained before a biologic may be marketed in the United States.

              Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a user fee. The FDA adjusts the PDUFA user fees on an annual basis. According to the FDA's fee schedule, effective through September 30, 2019, the user fee for an application requiring clinical data, such as a BLA, is $2,588,478. The sponsor of an approved BLA is also subject to an annual prescription drug program fee, which for fiscal year 2019 is $309,915. 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. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.

              The FDA reviews all submitted BLAs before it accepts them for filing, and may request additional information rather than accepting the BLA for filing. The FDA decides whether to accept a BLA for filing within 60 days of receipt, and such decision could include a refusal to file by the FDA. Once the submission is accepted for filing, the FDA begins an in-depth review of the BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months, from the filing date, in which to complete its initial review of an original BLA and respond to the applicant, and six months from the filing date of an original BLA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs, and the review process is often extended by FDA requests for additional information or clarification.

              Before approving a BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel products or products which 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, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. After the FDA evaluates a BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the biologic with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the BLA identified by the FDA. The Complete Response Letter may require additional clinical data, pivotal Phase 3 clinical trial(s) as well as other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data.

131


Table of Contents

              Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product.

              Orphan drug designation for a biologic must be requested before submitting a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

              If a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety or providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication but that could be used off-label in the orphan indication. Orphan drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do for the same product, as defined by the FDA, for the same indication we are seeking approval, or if our product is determined to be contained within the scope of the competitor's product for the same indication or disease. If one of our products designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity. Orphan drug status in the European Union has similar, but not identical, requirements and benefits.

              The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and biologics that meet certain criteria. Specifically, new drugs and biologics are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied. The sponsor of a biologic can request the FDA to designate the product for fast track status any time before receiving BLA approval, but ideally no later than the pre-BLA meeting.

              Any product submitted to the FDA for marketing, including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for priority review in an effort to facilitate the review.

              A product may also be eligible for accelerated approval, if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies. In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biologic receiving accelerated approval perform

132


Table of Contents

adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the product. If the FDA determines that the conditions of approval are not being met, the FDA can withdraw its accelerated approval for such drug or biologic.

              Additionally, a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus intensive guidance from the FDA to ensure an efficient drug development program.

              Fast track designation, priority review, accelerated approval and breakthrough therapy designation do not change the standards for approval, but may expedite the development or approval process.

              Under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA must contain data to assess the safety and efficacy of the biologic for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers. The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FDCA to require that a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 study. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early phase clinical trials as well as other clinical development programs.

              Following approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping activities, reporting of adverse experiences, complying with promotion and advertising requirements, which include restrictions on promoting products for unapproved uses or patient populations (known as "off-label use") and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available products for off-label uses, manufacturers may not market or promote such uses. Prescription drug and biologic promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the biologic, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or BLA supplement, which may require the development of additional data or preclinical studies and clinical trials.

133


Table of Contents

              The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS. The FDA will not approve the BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

              FDA regulations require that products be manufactured in specific facilities and in accordance with cGMP regulations. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. These manufacturers must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs or biologics are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. The discovery of violations, including failure to conform to cGMP regulations, could result in enforcement actions, and the discovery of post-approval problems with a product may result in restrictions on a product, manufacturer or holder of an approved BLA, including recall.

              Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments.

              Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufactures to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or FCA, which may constrain the business or financial arrangements and relationships through which companies sell, market and distribute pharmaceutical products. In addition, transparency laws and patient privacy regulations by federal and state governments and by governments in foreign jurisdictions can apply to the manufacturing, sales, promotion and other activities of pharmaceutical manufactures. The applicable federal, state and foreign healthcare laws and regulations that can affect a pharmaceutical company's operations include:

134


Table of Contents

135


Table of Contents